<PAGE> 1
Filed Pursuant to 424(b)(3)
Registration No. 333-09535
FRONTIERVISION OPERATING PARTNERS, L.P.
FRONTIERVISION CAPITAL CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS OF FRONTIERVISION OPERATING PARTNERS, L.P. ............. 3
NOTES TO FINANCIAL STATEMENTS ............................................... 7
FINANCIAL STATEMENTS OF FRONTIERVISION CAPITAL CORPORATION .................. 12
NOTE TO BALANCE SHEET ....................................................... 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................ 14
PART II. OTHER INFORMATION ........................................................... 18
</TABLE>
2
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FRONTIERVISION OPERATING PARTNERS, L.P.
BALANCE SHEETS
In Thousands
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
Unaudited
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,045 $ 2,650
Accounts receivable, net of allowance for doubtful accounts of $56 and $40 2,145 358
Receivable from seller 80 1,667
Prepaid expenses and other 879 201
Investment in cable television systems, net:
Property and equipment 123,550 42,917
Franchise costs 92,139 50,184
Covenant not to compete 14,389 --
Subscriber lists 51,397 29,000
Goodwill 12,047 4,094
----------- ----------
Total investment in cable television systems, net 293,522 126,195
----------- ----------
Deferred financing costs, net 5,388 2,853
Earnest money deposits 8,285 9,502
Other, net 326 86
----------- ----------
Total assets $ 315,670 $ 143,512
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 1,236 $ 1,606
Accrued liabilities 4,223 1,558
Subscriber prepayments and deposits 360 362
Accrued interest payable 1,621 420
Debt 208,128 93,159
----------- ----------
Total liabilities 215,568 97,105
----------- ----------
Partners' capital:
FrontierVision Partners, L.P. 100,002 46,361
FrontierVision Operating Partners, Inc. 100 46
----------- ----------
Total partners' capital 100,102 46,407
----------- ----------
Total liabilities and partners' capital $ 315,670 $ 143,512
=========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 3
FRONTIERVISION OPERATING PARTNERS, L.P.
STATEMENTS OF OPERATIONS (UNAUDITED)
In Thousands
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(APRIL 17, 1995
FOR THE THREE FOR THE THREE FOR THE NINE -- SEE NOTE 1)
MONTHS ENDED MONTHS ENDED MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
REVENUES $ 18,668 $ -- $ 46,207 $ --
EXPENSES:
Operating expenses 9,989 -- 23,657 --
Corporate administrative expenses 706 -- 1,971 --
Depreciation and amortization 8,791 43 22,386 43
Pre-acquisition expenses -- 287 -- 418
------------- ------------- --------------- -------------
Total expenses 19,486 330 48,014 461
------------- ------------- --------------- -------------
OPERATING INCOME (LOSS) (818) (330) (1,807) (461)
INTEREST EXPENSE, net (4,313) (90) (11,617) (100)
GAIN (LOSS) ON SALE OF ASSETS (99) -- (99) --
------------- ------------- --------------- -------------
NET LOSS $ (5,230) $ (420) $ (13,523) $ (561)
============= ============= =============== =============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 4
FRONTIERVISION OPERATING PARTNERS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
In Thousands
<TABLE>
<CAPTION>
FRONTIERVISION
FRONTIERVISION OPERATING
PARTNERS, L.P. PARTNERS, INC.
(GENERAL PARTNER) (LIMITED PARTNER) TOTAL
----------------- ----------------- --------------
<S> <C> <C> <C>
BALANCE, AT INCEPTION
(April 17, 1995) $ -- $ -- $ --
Capital contributions 49,061 49 49,110
Net loss (2,700) (3) (2,703)
----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 46,361 46 46,407
Capital contributions (Unaudited) 67,151 67 67,218
Net loss (Unaudited) (13,510) (13) (13,523)
----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1996
(Unaudited) $ 100,002 $ 100 $ 100,102
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 5
FRONTIERVISION OPERATING PARTNERS, L.P.
STATEMENTS OF CASH FLOWS (UNAUDITED)
In Thousands
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
FOR THE NINE (APRIL 17, 1995 --
MONTHS ENDED SEE NOTE 1) THROUGH
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ ($13,523) $ (561)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization 22,386 43
Net loss on disposal of assets 99 --
Changes in operating assets and liabilities, net of
effect of acquisitions:
Accounts receivable 1,313 --
Prepaid expenses and other (515) --
Accounts payable and accrued liabilities (814) --
Subscriber prepayments and deposits (3) --
Accrued interest payable 1,202 100
----------- ------------
Total adjustments 23,668 143
----------- ------------
Net cash flows from operating activities 10,145 (418)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for capital expenditures (5,791) --
Earnest money deposits (8,285) --
Proceeds from disposition of cable television systems,
including purchased intangibles 15,993 --
Cash paid in acquisition of cable television systems,
including purchased intangibles (188,116) --
----------- ------------
Net cash flows from investing activities (186,199) --
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt borrowings 114,969 --
Increase in deferred financing fees (3,738) --
Partner capital contributions 67,218 418
----------- ------------
Net cash flows from financing activities 178,449 418
----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,395 --
----------- ------------
CASH AND CASH EQUIVALENTS, at beginning of
period 2,650 --
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 5,045 $ --
=========== ============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 6
FRONTIERVISION OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Amounts In Thousands
(1) STATEMENT OF ACCOUNTING PRESENTATIONS AND OTHER INFORMATION
FrontierVision Operating Partners, L.P. (the "Partnership") is a Delaware
limited partnership formed on July 14, 1995 for the purpose of acquiring and
operating cable television systems. As of September 30, 1996, the Partnership
owned and operated cable television systems in Maine, Ohio, Kentucky, Virginia,
Tennessee and New Hampshire. The Partnership was initially capitalized in
November 1995 with approximately $38 from its sole limited partner,
FrontierVision Operating Partners, Inc. ("FVOP Inc."), a Delaware corporation,
and approximately $38,300 from its sole general partner, FrontierVision
Partners, L.P. ("FVP"), a Delaware limited partnership. FVOP Inc. is a wholly
owned subsidiary of FVP. During the period from January 1, 1996 to September
30, 1996, the Partnership received additional capital contributions of
approximately $67,200 from its partners.
The attached interim financial statements are presented in accordance with the
requirements of Form 10-Q and consequently do not include all the disclosures
required by generally accepted accounting principles. It is suggested that the
accompanying financial statements be read in conjunction with the Partnership's
Registration Statement on Form S-1 (Registration No. 333-9535) for additional
disclosures, including a summary of the Partnership's accounting policies. The
results for the nine-month period ended September 30, 1996 are not necessarily
indicative of the results for the entire 1996 fiscal year.
The accompanying financial statements and the following notes, insofar as they
are applicable to the three months and the nine months ended September 30,
1996, and the three months ended September 30, 1995, and the period from
inception through September 30, 1995, are not audited. In management's opinion,
all adjustments considered necessary for a fair presentation of the attached
financial statements are included and all such adjustments are of a normal and
recurring nature. Interim results are not necessarily indicative of results for
a full year.
(2) SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION
Cash paid for interest for the nine months ended September 30, 1996 was
$10,442.
Cash paid for acquisitions is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
Recorded value of assets acquired $201,278 $ --
Liabilities assumed (3,224) --
Earnest money Deposits Applied (9,938) --
-------- -------
Cash paid for acquisitions $188,116 $ --
======== =======
</TABLE>
7
<PAGE> 7
FRONTIERVISION OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Amounts In Thousands
(3) ACQUISITIONS AND DISPOSITIONS
The Partnership has completed several acquisitions and selected dispositions
from its inception through October 1996. All of the acquisitions have been
accounted for using the purchase method of accounting, and, accordingly, the
purchase price has been allocated to the assets purchased and liabilities
assumed based upon fair values at the respective dates of acquisition.
On November 9, 1995, the Partnership purchased certain cable television system
assets, primarily in Maine and Ohio, from United Video Cablevision, Inc.
("UVC") for approximately $113,485 in cash plus a note payable to the seller of
$7,200 and the assumption of certain liabilities of the acquired business.
On November 21, 1995, the Partnership acquired certain cable television assets
located in Maine from Longfellow Cable Company, Inc. and two of its affiliates
for a cash purchase price of approximately $6,100 and the assumption of certain
related liabilities.
On February 1, 1996, the Partnership acquired certain cable television assets,
primarily in Virginia and Tennessee, from C4 Media Cable Southeast L.P. ("C4")
for a cash purchase price of approximately $47,600 and the assumption of
certain related liabilities. As of December 31, 1995, the Partnership had
advanced $2,502 as an earnest money deposit related to this transaction.
On March 29, 1996, the Partnership acquired certain cable television assets
located in Maine from Americable International Maine, Inc. for a cash purchase
price of approximately $4,700 and the assumption of certain related liabilities.
On April 9, 1996, the Partnership acquired certain cable television system
assets, primarily in Ohio, from affiliates of Cox Communications, Inc. ("Cox")
for a cash purchase price of approximately $136,200 and the assumption of
certain related liabilities. As of December 31, 1995, the Partnership had
advanced $7,000 as an earnest money deposit related to this transaction.
On July 24, 1996, the Partnership sold certain cable television system assets
located primarily in Chatsworth, Georgia to an affiliate of Helicon Partners
for a sales price of approximately $8,700 (subject to adjustment).
On August 29, 1996, the Partnership acquired certain cable television system
assets located in Maine and New Hampshire from Phoenix Grassroots Cable
Systems, L.L.C. ("Grassroots") for a cash purchase price of approximately
$9,300 and the assumption of certain related liabilities.
On September 30, 1996, the Partnership sold certain cable television system
assets located in Virginia to Shenandoah Cable Television Company, an affiliate
of Shenandoah Telephone Company, for a sales price of approximately $7,900
(subject to adjustment).
On October 7, 1996, the Partnership acquired certain cable television assets,
primarily in Kentucky and Ohio, from Triax Southeast Associates, L.P.
("Triax"), for approximately $85,000 in cash and the assumption of certain
related liabilities. As of September 30, 1996, the Partnership had advanced
$3,000 as an earnest money deposit related to this transaction.
On October 9, 1996, the Partnership acquired certain cable television assets,
primarily in Kentucky and Ohio, from American Cable Entertainment of
Kentucky-Indiana, Inc. ("ACE") for approximately $146,000 and the assumption of
certain liabilities. As of September 30, 1996, the Partnership had advanced
$5,110 as an earnest money deposit related to this transaction.
On October 31, 1996, the Partnership acquired certain cable television assets,
located in Ohio and Pennsylvania, from SRW, Inc.'s Penn/Ohio Cablevision, L.P.
("Penn/Ohio") for a cash purchase price of approximately $3,800 and the
assumption of certain related liabilities. As of September 30, 1996, the
Partnership had advanced $75 as an earnest money deposit related to this
transaction.
8
<PAGE> 8
FRONTIERVISION OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Amounts In Thousands
(3) ACQUISITIONS AND DISPOSITIONS (CONTINUED)
The Partnership has reported the operating results of its acquired cable
systems from the date of their respective acquisition and has reported the
operating results of its disposed cable systems up to the respective disposal
date. Unaudited pro forma summarized operating results of the Partnership,
assuming only that the UVC, C4, Cox, Triax and ACE acquisitions had
been consummated on January 1, 1995, are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------------------------------------
SUBTOTAL
HISTORICAL PRO FORMA OTHER PRO FORMA
RESULTS ACQUISITIONS (a) RESULTS ACQUISITIONS (b) RESULTS
----------- ---------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 46,207 $ 7,640 $ 53,847 $ 37,432 $ 91,279
Operating, selling, general and
administrative expenses (25,628) (4,217) (29,845) (19,409) (49,254)
Depreciation and amortization (22,386) (4,384) (26,770) (18,570) (45,340)
---------- --------------- ---------- --------------- ----------
Operating income (loss) (1,807) (961) (2,768) (547) (3,315)
Interest and other expenses (11,716) (6,316) (18,032) (16,749) (34,781)
---------- --------------- ---------- --------------- ----------
Net loss $ (13,523) $ (7,277) $ (20,800) $ (17,296) $ (38,096)
========== =============== ========== =============== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
-------------------------------------------------------------------------
SUBTOTAL
HISTORICAL PRO FORMA OTHER PRO FORMA
RESULTS ACQUISITIONS (a) RESULTS ACQUISITIONS (b) RESULTS
----------- ---------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ $ 48,693 $ 48,693 $ 33,912 $ 82,605
Operating, selling, general and
administrative expenses -- (27,070) (27,070) (18,745) (45,815)
Depreciation and amortization (43) (22,264) (22,307) (19,151) (41,458)
---------- --------------- ---------- --------------- ----------
Operating income (loss) (43) (641) (684) (3,984) (4,668)
Interest and other expenses (518) (17,097) (17,615) (13,727) (31,342)
---------- --------------- ---------- --------------- ----------
Net loss $ (561) $ (17,738) $ (18,299) $ (17,711) $ (36,010)
========== =============== ========== =============== ==========
</TABLE>
(a) Represents acquisitions consummated on or before September 30, 1996
(UVC, C4 and Cox).
(b) Represents acquisitions consummated subsequent to September 30,
1996 (Triax and ACE).
The pro forma financial information presented above is not necessarily
indicative of the operating results that would have occurred had the UVC, C4,
Cox, Triax and ACE acquisitions actually been consummated on January 1, 1995.
Furthermore, the above pro forma financial information does not include the
effect of certain acquisitions and dispositions of cable systems because these
transactions were not material on an individual or aggregated basis.
(4) COMMITMENTS
The Partnership has commitments for annual pole rentals to various utilities of
approximately $2,115 and $1,077 as of September 30, 1996 and December 31, 1995,
respectively. These agreements are subject to termination rights by both
parties.
The Partnership leases the land upon which certain of its towers and antennae
are constructed. The annual rental commitments under these leases amount to
approximately $105 and $59 as of September 30, 1996 and December 31, 1995,
respectively.
The Partnership leases office space and its commitments under these leases are
approximately $290 per year.
9
<PAGE> 9
FRONTIERVISION OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Amounts In Thousands
(5) DEBT
The Partnership's debt was comprised of the following:
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
Unaudited
<S> <C> <C>
Bank Credit Facility --
Revolving credit loan, due June 30, 2004, interest based on
various floating rate options (8.69% on $50,000 and
8.50% on $5,900 at December 31, 1995), payable monthly $ 10,850 $ 55,900
Term loans, due June 30, 2004, interest based on various
floating rate options (8.69% at December 31, 1995),
payable monthly 190,000 30,000
Subordinated promissory note to UVC, due December 31,
2004, with interest as described below 7,200 7,200
Capital lease obligations, monthly payments of $2, including
interest at 9%, due November 1998 78 59
------------- ------------
Total debt $ 208,128 $ 93,159
============= ============
</TABLE>
As of December 31, 1995, the Partnership had entered into a credit agreement
(the "Senior Credit Facility") with a maximum availability of $130,000 of which
$30,000 was available in term loans and $100,000 was available as a revolving
line of credit. The Partnership had drawn $30,000 in term loans and $55,900
under the revolver as of December 31, 1995. On April 9, 1996, the Partnership
entered into an Amended and Restated Credit Facility increasing the available
Senior Debt by $135,000, for total availability of $265,000. Under the Amended
and Restated Credit Facility, the Partnership has $100,000 available under the
Facility A Term Loan, $75,000 available under the Revolving Credit Loan and
$90,000 available under the Facility B Term Loan. The Facility A Term Loan and
the Revolving Credit Loan both mature on June 30, 2004. Escalating principal
payments are due quarterly beginning September 30, 1998 under the Facility A
Term Loan with quarterly principal reductions of the Revolving Credit Loan also
beginning September 30, 1998. The Facility B Term Loan matures June 30, 2005
with 91% of the principal being repaid in the last four quarters of the term of
the facility. On September 30, 1996, the Partnership amended the Amended and
Restated Credit Facility primarily to allow for the issuance of $200,000 of the
Notes (see Note 6).
Under the terms of the Amended and Restated Credit Facility, the Partnership has
a mandatory prepayment obligation upon any sale of new partnership interests and
the sale of any of its operating systems. Further, beginning with the year ended
December 31, 1998, the Partnership is required to make prepayments equal to 50%
of its excess cash flow, as defined in the credit agreement.
The Amended and Restated Credit Facility also requires the Partnership to
maintain compliance with various financial covenants including, but not limited
to, covenants relating to total indebtedness, debt ratio, interest coverage
ratio, fixed charges ratio, and capital expenditures. As of September 30, 1996,
the Partnership was in compliance with financial covenants of the Amended and
Restated Credit Facility.
In connection with the term loans and revolving credit loan, the Partnership
entered into interest rate protection agreements totaling $110,000 and maturing
on November 15, 1999. Under the terms of the agreements, the Partnership's
average fixed rate is 5.59% payable on the settlement date every three-months.
In turn, on the settlement date the Partnership receives an interest payment
based upon various available floating rate options on the same $110,000 notional
amount. Through the nine-month period ended September 30, 1996, the Partnership
has realized a reduction in interest expense of approximately $67 as a result of
these interest rate protection agreements.
10
<PAGE> 10
FRONTIERVISION OPERATING PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Amounts In Thousands
(5) DEBT (CONTINUED)
The subordinated promissory note to UVC bears interest at 9% for the first
three years. At the end of each subsequent year, the annual interest rate
increases 2% per year. Under the terms of the subordinated promissory note, the
Partnership may issue additional subordinated promissory notes rather than
making cash interest payments. In this event, the subordinated promissory note
bears interest at 11.5%. Further, in the event the Partnership's leverage ratio
exceeds certain specified amounts, the interest rate also increases by 2%.
Under the terms of the subordinated promissory note, the Partnership can prepay
the balance at any time.
The debt of the Partnership matures as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 --
--------------------------
<S> <C>
1996...................... $ 8
1997...................... 33
1998...................... 4,035
1999...................... 10,221
2000...................... 14,652
Thereafter................ 179,179
--------
$208,128
========
</TABLE>
(6) OFFERING AND RIGHTS OFFERING
In September 1996, FVP, the sole general partner and the owner, directly and
indirectly, of the Partnership, consummated a $76,000 equity offering (the
"Rights Offering"). The net proceeds of the Rights Offering will be contributed
as equity to the Partnership over time to fund future acquisitions. On October
7, 1996, the Partnership received substantially all of a $40,000 equity
contribution pursuant to the Rights Offering.
On October 7, 1996, the Partnership issued, pursuant to a public offering (the
"Offering"), $200,000 aggregate principal amount of 11% Senior Subordinated
Notes due 2006 (the "Notes"). Net proceeds from the Offering of $193,000,
after costs of approximately $7,000, were received by the Partnership on
October 7, 1996.
In connection with the anticipated issuance of the Notes, the Partnership
entered into interest rate protection agreements totaling $140,000 and maturing
on September 30, 1996, whereby the Partnership reduced its interest rate
exposure in anticipation of issuing the Notes. The Partnership's average rate
fixed by the agreements was 6.91% on the $140,000 notional amount. The
Partnership settled $40,000 of the $140,000 on September 23, 1996 and settled
$60,000 on September 30, 1996. The remaining $40,000 plus an additional $20,000
was converted into an interest rate protection agreement on October 7, 1996 at a
fixed rate of 6.51%. The financial statement impact of these arrangements will
be recognized as a component of interest expense over the term of the Notes.
The Notes are unsecured subordinated obligations of the Partnership (co-issued
by FrontierVision Capital Corporation) that mature on October 15, 2006.
Interest accrues at 11% per annum from the date of issuance, and is payable
each April 15 and October 15, commencing April 15, 1997.
On October 7, 1996, the Partnership entered into an interest rate protection
agreement for $82,500 in connection with its Amended and Restated Credit
Facility. The notional amount of this agreement consisted of a conversion of an
existing interest rate protection agreement of $22,500, a $40,000 conversion of
another agreement, and an additional $20,000. As of October 7, 1996, the
Partnership had interest rate protection agreements totaling $170,000 with a
weighted average fixed rate of 5.93%.
11
<PAGE> 11
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FRONTIERVISION CAPITAL CORPORATION
BALANCE SHEET
<TABLE>
<S> <C> <C>
SEPTEMBER 30, JULY 26,
1996 1996
------------- --------
Unaudited
Asset -- Receivable from affiliate for issuance of common stock -- collected
subsequent to balance sheet date ........... $ 100 $ 100
======== ========
Equity -- Common stock, par value $0.01; 1,000 shares authorized; 100 shares
issued and outstanding.................................................... $ 100 $ 100
======== ========
</TABLE>
See note to the balance sheet.
12
<PAGE> 12
FRONTIERVISION CAPITAL CORPORATION
NOTE TO THE BALANCE SHEET
FrontierVision Capital Corporation ("Capital"), a Delaware corporation, is
a wholly owned subsidiary of the Partnership, and was organized on July 26,
1996 for the sole purpose of acting as co-issuer with the Partnership of $200
million aggregate principal amount of the Notes. Capital has nominal assets
and does not conduct any operations.
13
<PAGE> 13
PART I. FINANCIAL INFORMATION
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
FrontierVision Operating Partners, L.P. (the "Partnership") commenced
operations in November 1995 with the acquisition of certain cable television
systems from United Video Cablevision, Inc. ("UVC") and certain other cable
systems from Longfellow Cable Company, Inc. ("Longfellow"). During the first
three quarters of 1996, the Partnership has continued to grow through
acquisitions. The Partnership acquired certain cable television systems from
C4 Media Cable Southeast, Limited Partnership ("C4") on February 1, 1996, from
Americable International Maine, Inc. ("Americable") on March 29, 1996, from
affiliates of Cox Communications Inc.("Cox") on April 9, 1996, and from Phoenix
Grassroots Cable Systems, L.L.C. on August 29, 1996. The Partnership paid
consideration of approximately $324.6 million through September 30, 1996 for
the acquisitions of these systems serving, as of the respective acquisition
date, approximately 222,600 basic subscribers. In addition, the Partnership
consummated the sale of systems serving approximately 10,800 basic subscribers
located in Chatsworth, Georgia and Woodstock and New Market, Virginia during
the third quarter of 1996 for aggregate consideration of approximately $16.6
million (subject to adjustment). The Partnership has operated its cable
television systems for a limited period of time and had no operations prior to
November 1995. All acquisitions have been accounted for under the purchase
method of accounting and, therefore, the Partnership's historical results of
operations include the results of operations for each acquired system
subsequent to its respective acquisition date.
During October 1996, the Partnership completed the acquisitions of additional
cable television systems from American Cable Entertainment of Kentucky-Indiana,
Inc. (the "ACE Systems"), Triax Southeast Associates, L.P. (the "Triax Systems")
and Penn/Ohio Cablevision, L.P. (the "Penn/Ohio Systems") for aggregate
consideration of approximately $234.8 million. In the aggregate, and as of the
respective acquisition dates, these systems passed approximately 191,100 homes
and served approximately 139,800 basic subscribers. These pending acquisitions
as of September 30, 1996 are not included in the discussion of results of
operations below.
The following discussion includes forward looking statements regarding the
operations of the Partnership which involve uncertainties. Actual results may
differ from these forward looking comments because of such uncertainties.
RESULTS OF OPERATIONS
As of September 30, 1996, the Partnership owned cable television systems which
passed approximately 303,700 homes and served approximately 215,300 basic
subscribers. If the acquisition of the cable television systems from ACE,
Triax and Penn/Ohio had been consummated as of September 30, 1996, the
Partnership's systems would have passed approximately 494,800 homes and served
approximately 355,100 basic subscribers.
As a result of the Partnership's limited operating history and the expected
effect of the purchase of the systems from ACE, Triax and Penn/Ohio, the
Partnership believes that its results of operations for the three months ended
September 30, 1996 and for the nine months ended September 30, 1996 are not
indicative of the Partnership's results of operations in the future.
14
<PAGE> 14
The following table sets forth, for the periods indicated, certain statements
of operations and other data of the Partnership expressed in dollar amounts
(in thousands) and as a percentage of revenue.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
----------------------- -------------------------
Amount % of Revenue Amount % of Revenue
--------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenue $ 18,668 100.0 % $ 46,207 100.0 %
Expenses
Operating expenses 9,989 53.5 23,657 51.2
Corporate expenses 706 3.8 1,971 4.3
Depreciation expenses 8,791 47.1 22,386 48.4
-------- ----------- ----------- -----------
Total expenses 19,486 104.4 48,014 103.9
-------- ----------- ----------- -----------
Operating income (loss) (818) (4.4) (1,807) (3.9)
Interest expense, net (4,313) (23.1) (11,617) (25.1)
Gain (loss) on sale of assets (99) (0.5) (99) (0.2)
-------- ----------- ----------- -----------
Net loss $ (5,230) (28.0) % $ (13,523) (29.2) %
======== =========== =========== ===========
Other Data:
EBITDA (a) $ 7,973 42.7 % $ 20,579 44.5 %
</TABLE>
(a) EBITDA is defined as net income before interest, taxes, depreciation and
amortization. The Partnership believes that EBITDA is a meaningful measure of
performance because it is commonly used in the cable television industry to
analyze and compare cable television companies on the basis of operating
performance, leverage and liquidity. In addition, the Partnership's senior
bank indebtedness and the senior subordinated note indenture contain certain
covenants, compliance with which is measured by computations substantially
similar to those used in determining EBITDA. However, EBITDA is not intended
to be a performance measure that should be regarded as an alternative to either
operating income or net income as an indicator of operating performance or to
cash flows as a measure of liquidity, as determined in accordance with
generally accepted accounting principles.
The Partnership generated revenue in the amount of $18,668 for the three months
ended September 30, 1996, and $46,207 for the nine months then ended. Operating
and corporate expenses totaled $10,695 for the quarter ended September 30, 1996,
and $25,628 for the nine months then ended. EBITDA of $7,793 for the three
months ended and of $20,579 for the nine months ended September 30, 1996
represent operating margins of approximately 42.7% and 44.5%, respectively. The
increase in operating expenses to approximately 53.5% of revenue for the quarter
ended September 30, 1996 is primarily attributable to expenses incurred in
anticipation of the acquisition of systems from ACE and Triax. Such costs
included the hiring of personnel primarily in customer service, marketing, sales
and regional management functions. These increased operating costs were
partially offset by efficiencies made by the Partnership with respect to
corporate expenses which, for the quarter ended September 30, 1996, were 3.8% of
revenue and for the nine months ended September 30, 1996 were 4.3% of revenue.
The average of average monthly revenues per subscriber increased for the quarter
ended September 30, 1996, by approximately 2.4% as compared to such monthly
revenue per subscriber averages for the nine months ended September 30, 1996.
Such marginal increase partially offset the effect on EBITDA of the increased
operating expenses. Although there can be no assurance, the Partnership
believes that EBITDA will increase with the realization of additional revenue
attributable to the ACE, Triax and Penn/Ohio system subscribers, with increased
marketing activities and expense control programs and with ongoing service rate
increases.
Interest expense was $4,313 for the three months and $11,617 for the nine-
months ended September 30, 1996, which as a percentage of revenue was 23.1% for
the quarter and 25.1% for the nine month period ended September 30, 1996. The
decrease in the cost of capital relative to the Partnership's revenue
represents both fluctuating interest rates as well as the impact of
revenue increases and internal subscriber growth.
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Gain (loss) on sale of assets represents the Partnership's net loss realized
upon the disposition of the Chatsworth, Georgia and Woodstock and New Market,
Virginia cable systems in the third quarter of 1996 and is subject to
post-closing adjustments. The disposition of the systems represents another
step in the Partnership's strategic plan of concentrating geographic clusters.
The Partnership is continuing its strategy of consolidating headends and
regionalizing its customer service, local advertising and marketing and sales
functions. Towards that end, the Partnership hired several management-level
personnel during the third quarter of 1996; marketing and sales managers with
experience in cable television and radio were employed in the Maine,
Ohio/Kentucky and Southeast operating regions, the corporate and regional
engineering staff was augmented with experienced personnel charged with
implementing the Partnership's headend consolidation program and individuals in
charge of coordinating public and government relations were hired in both the
Maine and Ohio/Kentucky operating regions.
The Partnership is in the process of completing the consolidation of certain
headends as well as in completing certain line extensions. As of September 30,
1996, the Partnership had numerous line extension projects in various stages of
completion in each of its operating regions. When complete, the various
extensions will pass approximately 2,770 homes from approximately 101 miles of
new plant. Although there can be no assurance, the Partnership anticipates
completion of a significant number of the projects by the end of 1996.
The Partnership has an average channel capacity of approximately 49 channels in
its currently owned systems and currently has additional channel capacity
available in most of its systems. Such excess channel capacity allows the
Partnership to selectively amend channel lineups and launch new services in a
continuing effort to offer customers numerous programming choices and maximize
revenue. The Partnership's initial activities in this area were concentrated in
the Maine operating region, where in May and June of 1996 the Partnership
introduced between three and seven new programming channels to approximately 89%
of its subscribers. The new services were accompanied by a rate increase
averaging approximately 10% as well as an increased direct mail and
telemarketing effort. The effect of the activity was an increase in the number
of monthly basic subscribers of approximately 1.6% and in the number of pay
units of approximately 9.7%. Such new subscribers helped generate incremental
monthly revenue of approximately $80 in the Maine operating region, a 5.0%
monthly revenue increase. Although there can be no assurance of the long-term
effect of these activities, the Partnership is continuing the process of
attempting to maximize revenue through the launch of similar marketing
activities in its other operating regions.
LIQUIDITY AND CAPITAL RESOURCES
The cable television business generally requires substantial capital for the
construction, expansion and maintenance of the delivery system. In addition,
the Partnership has pursued, and intends to pursue in the future, a business
strategy which includes selective acquisitions. The Partnership has financed
these expenditures to date through a combination of cash from operations,
indebtedness from outside sources and equity capital from its partners. In the
future, the Partnership intends to finance such expenditures though a
combination of these sources.
As of September 30, 1996, the Partnership had approximately $200.9 million of
indebtedness outstanding under a senior credit facility (the "Senior Credit
Facility") which bears interest at rates of 2.75% to 3.25% above LIBOR. In
addition, as of such date, the Partnership had received approximately $116.2
million of equity contributions from its partners. Such equity contributions
and senior debt, along with cash flow generated from operations, has been
sufficient to finance capital improvement projects as well as acquisitions.
The Partnership has adequately serviced its debt load in accordance
with the provisions of the Senior Credit Facility from EBITDA of $20.6 million
generated by the Partnership for the nine-month period ended September 30,
1996.
On September 30, 1996, the Partnership amended the Senior Credit Facility
primarily to allow the issuance of $200 million aggregate principal amount of
senior subordinated notes due 2006 (the "Notes"). The Notes bear interest at
11%, with interest payments due semiannually commencing on April 15, 1997. The
Notes mature on October 15, 2006. The public offering of the Notes was
consummated on October 7, 1996 and the net proceeds of $193 million received by
the Partnership
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was fully expended in the acquisition of cable systems from Triax and ACE on
October 7 and 9, 1996, respectively. The Notes are general unsecured obligations
of the Partnership and rank subordinate in right of payment to all existing and
any future senior indebtedness. In anticipation of the issuance of the Notes,
the Partnership entered into various interest rate protection agreements whereby
the interest rate exposure related to $140,000 of the Notes, when issued, was
hedged. A substantial portion of this hedge position was settled between
September 23, 1996 and the issuance of the Notes because favorable market
conditions allowed the issuance of the Notes at rates less than anticipated.
The financial statement effect of these agreements will be to increase the
effective interest rate which the Partnership incurs over the life of the Notes.
In addition, subsequent to September 30, 1996, the Partnership received
additional equity contributions of approximately $40 million funded from a $76
million rights offering (the "Rights Offering") conducted by the Partnership's
general partner, FrontierVision Partners, L.P. ("FVP"), among its existing
equity owners. As of November 15, 1996, the Partnership has available for use
an additional $36 million in equity commitments from the Rights Offering. The
size of the equity commitments to be made available to the Partnership through
the Rights Offering may be reduced if no later than six months after the closing
of the Rights Offering, FVP and FVP's advisory committee (the "Advisory
Committee") determine that the remaining equity commitments exceed the
Partnership's projected requirements. Such remaining equity commitments will
expire on June 30, 1997, subject to election by FVP and approval by the Advisory
Committee to extend the commitment period to June 30, 1998.
In connection with the acquisition of cable systems from UVC, the Partnership
issued a subordinated note in the aggregate principal amount of $7.2 million
(the "UVC Note"). It is anticipated that UVC will convert $5 million aggregate
principal amount of the UVC Note into limited partnership interests of the
Partnership and the balance of the UVC Note will be repaid. As of November 15,
1996, the note had not yet been converted. Although there can be no assurance,
the Partnership expects that the note will be converted during the fourth
quarter of 1996.
The Partnership had capital expenditures of $5.8 million during the nine months
ended September 30, 1996, primarily consisting of expenditures for the
construction, expansion and maintenance of the delivery system; additional costs
were incurred related to the expansion of customer service facilities. Including
the capital expenditures expected for the cable systems acquired from ACE, Triax
and Penn/Ohio, but excluding any expenditures related to the acquisition of
additional cable systems, the Partnership expects to spend approximately $49.9
million over the next two years for capital improvement related projects, of
which approximately 17% relates to the maintenance of existing plant. The
remaining capital expenditures will consist primarily of installation of fiber
optic cable and microwave links which will allow for the anticipated reduction
in the number of headends, the introduction of analog and digital converter
boxes which will allow the Partnership to more effectively market premium and
pay-per-view services, and the continued deployment of coaxial cable to
build-out existing systems. Capital expended during the nine months ended
September 30, 1996 represents the first phase of the Company's strategic capital
improvement plan.
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PART II. OTHER INFORMATION
Items 1 through 5.
None.
Item 6
(a) Exhibits
*3.1 --Agreement of Limited Partnership for FrontierVision Operating
Partners, L.P.
*3.2 --Certificate of Limited Partnership for FrontierVision Operating
Partners, L.P.
*3.9 --Certificate of Incorporation for FrontierVision Capital
Corporation.
*3.10 --Bylaws for FrontierVision Capital Corporation.
4.1 --Indenture dated as of October 7, 1996, among FrontierVision
Operating Partners, L.P., FrontierVision Capital Corporation
and Colorado National Bank, as Trustee.
10.15 --Consent and Amendment No. 2 to Senior Credit Facility.
27.1 --Financial Data Schedule as of and for the period ended September
30, 1996 and Amended Financial Data Schedule as of and for the
period ended December 31, 1995, June 30, 1996, and June 30, 1995.
-----------------
* Incorporated by reference to the corresponding exhibit of the
Registration Statement on Form S-1 (333-9535).
(b) Reports on Form 8-K
A Form 8-K was filed on October 22, 1996 relating to the consummation of
the Triax and the ACE acquisitions.
A Form 8-K was filed on October 29, 1996 relating to the dismissal of
Arthur Andersen LLP and the hiring of KPMG Peat Marwick, LLP as the
independent public accountants.
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