SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 19, 1997
FrontierVision Holdings, L.P.
FrontierVision Holdings Capital Corporation
(Exact names of Registrants as Specified in Their Charters)
Delaware 333-36519 84-1432334
Delaware 333-36519-01 84-1432976
(States or Other Jurisdiction (Commission File Nos.) (IRS Employer
of Incorporation or Organization) Identification Numbers)
1777 South Harrison Street,
Suite P-200, Denver, Colorado 80210
(Address of principal executive offices) (Zip Code)
(303) 757-1588
(Registrants' telephone number, including area code)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
In a report on Form 8-K (the "8-K") filed November 6, 1998, FrontierVision
Operating Partners, L.P., a Delaware limited partnership (the "Company"), a
wholly-owned subsidiary of FrontierVision Holdings, L.P., a Delaware limited
partnership, announced the purchase of cable television systems from State Cable
TV Corporation and Better Cable TV Company (collectively, the "State Systems").
The Company completed the purchase of the State Systems on October 23, 1998.
This amendment to the 8-K is being filed to include the required financial
statements and pro forma financial information for the State Systems.
2
<PAGE>
Financial Statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To State Cable TV Corporation and Subsidiary:
We have audited the accompanying consolidated balance sheets of State Cable TV
Corporation and Subsidiary as of December 31, 1997, and the related consolidated
statement of operations and deficit and cash flows for the year then ended.
These consolidated financial statements referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of State
Cable TV Corporation and Subsidiary as of December 31, 1997, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
Boston, Massachusetts
March 13, 1998
3
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
December 31, 1997 September 30,
1998
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 605,832 $ 915,676
Subscriber receivables, net of allowance for doubtful accounts of $706,140 at 1,688,694 1,505,602
December, 31 1997 and $1,150,567 at September 30, 1998 (unaudited)
Other current assets 440,594 474,408
--------------- ---------------
Total current assets 2,735,120 2,895,686
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and building held for sale 383,219 383,219
Land 235,674 235,674
Building and building improvements 2,317,728 2,386,357
Cable TV equipment 56,274,822 60,072,379
Office equipment 1,558,486 1,666,208
Vehicles 2,017,865 2,212,835
--------------- ---------------
62,787,794 66,956,672
Less-Accumulated depreciation (40,957,381) (44,491,861)
---------------- ----------------
21,830,413 22,464,811
Construction in process 805,422 -
---------------- ----------------
22,635,835 22,464,811
NOTES RECEIVABLE FROM AFFILIATE (NOTE 8) 10,115,617 11,070,626
DEFERRED INCOME ON INSTALLMENT SALE (NOTE 8) (7,291,147) (7,684,897)
--------------- ----------------
Total notes receivable 2,824,470 3,385,729
--------------- ---------------
INTANGIBLE ASSETS, NET
Franchises 2,420,280 2,221,019
Goodwill 285,409 276,877
Loan costs 1,200,807 1,011,805
--------------- ---------------
3,906,496 3,509,701
--------------- ---------------
OTHER ASSETS (NOTE 3) 93,543 -
--------------- ---------------
Total assets $ 32,195,464 $ 32,255,927
=============== ===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,254,068 $ 7,011,576
Accounts payable 2,845,415 2,438,018
Accrued expenses 1,856,008 1,719,585
Subscriptions received in advance 351,032 346,694
--------------- ---------------
Total current liabilities 10,306,523 11,515,873
--------------- ---------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 55,704,532 54,804,435
DEFERRED STATE TAX PAYABLE 18,355 -
OTHER LONG-TERM LIABILITIES 102,579 311,829
--------------- ---------------
Total liabilities 66,131,989 66,632,137
--------------- ---------------
CCOMMITMENTS AND CONTINGENCIES (Note 5)
MINORITY INTEREST 2,082,054 2,665,322
SHAREHOLDERS' DEFICIT:
Common stock, par value $1.00 per share, authorized, issued and outstanding, 1,822 1,822
1,822 shares
Accumulated deficit (36,020,401) (37,043,354)
--------------- ---------------
Total shareholders' deficit (36,018,579) (37,041,532)
--------------- ---------------
Total liabilities and shareholders' deficit $ 32,195,464 $ 32,255,927
=============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
<TABLE>
Year Ended Nine Months Ended Three Months Ended
December 31, September 30, September 30,
1997 1997 1998 1997 1998
(Unaudited) (Unaudited)
GROSS SERVICE REVENUE:
<S> <C> <C> <C> <C> <C>
Subscriber revenue $ 22,327,282 $ 16,508,075 $ 18,500,996 $ 5,736,622 $ 6,380,173
Premium services and pay per view revenue 3,274,880 2,260,703 2,488,962 826,772 958,136
Advertising revenue 1,441,866 946,370 981,967 276,455 376,642
Installation revenue 594,663 469,068 371,564 136,114 123,544
Other revenue 702,014 608,805 655,733 215,741 350,609
------------- ------------- ------------ ------------- ------------
28,340,705 20,793,021 23,126,355 7,191,704 8,089,104
PROGRAMMING COSTS 5,434,797 3,905,225 4,689,751 1,391,621 1,648,373
------------- ------------- ------------ ------------- ------------
Net revenue (after programming costs) 22,905,908 16,887,796 18,436,604 5,800,083 6,440,731
------------- ------------- ------------ ------------- ------------
OPERATING EXPENSES:
General and adminstrative 6,009,795 4,652,460 5,248,940 1,569,971 1,824,686
Production and advertising 3,848,847 2,869,849 2,930,704 912,574 984,781
Depreciation 4,259,092 3,653,200 3,534,480 1,238,400 1,178,160
Ice storm damage - - 1,595,567 - 71,465
-------------- -------------- ------------ ------------ ------------
14,117,734 11,175,509 13,309,691 3,720,945 4,059,092
------------- ------------- ------------ ------------- ------------
INCOME FROM OPERATIONS BEFORE OTHER EXPENSES 8,788,174 5,712,287 5,126,913 2,079,138 2,381,639
(INCOME)
OTHER EXPENSES (INCOME):
Interest expense 4,875,201 3,556,976 3,954,002 1,249,541 1,464,951
Management fees to affiliated company 687,177 506,039 566,316 174,000 188,772
Amortization of intangible assets 626,813 368,014 396,917 126,792 132,306
Gain on sale of equipment (31,051) (6,737) - - -
Interest income (71,117) (24,517) (31,693) (7,453) (12,114)
Minority interest in income of Better Cable 768,594 588,255 583,268 207,994 245,251
TV Company
------------- ------------- ------------ ------------- ------------
6,855,617 4,988,030 5,126,913 1,750,874 2,019,166
------------- ------------- ------------ ------------- ------------
INCOME (LOSS) BEFORE STATE INCOME TAXES 1,932,557 724,257 (341,897) 328,264 362,473
PROVISION FOR STATE INCOME TAXES 18,000 - - - -
------------- ------------- -------------------------- ------------
Net income (Loss) 1,914,557 640,714 (341,897) 328,264 362,473
------------- ------------- -------------------------- ------------
ACCUMULATED DEFICIT, BEGINNING OF PERIOD (36,780,806) (36,780,806) (36,020,401) (36,384,813) (36,724,771)
DISTRIBUTION TO SHAREHOLDERS (Note 2(g)) (1,154,152) (1,536,000) (681,056) (1,536,000) (681,056)
------------- ------------- ------------ ------------- ------------
ACCUMULATED DEFICIT, END OF PERIOD $ (36,020,401) $ (37,592,549 ) $ (37,043,354)$(37,592,549)$ (37,043,354))
============= ============== ============== ==========================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Year Ended Nine Months Ended September 30,
December 31,
1997 1997 1998
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 1,914,557 $ 640,714 $ (341,897)
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 4,885,905 3,866,493 3,931,397
Provision for bad debts 284,565 855,381 444,427
Gain on sale of equipment (31,051) (6,737) -
Minority interest 386,746 588,255 583,268
Deferred taxes (1,645) (20,000) (18,355)
Changes in operating assets and liabilities, net of effects
from purchase of Pegasus-
Increase in subscriber receivables (305,301) (618,571) (261,335)
Increase in other current assets (536,180) (446,422) (33,814)
Increase in notes receivable (2,024,992) (340,836) (561,259)
Decrease in other assets 377,242 440,785 93,543
Increase (decrease) in accounts payable 551,984 828,584 (407,397)
Increase (decrease) in accrued expenses 223,702 215,148 (136,423)
Increase in subscriptions received in advance 36,526 118,021 204,912
--------------- --------------- ---------------
Net cash provided by operating activities 5,762,058 6,120,815 3,497,067
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (7,463,502) (11,481,424) (3,363,456)
Payment for purchase of Pegasus, net of cash acquired (6,838,183) - -
Acquisition of intangible assets, exclusive of effects from (261,374) (2,354,232) (122)
purchase of Pegasus
--------------- --------------- ---------------
Net cash used in investing activities (14,563,059) (13,835,656) (3,363,578)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (3,132,621) (2,224,971) (3,942,589)
Proceeds from long-term debt 13,200,000 11,500,000 4,800,000
Distributions to shareholders (1,154,152) (1,536,000) (681,056)
--------------- --------------- ---------------
Net cash provided by financing activities 8,913,227 7,739,029 176,355
--------------- --------------- ---------------
NET INCREASE IN CASH 112,226 24,188 309,844
CASH, BEGINNING OF YEAR 493,606 493,606 605,832
--------------- --------------- ---------------
CASH, END OF YEAR $ 605,832 $ 517,794 $ 915,676
=============== =============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 4,681,103 $ 3,423,872 $ 3,904,574
=============== =============== ===============
Income taxes 23,634 - -
=============== ================================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES:
Increase in promissory note receivable and deferred income on 525,000 393,750 393,750
=============== =============== ===============
installment sale due to accrued interest
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(1) ORGANIZATION
State Cable TV Corporation and Subsidiary (the Company) is engaged
primarily in providing cable television and related services to the Maine
and New Hampshire areas.
On January 31, 1997, the Company purchased substantially all of the
assets and assumed current liabilities of Pegasus, a cable television
company that provides service to areas in the State of New Hampshire. The
total purchase price was $7,135,000, of which $300,000 was paid in 1996
and is included in deposits and other assets at December 31, 1996. The
balance due was paid utilizing the Company's credit facility in 1997. The
transaction was treated as a purchase. The fair market value of the
assets approximated the purchase price. The value of the acquired
franchises was approximately $2,000,000 which is being amortized over 10
years, which represents the lives of the franchise agreements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of
accounting policies described in this note and elsewhere in the
accompanying notes to consolidated financial statements.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and Better Cable TV Company, its 60%-owned subsidiary (see
Note 9). Material intercompany transactions and accounts have been
eliminated in consolidation. The shareholders of the Company are
the partners of a partnership (the Affiliate) that owns the
minority interest of $2,082,054 as of December 31, 1997,
representing a 40% interest in the subsidiary. Changes in minority
interest reflect Better Cable TV Company's capital adjusted by its
portion of the net gain or loss.
(b) Management Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Property, Plant and Equipment
Property, plant and equipment is carried at cost and is being
depreciated under the straight-line method over the estimated
useful lives of the assets which range from 5 to 33 years as
described below. Repair and maintenance costs are charged to
expense as incurred.
Building and building improvements.....................20-33 years
Cable TV equipment.......................................5-7 years
Office equipment...........................................5 years
Vehicles...................................................5 years
7
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(CONTINUED)
Property and equipment include the following amounts held under
capital leases:
<TABLE>
December 31, 1997 September 30, 1998
<S> <C> <C>
Land $ 169,000 $ 169,000
Building and building improvements 1,606,422 1,644,230
Less--Accumulated depreciation (160,403) (240,544)
---------------- ----------------
$ 1,615,019 $ 1,572,686
================ ================
</TABLE>
(d) Intangible Assets
Intangible assets are carried at cost and are being amortized
under the straight-line method over the periods indicated in Note
3.
(e) Investment in an Affiliate
Investment in a 33-1/3%-owned affiliate, Pinetree Microwave
Corporation, is carried under the equity method and classified in
other assets in the accompanying balance sheet. The assets,
liabilities and results of operations of Pinetree are not
significant to the Company. During 1998, the Company reevaluated
the value of the asset and wrote it down to zero.
(f) Revenue Recognition
Operating revenues for cable services are recognized as services
are rendered. Revenues from services contracts are recognized in
earnings over the terms of the contract.
(g) Income Taxes
The Company has elected subchapter S Corporation status for
federal and the State of Maine income tax purposes. Provisions for
federal and Maine income taxes have not been made as the Company's
operations are included pro rata in the individual income tax
returns of its shareholders. A provision for New Hampshire income
taxes has been made in the accompanying consolidated financial
statements due to the fact New Hampshire does not recognize the
Company's S corporation status. During 1997, the Company made
distributions to shareholders of $1,154,152 to pay their estimated
tax payments.
The Company provides for New Hampshire income taxes under the
liability method in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is determined based on the
difference between the financial statement and tax bases of assets
and liabilities, as measured by the enacted tax rates expected to
be in effect when these differences reverse. Temporary differences
relate mainly to depreciation and deferred interest.
8
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(CONTINUED)
The components of the provision for income taxes for December 31,
1997 is as follows:
December 31,
1997
Current-
State $ 20,500
Deferred-
State (2,500)
---------------
Total provision (benefit) $ 18,000
===============
(h) Cash
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
(i) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments
with Concentrations of Credit Risk, requires disclosure of any
significant off-balance-sheet and credit risk concentrations. The
Company has no significant off-balance-sheet concentration of
credit risks such as foreign exchange contracts, options contracts
or other foreign hedging arrangements. Financial instruments that
subject the Company to credit risk consist primarily of cash and
accounts receivable.
(j) Long-Lived Assets
The Company has assessed the realizability of its long-lived
assets in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be
Disposed Of. As of December 31, 1997 and September 30, 1998,
management believes there has been no impairment of long-lived
assets.
(k) Interim Financial Statements (Unaudited)
The accompanying consolidated balance sheet as of September 30,
1998, is unaudited, but in the opinion of management, includes all
adjustments consisting of normal recurring adjustments necessary
for fair presentation of results for the interim period. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been omitted with respect to
the nine months ended, September, 30, 1998, although the Company
believes that the disclosures included are adequate to make the
information presented not misleading. Results for the nine months
ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31,
1998.
9
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(CONTINUED)
(3) INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
December 31, September 30, 1998 Amortization
1997 Period
in Years
<S> <C> <C> <C>
Customer lists $ 2,858,218 $ 2,858,218 7
Franchises 4,348,947 4,349,069 10-15
Restrictive covenants 317,921 317,921 2-10
Goodwill 454,013 454,013 40
Loan costs 1,770,629 1,770,629 5-8
Other 253,476 253,476 5-10
---------------- ----------------
10,003,204 10,003,326
Less--Accumulated amortization 6,096,708 6,493,625
---------------- ----------------
$ 3,906,496 $ 3,509,701
================ ================
</TABLE>
(4) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
December 31, 1997 September 30, 1998
<S> <C> <C>
Term loan $ 42,276,500 $ 38,363,675
Revolving line of credit 17,200,000 22,000,000
Capital lease 1,482,100 1,452,336
---------------- ----------------
60,958,600 61,816,011
Less--Current maturities 5,254,068 7,011,576
---------------- ----------------
$ 55,704,532 $ 54,804,435
================ ================
</TABLE>
The Company has a $67,000,000 credit facility (the Facility) with The
First National Bank of Chicago (First Chicago) as agent for the lending
institutions (the Lenders) under a credit agreement (Credit Agreement).
The Facility consists of a $47,000,000 amortizing term loan maturing on
December 31, 2002 and a $20,000,000 revolving credit facility terminating
on March 31, 2004. The revolving line of credit is for capital
expenditures, system acquisitions and other general corporate purposes
subject to limitations as defined in the agreement. The Facility is
collateralized by all of the Company's assets. In addition, the
shareholders pledge the stock of the Company and the partnership interest
in Better Cable TV Company as collateral. The 40% minority interest in
Better Cable TV Company has also been pledged as collateral. The Credit
Agreement requires the Company to meet various financial covenants and as
of December 31, 1997 the Company was in compliance with these covenants.
The Credit Agreement limits the payments for capital expenditures,
management fees and dividends. The Credit Agreement requires that the
term loan be repaid by quarterly installments. The repayments are based
upon a percentage of the amount outstanding as of June 30, 1997 and these
percentages increase annually until 2002 when it decreases. Advances
under the revolving credit facility are payable quarterly beginning March
31,
10
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(CONTINUED)
2003. In addition, mandatory prepayments of an amount equal to 50% of the
excess cash flows, if positive, for the most recently ended fiscal year
are required under the revolving credit facility.
The Credit Agreement requires the Company to pay a commitment fee of .30%
and .40% for Facilities B and C, respectively, per annum on the average
daily unborrowed portion of the revolving credit facility. Fees paid
under this arrangement amounted to $20,466 in 1997. In addition, the
Company paid management fees associated with the agreement of $30,000 in
1997.
The Credit Agreement requires interest based on the type of advance
requested by the Company, either floating rate or Eurodollar, plus the
applicable margin, as defined in the Credit Agreement. The interest rates
at December 31, 1997 for the Facility ranged from 7.99% to 8.23% with a
weighted average rate of 8.05%.
Maturities of long-term debt are as follows:
Year Ending December 31, Amount
1998 $ 5,254,068
1999 7,602,643
2000 9,320,371
2001 10,410,565
2002 9,972,788
Thereafter 18,398,165
--------------
$ 60,958,600
==============
(5) COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company leases telephone and utility poles at a current annual
rental of approximately $914,000. The leases are one year
self-renewing agreements.
The Company is also obligated under leases with an affiliate and
others for microwave relay services and tower sites, the latest
expiring in 2079. The Company entered into a capital lease for its
current office location expiring in 2011, with aggregate monthly
payments of approximately $14,000. The minimum annual payments
under the leases are approximately as follows:
11
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(CONTINUED)
<TABLE>
Operating Leases Capital Lease
<S> <C> <C> <C>
1998 $ 103,678 $ 168,861
1999 26,638 174,642
2000 27,143 178,954
2001 27,672 184,323
2002 28,228 189,852
Thereafter 288,658 1,697,798
-------------- --------------
$ 502,017
==============
Total minimum future payments 2,594,430
Less--Amounts representing interest 1,112,330
--------------
Present value of net minimum lease 1,482,100
payments
Less--Current maturity 37,147
--------------
$ 1,444,953
==============
</TABLE>
Rent expense, including pole attachments, charged to operations
amounted to $974,521 for the year ended, December 31, 1997 and
$763,427 for the nine months ended, September 30, 1998.
(b) Litigation
In the ordinary course of business, the Company is party to
various types of litigation. The Company believes it has
meritorious defenses to all claims, and, in its opinion, all
litigation currently pending or threatened will not have a
material adverse effect on the Company's financial position or
results of operations.
(6) DUE TO AFFILIATE AND OTHER RELATED PARTY TRANSACTIONS
(a) Affiliate
Fees for management services provided by its Affiliate amounted to
$687,177 in 1997.
Included in accounts payable and accrued expenses at December 31,
1997 was approximately $753,000 due to the Company's Affiliates.
(b) Aurora
The Company's shareholders are majority shareholders in Aurora
Telecommunications, LLC (Aurora). The Company leases fiber lines
to Aurora under seven-year operating leases. Lease income amounted
to $471 in 1997.
12
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(CONTINUED)
The Company issued a revolving credit line to Aurora with maximum
borrowings of $3,000,000 at an applicable federal mid-term rate
(6.02% at December 31, 1997). The credit line expires and is due
September 1, 2003. At December 31, 1997, the outstanding principle
balance due from Aurora was $1,991,002 with accrued interest of
$28,903.
Under a separate note to obtain a 5% owned investment, Aurora
issued a $5,000 note payable at an annual compounded interest rate
of 7% to the Company. The note is due and payable April 30, 1998.
Accrued interest on this note was $87 at December 31, 1997.
(7) PENSION
The Company adopted a defined contribution plan, which covers
substantially all employees. Participants are fully vested after five
years. Annual contributions are based upon 5% of the participants'
compensation earned during the plan year.
The Company also has a 401(k) plan, which substantially all employees are
eligible to participate in. Participants are fully vested as to all
contributions made to the plan. The Company matches 50% of employee
contributions up to the first 4%. Expenses related to the plans charged
to operations amounted to $202,951 in 1997.
(8) SALE OF PARTNERSHIP INTEREST
On November 15, 1996, the Company sold 20% of their partnership interest
in Better Cable TV to an affiliate for a $7,500,000 promissory note
maturing on March 31, 2004 bearing interest at 7% per annum. This sale is
being treated as an installment sale for both financial reporting and
income tax purposes resulting in a deferred gain of $6,700,522. No gain
was recognized during 1997. For financial reporting purposes, accrued
interest of $590,625 for the year ended, December 31, 1997 and $984,375
for the nine months ended, September 30, 1998, is being deferred.
(9) DISCLOSURE OF FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash approximate fair value because of the short
maturity of these investments. The carrying amounts of the revolving
notes receivable and long-term debt approximates fair value due to the
variable rates of these instruments. The fair value of the 7% note
receivable is estimated based on currently quoted market prices for
similar types of borrowing arrangements.
The estimated fair value of the Company's financial instruments as of
December 31, 1997 are as follows (dollars in thousands):
Carrying Value Fair
Value
Cash $ 605,832 $ 605,832
Revolving note receivable 2,019,905 2,019,905
7% note receivable 8,095,712 9,413,619
Long-term debt 60,958,600 60,958,600
13
<PAGE>
STATE CABLE TV CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIOD)
(CONTINUED)
(10) OTHER EVENTS
(a) Subsequent Event
In January 1998, an ice storm severely damaged cable lines of the
Company in the Maine systems. The resulting loss of $1,595,567
reflects damages incurred.
(b) Other Developments
On February 6, 1998, the Company signed a nonbinding letter of
intent with Heathrow Land Company, L.P. (HLC) whereby the Company
and HLC agreed in principle to form a limited liability company
(LLC) to own and operate the cable television system currently
operated by Heathrow Cable in and around the private community of
Heathrow, Florida. The terms of the letter of intent provide that
the Company will pay $1,350,000 for its 80% interest in the LLC.
Upon HLC's contribution or sale of the system and the assets to
the LLC, HLC will receive that portion of the purchase price
available after payment for the Bell South assets and any
necessary working capital requirements of the LLC while becoming a
20% owner of the LLC.
(c) Sale to FrontierVision Operating Partners, L.P.
On June 24, 1998, the Company signed an asset purchase agreement
with FrontierVision Operating Partners, L.P. whereby the Company
agreed to sell the majority of its State Cable TV and Better Cable
TV assets to FrontierVision Operating Partners, L.P. for a base
price of $188,750,000. The Company closed on this sale, subject to
certain purchase price adjustments, on October 22, 1998.
14
<PAGE>
Pro Forma Financial Information.
Pro Forma Financial Data
The unaudited pro forma financial data presented below are derived from the
historical financial statements of FrontierVision Holdings, L.P. ("Holdings" or
the "Company") and certain cable television systems assets purchased from State
Cable TV Corporation and Better Cable TV Company in Maine (the "State Systems")
on October 23, 1998. The unaudited pro forma balance sheet data as of September
30, 1998 give pro forma effect to the acquisition of the State Systems as if
such transaction had been consummated on September 30, 1998. The unaudited pro
forma consolidated statement of operations data for the nine months ended
September 30, 1998 and for the year ended December 31, 1997 give pro forma
effect to the acquisition of the Systems as if such transaction had been
consummated on January 1, 1997.
The unaudited pro forma financial data give effect to the acquisition described
above under the purchase method of accounting and are based upon the assumptions
and adjustments described in the accompanying notes to the unaudited pro forma
financial statements presented on the following pages. The allocation of the
total purchase price for the State Systems presented is based on a preliminary
estimate and is subject to a final allocation adjustments.
The unaudited pro forma financial data presented do not consider any future
events which may have occurred after the acquisition was consummated. The
Company believes revenue and operating expense synergies and purchasing and
other cost reductions of the combined operations of the existing systems and the
State Systems will be realized after the Company has installed its management
controls, systems and marketing programs. However, for purposes of the unaudited
pro forma financial data presented herein, these synergies have not been
reflected because their realization cannot be assured.
The unaudited pro forma financial data do not purport to represent what the
Company's results of operations or financial condition would have actually been
or what operations would be if the transaction that gives rise to the pro forma
adjustments had occurred on the date assumed. The unaudited pro forma financial
data presented below should be read in conjunction with the unaudited historical
financial statements and related notes thereto of Holdings and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" (as
included in Holding's Quarterly Report on Form 10-Q for the nine months ended
September 30, 1998 (File No. 333-36519)) as well as in conjunction with the
audited and unaudited historical financial statements and related notes thereto
of the State Systems included elsewhere in this Form 8-K/A.
15
<PAGE>
FrontierVision Holdings, L.P. and Subsidiaries
Unaudited Pro Forma Balance Sheet
September 30, 1998
(In Thousands)
<TABLE>
--------------------------------------------------------------------
Pro Forma
Adjustments
Holdings for the
and State State Pro Forma
Subsidiaries Systems Systems Consolidated
--------------- ------------------------------- ----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents................... $ 9,745 $ 916 $ (916) (a) $ 9,745
Accounts receivable, net.................... 10,889 1,506 397 (a) 12,792
Prepaid expenses............................ 4,176 474 (372) (a) 4,278
Property and equipment, net................. 292,984 22,465 15,034 (a) 330,483
Franchise costs and intangible assets, net.. 680,356 3,509 148,192 (a) 832,057
Deferred financing costs and other, net..... 22,625 3,386 (3,386) (a) 22,625
Deposits.................................... 9,500 - (9,500) -
----------- ----------- ---------- ------------
Total assets.............................. $ 1,030,275 $ 32,256 $ 149,449 $ 1,211,980
=========== =========== ========== ============
Accounts payable and accrued liabilities.... $ 25,069 $ 4,158 $ (2,863) (a) $ 26,364
Subscriber prepayments and deposits......... 3,058 659 (319) (a) 3,398
Accrued interest payable.................... 11,338 - - 11,338
Deferred income taxes....................... 14,109 - - 14,109
Debt........................................ 919,174 61,816 (61,816) (a) 1,099,244
180,070 (a)
Partners' capital........................... 57,527 (34,377) 34,377 (a) 57,527
----------- ----------- ---------- ------------
Total liabilities and partners' capital... $1,030,275 $ 32,256 $ 149,449 $ 1,211,980
========== =========== ========== ============
</TABLE>
16
<PAGE>
Footnotes to the Unaudited Pro Forma Balance Sheet
September 30, 1998
(In Thousands)
(a) Represents adjustments to the historical balance sheet of the State Systems
to reflect the following: (i) fair value adjustments recorded in connection with
purchase accounting, (ii) the reversal of account balances not assumed in the
acquisition of the State Systems, (iii) movements in working capital accounts
from September 30, 1998 to October 23, 1998, the date of acquisition, and (iv)
incremental indebtedness incurred in the purchase.
The preliminary purchase price allocation for the acquisition of the State
Systems is as follows:
<TABLE>
Purchase
Historical Price Preliminary
Balance Adjustments Allocation
--------- --------- --------
<S> <C> <C> <C>
Cash $ 916 $ (916) $ -
Accounts receivable 1,506 397 1,903
Prepaid expenses 474 (372) 102
Property and equipment 22,465 15,034 37,499
Intangible assets:
Franchise costs 2,221 135,865 138,086
Other intangible assets 1,288 12,327 13,615
--------- --------- --------
Total intangible assets 3,509 148,192 151,701
--------- --------- --------
Other assets 3,386 (3,386) -
Accounts payable and accrued liabilites (4,158) 2,863 (1,295)
Other liabilities (659) 319 (340)
Debt (61,816) 61,816 -
Equity (deficit) 34,377 (34,377) -
--------- --------- --------
Purchase price $ - $ 189,570 $189,570
========= ========= ========
The acquisition of the State Systems was funded by the following:
Incremental indebtedness under FVOP's senior
credit facility $ 180,070
Payments made out of escrow 9,500
---------
$ 189,570
=========
</TABLE>
17
<PAGE>
FrontierVision Holdings, L.P. and Subsidiaries
Unaudited Pro Forma Statement of Operations
(For the Nine Months Ended September 30, 1998)
(In Thousands)
<TABLE>
----------------------------------------------------------------------
Pro Forma
Adjustments
for the
Holdings and State State Pro Forma
Subsidiaries Systems Systems Consolidated
---------------- ---------------- ---------------- ---------------
Statement of Operations
<S> <C> <C> <C> <C>
Revenue................................. $ 175,559 $ 23,126 $ - $ 198,685
Expenses
System operations..................... 88,469 12,681 (869) (a) 100,281
Corporate administrative expense...... 5,072 754 (462) (b) 5,364
Depreciation and amortization......... 74,300 3,931 7,094 (c) 85,325
Storm related costs................... 705 1,596 - 2,301
----------- ----------- ----------- -----------
Operating income (loss)................. 7,013 4,164 (5,763) 5,414
Interest expense, net................... (63,528) (3,922) (9,767) (d) (77,217)
Other expense........................... (2,072) (583) 583 (e) (2,072)
----------- ----------- ----------- -----------
Net income (loss) before income taxes... (58,587) (341) (14,947) (73,875)
Provision for income taxes.............. 674 - - 674
----------- ----------- ----------- -----------
Net income (loss)....................... $ (57,913) $ (341) $ (14,947) $ (73,201)
=========== =========== =========== ===========
</TABLE>
18
<PAGE>
FrontierVision Holdings, L.P. and Subsidiaries
Unaudited Pro Forma Statement of Operations
(For the Year Ended December 31, 1997)
(In Thousands)
<TABLE>
--------------------------------------------------------------------------
Pro Forma
Adjustments
for the
Holdings and State State Pro Forma
Subsidiaries Systems Systems Consolidated
----------------------------------- ---------------- -----------------
Statement of Operations
<S> <C> <C> <C> <C>
Revenues.............................. $ 145,126 $ 28,341 $ - $ 173,467
Expenses
System operations................... 74,314 14,915 (1,005) (a) 88,224
Corporate administrative expense.... 4,418 1,065 (960) (b) 4,523
Depreciation and amortization....... 64,398 4,886 9,007 (c) 78,291
------------ ------------- ------------- -------------
Operating income (loss)............... 1,996 7,475 (7,042) 2,429
Interest expense, net................. (48,005) (4,804) (39,375) (d) (92,184)
Other income (expense)................ (1,161) (738) 769 (e) (1,130)
------------ ------------- ----------- -------------
Net income (loss) before income taxes
and extraordinary item.............. (47,170) 1,933 (45,648) (90,885)
Extraordinary item - Loss on early
retirement of debt.................. (5,046) - - (5,046)
Provision for income taxes............ - (18) 18 (f) -
------------ ------------ ----------- ------------
Net income (loss)..................... $ (52,216) $ 1,915 $ (45,630) $ (95,931)
============ ============ ============ ============
</TABLE>
19
<PAGE>
Footnotes to the Unaudited Pro Forma Statement of Operations
For the Nine Months Ended September 30, 1998 and the Year Ended December 31,1997
(In Thousands)
(a) Represents the estimated reductions in operating expense by applying the
Company's capitalization policy on construction activities and the estimated
cost savings resulting from the elimination of duplicate functions and personnel
from the acquisition of the State Systems.
(b) Represents the elimination of management fees and allocated overhead costs
from the acquisition of the State Systems.
(c) Represents the additional depreciation and amortization expense arising from
the acquisition of the State Systems, as if such acquisitions had occurred on
January 1, 1997. Pro forma depreciation and amortization is calculated on a
straight-line basis over periods that are consistent with the Company's stated
accounting policy. The cost basis of the purchased assets utilized in these
calculations is based on a preliminary asset allocation between property and
equipment and intangible assets and are subject to final allocation adjustments.
(d) Represents the net adjustment to (i) record interest expense on the
incremental borrowings under FVOP's senior credit facility arising from the
acquisition of the State Systems as if such transaction had been consummated on
January 1, 1997, and (ii) reverse interest expense reflected in the historical
financial statements of the State Systems. Interest expense on indebtedness is
calculated using a weighted average interest rate of 9.37% and 9.47% at
September 30, 1998 and at December 30, 1997, respectively. A 1/8% change in the
assumed interest rate would result in a $1,031 and $1,217 change to the
Company's pro forma net loss for the nine months ended September 30, 1998 and
for the year ended December 31, 1997, respectively.
(e) Represents the elimination of the minority interest in loss of the State
Systems prior to acquisition.
(f) Represents adjustments to reverse the provision of income taxes. Holdings
was not subject to income taxes at December 31, 1997.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
FRONTIERVISION HOLDINGS, L.P.
By: FrontierVision Partners, L.P., its general partner,
Date: December 30, 1998
By: FVP GP, L.P., its general partner
By: FrontierVision Inc., its general partner
By: /s/ ALBERT D. FOSBENNER
------------------------
Albert D. Fosbenner
Vice President and Treasurer
(Principal Accounting and Duly Authorized Officer)
FRONTIERVISION HOLDINGS CAPITAL CORPORATION
Date: December 30, 1998
By: /s/ ALBERT D. FOSBENNER
------------------------
Albert D. Fosbenner
Vice President and Treasurer
(Principal Accounting and Duly Authorized Officer)
21
<PAGE>
