UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to_________
Commission file numbers: 333-36519 and 333-36519-01 and 333-75567-01
FrontierVision Holdings, L.P.
FrontierVision Holdings Capital Corporation
FrontierVision Holdings Capital II Corporation
(Exact names of Registrants as specified in their charters)
Delaware 84-1432334
Delaware 84-1432976
Delaware 84-1481765
(States or other jurisdiction (IRS Employer Identification Numbers)
of incorporation or organization)
One North Main Street
Coudersport, PA 16915-1141
(Address of principal (Zip Code)
executive offices)
(814) 274-9830
(Registrants' telephone number, including area code)
Indicate by check mark whether the Registrants (1) have 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
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Yes [x] No [ ]
Number of shares of common stock of FrontierVision Holdings Capital
Corporation and FrontierVision Holdings Capital II Corporation outstanding as of
November 15, 1999: 100 and 100, respectively.
<PAGE>
<TABLE>
<CAPTION>
FRONTIERVISION HOLDINGS, L.P.
FRONTIERVISION HOLDINGS CAPITAL CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
PART I. Financial Information PAGE
<S> <C>
Item 1. Consolidated Financial Statements of FrontierVision Holdings,
L.P. and Subsidiaries..............................................................3
Notes to Consolidated Financial Statements.........................................7
Balance Sheet of FrontierVision Holdings Capital Corporation......................16
Note to the Balance Sheet ........................................................17
Balance Sheet of FrontierVision Holdings Capital II Corporation...................18
Note to the Balance Sheet.........................................................19
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..................................20
Item 3. Qualitative and Quantitative Disclosure About Market Risk.........................29
PART II. Other Information.................................................................30
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In Thousands
------------------------------
September 30, December 31,
1999 1998
------------- -----------
(Unaudited)
ASSETS
Cable systems, at cost, net of accumulated depreciation and amortization
<S> <C> <C>
Property, plant and equipment $ 370,666 $ 342,754
Intangible assets 778,437 820,524
----------- -----------
Total 1,149,103 1,163,278
----------- -----------
Cash and cash equivalents 95 5,091
Earnest money deposits -- 150
Subscriber receivables - net 11,068 13,602
Prepaid expenses and other assets - net 27,133 28,300
----------- -----------
Total assets $ 1,187,399 $ 1,210,421
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Subsidiary debt $ 867,500 $ 870,125
Parent debt 268,920 249,532
Other debt 10,994 1,485
Accounts payable 9,040 18,233
Subscriber advance payments and deposits 2,860 3,312
Accrued interest and other liabilities 33,633 26,716
Due to Adelphia 43,218 --
Deferred income taxes 9,774 11,856
----------- -----------
Total liabilities 1,245,939 1,181,259
----------- -----------
Commitments and contingencies (Note 4)
Partners' capital (deficit):
FrontierVision Partners, L.P. (58,481) 29,133
FrontierVision Holdings, LLC (59) 29
----------- -----------
Total partners' capital (deficit) (58,540) 29,162
----------- -----------
Total liabilities and partners' capital (deficit) $ 1,187,399 $ 1,210,421
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
In Thousands
-------------------------------------------------------------
For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Revenue $ 74,319 $ 61,964 $ 221,032 $ 175,559
Expenses:
Operating expenses 46,176 30,380 124,726 88,469
Corporate administrative expenses 19,144 1,561 22,513 5,072
Depreciation and amortization 44,473 25,429 106,576 76,338
Storm related costs -- -- -- 705
----------- ----------- ----------- -----------
Total 109,793 57,370 253,815 170,584
----------- ----------- ----------- -----------
Operating (loss) income (35,474) 4,594 (32,783) 4,975
Other (expense) income
Interest expense, net (25,410) (22,149) (77,962) (63,528)
Other (219) (32) 8,961 (34)
----------- ----------- ----------- -----------
Total (25,629) (22,181) (69,001) (63,562)
Loss before income taxes (61,103) (17,587) (101,784) (58,587)
Income tax benefit 695 674 2,082 674
----------- ----------- ----------- -----------
Net loss $ (60,408) $ (16,913) $ (99,702) $ (57,913)
=========== =========== =========== ===========
Net loss allocated to:
FrontierVision Holdings, L.P.
(General Partner) $ (60,347) $ (16,897) $ (99,602) $ (57,856)
FrontierVision Operating Partners, Inc.
(Limited Partner) (61) (16) (100) (57)
----------- ----------- ----------- -----------
$ (60,408) $ (16,913) $ (99,702) $ (57,913)
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
In Thousands
---------------------------------------------------------
FrontierVision FrontierVision
Partners, L.P. Holdings, LLC
(General Partner) (Limited Partner) Total
<S> <C> <C> <C>
Balance, December 31, 1998 $ 29,133 $ 29 $ 29,162
Net loss (Unaudited) (99,602) (100) (99,702)
Capital contributions 11,988 12 12,000
----------- ------- -----------
Balance, September 30, 1999 $ (58,481) $ (59) $ (58,540)
=========== ======= ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (UNAUDITED)
In Thousands
------------------------------
For the Nine For the Nine
Months Ended Months Ended
September 30, September 30,
1999 1998
--------------- --------------
Cash Flows Provided By Operating Activities:
<S> <C> <C>
Net loss $ (99,702) $ (57,913)
Adjustments to reconcile net loss to net cash flows provided
by operating activities:
Depreciation and amortization 106,576 76,338
Income tax benefit (2,082) (674)
Gain on disposal of assets (9,193) --
Amortization of deferred debt issuance costs 2,411 1,944
Accretion of interest on indebtedness 19,388 14,127
Changes in operating assets and liabilities, net of effect of
acquisitions:
Subscriber receivables (407) (1,506)
Prepaid expenses and other assets 9 (1,103)
Accounts payable, accrued interest and other liabilities 41,721 12,068
and due to Adelphia
Subscriber prepayments and deposits (447) 1,190
----------- -----------
Net cash flows provided by operating activities 58,274 44,471
----------- -----------
Cash Flows Used For Investing Activities:
Capital expenditures (75,120) (39,396)
Cash paid in acquisitions of cable television systems (12,436) (107,825)
Pending acquisition deposits and costs (730) (9,906)
Proceeds from disposition of cable television assets 5,228 --
Proceeds from disposition of real estate 1,470 --
----------- -----------
Net cash flows used for investing activities (81,588) (157,127)
----------- -----------
Cash Flows Provided By Financing Activities:
Proceeds from debt 13,229 118,000
Repayment of debt (6,345) --
Costs associated with financing (566) (327)
Partner capital contributions 12,000 --
----------- -----------
Net cash flows provided by financing activities 18,318 117,673
----------- -----------
Net (Decrease) Increase in Cash and Cash Equivalents (4,996) 5,017
Cash and Cash Equivalents, beginning of period 5,091 4,728
----------- -----------
Cash and Cash Equivalents, end of period $ 95 $ 9,745
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 50,619 $ 42,076
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Amounts In Thousands
(1) STATEMENT OF ACCOUNTING PRESENTATIONS AND OTHER INFORMATION
Organization and Capitalization
FrontierVision Holdings, L.P. ("Holdings" or the "Company"), wholly-owned by
FrontierVision Partners, L.P., a Delaware limited partnership ("FVP"), is a
Delaware limited partnership formed on September 3, 1997 for the purpose of
acting as co-issuer with its wholly-owned subsidiary, FrontierVision Holdings
Capital Corporation ("Holdings Capital"), of $237,650 aggregate principal amount
at maturity of 11 7/8% Senior Discount Notes due 2007 (the "Discount Notes").
FVP contributed to Holdings, both directly and indirectly, all of the
outstanding partnership interests of FrontierVision Operating Partners, L.P.
("FVOP") prior to the issuance of the Discount Notes on September 19, 1997 (the
"Formation Transaction") and, as a result FVOP and its wholly-owned subsidiary,
FrontierVision Capital Corporation ("Capital"), are wholly-owned, consolidated
subsidiaries of Holdings. The Formation Transaction was accounted for at
predecessor cost. As used herein, the "Company" collectively refers to Holdings,
Holdings Capital, Holdings Capital II, FrontierVision Operating Partners, Inc.
("FVOP Inc."), FVOP and Capital. The Company owns and operates cable television
systems in three primary operating clusters - New England, Ohio and Kentucky -
with a fourth, smaller group of cable television systems in the Southeast.
On June 1, 1999, Adelphia Communications Corporation ("Adelphia") loaned $12,000
to FVP to be used by FVOP to fund an asset exchange with Intermedia Partners, LP
IV. This asset exchange was consummated on June 1, 1999. FVP contributed the
$12,000 to Holdings as a capital contribution. Holdings in turn contributed this
amount to FVOP as a capital contribution.
On October 1, 1999, FVP completed its sale of all outstanding partnership
interests of FVP to Adelphia in exchange for cash, the assumption of certain
liabilities and 7.0 million shares of Adelphia Class A common stock. Subsequent
to the Definitive Sale agreement that was entered into February 22, 1999,
Adelphia assumed the liability for payment to the Company's programming vendors.
The Company continued to accrue programming costs at their existing contractual
rates. This liability of approximately $28,200 is reflected in the obligation to
Adelphia and was settled at the closing of the sale of FVP as a purchase price
adjustment. Adelphia advanced $15,000 to the Company to cover the majority of
bonus, severance and deferred compensation payments of approximately $17,100.
This liability is also reflected in the obligation to Adelphia and was settled
at the closing of the sale of FVP as a purchase price adjustment. In addition,
subsequent to the transaction, the Company's assets and liabilities will be
adjusted for the effect of the difference from their historical cost and the
purchase price. This difference could have a material impact on the operating
results of the Company from increased depreciation and amortization expense.
Allocation of Profits, Losses and Distributions
Generally, Holdings' partnership agreement provides that profits, losses and
distributions will be allocated to the general partner and the limited partner
pro rata based on capital contributions.
Reference to Annual Report
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. The accompanying financial
statements should be read in conjunction with Holdings' Annual Report on Form
10-K for the year ended December 31, 1998 (File No. 333-36519) (the "Holdings
10-K") for additional disclosures, including a summary of the Company's
accounting policies.
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Amounts In Thousands
(1) STATEMENT OF ACCOUNTING PRESENTATIONS AND OTHER INFORMATION (continued)
In management's opinion, all adjustments considered necessary for a fair
presentation of such financial statements are included and all such adjustments
are of a normal and recurring nature. The results for the nine-month period
ended September 30, 1999 are not necessarily indicative of the results for the
entire 1999 fiscal year.
New Accounting Standard
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards for derivative instruments and hedging activities by
requiring that all derivative instruments be reported as assets or liabilities
and measured at their fair values. Under SFAS 133, changes in the fair values of
derivative instruments are recognized immediately in earnings unless those
instruments qualify as hedges of the (1) fair values of existing assets,
liabilities, or firm commitments, (2) variability of cash flows of forecasted
transactions, or (3) foreign currency exposures of net investments in foreign
operations. Management of the Company has not completed its evaluation of the
impact of SFAS 133 on the Company's financial statements.
Reclassifications
Certain amounts have been reclassified to conform to the presentation adopted in
the current period.
(2) ACQUISITIONS AND DISPOSITIONS
Acquisitions
The Company has completed several acquisitions since its inception through
September 30, 1999. 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 acquired and liabilities assumed based upon the
estimated fair values at the respective dates of acquisition. Such allocations
are subject to adjustments as final appraisal information is received by the
Company. Amounts allocated to property and equipment and to intangible assets
will be respectively depreciated and amortized, prospectively from the date of
acquisition based upon remaining useful lives and amortization periods. The
following table lists the transactions and the acquisition cost for each
occurring in the most recent two years.
<PAGE>
<TABLE>
<CAPTION>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Amounts In Thousands
(2) ACQUISITIONS AND DISPOSITIONS (continued)
- --------------------------------------------------------- ----------------------------- ------------------- ------------------
Predecessor Owner Primary Location of Systems Date Acquired Acquisition Cost
(a)
<S> <C> <C> <C>
TVC-Sumpter Limited Partnership and North Oakland
Cablevision Partners Limited Partnership Michigan March 6, 1998 $14,400
TCI Cablevision of Ohio, Inc. Ohio April 1, 1998 $10,000
New England Cablevision of Massachusetts, Inc. ("NECMA") Massachusetts April 3, 1998 $44,900
Ohio Cablevision Network, Inc. ("TCI-Bryan") Ohio July 31, 1998 $37,400
Unity Cable Television, Inc. Maine September 30, 1998 $800
Appalachian Cablevision of Ohio Ohio September 1, 1998 $300
State Cable TV Corporation ("State") Maine, New Hampshire October 23, 1998 $190,400
Paint Valley Cable Ohio October 30, 1998 $1,900
CASCO Maine November 30, 1998 $3,400
Intermedia Partners, LP IV Kentucky June 1, 1999 $13,500
- ---------------
<FN>
(a) Acquisition cost represents the purchase price allocation between
tangible and intangible assets including certain purchase accounting
adjustments as of September 30, 1999.
</FN>
</TABLE>
<TABLE>
<CAPTION>
The combined purchase price of certain of these acquisitions has been allocated
to the acquired assets and liabilities as follows:
----------------------------------------
Acquisitions for Acquisitions for
the Nine Months the Nine Months
Ended September 30, Ended
1999 (a) September 30,
1998 (a)
<S> <C> <C>
Property, plant and equipment $ 4,481 $ 40,679
Intangible assets 9,467 83,798
----------- -----------
Subtotal 13,948 124,477
----------- -----------
Net working capital (deficit) (1,462) 181
Deferred income taxes - (14,783)
Less - earnest money deposits applied (50) (2,050)
----------- -----------
Total cash paid for acquisitions $ 12,436 $ 107,825
=========== ===========
- ------------
<FN>
(a) The combined purchase price includes certain purchase price adjustments for
acquisitions consummated prior to the respective periods.
</FN>
</TABLE>
The Company has reported the operating results of its acquired cable systems
from the dates of their respective acquisition. Unaudited pro forma summarized
operating results of the Company, assuming the NECMA, TCI-Bryan and State Cable
acquisitions (the "Acquisitions") had been consummated on January 1, 1998, are
as follows:
<TABLE>
<CAPTION>
-------------------------------------------------
Nine Months Ended September 30, 1998
-------------------------------------------------
Historical Pro Forma
Results Acquisitions Results
<S> <C> <C> <C>
Revenue $ 175,559 $ 29,872 $ 205,431
Operating, selling, general and administrative expenses (94,246) (18,965) (113,211)
Depreciation and amortization (76,338) (14,678) (91,016)
--------- --------- -----------
Operating income (loss) 4,975 (3,771) 1,204
Interest and other expenses (62,888) (19,611) (82,499)
--------- --------- -----------
Net loss $ (57,913) $ (23,382) $ (81,295)
========= ========= ===========
</TABLE>
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Amounts In Thousands
(2) ACQUISITIONS AND DISPOSITIONS (continued)
The pro forma financial information presented above has been prepared for
comparative purposes only and does not purport to be indicative of the operating
results which actually would have resulted had the Acquisitions been consummated
on the dates indicated. 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
aggregate basis.
Dispositions
On January 7, 1999, the Company sold certain cable television system assets
located in the Southeast region to Helicon Partners I, LP for an aggregate sales
price of approximately $5,200. A gain of approximately $1,600 was recognized as
a result of the sale.
Asset Exchanges
On June 1, 1999, the Company exchanged five systems located in the Kentucky
region for five systems owned by Intermedia Partners, LP IV. The Company
received systems comprising of 16,600 subscribers, gave up systems comprising of
11,300 subscribers and transferred aggregate cash of approximately $13,300. The
asset exchange was recorded at fair value and purchase accounting was applied.
In connection with the asset exchange, the Company recognized a gain of $7,324.
(3) DEBT
<TABLE>
<CAPTION>
The Company's debt was comprised of the following:
-------------------------------
September 30, December 31,
1999 1998
Subsidiary Debt
<S> <C> <C>
Bank Credit Facility (a) --
Revolving Credit Facility, interest based on various floating rate
options (7.43% and 7.25% average at September 30, 1999 and December
31, 1998, respectively), payable monthly $ 175,000 $ 172,000
Term loans, interest based on various floating libor rate options
(7.55% and 7.39% weighted average at September 30, 1999 and December
31, 1998,
respectively), payable monthly 492,500 498,125
11% Senior Subordinated Notes due 2006 (b) 200,000 200,000
--------- ---------
Total $ 867,500 $ 870,125
========= =========
Parent Debt
11 7/8% Senior Discount Notes due 2007 (c) $ 268,920 $ 249,532
--------- ---------
Total $ 268,920 $ 249,532
========= =========
Other Debt
Other $ 503 $ --
Capital leases 10,491 1,485
--------- ---------
Total $ 10,994 $ 1,485
========= =========
</TABLE>
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Amounts In Thousands
(3) DEBT (continued)
(a) Bank Credit Facility.
On December 19, 1997, the Company entered into a Second Amended and
Restated Credit Agreement (the "Amended Credit Facility") increasing
the available senior debt by $535.0 million, for a total availability
of $800.0 million. The amount available under the Amended Credit
Facility includes two term loans of $250.0 million each ("Facility A
Term Loan" and "Facility B Term Loan") and a $300.0 million revolving
credit facility ("Revolving Credit Facility"). The Facility A Term Loan
and the Revolving Credit Facility both mature on September 30, 2005.
The entire outstanding principal amount of the Revolving Credit
Facility is due on September 30, 2005, with escalating principal
payments due quarterly beginning December 31, 1998 under the Facility A
Term Loan. The Facility B Term Loan matures March 31, 2006 with 95% of
the principal being repaid in the last two quarters of the term of the
facility.
Under the terms of the Amended Credit Facility, with certain
exceptions, the Company has a mandatory prepayment obligation upon a
change of control of the Company and the sale of any of its operating
systems. This obligation may be waived with the consent of the majority
of the lenders. Further, beginning with the year ending December 31,
2001, the Company is required to make prepayments equal to 50% of its
excess cash flow, as defined in the Amended Credit Facility. The
Company also pays commitment fees ranging from 1/2% - 3/8% per annum on
the average unborrowed portion of the total amount available under the
Amended Credit Facility.
The Amended Credit Facility also requires the Company to maintain
compliance with various financial covenants including, but not limited
to, covenants relating to total indebtedness, debt ratios, interest
coverage ratio and fixed charges ratio. In addition, the Amended Credit
Facility has restrictions on certain partnership distributions by the
Company.
All partnership interests in the Company and all assets of the Company
and its subsidiaries are pledged as collateral for the Amended Credit
Facility.
Subsequent to the acquistition of the Company by Adelphia on
October 1, 1999, the lenders have waived the change of control
provosion while all other significant terms or conditions of
the Amended Credit Facility remained unchanged.
(b) Senior Subordinated Notes
On October 7, 1996, the Company issued, pursuant to a public offering
$200,000 aggregate principal amount of 11% Senior Subordinated Notes
due 2006 (the "Notes"). Net proceeds from this offering of $192,500,
after costs of approximately $7,500, were available to the Company on
October 7, 1996.
In connection with the anticipated issuance of the Notes, the Company
entered into deferred interest rate setting agreements to reduce the
Company's interest rate exposure in anticipation of issuing the Notes.
The cost of such agreements, amounting to $1,390, are recognized as a
component of interest expense over the term of the Notes.
The Notes are unsecured subordinated obligations of FVOP (co-issued by
Capital) that mature on October 15, 2006. Interest accrues at 11% per
annum beginning from the date of issuance, and is payable each April 15
and October 15, commencing April 15, 1997.
The indenture governing the Notes (the "Subordinated Notes Indenture")
has certain restrictions on incurrence of indebtedness, distributions,
mergers, asset sales and changes in control of the Company. Upon a
change of control of the Company, the holders of the Notes have the
right to require the Company to purchase the outstanding notes at a
price equal to 101% of the principal amount plus accrued and unpaid
interest.
Subsequent to the acquistition of the Company by Adelphia on
October 1, 1999, the Company has made an offer to purchase the Notes
at a price equal to 101% of the pricipal outstanding which expires
November 30, 1999.
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Amounts In Thousands
(3) DEBT (continued)
(c) Senior Discount Notes
On September 19, 1997, Holdings issued, pursuant to a private offering,
the Discount Notes. The Discount Notes were sold at approximately 63.1%
of the stated principal amount at maturity and provided net proceeds of
$144,750, after underwriting fees of approximately $5,250.
On December 2, 1998, Holdings issued, pursuant to a private offering,
the Discount Notes, Series B. The Discount Notes were sold at at
approximately 82.149% of the stated principal amount at maturity and
provided net proceeds of $72,750, after underwriting fees of
approximately $2,250.
The Discount Notes are unsecured obligations of Holdings and Holdings
Capital, or Holdings Capital II, as the case may be, ranking pari passu
in right of payment to all existing and future unsecured indebtedness
of the issuers and will mature on September 15, 2007. The discount on
the Discount Notes is being accreted using the interest method until
September 15, 2001, the date at which cash interest begins to accrue.
Cash interest will accrue at a rate of 11 7/8% per annum and will be
payable each March 15 and September 15, commencing March 15, 2002.
The Discount Notes are redeemable at the option of the Issuers, in
whole or in part, at any time on or after September 15, 2001, at
redemption prices set forth in the indenture for the Discount Notes
(the "Discount Notes Indenture"), plus any unpaid interest, if any, at
the date of the redemption. The issuers may redeem, prior to September
15, 2001, up to 35% of the principal amount at maturity of the Discount
Notes with the net cash proceeds received from one or more public
equity offerings or strategic equity investments at the redemption
prices set forth in the Discount Notes Indenture, plus any unpaid
interest, if any, at the date of the redemption.
The Discount Notes Indenture has certain restrictions on incurrence of
indebtedness, distributions, mergers, asset sales and changes in
control of Holdings. Upon a change of control of the Company, the
holders of the Notes have the right to require the Company to purchase
the outstanding notes at a price equal to 101% of the accreted value
plus accrued and unpaid interest.
Subsequent to the acquistition of the Company by Adelphia on
October 1, 1999, Holdings has made an offer to purchase the Discount
Notes at a price equal to 101% of the accreted value which
expires December 3, 1999.
(d) Interest Rate Protection Agreements
In order to convert certain of the interest payable at variable rates
under the Amended Credit Facility to interest at fixed rates, the
Company entered into interest rate swap agreements for notional amounts
totaling $187,500, and maturing between April 7, 1999 and November 15,
1999. According to these agreements, the Company pays or receives the
difference between (1) an average fixed rate of 5.84% and (2) a
floating rate of the three month libor applied to the same $187,500
notional amount every three months during the term of the interest rate
swap agreement. On April 7, 1999, the Company terminated one of its
interest rate swap agreements for a notional amount of $100,000 and
entered into a new interest rate collar agreement for $100,000 maturing
on April 8, 2002. There was no termination fee associated with this
transaction.
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Amounts In Thousands
(3) DEBT (continued)
On January 8, 1999, the Company amended its collar interest rate swap
agreement that it had entered into on April 8, 1998 for a notional
amount of $100,000. The amended collar agreement matures on April 8,
2001. The collar agreement provides for different exchanges between the
Company and the counterparty depending on the level of the floating one
month LIBOR rate (5.38% at September 30, 1999). Such exchanges occur
every month during the term of the collar agreement. The different
exchanges are as follows:
(1) When LIBOR is below 4.65%, the Company pays to the
counterparty the difference between the fixed rate of 5.95% and the
LIBOR rate, applied to the $100,000 notional amount;
(2) When LIBOR is between 5.95% and 6.65%, the Company receives
from the counterparty the difference between the fixed rate of 5.95%
and LIBOR rate, applied to the $100,000 notional amount;
(3) When LIBOR is in excess of 6.65% or between 5.95% and 4.65%,
this collar agreement has no financial effect.
The Company terminated a previously existing collar agreement on
June 21, 1999 for approximately $1,550. This cost is reflected in
interest expense in the accompanying statement of operations.
For the nine months ended September 30, 1999 and 1998, the Company
recognized an increase in interest expense of approximately $609 and
$156, respectively, as a result of the interest rate swap agreements.
Information concerning the Company's interest rate agreements at
September 30, 1999 is as follows:
<TABLE>
<CAPTION>
Amount to be
Notional paid (received) upon
Expiration date amount termination (a)
<S> <C> <C>
November 15, 1999 $ 65,000 $ 53.8
November 15, 1999 22,500 (10.4)
April 8, 2001 100,000 513.2
April 8, 2002 100,000 7.4
------------ ----------
$ 287,500 $ 564.0
============ ==========
(a) The estimated amount that the Company would pay to terminate
the agreements on September 30, 1999. This amount takes into
consideration current interest rates, the current
creditworthiness of the counterparties and represents the fair
value of the interest rate agreements.
</TABLE>
The debt of the Company matures as follows:
Year Ended December 31 --
1999 $ 5,519
2000 25,078
2001 34,575
2002 44,575
2003 55,825
Thereafter 981,842
-------------
$ 1,147,414
=============
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Amounts In Thousands
(4) COMMITMENTS AND CONTINGENCIES
The Company has annual commitments under lease agreements for office space,
equipment, pole rental and land upon which certain of its towers and antennas
are constructed. Rent expense for the nine months ended September 30, 1999, and
1998 was $5,162, and $4,172, respectively.
Estimated future noncancelable lease payments under such lease obligations
subsequent to September 30, 1999 are as follows:
Year Ended December 31 --
1999 $ 329
2000 1,152
2001 890
2002 635
2003 471
Thereafter 899
-------------
$ 4,376
=============
Federal law, including the regulations and policies of the Federal
Communications Commission ("FCC"), limit the ability of cable systems to raise
rates for basic services and equipment. Until March 31, 1999, federal law also
allowed the FCC to regulate the rates cable operators charged for certain
non-basic cable services. Federal law allows local governmental regulation of
rates for basic cable services and customer equipment except in communities that
are subject to "effective competition," as defined by federal law. The FCC
adopted detailed rate regulations, guidelines and rate forms that the Company
and the local franchising authority must use in connection with the regulation
of the Company's basic service and equipment rates. The FCC has comprehensive
and restrictive regulations that allow the Company to modify its regulated basic
rates on a quarterly or annual basis using various methodologies that account
for changes in the number of regulated channels, inflation, and certain external
costs, such as franchise and other governmental fees, copyright and
retransmission consent fees, taxes, programming fees and franchise-related
obligations. The FCC also has regulations designed to reduce the substantive and
procedural burdens of rate regulation on qualified small cable systems, as
defined by federal law. The regulatory benefits accruing to qualified small
cable systems under certain circumstances remain effective even if such systems
are subsequently acquired by a larger cable operator. Many of the Company's
cable systems currently satisfy the FCC's small system eligibility criteria and
are eligible to use the FCC's simplified rate methodology and procedures to
justify cable service and equipment rates.
The Company's basic rates and its equipment and installation charges (the
"Regulated Services") are subject to the jurisdiction of local franchising
authorities. The Company believes that it has complied in all material respects
with the rate regulation provisions of the federal law. However, the Company's
rates for Regulated Services are subject to review by the appropriate franchise
authority if it is certified by the FCC to regulate basic rates. If, as a result
of the review process, a system cannot substantiate its rates, it could be
required to retroactively reduce its rates to the appropriate benchmark and
refund the excess portion of rates received. Any refunds of the excess portion
of all other Regulated Service rates would be retroactive to one year prior to
the implementation of the rate reductions.
The Company's agreements with franchise authorities require the payment of
annual fees which approximate 3% of system franchise revenue. Such franchises
are generally nonexclusive and are granted by local governmental authorities for
a specified term of years, generally for extended periods of up to fifteen
years.
<PAGE>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Amounts In Thousands
(5) YEAR 2000 COMPLIANCE
The Company has under way a project to review and modify, as necessary, its
computer applications, hardware and other equipment to make them Year 2000
compliant. The Company has also initiated formal communications with third
parties having a substantial relationship to its business, including significant
suppliers and financial institutions, to determine the extent to which the
Company may be vulnerable to such third parties' failures to achieve Year 2000
compliance.
Failure to achieve Year 2000 compliance by the Company, its principal suppliers
and certain financial institutions with which it has relationship could
negatively affect the Company's ability to conduct business for an extended
period. There can be no assurances that all Company information technology
systems and components will be fully Year 2000 compliant; in addition, other
companies on which the Company's systems and operations rely may not be fully
compliant on a timely basis, and any such failure could have a material adverse
effect on the Company's financial position, results of operations or liquidity.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FRONTIERVISION HOLDINGS CAPITAL CORPORATION
BALANCE SHEET
----------------------------
September 30, December 31,
1999 1998
------------ -----------
(Unaudited)
ASSETS
<S> <C> <C>
Cash $ 100 $ 100
-------- --------
Total assets $ 100 $ 100
======== ========
OWNER'S EQUITY
Owner's equity:
Common stock, par value $.01; 1,000 shares authorized;
100 shares issued and outstanding $ 1 $ 1
Additional paid-in capital 99 99
-------- --------
Total owner's equity $ 100 $ 100
======== ========
See note to accompanying balance sheet.
</TABLE>
<PAGE>
FRONTIERVISION HOLDINGS CAPITAL CORPORATION
NOTE TO THE BALANCE SHEET (Unaudited)
FrontierVision Holdings Capital Corporation, a Delaware corporation ("Holdings
Capital"), is a wholly owned subsidiary of FrontierVision Holdings, L.P.
("Holdings"), and was organized on August 22, 1997 for the sole purpose of
acting as co-issuer with Holdings of $237.7 million aggregate principal amount
at maturity of the 11 7/8% Senior Discount Notes. Holdings Capital had no
operations from September 18, 1997 through September 30, 1999.
<PAGE>
<TABLE>
<CAPTION>
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
BALANCE SHEET
September 30, December 31,
1999 1998
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash $ 1,000 $ 1,000
--------- ---------
Total assets $ 1,000 $ 1,000
========= =========
LIABILITIES AND OWNER'S EQUITY
Owner's equity:
Common stock, par value $.01; 1,000 shares authorized;
100 shares issued and outstanding $ 10 $ 10
Additional paid-in capital 990 990
--------- ---------
Total owner's equity 1,000 1,000
--------- ---------
Total liabilities and owner's equity $ 1,000 $ 1,000
========= =========
See accompanying note to the balance sheet.
</TABLE>
<PAGE>
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
NOTE TO THE BALANCE SHEET (Unaudited)
FrontierVision Holdings Capital II Corporation, a Delaware corporation
("Holdings Capital II"), is a wholly owned subsidiary of FrontierVision
Holdings, L.P. ("Holdings"), and was organized on December 2, 1998, for the sole
purpose of acting as co-issuer with Holdings of $91.3 million aggregate
principal amount at maturity of the 11 7/8% Senior Discount Notes, Series B.
Holdings Capital II had no operations from inception through September 30, 1999.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations as
well as other sections of this Form 10-Q contain certain forward-looking
statements. Our actual results could differ materially from those discussed
herein and our current business plans may be altered in response to market
conditions and other factors beyond our control. Important factors that could
cause or contribute to such differences or changes include those discussed under
"Risk Factors" in the Company's post-effective amendment no. 2 to Form S-4 filed
April 2, 1999 (File No. 333-36519).
Introduction
On October 1, 1999, FVP completed its sale of all outstanding partnership
interests of FVP to Adelphia Communication Corporation ("Adelphia") in exchange
for cash, the assumption of certain liabilities and 7.0 million shares of
Adelphia Class A common stock. The following discussion does not reflect
potential changes in business plans associated with the sale.
In this section, we explain the general financial condition and the results of
operations for FrontierVision and its subsidiaries including what factors affect
our business, what our revenues and expenses were for the three and nine months
ended September 30, 1999 and 1998, why those revenues and expenses were
different from the year before and how all of this affects our overall financial
position.
We commenced operations in November 1995 with the acquisition of certain cable
television systems. Since that first acquisition, we have completed over 30
separate acquisitions and have grown to serve approximately 710,000 subscribers
as of September 30, 1999. Our systems are located in three primary operating
clusters - New England, Ohio and Kentucky - with a fourth, smaller group of
systems in the Southeast.
<PAGE>
<TABLE>
<CAPTION>
The following table summarizes our acquisitions through September 30, 1999:
--------------------------------------------------
Purchase Basic
Price(1) Subscribers
Predecessor Owner Date Acquired (in millions) Acquired(2)
<S> <C> <C> <C>
United Video Cablevision, Inc. November 9, 1995 $ 120.8 87,400
Longfellow Cable Company, Inc. November 21, 1995 6.1 5,100
C4 Media Cable Southeast, Limited Partnership February 1, 1996 47.6 40,400
Americable International Maine, Inc. March 29, 1996 4.8 3,350
Cox Communications April 9, 1996 136.0 77,200
Phoenix Grassroots Cable Systems, LLC August 29, 1996 9.3 7,400
Triax Southeast Associates, L.P. October 7, 1996 84.7 53,200
American Cable Entertainment of Kentucky-Indiana, Inc. October 9, 1996 146.0 83,250
SRW, Inc.'s Penn/Ohio Cablevision, L.P. October 31, 1996 3.8 3,225
SRW, Inc.'s Deep Creek Cable TV, L.P. December 23, 1996 3.0 2,175
Bluegrass Cable Partners, L.P. March 20, 1997 9.9 7,225
Clear Cable T.V., Inc. and B&G Cable T.V. Systems,Inc March 31, 1997 1.7 1,450
Milestone Communications of New York, L.P. March 31, 1997 2.8 2,125
Triax Associates I, L.P. May 30, 1997 34.5 20,700
Phoenix Front Row Cablevision May 30, 1997 6.8 5,250
PCI Incorporated August 29, 1997 13.5 7,750
SRW, Inc.'s Blue Ridge Cable Systems, L.P. (3) September 3, 1997 4.1 4,550
Harold's Home Furnishings, Inc. October 31, 1997 1.5 1,480
A-R Cable Services - ME, Inc. October 31, 1997 78.2 54,300
TCI Cablevision of Vermont, Inc. and Westmarc Development
Joint Venture December 2, 1997 34.5 22,100
Cox Communications, Inc. December 19, 1997 203.0 85,400
TVC-Sumpter Linked Partnership and North Oakland
Cablevision Partners Limited Partnership March 6, 1998 14.2 8,100
TCI Cablevision of Ohio, Inc. April 1, 1998 10.0 6,000
New England Cablevision of Massachusetts, Inc. April 3, 1998 44.7 26,500
Ohio Cablevision Network, Inc. July 31, 1998 38.0 19,700
Appalachian Cablevision of Ohio September 1, 1998 0.3 280
Unity Cable Television, Inc. September 30, 1998 0.8 590
State Cable TV Corporation October 23, 1998 188.2 75,000
Paint Valley Cable Company, Inc. October 30, 1998 1.7 1,300
Casco Cable Television, Inc. November 30, 1998 3.2 2,185
Intermedia Partners, LP IV June 1, 1999 13.3 5,300
- ------------
<FN>
(1) Represents the contract purchase price excluding working capital purchase
adjustments and transaction costs.
(2) Includes 10,600 subscribers to systems that we sold in 1996.
(3) All systems were sold on January 7, 1999.
</FN>
</TABLE>
During the twelve months ended September 30, 1999, we completed four acquisition
transactions, acquiring a total of approximately 83,800 basic subscribers. These
acquisitions significantly increased the size and scale of each of our three
primary operating clusters. Our October 1998 acquisition of eight cable systems
from State Cable TV Corporation added approximately 75,000 basic subscribers to
our New England cluster in attractive communities directly contiguous to systems
which we already owned in southern Maine and central New Hampshire. With the
State Cable systems, we have grown to serve over 248,000 subscribers in our New
England cluster and over 168,000 subscribers in four of the five largest cities
in the state of Maine.
On January 7, 1999, we sold nine small cable television systems located in
eastern Tennessee and western North Carolina which, in the aggregate, served
approximately 4,400 basic subscribers.
On June 1, 1999, we completed the exchange of five of our systems located in
northern Kentucky for five Intermedia systems located in communities near
Lexington, Kentucky which are contiguous to other of our Kentucky systems. We
paid approximately $13.3 million as consideration for approximately 5,300
customers we gained in the transaction.
<PAGE>
Results of Operations
In this section, we discuss our earnings for the nine months ended September 30,
1999 and 1998, the three months ended September 30, 1999 and 1998 and the
factors affecting them. The three month period ended September 30, 1999, is the
only period in which we operated all of our cable television systems.
<TABLE>
<CAPTION>
The following table illustrates our operating activities on a comparative basis:
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998 (Unaudited)
---------------------------------------------------
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
---------------------------------------------------
% of % of
Amount Revenue Amount Revenue
In thousands
<S> <C> <C> <C> <C>
Revenues.................................. $ 74,319 100.0% $ 61,964 100.0%
Expenses
Direct operating and programming...... 46,176 62.1 30,380 49.0
Corporate expenses and transaction costs 19,144 25.8 1,561 2.5
Depreciation and amortization......... 44,473 59.8 25,429 41.1
--------- ----- --------- -----
Total expenses................. 109,793 147.7 57,370 92.6
--------- ----- --------- -----
Operating (loss) income................... (35,474) (47.7) 4,594 7.4
Interest expense, net..................... (25,410) (34.2) (22,149) (35.7)
Income tax benefit........................ 695 0.9 674 1.1
Other expense............................. (219) (0.3) (32) (0.1)
--------- ----- --------- -----
Net loss.................................. $ (60,408) (81.3)% $ (16,913) (27.3)%
========= ===== ========= =====
Basic subscribers......................... 709,800 630,200
Premium units............................. 293,500 261,000
</TABLE>
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
Increases in the amounts of revenue and operating expenses are primarily
attributable to acquisition activity during 1998, which increased our size from
630,200 basic subscribers at September 30, 1998 to 709,800 at September 30,
1999. Revenue increased 19.9%, or approximately $12.4 million, to approximately
$74.3 million for the three months ended September 30, 1999 from approximately
$62.0 million for the three months ended September 30, 1998. Revenue per
subscriber, per month increased to $34.74 in the three months ended September
30, 1999 from $33.29 in the same period a year earlier, reflecting the
acquisition of subscribers with higher rates, increased service rates and new
service offerings. Operating expenses increased approximately 52.0% and
corporate expenses increased approximately 1,126.4%, respectively, for the three
months ended September 30, 1999 from the three months ended September 30, 1998.
The increase in the percentage of operating expenses to revenue was primarily
attributable to relative increases in programming and personnel related costs
and marketing expenses and expenses related to Year 2000 issues. The increase in
the percentage of corporate expenses to revenue was primarily attributable to
$17.1 million of bonus, severance and deferred compensation payments related to
the sale of the Company to Adelphia.
Depreciation and amortization expense increased 74.9% as a result of acquisition
activity that occurred in 1998. Net interest expense increased to $25.4 million
from $22.1 million primarily as a result of the higher weighted average drawings
on our senior bank indebtedness and the termination of the collar agreement for
$1.5 million.
<PAGE>
<TABLE>
<CAPTION>
The following table illustrates the Company's operating activities on a
comparative basis:
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998 (Unaudited)
---------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
---------------------------------------------------
% of % of
Amount Revenue Amount Revenue
In thousands
<S> <C> <C> <C> <C>
Revenues.................................. $ 221,032 100.0% $ 175,559 100.0%
Expenses
Direct operating and programming...... 124,726 56.4 89,174 50.8
Corporate expenses and transaction costs 22,513 10.2 5,072 2.9
Depreciation and amortization......... 106,576 48.2 76,338 43.5
--------- ----- --------- -----
Total expenses................. 253,815 114.8 170,584 97.2
--------- ----- --------- -----
Operating (loss) income................... (32,783) (14.8) 4,975 2.8
Interest expense, net..................... (77,962) (35.3) (63,528) (36.2)
Income tax benefit........................ 2,082 0.9 674 0.4
Other income (expense).................... 8,961 4.1 (34) 0.0
--------- ----- --------- -----
Net loss.................................. $ (99,702) (45.1)% $ (57,913) (33.0)%
========= ===== ========= =====
Basic subscribers......................... 709,800 630,200
Premium units............................. 293,600 261,000
</TABLE>
Revenue increased 25.9%, or approximately $45.5 million, to approximately $221.0
million for the nine months ended September 30, 1999 from approximately $175.6
million for the nine months ended September 30, 1998. Revenue per subscriber,
per month increased to $34.74 in the three months ended September 30, 1999 from
$33.29 in the same period a year earlier, reflecting the acquisition of
subscribers with higher rates, increased service rates and new service
offerings. Operating expenses increased approximately 39.9% and corporate
expenses increased approximately 343.9%, respectively, for the nine months ended
September 30, 1999 from the nine months ended September 30, 1998. The increase
in the percentage of operating expenses to revenue was primarily attributable to
relative increases in programming and personnel related costs and marketing
expenses and expenses related to Year 2000 issues. The increase in the
percentage of corporate expenses to revenue was primarily attributable to $17.1
million of bonus, severance and deferred compensation payments related to the
sale of the Company to Adelphia.
Depreciation and amortization increased 39.6% as a result of acquisition
activity that occurred in 1998. Net interest expense increased to $78.0 million
from $63.5 million primarily as a result of the higher weighted average drawings
on the Company's senior bank indebtedness.
Other income increased to $9.0 million in the nine months ended September 30,
1999 compared to an immaterial expense in the corresponding period due to the
Company's recognition of gains attributable to the asset exchange with
Intermedia on June 1, 1999, the sale of cable television systems to Helicon on
January 7, 1999 and the sale of certain real estate during the period.
Liquidity and Capital Resources
The cable television business generally requires substantial capital for the
construction, maintenance and expansion of cable plant and distribution
equipment. In addition, we have pursued selective acquisitions. Since our
founding in 1995, our cash received from equity investments, bank borrowings and
other debt issued by FrontierVision Operating Partners, L.P. (which we refer to
as "FVOP") and FrontierVision Holdings, L.P. (which we refer to as "Holdings")
has been sufficient to finance our acquisitions and, together with cash
generated from operating activities, also has been sufficient to service our
debt, provide sufficient working capital and fund required capital expenditures.
<PAGE>
We intend to continue to finance such debt service, working capital and capital
expenditure requirements through a combination of cash from operations,
indebtedness and equity capital sources. We believe that we will continue to
generate cash and be able to obtain financing sufficient to meet such
requirements. Our ability to meet our debt service and other obligations will
depend upon our future performance which, in turn, is subject to general
economic conditions and to financial, political, competitive, regulatory and
other factors, many of which are beyond our control.
Amended Bank Credit Facility
Drawings on our amended bank credit facility, along with cash flow generated
from operations and high yield debt financing, have been sufficient to finance
capital improvement projects as well as acquisitions.
On December 19, 1997, we amended our existing senior bank indebtedness and
entered into an $800.0 million amended bank credit facility with The Chase
Manhattan Bank, as administrative agent, J.P. Morgan Securities Inc., as
syndication agent, CIBC Inc., as documentation agent, and the other lenders
signatory thereto. The amended bank credit facility includes a $300.0 million,
7.75-year reducing revolving credit facility, a $250.0 million, 7.75-year term
loan and a $250.0 million, 8.25-year term loan.
At September 30, 1999, we had $175.0 million outstanding under the revolving
credit facility, $242.5 million outstanding under the 7.75 year term loan and
$250.0 million outstanding under the 8.25 year term loan. The weighted average
interest rates at September 30, 1999 on the outstanding borrowings under the
revolving credit facility were approximately 7.43%, and under the 7.75 year term
loan and the 8.25 year term loan were approximately 7.42% and 7.55%,
respectively. We have entered into interest rate protection agreements to hedge
the underlying LIBOR rate exposure for $287.5 million of borrowings through
November 1999 and October 2001. For the nine months ended September 30, 1999, we
recognized an increase to interest expense of approximately $0.6 million as a
result of these interest rate swap agreements.
In general, the amended bank credit facility requires us to use the proceeds
from any equity or subordinated debt issuance or any cable system disposition to
reduce indebtedness for borrowings under the amended bank credit facility and to
reduce permanently commitments thereunder, subject to certain exceptions
permitting us to use such proceeds to fund certain permitted acquisitions,
provided that we are otherwise in compliance with the terms of the amended bank
credit facility.
The amended bank credit facility is secured by a pledge of all limited and
general partnership interests in FVOP and in any of our restricted subsidiaries
and a first priority lien on all the tangible and intangible assets of FVOP and
each of its restricted subsidiaries. In addition, in the event of the occurrence
and continuance of an event of default under the amended bank credit facility,
the administrative agent is entitled to replace our general partner with its
designee.
Holdings as the general partner of FVOP, guarantees the indebtedness under the
amended bank credit facility on a limited recourse basis. The amended bank
credit facility is also secured by a pledge of all limited and general
partnership interests in FVOP and a first priority lien on all the assets of
FVOP and its subsidiaries.
Senior Subordinated Notes
On October 7, 1996, FVOP issued $200.0 million aggregate principal amount of 11%
senior subordinated notes due 2006. The notes mature on October 15, 2006 and
bear interest at 11%, with interest payments due semiannually commencing on
April 15, 1997. The notes are general unsecured obligations of FrontierVision
and rank subordinate in right of payment to all existing and any future senior
indebtedness. In anticipation of the issuance of the notes, we entered into
deferred interest rate setting agreements to reduce the interest rate exposure
related to the notes. The financial statement effect of these agreements will be
to increase the effective interest rate which FrontierVision incurs over the
life of the notes.
<PAGE>
Senior Discount Notes, Series A
Holdings and FrontierVision Holdings Capital Corporation were formed for the
purpose of acting as co-issuers of $237.7 million aggregate principal amount at
maturity of 11 7/8% senior discount notes due 2007. FVP contributed to Holdings,
both directly and indirectly, all of the outstanding partnership interests FVOP
prior to the issuance of the discount notes on September 19, 1997 and as a
result, FVOP and FrontierVision Capital Corporation are wholly-owned
consolidated subsidiaries of Holdings. Holdings contributed the majority of the
net proceeds of the discount notes, totaling approximately $142.3 million, to
FVOP as a capital contribution.
Senior Discount Notes, Series B
Holdings and FrontierVision Holdings Capital II Corporation acted as co-issuers
of $91.3 million aggregate principal amount at maturity of 11 7/8% senior
discount notes due 2007, Series B. Holdings Capital II was formed for the
purpose of acting as co-issuer on these discount notes. The discount notes were
issued on December 2, 1998. Holdings contributed the majority of the net
proceeds of approximately $72.8 million from the issuance of the discount notes
to FVOP as a capital contribution.
Cash Flows From Operating Activities
Cash flows from operating activities for the nine months ended September 30,
1999 were $58.3 million compared to $44.5 million for the nine months ended
September 30, 1998. The increase was primarily a result of cable television
system operations acquired during 1998 and due to increases in amounts due to
Adelphia.
Cash Flows From Investing Activities
Investing cash flows were primarily used to fund capital expenditures and
acquire cable television systems. Capital expenditures for the nine months ended
September 30, 1999 were approximately $75.1 million compared to approximately
$39.4 million for the nine months ended September 30, 1998. Capital expenditures
primarily consisted of expenditures for the construction and expansion of cable
plant and distribution equipment, and additional costs were incurred related to
the expansion of customer service facilities. We invested approximately $12.4
million in acquisitions during the nine months ended September 30, 1999 compared
with $107.8 million in acquisitions during the nine months ended September 30,
1998. We also received net proceeds from the disposition of assets of
approximately $6.7 million for the nine months ended September 30, 1999.
Cash Flows From Financing Activities
We financed acquisitions during the nine months ended September 30, 1998
primarily with borrowings under our senior bank indebtedness. The asset exchange
and 1999 capital expenditures were primarily financed with borrowings under our
senior bank indebtedness for the nine months ended September 30, 1999.
For the nine months ended September 30, 1999, FVOP received approximately $12.0
million as a capital contribution. This amount represents the amount loaned to
FrontierVision Partners, L.P. (which we refer to as "FVP") by Adelphia as
consideration for part of the asset exchange with Intermedia Partners, LP IV.
This amount was contributed by FVP to Holdings. Holdings in turn contributed the
amount to FVOP.
Year 2000
Many existing hardware and software elements of computer systems and other
technologies represent the year as a two-digit number. Such representation may
cause software and hardware malfunctions to occur as a system date or
application date crosses the Year 2000 boundary. This might happen when the
actual century turns, the date of some input data exceeds January 1, 2000 and/or
the system or application must internally refer to a date that occurs on,
before, or after January 1, 2000.
<PAGE>
During 1998 and into 1999, we continued a review of the Year 2000 issue with the
objective of formulating a plan to identify and correct any system malfunctions
which might occur due to Year 2000 issues. An informal task force, comprised
solely of FrontierVision employees, was established in the fourth quarter of
1997 to determine which of our mission critical business processes could be
impacted by Year 2000 issues. Those mission critical business processes that
were identified as subject to Year 2000 issues are as follows: Signal Delivery,
Franchise Services, Service Delivery and Revenue Collection.
The following table illustrates the primary components of each of the Year 2000
affected mission critical business processes:
<TABLE>
<CAPTION>
- ------------------------- ------------------------------------------- ------------------------------------------
Mission Critical
Business Process Description Significant Components
- ------------------------- ------------------------------------------- ------------------------------------------
<S> <C> <C>
Signal Delivery Process of receiving a video signal from Headend equipment
satellite or broadcast sources and Plant infrastructure
transmitting that signal via fiber-optic Programming suppliers
and co-axial cable to a customer's
residence or place of business.
Franchise Services The performance of tasks Local origination
specifically required Emergency broadcast
by local or national regulatory
agencies.
Service Delivery The ongoing process of responding timely Customer call center infrastructure
to customer service requests. Dispatch equipment
Revenue Collection The process of collecting customer Subscriber management systems
billings and utilizing those cash Cash management
receipts for necessary corporate purposes.
</TABLE>
Since the task force was established, FrontierVision management has committed
additional internal and external resources to address Year 2000 issues. During
the third quarter of 1998, we engaged an external third-party Year 2000
consultant to review our informal task force's Year 2000 efforts to date and to
produce a formal, written Year 2000 project plan. This plan provides a work
schedule for us to address our Year 2000 Issues by December 31, 1999. Since that
date, we have formally adopted a Year 2000 Compliance Plan, discussed in more
detail below. We have entered into cooperative agreements with other multiple
system operators to share pertinent assessment information.
We have established a Year 2000 team which currently consists of a full-time
Project Manager. The Year 2000 team also involves certain individuals in
Adelphia who are subject matter experts, for example, engineering and
information technology. The Project Manager is accountable directly to
Adelphia's senior management team.
The Year 2000 Compliance Plan, consists of an awareness program, a prevention
program and a find and fix program. The awareness program is designed to educate
employees and customers on the implications of Year 2000 Issues. Employees have
been trained on our Year 2000 Compliance Plan and their role in the success of
the Plan has been communicated. The prevention program is designed to prevent
new problems from arising while we resolve existing problems. For example, since
October 30, 1998, we have required a Year 2000 compliance warranty on all
purchase orders to ensure that vendors ship to FrontierVision only equipment
that they have warranted is Year 2000 compliant. The find and fix program
includes three phases: inventory, assessment and remediation, and is initially
focused on mission critical business processes.
The inventory phase consists of a physical inventory of all susceptible business
components within each mission critical business process. A physical inventory
of the components used in certain of our mission critical business processes was
initiated during 1998. We substantially completed the inventory phase of the
mission critical items on January 31, 1999. We initiated random inventory
verification audits during the last part of the second quarter of 1999. The
inventory consisted of specifically identifying each component/system (both
internal and external systems) of a mission critical business process. Internal
systems include computer systems and related software (information technology
systems) as well as systems and devices that manage the distribution of cable
television service to customers (non information technology systems). External
<PAGE>
systems include our third party billing service provider and subscriber
management system, banking partners (including cash management, lockbox
providers and lenders) and programming providers.
An end product of the inventory phase is a comprehensive database which allows
us to review any of our business components by, among other attributes,
manufacturer/supplier, geographic location, compliance status or asset class.
This database allows us to electronically track the assessments for each item.
Once an assessment is made on a given item, the assessment is automatically
linked to the individual inventory piece. Furthermore, the database allows for
the tracking of remediation efforts at the inventory level, including the date
the item was ordered, the expected and actual cost, who the repair is made by,
when it is made and who tests the repair. This method of item management ensures
normalization of the descriptions of like items, enhancing the overall
efficiency of the project.
We are also in the process of communicating with our significant suppliers and
service providers of mission critical business processes to determine their
position with regard to Year 2000 issues and evaluating the potential impact on
FrontierVision if those third parties fail to remediate their own Year 2000
issues. We have received responses from or we have checked internet sites for
approximately 99% of such significant suppliers and service providers; the
majority of which are currently in their own assessment and remediation phases.
Material relationships with third parties include utility companies (providing
power to the cable plant), telephone companies (providing communication lines
for use in customer contact, employee communications and in data transfer
related to subscriber and billing management information systems) and
programming and equipment vendors (providing the product distributed by
FrontierVision as well as maintenance and construction materials).
Since the inventory phase was completed, the Year 2000 team has focused on
assessing each business component's vulnerability to Year 2000 issues. The
assessment phase requires management to attain a high degree of confidence that
FrontierVision prevents Year 2000 problems with respect to components of mission
critical business processes and minimize such problems in other non-critical
areas, while controlling replacement costs. To ensure that the most at-risk
components/systems are assessed first, the initial task in the assessment stage
was the prioritization of each equipment/system in the project database. Items
of inventory have been reviewed for Year 2000 compatibility first by
cross-referencing the project database to materials received from vendors,
industry groups and other multiple systems operations, second by contacting
vendors as necessary and finally, by making an "in-house" determination of
compatibility where no other information is available. The end product of the
assessment phase for each item is the determination of whether a given
component/system is to be replaced or upgraded or whether specific contingency
plans are needed. The company substantially completed the assessment phase on
June 15, 1999.
Approximately 95% of the total inventory components in our headends, plant
infrastructure and customer service infrastructure have proven to have no date
sensitive components. Of the remaining 5% subject to future investigation, we
have completed assessments on 100% of the components and have determined that
less than 9% of these to be non-compliant with respect to Year 2000 issues. The
majority of these non-compliant items relate to information technology
equipment. Upgrades are available to bring a majority of these information
technology items into Year 2000 compliance.
After the assessment phase is completed for a given component and the component
is found to have a Year 2000 issue, the remediation phase begins. The
remediation phase includes the following activities
- - A decision is made as to the optimal remedy of the Year 2000 issue.
- - A purchase order is placed for the new component or upgrade.
- - Based upon the expected delivery date, the appropriate resources are
scheduled to complete the implementation.
- - After the new component is implemented, dependent testing occurs to
verify that remediations do not introduce new Year 2000 problems.
If remediation is determined to be impossible with respect to a business
component, the Year 2000 team will create an appropriate contingency plan.
<PAGE>
<TABLE>
<CAPTION>
As of November 1, 1999, our overall progress in the find and fix program for our
mission critical systems as follows:
----------------------------- ------------------------ --------------------------
Percentage Complete Completion Date or
Phase of Phase Expected Completion Date
----------------------------- ------------------------ --------------------------
<S> <C> <C>
Inventory 100% January 31, 1999
Assessment 100% June 15, 1999
Remediation 99% November 30, 1999
</TABLE>
The expected completion date set forth above for remediation is based on our
current expectations. We are also dependent on our suppliers for timely
fulfillment of purchase orders that will be made to replace non-compliant
equipment and assistance in installations. In addition, the current remediation
timetable does not allow for a significant amount of time for testing. Further
delays in the assessment phase and/or delays in the purchasing and receipt of
replacement equipment further reduces the time available for testing and places
additional risk on the successful completion of the remediation phase. As a
result, no assurances can be given as to whether each of the phases will be
completed on schedule due to uncertainties which are inherent in the remediation
of Year 2000 Issues.
To date, we have expended approximately $4,050,000 to replace components with
Year 2000 issues. The majority of this amount relates to replacing certain
advertising sales equipment. Based on the assessment results, we plan to spend
an additional $200,000 in replacing equipment with known Year 2000 Issues.
Furthermore, as of September 30, 1999, we have expended approximately $380,000
in third-party consulting fees and expect to spend an additional $10,000 in
external fees in conjunction with the Year 2000 project team through December
31, 1999.
We have budgeted in excess of $1,000,000 in incremental capital expenditures for
fiscal year 1999 to complete the Year 2000 compliance plan. At this point in
time, these budgeted amounts appear to be sufficient to correct our Year 2000
issues.
While management believes that the Year 2000 compliance plan will significantly
reduce the risks associated with the transition to the year 2000 through a
process of inventory, assessment and remediation, we have yet to develop or
implement any significant contingency plans. There can be no assurance that we
will identify all Year 2000 issues or that we will be able to remedy each Year
2000 issue. A failure to sufficiently correct a material Year 2000 problem could
cause us to suffer an interruption or a failure of certain important business
operations. Additionally, the failure of a material external (third-party)
system may cause us to experience an interruption or a failure of certain
important business operations. The interruption or failure by FrontierVision in
an important business operation may cause a material, adverse impact on our
financial position. It is not management's intention that certain information
technology and technical enhancement projects planned will be deferred as a
result of the cost to address Year 2000 issues. Additionally, although
management believes that a combination of cash from operations and indebtedness
will fund the costs associated with correcting Year 2000 issues, no assurances
can be given that costs ultimately required to be paid to ensure the our Year
2000 readiness will not have an adverse effect on our financial position and
results of operations.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information regarding the fair value of our interest rate exchange agreements at
September 30, 1999 and net payments pursuant to such agreements for the nine
months ended September 30, 1999 are disclosed in Note 3 to the accompanying
unaudited financial statements. The fair value on fixed rate debt declined
approximately $57.0 million during the nine months ended September 30, 1999
compared to December 31, 1998. Principal outstanding on variable rate debt
declined approximately $3.0 million during the nine months ended September 30,
1999 compared to December 31, 1998. See Note 3 in the accompanying unaudited
financial statements for further information.
<PAGE>
PART II. OTHER INFORMATION
Items 1 through 5.
None.
Item 6
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
3.1 Amended and Restated Agreement of Limited Partnership for FrontierVision Operating Partners, L.P. (3)
3.2 Certificate of Limited Partnership for FrontierVision Operating Partners, L.P. (1)
3.16 Agreement of Limited Partnership of Holdings. (3)
3.17 Certificate of Limited Partnership of Holdings. (3)
3.18 Certificate of Incorporation of FrontierVision Holdings Capital Corporation. (3)
3.19 Bylaws of FrontierVision Holdings Capital Corporation. (3)
4.1 Indenture dated as of October 7, 1996, among FrontierVision Operating Partners, L.P., FrontierVision Capital
Corporation and Colorado National Bank, as Trustee. (2)
4.2 Indenture dated as of September 19, 1997, among FrontierVision
Holdings, L.P., FrontierVision Holdings Capital Corporation and
U.S. Bank National Association d/b/a Colorado National Bank, as
Trustee. (3)
4.3 Indenture dated as of December 9, 1998, among FrontierVision Holdings, L.P., FrontierVision Holdings Capital II
Corporation and U.S. Bank National Association, as Trustee. (4)
27.1 Financial Data Schedule as of and for the nine-month period ended
September 30, 1999.
---------------
<FN>
Footnote References
(1) Incorporated by reference to the exhibits to FrontierVision
Operating Partners, L.P.'s Registration Statement on Form S-1,
File No. 333-9535.
(2) Incorporated by reference to the exhibits of FrontierVision
Operating Partners, L.P.'s Quarterly Report on Form 10-Q, for the
quarter ended September 30, 1996, File No. 333-9535.
(3) Incorporated by reference to the exhibits to the Registration
Statement on Form S-4, File No. 333-36519.
(4) Incorporated by reference to the exhibits to the Registration
Statement on Form S-4, File No. 333-75567.
</FN>
</TABLE>
(b) Reports on Form 8-K
An Item 5 Form 8-K was filed on October 15, 1999 relating to Adelphia's
purchase of FrontierVision Partners, L.P.
<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
By: Adelphia GP Holdings, L.L.C., its
general partner
By: ACC Operations, Inc., its sole member
Date: November 15, 1999 By: /s/ Timothy J. Rigas
Timothy J. Rigas
Executive Vice President, Chief
Financial Officer, Chief Accounting
Officer, and Treasurer
FRONTIERVISION HOLDINGS CAPITAL CORPORATION
Date: November 15, 1999 By: /s/ Timothy J. Rigas
Timothy J. Rigas
Executive Vice President, Chief
Financial Officer,
Chief Accounting Officer, and Treasurer
FRONTIERVISION HOLDINGS CAPITAL II
CORPORATION
Date November 15, 1999 By: /s/ Timothy J. Rigas
Timothy J. Rigas
Executive Vice President, Chief
Financial Officer,
Chief Accounting Officer, and Treasurer
