SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 4
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (date of earliest event reported) June 9, 2002
FRONTIERVISION OPERATING PARTNERS, L.P.
FRONTIERVISION CAPITAL CORPORATION
(Exact names of registrants as specified in their charters)
Delaware 333-9535 84-1316775
Delaware 333-9535-01 84-1353734
(States or other jurisdictions of (Commission (IRS Employer
incorporation) File Numbers) Identification Nos.)
One North Main Street - Coudersport, PA 16915-1141
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code (814) 274-9830
This Form 8-K/A amends and restates the Registrants' response to Item 4 of
Amendment 3 to the Registrants' Form 8-K/A, filed with the Securities and
Exchange Commission (the "Commission") on August 13, 2002 ("Amendment No. 3"),
in order to disclose the response of Deloitte & Touche LLP ("Deloitte") to
Amendment No. 3.
Item 4
FrontierVision Operating Partners, L.P. ("FVOP") is 99.9% owned by
FrontierVision Holdings, LP ("Holdings"), a wholly-owned subsidiary of Adelphia
Communications Corporation ("Adelphia"), and 0.1% owned by FrontierVision
Operating Partners, LLC, a wholly-owned subsidiary of Adelphia. FrontierVision
Capital Corporation ("Capital") is a wholly-owned subsidiary of FVOP.
As used herein, the term the "Registrants" collectively refers to FVOP and
Capital and the term the "Company" refers to Adelphia and its subsidiaries,
including the Registrants.
On June 9, 2002, Adelphia dismissed Deloitte, its former independent
accountants. On June 10, 2002, Deloitte confirmed in writing to Adelphia that
the client-auditor relationship between Deloitte and Adelphia, the Registrants
and certain other subsidiaries of Adelphia had ceased. On June 13, 2002,
Adelphia retained PricewaterhouseCoopers LLP ("PwC") as its new independent
accountants. Under this engagement PwC will serve as independent accountants of
the Registrants and certain other subsidiaries of Adelphia. The Board of
Directors of Adelphia and the Audit Committee of the Board of Directors of
Adelphia (the "Audit Committee") approved the decision to change independent
accountants. On June 14, 2002, Deloitte notified Adelphia that it was
withdrawing its reports on the financial statements of Adelphia, the Registrants
and certain other subsidiaries and affiliates of Adelphia.
The Registrants have not yet completed their financial statements or filed
their Annual Reports on Form 10-K for the year ended December 31, 2001, nor have
the Registrants filed their Quarterly Reports on Form 10-Q for the quarter ended
March 31, 2002. As of the date on which Deloitte was dismissed as the
Registrants' independent public accountants, Deloitte had not completed its
audit nor had it issued its report with respect to the Registrants' financial
statements for the year ended December 31, 2001.
The report of Deloitte on the financial statements of the Registrants for
the years ended December 31, 2000 and December 31, 1999 contained no adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. During the years ended
December 31, 2001 and December 31, 2000, and through the date of this Form 8-K,
there were no disagreements with Deloitte on any matter of accounting principles
or practices, financial statement disclosure or audit scope or procedure that,
if not resolved to the satisfaction of Deloitte, would have caused it to make
reference to the subject matter of such disagreement in its reports on the
financial statements.
The events described under the heading "Reportable Events" below are
Reportable Events within the meaning of Item 304(a)(1)(v) of Regulation S-K.
Deloitte advised the Registrants in its Letter regarding change in certifying
accountant filed as Exhibit 16.1 to the Registrants' Form 8-K filed with the
Commission on July 2, 2002 (the "Exhibit 16. 1 Letter") that (i) the following
"Reportable Events" caused Deloitte to believe that the scope of its audit
needed to be significantly expanded and (ii) such events, if investigated
further, may (a) materially impact the fairness or reliability of Deloitte's
previously issued audit reports or the underlying financial statements or (b)
lead Deloitte to no longer be able to rely on management. At the time of
Deloitte's dismissal, the composition of Adelphia's Board of Directors, Audit
Committee, and management had changed from the composition at the time the
matters discussed below under the heading "Reportable Events" occurred.
The Audit Committee discussed the Reportable Events referred to below with
Deloitte and the Registrants authorized Deloitte to respond fully to inquiries
of PwC concerning the Reportable Events.
In March 2002, Adelphia's Board of Directors appointed a Special Committee
of Independent Directors (the "Special Committee") whose charter was later
expanded to include authority to review business relationships between Adelphia
and affiliates of the Rigas family. The Special Committee is investigating,
among other things, transactions between Adelphia and its subsidiaries on the
one hand, and the Rigas family and their affiliates on the other hand, including
the facts underlying the "Reportable Events" described below. The Special
Committee's investigation is proceeding, and information developed by the
Special Committee has formed part of the basis of: (1) a criminal indictment of
five former members of management, (2) a civil suit by the Commission, (3)
Adelphia's civil suit against, among others, the former controlling family of
Adelphia, and (4) action taken against certain employees, including dismissal,
mandatory leave, and job reassignment. Adelphia anticipates that the internal
investigation by the Special Committee may continue to disclose improper action
by prior management and others that may require further changes to or
supplements of previously filed financial statements. In addition, the
Reportable Events described below and in the Exhibit 16.1 Letter arose out of
events that occurred during prior management's tenure.
Reportable Events
- -----------------
As part of its review the Special Committee identified accounting and
disclosure issues, some of which raised questions about whether Adelphia's
management had engaged in improper activities. On May 14, 2002, Deloitte advised
Adelphia that it had suspended its audit of the financial statements of Adelphia
and the Registrants for the year ended December 31, 2001 and provided Adelphia
with a list of issues that, according to Deloitte, needed to be resolved before
the issuance of Adelphia's and the Registrants' Annual Reports on Form 10-K.
Included in this list were circumstances that raised questions about whether
employees of Adelphia had falsified accounting records and/or engaged in other
conduct in violation of law. On May 15, 2002, the Board of Directors authorized
a formal investigation by counsel to the Special Committee into the nature and
propriety of transactions between Adelphia and affiliates of the Rigas family,
the integrity of Adelphia's books and records, the accuracy and completeness of
Adelphia's financial accounting, Adelphia's compliance with its obligations
under credit agreements and other debt instruments, and any other matters
related to Adelphia that the Special Committee decides should
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be investigated. On June 9, 2002, following the transmission of (and without
acknowledging receipt of) Adelphia's letter dismissing Deloitte, Adelphia
received a letter from Deloitte in which Deloitte stated that it was still not
prepared to resume its audit. In that letter Deloitte noted that Adelphia
continued to employ executives who might have been involved in inappropriate
conduct related to Adelphia's financial reporting and stated: "To the extent
that any of those persons have been involved in illegal activities, there is no
way that we would be willing to rely on their representations, and indeed the
mere fact that they remain in their positions raises additional concerns." In a
letter dated June 13, 2002 to Deloitte, Adelphia responded by noting that since
May 25 Adelphia's accounting and finance staff have been headed by Christopher
Dunstan, Chief Financial Officer and Treasurer, and Steven B. Teuscher, Chief
Accounting Officer. In addition, Adelphia has retained Conway, Del Genio, Gries
& Co. LLC ("Conway Del Genio") for restructuring advice. Neither Messrs. Dunstan
or Teuscher, nor Conway Del Genio, had any connection with Adelphia during the
time that the potentially improper activities may have occurred. The members of
Adelphia's accounting, finance and bank and investor relations staff referred to
in Deloitte's letter, who may have known about or been directly implicated in
inappropriate conduct, have been discharged, placed on leave, or have been
transferred to other duties pending completion of the investigation being
conducted by counsel to the Special Committee. In the letter, Adelphia noted
that: "The management representations required in connection with the audit of
Adelphia's financial statements will be provided by officers who had no
involvement in prior management's improper activities and who will be adequately
informed about the issues relating to the company's financial statements by the
findings of the Special Committee counsel."
Co- Borrowing Agreements
------------------------
As reported in Adelphia's Form 8-K filed with the Commission on May 24,
2002, various subsidiaries of Adelphia have entered into co-borrowing facilities
with certain entities owned by the Rigas family and managed by Adelphia (the
"Rigas Entities"). Historically, Deloitte had issued an unqualified audit
opinion with respect to Adelphia financial statements that only reported the
borrowings attributable to Adelphia and its subsidiaries under such co-borrowing
agreements on such financial statements, and provided footnote disclosure as to
the total amount of borrowings permitted under such facilities without
disclosing the amount of such borrowings attributable to the Rigas Entities then
outstanding and without stating that the outstanding borrowings attributable to
the Rigas Entities were not included in the borrowings reflected as indebtedness
on Adelphia financial statements.
On May 9, 2002, Deloitte met with Timothy Rigas, former Chief Financial
Officer, James Brown, former Vice President of Finance, (both of whom have been
arrested and named as defendants in a criminal action by the United States
Attorney's Office and a civil action brought by the Commission), counsel for
Adelphia and counsel for Timothy Rigas to prepare for a May 10, 2002 meeting
with the Commission to discuss Adelphia's tentative conclusions regarding the
accounting treatment for Adelphia's co-borrowing agreements. At the May 9
meeting, Deloitte took the position that all debt under the co-borrowing
agreements, except the amounts directly used by the Rigas Entities for
acquisitions and operating expenses, should be recorded as debt on Adelphia's
consolidated financial statements. Deloitte supported the position that the
Rigas Entities are the primary obligors for those amounts directly used in their
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business, and therefore, this debt need not be recorded by Adelphia. This
position was presented by prior management and Deloitte at the meeting with the
Commission on May 10, 2002.
At the May 10, 2002 meeting, the Commission requested that Deloitte and
Adelphia provide the Commission with copies of two letters from Adelphia's
outside counsel at that time, Buchanan Ingersoll, which contained a legal
analysis that Deloitte relied upon in reaching its position concerning the
amount of the co-borrowings to carry on Adelphia's balance sheet. Immediately
following the May 10, 2002 meeting with the Commission, Deloitte urged Adelphia
to provide the Commission with both the first and the second Buchanan Ingersoll
letter. Timothy Rigas and his counsel were initially opposed to providing the
Commission with the second Buchanan Ingersoll letter; however, Adelphia
subsequently authorized Deloitte to provide the letter to the SEC.
Subsequent to the May 10, 2002 meeting with the Commission and based on the
input and discussion with the Commission, Adelphia changed its preliminary
conclusion concerning the accounting treatment of the co-borrowing agreements.
Through the date of Deloitte's dismissal, Deloitte and Adelphia were in
continued discussions over what portion, if not all, of the borrowings under the
co-borrowing agreements attributable to the Rigas Entities under the
co-borrowing agreements should be reported on Adelphia's consolidated financial
statements. This issue had not been resolved at the time of Deloitte's
dismissal, and if Deloitte had not been dismissed and the issue had remained
unresolved it would have constituted a "disagreement" within the meaning of
Section 303(a)(1)(iv) of Regulation S-K.
Adelphia announced on May 23, 2002 that it has tentatively concluded that
it would increase to approximately $2.6 billion the amount of indebtedness to be
included in its consolidated financial statements, as of December 31, 2001, to
reflect the full amount of principal borrowings by the Rigas Entities under the
co-borrowing arrangements for which subsidiaries of Adelphia are jointly and
severally liable. Adelphia and PwC are continuing to evaluate this position.
Digital Cable Converter Boxes
-----------------------------
A post-closing journal entry was made by Adelphia, effective as of December
31, 2001, to record approximately $102 million in digital cable converter boxes
as an asset on the books of a Rigas Entity that was party to one of the
co-borrowing agreements but that was not a subsidiary of Adelphia. In a related
transaction, $102 million in borrowings under a co-borrowing agreement were
removed from Adelphia's books and recorded on the books of another Rigas Entity.
On April 29, 2002, Deloitte advised the Audit Committee of its concerns
regarding the transactions including, prior management's initial inability to
explain the basis for the transactions and the inability of prior management to
provide proper evidence for such transactions. Deloitte was also concerned with
the following: (i) the cable converter boxes had originally been transferred by
Adelphia in October 2001 to a Rigas Entity that did not engage in cable
operations, (ii) the debt assumed was recorded on the books of a different
entity than the one on whose books the cable converter boxes were recorded,
(iii) the quantity of cable converter boxes was substantially in excess of the
quantities that could be used by the Rigas Entity and (iv) the transfer of the
cable converter boxes to a Rigas Entity had the effect of reducing the capital
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expenditures of Adelphia without a readily apparent justification. The Audit
Committee immediately conducted an investigation, and during interviews with
prior management (including persons who have subsequently been arrested and
named as defendants in criminal and civil actions brought by the United States),
was given information, the accuracy of which is in question due to recent events
and the Special Committee's investigation, indicating that there was a business
purpose for the transactions. However, as a result of the Audit Committee's
investigation, the Audit Committee concluded that the accounting for the
transaction was improper and the entries should be reversed so that the $102
million in cable converter boxes and the related indebtedness under the
co-borrowing agreement would be recorded on the financial statements of
Adelphia.
Debt Compliance Issues including Required Financial Statements
--------------------------------------------------------------
UCA/HHC Waiver: Adelphia was required to provide audited financials to the
lenders under its UCA/HHC co-borrowing agreement by April 30, 2002. As of April
27, 2002, Deloitte had indicated that it did not yet have the necessary
information to enable them to issue their report on the combined financial
statements of the borrowing group but that it would endeavor to make the April
30, 2002 deadline. Adelphia sought a waiver from the lenders of the requirement
to deliver audited financials by April 30, 2002. Adelphia did not advise
Deloitte that it was seeking a waiver or of the status of its efforts to obtain
such a waiver as they wanted Deloitte to continue working towards issuing its
report on the combined financial statements of the borrowing group to be issued
prior to the date, May 1, 2002, that would trigger a default under the
agreement. Adelphia received the waiver on the afternoon of April 30, 2002.
Adelphia then prepared a press release announcing, among other events, the
waiver. A draft of this release was discussed via conference call with outside
Adelphia counsel into the evening of April 30, 2002 and the early morning hours
of May 1, 2002. Adelphia and its outside counsel discussed the necessity of
clearing the press release with Deloitte before being issued to the public. The
draft press release announcing the waiver was sent to Deloitte after it had been
approved by Adelphia and its outside counsel early in the morning hours of May
1, 2002, prior to the time the press release was issued.
Certification and Calculation Issues: In the Exhibit 16.1 Letter Deloitte
advised the Audit Committee to investigate certain matters in connection with
debt compliance calculations and certifications required by Adelphia's and
certain of Adelphia's subsidiaries' compliance with their respective public
indenture and other credit agreements including: (i) certifications of debt
compliance prepared by Adelphia and sent to the respective trustees that were
not supported by underlying calculations, (ii) certifications of debt compliance
sent to the respective trustees that did not contain the appropriate number of
signatories or were signed by an unauthorized person and (iii) a $275 million
intercompany dividend that was recorded through a journal entry made by Adelphia
on May 6, 2002, that had been backdated to give retroactive effect to the
transaction as if it had occurred in February 2002. The Special Committee is
continuing to investigate these matters and Adelphia is working with new
management and PwC to properly account for these matters.
At the close of business on Thursday, June 13, 2002, the Registrants faxed
a draft of the disclosures made under Item 4 to the Registrants' Form 8-K filed
with the Commission on June 28, 2002 to Deloitte, which advised the Registrants
that it would not provide comments on such draft, but rather would respond to
the Registrants' filing by transmitting to the Registrants a letter
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addressed to the Commission pursuant to Item 304(a)(3) of Regulation S-K. A copy
of such letter is filed as Exhibit 16.1 to the Registrants' form 8-K filed on
July 2, 2002. On Thursday, August 8, 2002, the Registrants faxed a draft of
Amendment No. 3, which includes the changes made to Item 4 since July 2, 2002 to
Deloitte. On Friday, August 16, 2002, Deloitte informed Adelphia that it had
read Amendment No. 3 and it believes there continue to be inaccuracies and
omissions in this Form 8-K/A, which it believes are evident from a review of the
Exhibit 16.1 Letter. Deloitte did not provide any further comments to Amendment
No. 3.
Adelphia believes that Deloitte's refusal to resume its audit was
unreasonable. In light of that unreasonable refusal, Adelphia determined that it
was not appropriate to share with Deloitte any additional information, including
the information Deloitte claims was withheld.
Cautionary Statement Regarding Financial and Operating Data
As previously reported, as a result of actions taken by the former
management of Adelphia: (a) Adelphia has not yet completed its financial
statements as of or for the year ended December 31, 2001, or received its
independent auditors' reports thereon or filed with the Commission its Form 10-K
for the year ended December 31, 2001; (b) Adelphia has not yet completed its
financial statements as of and for the three months ended March 31, 2002, or
filed with the Commission its Form 10-Q for the quarter ended March 31, 2002;
and (c) Adelphia expects to restate its financial statements for the years ended
December 31, 1999 and 2000, and its interim financial statements for 2001 and
possibly other periods. Current management took control in May 2002 and has
retained new independent auditors and begun the preparation of new financial
statements for the periods in question; however, Adelphia does not believe that
it will have completed the preparation of the foregoing financial information
prior to the conclusion of the third quarter. In addition, current management
believes that the public information provided by prior management on other
matters of interest to investors, such as Adelphia's rebuild percentage (the
percentage of Adelphia's cable television systems that Adelphia believes have
been upgraded to current standards), was unreliable. As a result, the
Registrants anticipate that they may have to supplement the financial and other
information contained in this Form 8-K and that such supplemental information
may be material.
Cautionary Statement Regarding Forward Looking Statements
This document includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All statements regarding Adelphia, the Registrants and their
subsidiaries' (collectively, the "the Registrants'") expected future financial
position, results of operations, cash flows, restructuring and financing plans,
business strategy, budgets, projected costs, capital expenditures, competitive
positions, growth opportunities, plans and objectives of management for future
operations and statements that include words such as "anticipate," "if,"
"believe," "plan," "estimate," "expect," "intend," "may," "could," "should,"
"will," and other similar expressions are forward-looking statements. Such
forward-looking statements are inherently uncertain, and readers must recognize
that actual results may differ from the Registrants' expectations. The
Registrants do not undertake a duty to update such forward-looking statements.
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Actual future results and trends for the Registrants may differ materially
depending on a variety of factors discussed in the Registrants' filings with the
Commission, including their recently filed Current Reports on Form 8-K, the most
recently filed Quarterly Reports on Form 10-Q and the Forms 10-K for the year
ended December 31, 2000. Factors that may affect the plans or results of the
Registrants include, without limitation: (a) Adelphia's and the Registrants'
filing of petitions for relief under Chapter 11 of the United States Bankruptcy
Code; (b) the results of litigation against Adelphia including the recently
filed civil complaint by the Commission and the potential for a criminal
indictment of Adelphia; (c) the lack of substantial cable industry experience
among certain members Adelphia's senior management; (d) the effects of
government regulations and the actions of local cable franchise authorities; (e)
the availability of debtor-in-possession financing and surety bonds to support
Adelphia's operations; (f) the results of Adelphia's internal investigation and
the matters described above under "Cautionary Statement Regarding Financial and
Operating Data"; (g) actions of Adelphia's competitors; (h) the pricing and
availability of equipment, materials, inventories and programming; (i) product
acceptance and customer spending patterns; (j) Adelphia's ability to execute on
its business plans, to provide uninterrupted service to its customers and to
conduct, expand and upgrades its networks; (k) technological developments; (l)
matters relating to or in connection with the recent bankruptcy filing and
proceedings of Adelphia Business Solutions, Inc.; (m) changes in general
economic conditions and/or economic conditions in the markets in which Adelphia
may, from time to time, compete; (n) the movement of interest rates and the
resulting impact on Adelphia's interest obligations with respect to its
pre-petition bank debt; and (o) the delisting of Adelphia Communication
Corporation's common stock by Nasdaq. Many of such factors are beyond the
control of Adelphia and its management.
Item 7(c). Exhibits
16.1 Letter regarding change in certifying accountant. Previously filed.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 20, 2002 FRONTIERVISION OPERATING
PARTNERS, L.P. (Registrant)
By: /s/ Christopher T. Dunstan
------------------------------
Christopher T. Dunstan
Chief Financial Officer
FRONTIERVISION CAPITAL
CORPORATION (Registrant)
By: /s/ Christopher T. Dunstan
------------------------------
Christopher T. Dunstan
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
16.1 Letter regarding change in certifying accountant. Previously
filed.