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 June 30, 2000
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: 333-9535 and 333-9535-01
FrontierVision Operating Partners, L.P.
FrontierVision Capital Corporation*
(Exact names of Registrants as specified in their charters)
Delaware 84-1316775
Delaware 84-1353734
(States or other jurisdiction (IRS Employer Identification Numbers)
of incorporation or organization)
One North Main Street
Coudersport, PA 16915-1141
(Address of principal executive offices) (Zip Code)
(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 Capital Corporation
outstanding as of August 14, 2000: 100.
*FrontierVision Capital Corporation meets the conditions set forth in General
Instruction H (1) (a) and (b) to the Form 10-Q and is therefore filing with the
reduced disclosure format.
FRONTIERVISION OPERATING PARTNERS, L.P.
FRONTIERVISION CAPITAL CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1999 and June 30, 2000............................. 3
Condensed Consolidated Statements of Operations - Three and Six Months
Ended June 30, 1999 and 2000....................................................................... 4
Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 1999 and 2000............... 5
Notes to Condensed Consolidated Financial Statements.................................................... 6
Balance Sheets of FrontierVision Capital Corporation - December 31, 1999 and June 30, 2000.............. 9
Note to Balance Sheets ................................................................................ 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................... 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................... 17
Item 2. Changes in Securities and Use of Proceeds............................................................ 17
Item 3. Defaults Upon Senior Securities...................................................................... 17
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 17
Item 5. Other Information.................................................................................... 17
Item 6. Exhibits and Reports on Form 8-K..................................................................... 17
SIGNATURES ................................................................................................ 18
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
December 31, June 30,
1999 2000
------------------ ------------------
ASSETS:
Cable systems, at cost, net of accumulated depreciation and amortization:
Property, plant and equipment $ 407,554 $ 440,763
Intangible assets 1,495,947 1,472,241
------------------ ------------------
Total 1,903,501 1,913,004
Cash and cash equivalents 7,412 6,900
Subscriber receivables - net 13,800 15,033
Prepaid expenses and other assets - net 20,590 21,207
------------------ ------------------
Total assets $ 1,945,303 $ 1,956,144
================== ==================
LIABILITIES AND PARTNERS' EQUITY:
Bank and public debt $ 874,522 $ 862,567
Other debt 10,173 12,400
Accounts payable 34,871 27,676
Subscriber advance payments and deposits 8,404 10,076
Accrued interest and other liabilities 23,790 30,479
Deferred income taxes 10,045 10,785
------------------ ------------------
Total liabilities 961,805 953,983
------------------ ------------------
Commitments and contingencies (Note 6)
Partners' equity:
FrontierVision Holdings, L.P. 982,514 1,001,159
FrontierVision Operating Partners, L.L.C. 984 1,002
------------------ ------------------
Total partners' equity 983,498 1,002,161
------------------ ------------------
Total liabilities and partners' equity $ 1,945,303 $ 1,956,144
================== ==================
<FN>
See notes to condensed consolidated financial statements.
</FN>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands)
Old FVOP New FVOP Old FVOP New FVOP
------------------- ------------------- ------------------- -------------------
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------------- ----------------------------------------
1999 2000 1999 2000
------------------- ------------------- ------------------- -------------------
Revenues $ 74,296 $ 78,576 $ 146,713 $ 153,413
------------------- ------------------- ----------------- -----------------
Operating Expenses:
Direct operating and programming 27,996 28,259 54,924 54,573
Selling, general and administrative 14,290 12,708 26,995 24,890
Depreciation and amortization 32,352 22,403 63,266 44,365
------------------- ------------------- ----------------- -----------------
Total 74,638 63,370 145,185 123,828
------------------- ------------------- ----------------- -----------------
Operating (loss) income (342) 15,206 1,528 29,585
Other (expense) income:
Interest expense - net (19,727) (19,056) (37,950) (38,586)
Other 7,542 -- 9,180 --
------------------- ------------------- ----------------- -----------------
Total (12,185) (19,056) (28,770) (38,586)
Loss before income taxes (12,527) (3,850) (27,242) (9,001)
Income tax benefit (expense) 692 (379) 1,387 (740)
------------------- ------------------- ----------------- -----------------
Net loss $ (11,835) $ (4,229) $ (25,855) $ (9,741)
=================== =================== ================= =================
<FN>
See notes to condensed consolidated financial statements.
</FN>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Old FVOP New FVOP
--------------------- ----------------------
Six Months Six Months
Ended Ended
June 30, June 30,
1999 2000
--------------------- ----------------------
Cash flows from operating activities:
Net loss $ (25,855) $ (9,741)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 63,266 44,365
(Decrease) increase in deferred taxes (1,387) 740
Gain on disposal of assets (9,193) --
Non cash interest expense -- (918)
Changes in operating assets and liabilities, net of
effects of acquisitions:
Subscriber receivables (1,952) (1,037)
Prepaid expenses and other assets 713 1,848
Accounts payable and accrued interest and other liabilities 11,312 (1,603)
Subscriber advance payments and deposits (116) 1,666
--------------------- ----------------------
Net cash provided by operating activities 36,788 35,320
--------------------- ----------------------
Cash flows from investing activities:
Capital expenditures (46,930) (48,934)
Acquisitions (13,249) (3,128)
Proceeds from disposal of assets 6,698 --
--------------------- -----------------------
Net cash used for investing activities (53,481) (52,062)
--------------------- -----------------------
Cash flows from financing activities:
Proceeds from debt 12,982 --
Repayments of debt (4,067) (12,174)
Costs associated with financing (86) --
Partner capital contributions 9,039 28,404
--------------------- -----------------------
Net cash provided by financing activities 17,868 16,230
--------------------- -----------------------
Increase (decrease) in cash and cash equivalents 1,175 (512)
Cash and cash equivalents, beginning of period 4,890 7,412
--------------------- -----------------------
Cash and cash equivalents, end of period $ 6,065 $ 6,900
===================== =======================
<FN>
See notes to condensed consolidated financial statements.
</FN>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
1. The Partnership and Basis of Presentation:
Organization and Capitalization
FrontierVision Operating Partners, L.P. ("FVOP"), wholly-owned by
FrontierVision Holdings, L.P., a Delaware limited partnership ("Holdings"), is a
Delaware limited partnership formed on July 14, 1995 for the purpose of
acquiring and operating cable television systems. FrontierVision Partners, L.P.
("FVP") contributed to Holdings, both directly and indirectly, all of the
outstanding partnership interests of FVOP prior to the issuance of the 11 7/8%
Senior Discount Notes due 2007 on September 19, 1997 and, as a result FVOP and
its wholly-owned subsidiary, FrontierVision Capital Corporation ("Capital"), are
wholly-owned, consolidated subsidiaries of Holdings. Capital, a Delaware
corporation, is a wholly-owned subsidiary of FVOP, and was organized on July 26,
1996 for the sole purpose of acting as co-issuer with FVOP of $200,000 aggregate
principal amount of 11% Senior Subordinated Notes due 2006 (the "Notes").
Capital has nominal assets and does not have any material operations. As used
herein, the "Company" collectively refers to FVOP and its consolidated
subsidiaries.
On October 1, 1999, FVP completed its sale of all outstanding partnership
interests of FVP to Adelphia Communications Corporation ("Adelphia") in exchange
for approximately $537,000 in cash, approximately 6.9 million shares of Adelphia
Class A common stock and the assumption of certain liabilities. 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.
The acquisition of FVP by Adelphia has been accounted for using the
purchase method of accounting. Accordingly, the preliminary allocation of
Adelphia's purchase price to acquire FVP has been reflected in New FVOP's
consolidated financial statements as of October 1, 1999. A final allocation of
Adelphia's purchase price to acquire FVP is pending the completion of
third-party valuations.
Selected financial and other data and consolidated financial statements
for periods prior to October 1, 1999 are referred to herein as "Old FVOP",
whereas; periods subsequent to October 1, 1999 are referred to herein as "New
FVOP".
Reference to Annual Report
The accompanying 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 FVOP's
Annual Report on Form 10-K for the year ended December 31, 1999 (File No.
333-9535) (the "FVOP 10-K") for additional disclosures, including a summary of
the Company's accounting policies.
In management's opinion, all adjustments consisting of only normal
recurring adjustments, necessary for a fair presentation of the financial
position of FVOP at June 30, 2000 and the results of operations for the three
and six month periods ended June 30, 1999 and 2000 have been included. The
results of operations for the three and six month periods ended June 30, 1999
and 2000 are not necessarily indicative of the results to be expected for the
year ending December 31, 2000.
Reclassifications
Certain 1999 amounts have been reclassified to conform to the 2000
presentation.
2. Acquisitions and Dispositions:
Acquisitions
The Company has completed numerous acquisitions since its inception
through June 30, 2000. 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. Amounts allocated
to property, plant and equipment and to intangible assets are respectively
depreciated and amortized, prospectively from the date of acquisition based upon
remaining useful lives and amortization periods.
On February 22, 2000, FVOP completed the acquisition of two Internet
Service Providers ("ISP's") in its New England cluster, Main Internetworks, Inc.
and Landmark Net Access, Inc. These ISP's, serving approximately 19,000
customers, were purchased for consideration including cash totaling
approximately $3,100.
Dispositions
On January 7, 1999, the Company sold certain cable television system
assets serving approximately 4,400 basic subscribers to Helicon Partners I, L.P.
for an aggregate sales price of approximately $5,200.
System Swaps
On June 1, 1999, the Company completed the exchange of five systems
located in northern Kentucky for five Intermedia Partners, LP IV systems located
in communities near Lexington, Kentucky which are contiguous to other of the
Company's Kentucky systems. The Company paid approximately $13,300 as
consideration for approximately 5,300 subscribers the Company gained in the
transaction.
3. Debt:
The Company's debt was comprised of the following:
December 31, June 30,
1999 2000
-------------- --------------
Bank and Public Debt:
Bank Credit Facility
Revolving Credit Facility, interest based on various floating rate
options (8.33% and 8.24% average at December 31, 1999 and June 30,
2000, respectively), payable monthly $ 175,000 $ 175,000
Term loans, interest based on various floating LIBOR rate options
(8.52% and 8.58% weighted average at December 31, 1999 and June 30,
2000, respectively), payable monthly 486,981 475,943
11% Senior Subordinated Notes due 2006 212,541 211,624
-------------- --------------
Total $ 874,522 $ 862,567
============== ==============
Other Debt:
Capital leases $ 10,173 $ 12,400
============== ==============
4. Supplemental Financial Information:
Cash payments for interest were $37,817 and $31,078 for the six months
ended June 30, 1999 and 2000, respectively. Accumulated depreciation of
property, plant and equipment amounted to $9,798 and $29,773 at December 31,
1999 and June 30, 2000, respectively. Accumulated amortization of intangible
assets amounted to $11,634 and $34,748 at December 31, 1999 and June 30, 2000,
respectively.
5. Income Taxes:
Income tax benefit (expense) for the three and six months ended June 30,
1999 and 2000 was substantially comprised of deferred taxes.
6. Commitments and Contingencies:
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations for a discussion of material commitments and
contingencies.
7. Recent Accounting Pronouncements:
Statement of Financial Accounting Standards ( "SFAS ") No. 133,
"Accounting for Derivative Instruments and Hedging Activities ", establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. In June 2000, SFAS No. 138 was issued which amends
the accounting and reporting standards of SFAS No. 133 for certain derivative
instruments and certain hedging activities. Management of the Company has not
completed its evaluation of the impact of SFAS No. 133 on the Company's
consolidated financial statements. The Company will be required to adopt SFAS
No. 133 effective January 1, 2001.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FRONTIERVISION CAPITAL CORPORATION
BALANCE SHEETS (Unaudited)
December 31, June 30,
1999 2000
----------------- -----------------
ASSETS:
Cash $ -- $ --
----------------- -----------------
Total assets $ -- $ --
================= =================
LIABILITIES AND OWNER'S EQUITY (DEFICIT):
Payable to FVOP $ 100 $ 100
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
Retained deficit (200) (200)
----------------- -----------------
Total owner's deficit (100) (100)
----------------- -----------------
Total liabilities and owner's deficit $ - $ --
================= =================
<FN>
See note to balance sheets.
</FN>
FRONTIERVISION CAPITAL CORPORATION
NOTE TO BALANCE SHEETS (Unaudited)
FrontierVision Capital Corporation, a Delaware corporation ("Capital"), is
a wholly owned subsidiary of FrontierVision Operating Partners, L.P. ("FVOP"),
and was organized on July 26, 1996 for the sole purpose of acting as co-issuer
with FVOP of $200.0 million aggregate principal amount at maturity of the 11%
Senior Subordinated Notes. Capital had no operations in the six months ended
June 30, 1999 and 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
(Dollars in thousands)
Introduction
FrontierVision Operating Partners, L.P. ("FVOP"), wholly-owned by
FrontierVision Holdings, L.P., a Delaware limited partnership ("Holdings"), is a
Delaware limited partnership formed on July 14, 1995 for the purpose of
acquiring and operating cable television systems. FrontierVision Partners, L.P.
("FVP") contributed to Holdings, both directly and indirectly, all of the
outstanding partnership interests of FVOP prior to the issuance of the 11 7/8%
Senior Discount Notes due 2007 on September 19, 1997 and, as a result FVOP and
its wholly-owned subsidiary, FrontierVision Capital Corporation ("Capital"), are
wholly-owned, consolidated subsidiaries of Holdings. Capital, a Delaware
corporation, is a wholly-owned subsidiary of the Company, and was organized on
July 26, 1996 for the sole purpose of acting as co-issuer with the Company of
$200,000 aggregate principal amount of 11% Senior Subordinated Notes due 2006
(the "Notes"). Capital has nominal assets and does not have any material
operations. As used herein, the "Company" collectively refers to FVOP and its
consolidated subsidiaries.
On October 1, 1999, FVP completed its sale of all outstanding partnership
interests of FVP to Adelphia Communications Corporation ("Adelphia") in exchange
for approximately $537,000 in cash, approximately 6.9 million shares of Adelphia
Class A common stock and the assumption of certain liabilities.
FVOP operates cable television systems ("Systems") in small and
medium-sized suburban and exurban communities in the United States in three
primary operating clusters--New England, Ohio and Kentucky--with a fourth
smaller group of Systems in the southeast. As of June 30, 2000, the Company
owned Systems with broadband networks that passed in front of approximately
1,021,000 homes and served approximately 703,000 basic subscribers. In addition
to traditional analog cable television, the Company, or one of its affiliates,
offers a wide range of telecommunication services including digital cable
television, high speed data and Internet access, paging and telephony.
Results of Operations
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q, including Management's Discussion and Analysis of Financial Condition
and Results of Operations, is forward-looking, such as information relating to
the effects of future regulation, future capital commitments and the effects of
competition. Such forward-looking information involves important risks and
uncertainties that could significantly affect expected results in the future
from those expressed in any forward-looking statements made by, or on behalf of,
the Company. These "forward looking statements" can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "will",
"should", "intends" or "anticipates" or the negative thereof or other variations
thereon or comparable terminology or by discussions of strategy that involve
risks and uncertainties. These risks and uncertainties include, but are not
limited to, uncertainties relating to economic conditions, acquisitions and
divestitures, government and regulatory policies, the availability and cost of
capital, the pricing and availability of equipment, materials, inventories and
programming, product acceptance, technological developments and changes in the
competitive environment in which the Company operates. Persons reading this Form
10-Q are cautioned that forward-looking statements herein are only predictions,
that no assurance can be given that the future results will be achieved, and
that actual events or results may differ materially as a result of the risks and
uncertainties facing the Company. For further information regarding those risks
and uncertainties and their potential impact on the Company, see the prospectus
and most recent prospectus supplement filed under Registration Statement No.
333-78027 of Adelphia Communications Corporation, or under Registration
Statement Nos. 333-75567 and 333-9535 of FVOP, under the heading "Risk Factors".
The Company does not undertake to update any forward-looking statements in this
report or with respect to matters described herein.
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
(Dollars in thousands)
As described in Note 1 to the accompanying condensed consolidated
financial statements, the acquisition of FVP by Adelphia occurred on October 1,
1999. Accordingly, the financial statements for periods prior to October 1, 1999
are referred to herein as Old FVOP, and the financial statements for periods
subsequent to October 1, 1999 are referred to herein as New FVOP. Due to the
October 1, 1999 application of the preliminary purchase accounting in connection
with the acquisition of FVP by Adelphia, the predecessor condensed consolidated
financial statements of Old FVOP are not comparable to the successor condensed
consolidated financial statements of New FVOP.
For purposes of the following table and discussion, depreciation and
amortization and certain other line items included in the operating results of
New FVOP are not necessarily comparable to the operating results of Old FVOP due
to the effect of the preliminary purchase accounting adjustment related to the
acquisition of FVP by Adelphia.
The following table illustrates the Company's operating activities:
Percentage of Revenues
---------------------------------------------------------------
Old FVOP New FVOP Old FVOP New FVOP
--------------- --------------- --------------- ---------------
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 2000 1999 2000
--------------- --------------- --------------- ---------------
Revenues 100.0% 100.0% 100.0% 100.0%
Expenses:
Direct operating and programming 37.7% 36.0% 37.4% 35.6%
Selling, general and administrative 19.2% 16.2% 18.4% 16.2%
Depreciation and amortization 43.5% 28.5% 43.1% 28.9%
--------------- --------------- --------------- ---------------
Operating income (0.4%) 19.3% 1.1% 19.3%
=============== =============== =============== ===============
Revenues. Revenues increased 5.8% and 4.6% for the three and six months
ended June 30, 2000 compared with the same periods of the prior year. This
increase was primarily attributable to rate increases which went into effect
during the previous twelve months in addition to a management fee charged to an
affiliate company.
Direct operating and programming. These expenses, which are comprised
mainly of programming costs and technical expenses, increased 0.9% and decreased
by 0.6% for the three and six months ended June 30, 2000 compared with the same
periods of the prior year. The increase and decrease were both primarily
attributable to the net effect of programming supplier rate increases that went
into effect on January 1, 1999 and 2000 and a decrease in programming costs due
to the acquisition of FVP by Adelphia.
Selling, general and administrative. These expenses, which are comprised
mainly of costs relating to system offices, customer service representatives and
sales and administrative employees, decreased 11.1% and 7.8% for the three and
six months ended June 30, 2000 compared with the same periods of the prior year.
This decrease is primarily attributable to synergies realized from a reduction
in corporate overhead due to the acquisition of FVP by Adelphia.
Depreciation and amortization. Depreciation and amortization decreased
30.8% and 29.9% for the three and six months ended June 30, 2000 compared with
the same periods of the prior year. This decrease is primarily due to a
reduction in depreciation and amortization expense caused by conforming the
Company's depreciation and amortization periods to those of Adelphia.
Interest expense - net. Interest expense - net decreased 3.4% and
increased 1.7% for the three and six months ended June 30, 2000 compared with
the same periods of the prior year. The increase and decrease were both
primarily attributable to the net effect of an increase in the average interest
rate on outstanding variable rate indebtedness and a decrease in the average
amount of outstanding indebtedness.
Other (expense) income. Other income includes a gain of approximately
$9,200 for the six months ended June 30, 1999. This gain is due to the asset
exchange with Intermedia Partners, IV on June 1, 1999, the sale of cable
television systems to Helicon Partners I, L.P. on January 7, 1999 and the sale
of certain real estate during the period.
Liquidity and Capital Resources
The cable television business is capital intensive and typically requires
continual financing for the construction, modernization, maintenance, expansion
and acquisition of cable systems. The Company historically has committed
substantial capital resources for these purposes. These expenditures were funded
through bank borrowings, public debt, equity investments, debt issued by
affiliates and advances from affiliates and internally generated funds. The
Company's ability to generate cash to meet its future needs will depend
generally on its results of operations and the continued availability of
external financing.
The Company has made a substantial commitment to the technological
development of its systems and is aggressively investing in the upgrade of the
technical capabilities of its cable plant in a cost efficient manner. The
Company continues to deploy fiber optic cable and to upgrade the technical
capabilities of its broadband networks in order to increase network capacity,
digital capability, two-way communication and network reliability.
Capital expenditures for the six months ended June 30, 1999 and 2000 were
$46,930 and $48,934, respectively. The increase in capital expenditures for the
six months ended June 30, 2000 compared with the same period of the prior year
was primarily due to the continual upgrading of the plant to be completely
addressable and provide two-way communication capability. The Company expects
capital expenditures for 2000 to range from $110,000 to $150,000.
At June 30, 2000, the Company's total outstanding debt aggregated
approximately $874,967, which includes public, bank and other debt. As of June
30, 2000, the Company had an aggregate of $125,000 in unused credit lines and
cash and cash equivalents.
The Company's weighted average interest rate on amounts payable to banks
was approximately 7.4% at June 30, 1999 compared to 8.5% at June 30, 2000. At
June 30, 2000, approximately 40.7% of such debt was subject to fixed interest
rates for at least one year under the terms of such debt or applicable interest
rate swap, cap and collar agreements.
The following table sets forth the mandatory reductions in principal under
all debt agreements for each of the next four years and six months based on
amounts outstanding at June 30, 2000:
Six months ending December 31, 2000 $ 15,397
Year ending December 31, 2001 37,210
Year ending December 31, 2002 47,210
Year ending December 31, 2003 58,460
Year ending December 31, 2004 62,847
The Company plans to continue to explore and consider new commitments,
arrangements or transactions to refinance existing debt, increase the Company's
liquidity or decrease the Company's leverage. These could include, among other
things, the future issuance by FVOP, of public or private equity or debt and the
negotiation of new or amended credit facilities. These could also include
entering into acquisitions, joint ventures or other investment or financing
activities, although no assurance can be given that any such transactions will
be consummated. The Company's ability to borrow under current credit facilities
and to enter into refinancings and new financings is limited by covenants
contained in FVOP's indentures and credit agreements, including covenants under
which the ability to incur indebtedness is, in part, a function of applicable
ratios of total debt to cash flow.
The Company believes that cash and cash equivalents, internally generated
funds, borrowings under the existing credit facilities, and future financing
sources will be sufficient to meet its short-term and long-term liquidity and
capital requirements. Although in the past the Company has been able to
refinance its indebtedness or obtain new financing, there can be no assurance
that the Company will be able to do so in the future or that the terms of such
financings would be favorable.
Management believes that the telecommunications industry, including the
cable television and telephone industries, continues to be in a period of
consolidation characterized by mergers, joint ventures, acquisitions, sales of
all or part of cable or telephone companies or their assets, and other
partnering and investment transactions of various structures and sizes involving
cable or other telecommunications companies. The Company continues to evaluate
new opportunities that allow for the expansion of its business through the
acquisition of additional cable television systems in geographic proximity to
its existing regional markets or in locations that can serve as a basis for new
market areas. The Company, like other cable television companies, has
participated from time to time and is participating in preliminary discussions
with third parties regarding a variety of potential transactions, and the
Company has considered and expects to continue to consider and explore potential
transactions of various types with other cable and telecommunications companies.
However, no assurances can be given as to whether any such transaction may be
consummated or, if so, when, or that additional competition from this industry
consolidation will not have an adverse effect on the Company.
Regulatory and Competitive Matters
The cable television operations of the Company may be adversely affected
by changes and developments in governmental regulation, competitive forces and
technology. The cable television industry and the Company are subject to
extensive regulation at the federal, state and local levels. The 1992 Cable Act
significantly expanded the scope of regulation of certain subscriber rates and a
number of other matters in the cable industry, such as mandatory carriage of
local broadcast stations and retransmission consent, and increased the
administrative costs of complying with such regulations. The FCC has adopted
rate regulations that establish, on a system-by-system basis, maximum allowable
rates for (i) basic and cable programming services (other than programming
offered on a per-channel or per-program basis), based upon a benchmark
methodology, and (ii) associated equipment and installation services based upon
cost plus a reasonable profit. Under the FCC rules, franchising authorities are
authorized to regulate rates for basic services and associated equipment and
installation services, and the FCC will regulate rates for regulated cable
programming services in response to complaints filed with the agency. The
Telecommunications Act of 1996 (the "1996 Act") ended FCC regulation of cable
programming service tier rates on March 31, 1999.
Rates for basic and certain cable programming services are set pursuant to
a benchmark formula. Alternatively, a cable operator may elect to use a
cost-of-service methodology to show that rates for basic and certain cable
programming services are reasonable. Refunds with interest will be required to
be paid by cable operators who are required to reduce regulated rates. The FCC
has reserved the right to reduce or increase the benchmarks it has established.
The rate regulations also limit increases in regulated rates to an inflation
indexed amount plus increases in certain costs such as taxes, franchise fees,
costs associated with specific franchise requirements and increased programming
costs. Cost-based adjustments to these capped rates can also be made in the
event a cable operator adds or deletes channels or completes a significant
system rebuild or upgrade. Because of the limitation on rate increases for
regulated services, future revenue growth from cable services will rely to a
much greater extent than has been true in the past on increased revenues from
unregulated services and new subscribers than from increases in previously
unregulated rates.
The FCC has adopted regulations implementing all of the requirements of
the 1992 Cable Act. The FCC is also likely to continue to modify, clarify or
refine the rate regulations. The Company cannot predict the effect of the 1996
Act on future rulemaking proceedings or changes to the rate regulations.
Cable television companies operate under franchises granted by local
authorities which are subject to renewal and renegotiation from time to time.
Because such franchises are generally non-exclusive, there is a potential for
competition with the systems from other operators of cable television systems,
including public systems operated by municipal franchising authorities
themselves, and from other distribution systems capable of delivering television
programming to homes. The 1992 Cable Act and the 1996 Act contain provisions
which encourage competition from such other sources. The Company cannot predict
the extent to which competition will materialize from other cable television
operators, local telephone companies, other distribution systems for delivering
television programming to the home, or other potential competitors, or, if such
competition materializes, the extent of its effect on the Company.
The 1996 Act repealed the prohibition on local telephone exchange carriers
("LECs") from providing video programming directly to customers within their
local exchange areas other than in rural areas or by specific waiver of FCC
rules. The 1996 Act also authorized LECs to operate "open video systems" ("OVS")
without obtaining a local cable franchise, although LECs operating such a system
can be required to make payments to local governmental bodies in lieu of cable
franchise fees. Where demand exceeds capacity, up to two-thirds of the channels
on an OVS must be available to programmers unaffiliated with the LEC. The
statute states that the OVS scheme supplants the FCC's "video dialtone" rules.
The FCC has promulgated rules to implement the OVS concept in certain
jurisdictions throughout the country.
The Company believes that the provision of video programming or other
services by telephone companies in competition with the Company's existing
operations could have an adverse effect on the Company's financial condition and
results of operations. At this time, the impact of any such effect is not known
or estimable.
The Company also competes with direct broadcast satellite ("DBS") service
providers. DBS has been available to consumers since 1994. A single DBS
satellite can provide more than 100 channels of programming. DBS service can be
received virtually anywhere in the United States through the installation of a
small outdoor antenna. DBS service is being heavily marketed on a nationwide
basis by competing service providers. Congress passed the Satellite Home Viewer
Act in late 1999 which allows DBS providers to begin offering local broadcast
channels. DBS companies have since added a limited number of local channels in
some regions, a trend that will continue, thus lessening the distinction between
cable television and DBS service. Although the impact to date has not been
material, any future impact of DBS competition on the Company's future results
is not known or estimable.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company uses fixed and variable rate debt to fund its working capital
requirements, capital expenditures and acquisitions. These debt arrangements
expose the Company to market risk related to changes in interest rates. The
Company has entered into interest rate swap, cap and collar agreements to reduce
the impact of changes in interest rates. As of June 30, 2000, the Company had
interest rate swap agreements covering notional principal of $15,000 that expire
during 2000 that fix the interest rate at an average of 5.96%. As of June 30,
2000, the Company had interest rate cap agreements covering notional principal
of $50,000 that expire during 2002 that fix the interest rate at an average of
7.25%. As of June 30, 2000, the Company had interest rate collar agreements
covering a notional amount of $200,000, with $100,000 expiring in each of 2001
and 2002. The interest rate collar agreements have floor rates of 5.95% and
6.30% and cap rates of 5.95% and 6.30%, respectively, for the agreements
expiring in 2001 and 2002, with maximum cap rates of 6.64% and minimum floor
rates of 4.65% and 4.95%, respectively. The Company does not enter into any
interest rate swap, cap or collar agreements for trading purposes. The Company
is exposed to market risk in the event of non-performance by the banks. No such
non-performance is expected. The table below summarizes the fair values and
contract terms of the Company's financial instruments subject to interest rate
risk as of June 30, 2000.
Expected Maturity
----------------------------------------------------------------------------- Fair
2000 2001 2002 2003 2004 Thereafter Total Value
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Debt:
Fixed Rate $ -- $ -- $ -- $ -- $ -- $ 200,000 $ 200,000 $ 198,000
Average Interest Rate 11.00% 11.00% 11.00% 11.00% 11.00% 11.00% -- --
Variable Rate $ 13,537 $ 34,575 $ 44,575 $ 55,825 $ 60,212 $ 442,219 $ 650,943 $ 650,943
Average Interest Rate 9.18% 9.18% 9.20% 9.21% 9.25% 9.25% -- --
Interest Rate Swaps, Caps
and Collars:
Variable to Fixed Swaps $ 15,000 $ -- $ -- $ -- $ -- $ -- $ 15,000 $ 44
Average Pay Rate 5.96% -- -- -- -- -- -- --
Average Receive Rate 6.28% -- -- -- -- -- -- --
Interest Rate Caps $ -- $ -- $ 50,000 $ -- $ -- $ -- $ 50,000 $ 285
Average Cap Rate -- -- 7.25% -- -- -- -- --
Interest Rate Collars $ -- $ 100,000 $ 100,000 $ -- $ -- $ -- $ 200,000 $ 181
Maximum Cap Rate -- 6.64% 6.64% -- -- -- -- --
Cap and Floor Rate -- 5.95% 6.30% -- -- -- -- --
Minimum Floor Rate -- 4.65% 4.95% -- -- -- -- --
Interest rates on variable debt are estimated by us using the average
implied forward London Interbank Offer Rate ("LIBOR") rates for the year of
maturity based on the yield curve in effect at June 30, 2000, plus the borrowing
margin in effect at June 30, 2000. Average receive rates on the variable to
fixed swaps are estimated by the Company using the average implied forward LIBOR
rates for the year of maturity based on the yield curve in effect at June 30,
2000.
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule (supplied for the information of the
Commission).
(b) Reports on Form 8-K
None
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
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 OPERATING PARTNERS, L.P.
By: FrontierVision Holdings, L.P., its general partner
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: August 14, 2000 By: /s/ TIMOTHY J. RIGAS
Timothy J. Rigas
Executive Vice President, Chief Financial
Officer, Chief Accounting Officer, and Treasurer
FRONTIERVISION CAPITAL CORP.
Date: August 14, 2000 By: /s/ TIMOTHY J. RIGAS
Timothy J. Rigas
Executive Vice President, Chief Financial
Officer, Chief Accounting Officer, and Treasurer