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 March 31, 2001
___ Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
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 May 15, 2001: 100.
*FrontierVision Operating Partners, L.P., and FrontierVision Capital Corporation
meet the conditions set forth in General Instruction H (1)(a) and (b) to the
Form 10-Q and are therefore filing with the reduced disclosure format.
FRONTIERVISION OPERATING PARTNERS, L.P.
FRONTIERVISION CAPITAL CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 2000 and March 31, 2001............................. 3
Condensed Consolidated Statements of Operations - Three Months Ended
March 31, 2000 and 2001.............................................................................. 4
Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000
and 2001............................................................................................ 5
Notes to Condensed Consolidated Financial Statements..................................................... 6
Balance Sheets of FrontierVision Capital Corporation -
December 31, 2000 and March 31, 2001................................................................ 9
Note to Balance Sheets .................................................................................. 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................................... 16
SIGNATURES ............................................................................................. 17
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Statements included in this Form 10-Q,
including Management's Discussion and Analysis of Financial Condition and
Results of Operations, which are not historical facts are forward-looking
statements, such as information relating to the effect 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, FrontierVision Operating
Partners, L.P. and subsidiaries ("FVOP" or 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 and the variations thereon or comparable
terminology, or by discussions of strategy that involves risks or uncertainties.
These risks and uncertainties include, but are not limited to, uncertainties
relating to general business and economic conditions, acquisitions and
divestitures, risk associated with the company's growth and financing, the
availability and cost of capital, government and regulatory policies, the
pricing and availability of equipment, materials, inventories and programming,
product acceptance, the Company's ability to execute on its various business
plans and to construct, expand and upgrade its networks, risk associated with
reliance on the performance and financial conditions of vendors and customers,
technological developments, and changes in the competitive environment in which
the Company operates. Readers are cautioned that such forward-looking statements
are only predictions, that no assurance can be given that any particular future
results will be achieved, and that actual events or results may differ
materially. 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". In evaluating
such statements, readers should specifically consider the various factors which
could cause actual events or results to differ materially from those indicated
by such forward-looking statements.
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, March 31,
2000 2001
-------------------------------------
ASSETS
Property, plant and equipment - net $ 595,019 $ 674,641
Intangible assets - net 1,458,061 1,507,345
Cash and cash equivalents 7,076 6,113
Subscriber receivables - net 14,896 15,524
Prepaid expenses and other assets - net 19,722 21,393
-------------------------------------
Total assets $ 2,094,774 $ 2,225,016
=====================================
LIABILITIES AND PARTNERS' EQUITY
Subsidiary debt $ 873,112 $ 839,635
Other debt 21,588 18,401
Accounts payable 28,547 64,216
Subscriber advance payments and deposits 7,985 10,155
Accrued interest and other liabilities 36,664 40,761
Deferred income taxes 15,751 15,312
-------------------------------------
Total liabilities 983,647 988,480
-------------------------------------
Commitments and contingencies (Note 6)
Partners' equity:
FrontierVision Holdings, L.P. 1,110,016 1,235,299
FrontierVision Operating Partners, Inc. 1,111 1,237
-------------------------------------
Total partners' equity 1,111,127 1,236,536
-------------------------------------
Total liabilities and partners' equity $ 2,094,774 $ 2,225,016
=====================================
<FN>
See the accompanying notes to condensed consolidated financial statements.
</FN>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
2000 2001
---------------- -----------------
Revenues $ 74,837 $ 82,486
---------------- -----------------
Operating expenses:
Direct operating and programming 26,314 29,069
Selling, general and administrative 12,182 12,709
Depreciation and amortization 21,962 25,141
---------------- -----------------
Total 60,458 66,919
---------------- -----------------
Operating income 14,379 15,567
Other (expense) income:
Interest expense (19,530) (18,164)
Gain on cable systems exchange - 72,831
Other - (1,531)
---------------- -----------------
Total (19,530) 53,136
(Loss) income before income taxes (5,151) 68,703
Income tax (expense) benefit (361) 439
---------------- -----------------
Net (loss) income $ (5,512) $ 69,142
================ =================
<FN>
See the accompanying notes to condensed consolidated financial statements.
</FN>
FRONTIERVISION OPERATING PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
2000 2001
----------------- ----------------
Cash flows from operating activities:
Net (loss) income $ (5,512) $ 69,142
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization 21,962 25,141
Deferred income tax expense (benefit) 361 (439)
Gain on cable systems exchange - (72,831)
Non cash interest expense (459) (459)
Other - 1,531
Changes in operating assets and liabilities, net of effects
of acquisitions and cable systems exchange:
Subscriber receivables 1,605 (200)
Prepaid expenses and other assets 3,153 (3,882)
Accounts payable and accrued interest and other liabilities 652 39,766
Subscriber advance payments and deposits 802 2,192
----------------- ----------------
Net cash provided by operating activities 22,564 59,961
----------------- ----------------
Cash flows from investing activities:
Expenditures for property, plant and equipment (17,441) (80,938)
Acquisitions (3,128) -
----------------- ----------------
Cash used for investing activities (20,569) (80,938)
----------------- ----------------
Cash flows from financing activities:
Repayments of debt (5,986) (36,253)
Partner capital contributions 3,282 56,267
----------------- ----------------
Net cash (used for) provided by financing activities (2,704) 20,014
----------------- ----------------
Decrease in cash and cash equivalents (709) (963)
Cash and cash equivalents, beginning of period 7,412 7,076
----------------- ----------------
Cash and cash equivalents, end of period $ 6,703 $ 6,113
================= ================
<FN>
See the accompanying 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
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, Adelphia Communications Corporation ("Adelphia")
purchased all outstanding FVP partnership interests 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. The acquisition
of FVP by Adelphia has been accounted for using the purchase method of
accounting. Accordingly, the allocation of Adelphia's purchase price to acquire
FVP has been reflected in FVOP's consolidated financial statements as of October
1, 1999.
The Company owns and operates cable television systems in four primary
operating clusters - New England, Ohio, Kentucky and other smaller groups of
cable television systems.
Effective January 1, 2001, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" as amended by SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." These standards
require the Company to recognize all derivatives as either assets or liabilities
at fair value in its balance sheet. The accounting for changes in the fair value
of a derivative depends on the use of the derivative. To the extent that a
derivative is effective as a hedge of a future exposure to changes in value, the
fair value of the derivative is deferred in other comprehensive income. Any
portion considered to be ineffective is reported in the statement of operations
immediately.
The adoption of these standards did not have a material impact on the
Company's financial statements and therefore, a transition adjustment is not
separately presented.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions of Form 10-Q and Rule 10-01 of Regulation S-X. Such principles are
applied on a basis consistent with those reflected in the December 31, 2000
Annual Report on Form 10-K of the Company filed with the Securities and Exchange
Commission. The condensed consolidated financial statements contained herein
should be read in conjunction with the consolidated financial statements and
related notes contained in the Company's 2000 Annual Report on Form 10-K. In the
opinion of management, the unaudited condensed consolidated financial statements
contained herein include all adjustments (consisting of only recurring
adjustments) necessary for a fair presentation of the results of operations for
the interim periods presented. These interim results of operations are not
necessarily indicative of results for future periods.
2. Cable Systems Exchange
On January 1, 2001, Adelphia and certain subsidiaries, including the
Company, closed on a cable system exchange with Comcast Corporation. As a result
of the transaction, the Company added approximately 27,000 basic subscribers in
Los Angeles, California in exchange for approximately 19,500 basic subscribers
in Michigan. The cable systems exchange has been recorded at fair value and
purchase accounting has been applied as of the date of the transaction. As a
result of this transaction, the Company recorded a gain of approximately
$73,000, and an increase of property, plant and equipment and intangibles of
approximately $11,000 and $62,000, respectively. The Company has made a
preliminary allocation of the purchase accounting, which is subject to final
allocation.
3. Debt
The Company's debt was comprised of the following:
December 31, March 31,
2000 2001
---------------- -----------------
Subsidiary Debt:
Bank Credit Facility:
Revolving Credit Facility, interest based on various floating rate
options (8.69% and 7.02% average at December 31, 2000
and March 31, 2001, respectively) $ 200,000 $ 175,000
Term loans, interest based on various floating LIBOR rate
options (8.97% and 7.39% weighted average at
December 31, 2000 and March 31, 2001, respectively) 462,406 454,388
11% Senior Subordinated Notes due 2006 210,706 210,247
---------------- -----------------
Total $ 873,112 $ 839,635
================ =================
Other Debt:
Capital leases $ 21,588 $ 18,401
================ =================
4. Supplemental Financial Information
Cash payments for interest were $14,364 and $15,011 for the three months
ended March 31, 2000 and 2001, respectively. Accumulated depreciation of
property, plant and equipment amounted to $50,952 and $62,173 at December 31,
2000 and March 31, 2001, respectively. Accumulated amortization of intangible
assets amounted to $57,980 and $69,402 at December 31, 2000 and March 31, 2001,
respectively.
5. Income Taxes
Income tax expense for the three months ended March 31, 2000 and 2001 was
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. Derivative Financial Instruments
The Company is exposed to certain risks arising from transactions that are
entered into in the normal course of business. The Company may enter into
derivative financial instrument transactions in order to manage or reduce these
risks. The Company's policies do not permit active trading of, or speculation
in, derivative financial instruments.
The Company manages its interest rate risk through the use of interest rate
protection instruments such as swaps, caps and collars. The use of such interest
rate protection instruments (as required by some of the Company's borrowing
agreements) is intended to minimize the volatility of cash flows caused by
interest rate fluctuations. These instruments are not designated as hedging
instruments under the provisions of SFAS No. 133. Therefore, the change in the
fair value of these instruments is recorded in "Other" in the condensed
statement of operations. Such amount was not material for the quarter ended
March 31, 2001. As of January 1, 2001 and March 31, 2001, the fair value of
interest rate swaps, caps and collars was not material.
PART I - FINANCIAL INFORMATION (Continued)
FRONTIERVISION CAPITAL CORPORATION
BALANCE SHEETS (Unaudited)
March 31, March 31,
2000 2001
----------------- ----------------
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 the accompanying 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 has had no operations from inception through March
31, 2001.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Dollars in thousands)
See Safe Harbor Statement following the table of contents, which section is
incorporated by reference herein.
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 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, Adelphia Communications Corporation ("Adelphia")
purchased all outstanding FVP partnership interests 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. The acquisition
of FVP by Adelphia has been accounted for using the purchase method of
accounting. Accordingly, the allocation of Adelphia's purchase price to acquire
FVP has been reflected in FVOP's consolidated financial statements as of October
1, 1999.
The Company owns and operates cable television systems in small and
medium-sized suburban and exurban communities in the United States in four
primary operating clusters - New England, Ohio, Kentucky and other smaller
groups of cable television systems. As of March 31, 2001, the Company owned
systems with broadband networks that passed in front of approximately 1,056,000
homes and served approximately 701,000 basic subscribers. In addition to
traditional analog cable television, the Company, or one of its or Adelphia's
affiliates, offers a wide range of telecommunications services including digital
cable television, high speed data and Internet access, paging and telephony.
Results of Operations
Three Months Ended March 31, 2000 and 2001
The following table illustrates the Company's operating activities:
Percentage of Revenues
------------------------------
Three Months Ended
March 31,
2000 2001
------------------------------
Revenues 100.0% 100.0%
Expenses:
Direct operating and programming 35.2% 35.2%
Selling, general and administrative 16.3% 15.4%
Depreciation and amortization 29.3% 30.5%
------------------------------
Operating income 19.2% 18.9%
==============================
Revenues
Revenues increased 10.2%, or approximately $7,649, to $82,486 for the
quarter ended March 31, 2001, compared with the same period of the prior year.
This increase was primarily attributable to the growth of digital cable
television and high speed data and Internet access subscribers, as well as an
increase in management fees charged to affiliate companies. This increase was
partially offset by a decrease in national and local advertising sales.
Direct operating and programming
These expenses, which are comprised mainly of programming costs and
technical expenses, increased by 10.5%, or approximately $2,755 to $29,069 for
the quarter ended March 31, 2001, compared with the same period of the prior
year. This increase was primarily attributable to digital cable television and
high speed data and Internet access growth, as well as an increase in rates
charged by program suppliers.
Selling, general and administrative
These expenses, which are comprised mainly of costs relating to system
offices, customer service representatives, sales and administrative employees,
increased 4.3%, or approximately $527 to $12,709 for the quarter ended March 31,
2001, compared with the same period for the prior year. This increase was
primarily attributable to marketing campaigns to enhance customer awareness, as
well as other costs associated with the rollout of digital cable and high speed
data.
Depreciation and amortization
Depreciation and amortization increased 14.5%, or approximately $3,179 to
$25,141 for the quarter ended March 31, 2001, compared with the same period of
the prior year. This increase was primarily attributable to the exchange with
Comcast Corporation and increased capital expenditures made during the past
several quarters.
Interest expense
Interest expense decreased 7.0%, or approximately $1,366 to $18,164 for the
quarter ended March 31, 2001, compared with the same period of the prior year.
This decrease was primarily attributable to the decrease in the average interest
rate on outstanding variable rate indebtedness and a decrease in the average
amount of outstanding indebtedness.
Gain on Cable Systems Exchange
On January 1, 2001, Adelphia and certain subsidiaries, including the
Company, closed on a cable systems exchange with Comcast Corporation. As a
result of this transaction, the Company recognized a gain of approximately
$73,000 in the three months ended March 31, 2001.
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 three months ended March 31, 2000 and 2001,
were $17,441 and $80,938, respectively. The increase in capital expenditures for
the quarter ended March 31, 2001, 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 2001 to range from approximately $180,000 to $220,000.
At March 31, 2001, the Company's total outstanding debt aggregated
approximately $858,036, which included public, bank and other debt. As of March
31, 2001, FVOP's subsidiaries had an aggregate of approximately $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 8.40% at March 31, 2000, compared to approximately 7.29% at March
31, 2001. At March 31, 2001, approximately 53.64% of total 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 nine months based on
amounts outstanding at March 31, 2001:
Nine months ending December 31, 2001 $ 27,936
Year ending December 31, 2002 46,415
Year ending December 31, 2003 57,665
Year ending December 31, 2004 62,053
Year ending December 31, 2005 319,059
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's, or its subsidiaries, 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 Holdings' and its subsidiaries' 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 programming services 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. The 1996 Act ended FCC regulation of cable programming service tier
rates on March 31, 1999.
Rates for basic 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 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 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 CLECs 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
CLECs to operate "open video systems" ("OVS") without obtaining a local cable
franchise, although CLECs 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 CLEC. The statute states that the
OVS scheme supplants the FCC's "video dialtone" rules. The FCC has promulgated
rules to implement the OVS concept.
The Company believes that the provision of video programming 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 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 several service providers,
some of which are now offering local programming channels. At this time, any
impact of DBS competition on the Company's future results is not known or
estimable.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the quarter ending March 31, 2001.
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: May 15, 2001 By: /s/ TIMOTHY J. RIGAS
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Timothy J. Rigas
Executive Vice President, Chief Financial Officer,
Chief Accounting Officer, and Treasurer
FRONTIERVISION CAPITAL CORP.
Date: May 15, 2001 By: /s/ TIMOTHY J. RIGAS
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Timothy J. Rigas
Executive Vice President, Chief Financial Officer,
Chief Accounting Officer, and Treasurer