UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from _________to_________
Commission File Numbers: 333-36519, 333-36519-01 and 333-75567-01
FrontierVision Holdings, L.P.
FrontierVision Holdings Capital Corporation*
FrontierVision Holdings Capital II Corporation*
(Exact names of Registrants as specified in their charters)
Delaware 84-1432334
Delaware 84-1432976
Delaware 84-1481765
(States or other jurisdiction (IRS Employer Identification Numbers)
of incorporation or organization)
One North Main Street
Coudersport, PA 16915-1141
(Address of principal 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 Holdings Capital
Corporation and FrontierVision Holdings Capital II Corporation outstanding as of
November 14, 2000: 100 and 1,000, respectively.
*FrontierVision Holdings Capital Corporation and FrontierVision Holdings Capital
II 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 HOLDINGS, L.P.
FRONTIERVISION HOLDINGS CAPITAL CORPORATION
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1999 and September 30, 2000...................... 3
Condensed Consolidated Statements of Operations - Three and Nine Months
Ended September 30, 1999 and 2000................................................................ 4
Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1999
and 2000......................................................................................... 5
Notes to Condensed Consolidated Financial Statements.................................................. 6
Balance Sheets of FrontierVision Holdings Capital Corporation -
December 31, 1999 and September 30, 2000......................................................... 10
Note to Balance Sheets ............................................................................... 11
Balance Sheets of FrontierVision Holdings Capital II Corporation -
December 31, 1999 and September 30, 2000......................................................... 12
Note to Balance Sheets................................................................................ 13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................................... 19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................................... 20
SIGNATURES ............................................................................................... 21
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, 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 economic conditions, acquisitions and divestitures, 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 construct, expand and upgrade its networks,
reliance on vendors, 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 333-36519 of Holdings, 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 HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
December 31, September 30,
1999 2000
------------------ ------------------
ASSETS
Cable systems, at cost, net of accumulated depreciation and amortization:
Property, plant and equipment $ 407,554 $ 495,112
Intangible assets 1,764,221 1,724,439
------------------ ------------------
Total 2,171,775 2,219,551
Cash and cash equivalents 7,412 8,424
Subscriber receivables - net 13,800 14,124
Prepaid expenses and other assets - net 28,118 28,393
------------------ ------------------
Total assets $ 2,221,105 $ 2,270,492
================== ==================
LIABILITIES AND PARTNERS' EQUITY
Subsidiary debt $ 874,522 $ 862,109
Parent debt 284,501 305,603
Other debt 10,173 11,749
Accounts payable 34,871 44,530
Subscriber advance payments and deposits 8,404 10,876
Accrued interest and other liabilities 23,790 40,240
Deferred income taxes 10,045 11,139
------------------ ------------------
Total liabilities 1,246,306 1,286,246
------------------ ------------------
Commitments and contingencies (Note 6)
Partners' equity:
FrontierVision Partners, L.P. 973,824 983,262
FrontierVision Holdings, L.L.C. 975 984
------------------ ------------------
Total partners' equity 974,799 984,246
------------------ ------------------
Total liabilities and partners' equity $ 2,221,105 $ 2,270,492
================== ==================
<FN>
See the accompanying notes to condensed consolidated financial statements.
</FN>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands)
Old Holdings New Holdings Old Holdings New Holdings
----------------- ------------------ --------------- -------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ -----------------------------------
1999 2000 1999 2000
----------------- ------------------ --------------- -------------------
Revenues $ 74,319 $ 78,645 $ 221,032 $ 232,058
----------------- ------------------ --------------- -------------------
Operating expenses:
Direct operating and programming 31,889 25,777 86,813 80,350
Selling, general and administrative 16,354 14,298 43,349 39,320
Depreciation and amortization 45,053 24,595 108,987 72,885
Transaction costs 17,077 -- 17,077 --
----------------- ------------------ --------------- -------------------
Total 110,373 64,670 256,226 192,555
----------------- ------------------ --------------- -------------------
Operating (loss) income (36,054) 13,975 (35,194) 39,503
Other (expense) income:
Interest expense - net (24,830) (26,615) (75,551) (79,061)
Other (219) -- 8,961 --
----------------- ------------------ --------------- -------------------
Total (25,049) (26,615) (66,590) (79,061)
Loss before income taxes (61,103) (12,640) (101,784) (39,558)
Income tax benefit (expense) 695 (354) 2,082 (1,094)
----------------- ------------------ --------------- -------------------
Net loss $ (60,408) $ (12,994) $ (99,702) $ (40,652)
================= ================== =============== ===================
<FN>
See the accompanying notes to condensed consolidated financial statements.
</FN>
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Old Holdings New Holdings
----------------- ----------------
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 2000
----------------- ----------------
Cash flows from operating activities:
Net loss $ (99,702) $ (40,652)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 108,987 72,885
Deferred income taxes (2,082) 1,094
Gain on disposal of assets (9,193) --
Non cash interest expense 19,388 19,726
Changes in operating assets and liabilities, net of effects
of acquisitions:
Subscriber receivables (407) (128)
Prepaid expenses and other assets (721) (484)
Accounts payable and accrued interest and other liabilities 41,721 25,012
Subscriber advance payments and deposits (447) 2,466
----------------- ----------------
Net cash provided by operating activities 57,544 79,919
----------------- ----------------
Cash flows from investing activities:
Capital expenditures (75,120) (113,053)
Acquisitions (12,436) (3,128)
Proceeds from disposal of assets 6,698 --
----------------- ----------------
Net cash used for investing activities (80,858) (116,181)
----------------- ----------------
Cash flows from financing activities:
Proceeds from debt 13,229 --
Repayments of debt (6,345) (12,825)
Costs associated with financing (566) --
Partner capital contributions 12,000 50,099
----------------- ----------------
Net cash provided by financing activities 18,318 37,274
----------------- ----------------
Net (decrease) increase in cash and cash equivalents (4,996) 1,012
Cash and cash equivalents, beginning of period 5,091 7,412
----------------- ----------------
Cash and cash equivalents, end of period $ 95 $ 8,424
================= ================
<FN>
See the accompanying notes to condensed consolidated financial statements.
</FN>
FRONTIERVISION HOLDINGS, 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 Holdings, L.P. ("Holdings"), wholly-owned by FrontierVision
Partners, L.P., a Delaware limited partnership ("FVP"), is a Delaware limited
partnership formed on September 3, 1997 for the purpose of acting as co-issuer
with its wholly-owned subsidiary, FrontierVision Holdings Capital Corporation
("Holdings Capital"), of $237,650 aggregate principal amount at maturity of 11
7/8% Senior Discount Notes due 2007 (the "Discount Notes"). FVP contributed to
Holdings, both directly and indirectly, all of the outstanding partnership
interests of FrontierVision Operating Partners, L.P. ("FVOP") prior to the
issuance of the Discount Notes on September 19, 1997 and, as a result FVOP and
its wholly-owned subsidiary, FrontierVision Capital Corporation ("Capital"), are
wholly-owned, consolidated subsidiaries of Holdings. On December 2, 1998,
FrontierVision Holdings Capital II Corporation ("Holdings Capital II"), a
wholly-owned subsidiary of Holdings, was organized for the sole purpose of
acting as co-issuer of $91,298 aggregate principal amount at maturity of 11 7/8%
Senior Discount Notes, Series B due 2007. As used herein, the "Company"
collectively refers to Holdings and its consolidated subsidiaries. The Company
owns and operates cable television systems in three primary operating clusters -
New England, Ohio and Kentucky - with a fourth, smaller group of cable
television systems in the southeast.
On 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.
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 Holdings' 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 Holdings",
whereas periods subsequent to October 1, 1999 are referred to herein as "New
Holdings".
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles 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, 1999 Form 10-K Report 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
1999 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.
Certain reclassifications have been made to prior period balances to conform
to the current period's presentation.
2. Acquisitions and Dispositions
Acquisitions
The Company has completed numerous acquisitions since its inception through
September 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.
In February 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
In June 1999, the Company completed the exchange of five systems located
in northern Kentucky for five Intermedia Partners, L.P. 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. The asset exchange was recorded at fair value and purchase
accounting was applied.
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
3. Debt
The Company's debt was comprised of the following:
December 31, September 30,
1999 2000
---------------- -----------------
Subsidiary Debt:
Bank Credit Facility
Revolving Credit Facility, interest based on various floating
rate options (8.33% and 8.53% average at December 31, 1999
and September 30, 2000, respectively), payable monthly $ 175,000 $ 175,000
Term loans, interest based on various floating LIBOR rate
options (8.52% and 8.93% weighted average at December 31, 1999
and September 30, 2000, respectively), payable monthly 486,981 475,944
11% Senior Subordinated Notes due 2006 212,541 211,165
---------------- -----------------
Total $ 874,522 $ 862,109
================ =================
Parent Debt:
11 7/8% Senior Discount Notes due 2007 $ 284,501 $ 305,603
================ =================
Other Debt:
Capital leases $ 10,173 $ 11,749
================ =================
4. Supplemental Financial Information
Cash payments for interest were $50,619 and $45,000 for the nine months
ended September 30, 1999 and 2000, respectively. Accumulated depreciation of
property, plant and equipment amounted to $9,798 and $40,329 at December 31,
1999 and September 30, 2000, respectively. Accumulated amortization of
intangible assets amounted to $13,319 and $52,856 at December 31, 1999 and
September 30, 2000, respectively.
5. Income Taxes
Income tax benefit (expense) for the three and nine months ended September
30, 1999 and 2000 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. Recent Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended by SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133", and SFAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" is effective for the
Company as of January 1, 2001. SFAS No. 133, as amended, establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair value
with changes in fair value reflected in the statement of operations. In
conjunction with preparing for the implementation of this standard, the Company
has determined that its derivative instruments are primarily in the form of
interest rate protection instruments such as interest rate swaps, caps and
collars. The Company does not expect adoption of this statement to have a
significant effect on its consolidated results of operations or financial
position.
PART I - FINANCIAL INFORMATION (Continued)
FRONTIERVISION HOLDINGS CAPITAL CORPORATION
BALANCE SHEETS (Unaudited)
December 31, September 30,
1999 2000
--------------- ----------------
ASSETS
Cash $ 100 $ 100
--------------- ----------------
Total assets $ 100 $ 100
=============== ================
OWNER'S EQUITY
Owner's equity:
Common stock, par value $.01; 1,000 shares authorized;
100 shares issued and outstanding $ 1 $ 1
Additional paid-in capital 99 99
--------------- ----------------
Total owner's equity $ 100 $ 100
=============== ================
<FN>
See the accompanying note to balance sheets.
</FN>
FRONTIERVISION HOLDINGS CAPITAL CORPORATION
NOTE TO BALANCE SHEETS (Unaudited)
FrontierVision Holdings Capital Corporation, a Delaware corporation
("Holdings Capital"), is a wholly-owned subsidiary of FrontierVision Holdings,
L.P. ("Holdings"), and was organized on August 22, 1997 for the sole purpose of
acting as co-issuer with Holdings of $237.7 million aggregate principal amount
at maturity of the 11 7/8% Senior Discount Notes. Holdings Capital had no
operations from inception through September 30, 2000.
PART I - FINANCIAL INFORMATION (Continued)
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
BALANCE SHEETS (Unaudited)
December 31, September 30,
1999 2000
---------------- -----------------
ASSETS
Cash $ 1,000 $ 1,000
---------------- -----------------
Total assets $ 1,000 $ 1,000
================ =================
OWNER'S EQUITY
Owner's equity:
Common stock, par value $.01; 1,000 shares authorized; 1,000 shares
issued and outstanding $ 10 $ 10
Additional paid-in capital 990 990
---------------- -----------------
Total owner's equity $ 1,000 $ 1,000
================ =================
<FN>
See the accompanying note to balance sheets.
</FN>
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
NOTE TO BALANCE SHEETS (Unaudited)
FrontierVision Holdings Capital II Corporation, a Delaware corporation
("Holdings Capital II"), is a wholly-owned subsidiary of FrontierVision
Holdings, L.P. ("Holdings"), and was organized on December 2, 1998, for the sole
purpose of acting as co-issuer with Holdings of $91.3 million aggregate
principal amount at maturity of the 11 7/8% Senior Discount Notes, Series B.
Holdings Capital II had no operations from inception through September 30, 2000.
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 Holdings, L.P. ("Holdings"), wholly-owned by FrontierVision
Partners, L.P., a Delaware limited partnership ("FVP"), is a Delaware limited
partnership formed on September 3, 1997 for the purpose of acting as co-issuer
with its wholly-owned subsidiary, FrontierVision Holdings Capital Corporation
("Holdings Capital"), of $237,650 aggregate principal amount at maturity of 11
7/8% Senior Discount Notes due 2007 (the "Discount Notes"). FVP contributed to
Holdings, both directly and indirectly, all of the outstanding partnership
interests of FrontierVision Operating Partners, L.P. ("FVOP") prior to the
issuance of the Discount Notes on September 19, 1997 and, as a result FVOP and
its wholly-owned subsidiary, FrontierVision Capital Corporation ("Capital"), are
wholly-owned, consolidated subsidiaries of Holdings. On December 2, 1998,
FrontierVision Holdings Capital II Corporation ("Holdings Capital II"), a
wholly-owned subsidiary of Holdings, was organized for the sole purpose of
acting as co-issuer of $91,298 aggregate principal amount at maturity of 11 7/8%
Senior Discount Notes, Series B due 2007. As used herein, the "Company"
collectively refers to Holdings 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.
Holdings 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 September 30, 2000, the Company
owned Systems with broadband networks that passed in front of approximately
1,027,000 homes and served approximately 704,000 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
Three and Nine Months Ended September 30, 2000
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 Holdings, and the financial statements for periods
subsequent to October 1, 1999 are referred to herein as New Holdings. 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 Holdings are not comparable to the successor
condensed consolidated financial statements of New Holdings.
For purposes of the following table and discussion, depreciation and
amortization and certain other line items included in the operating results of
New Holdings are not necessarily comparable to the operating results of Old
Holdings 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 Holdings New Holdings Old Holdings New Holdings
------------------------------ ------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 2000 1999 2000
------------------------------ ------------------------------
Revenues 100.0% 100.0% 100.0% 100.0%
Expenses:
Direct operating and programming 42.9% 32.8% 39.3% 34.6%
Selling, general and administrative 22.0% 18.2% 19.6% 16.9%
Depreciation and amortization 60.6% 31.3% 49.3% 31.4%
Transaction costs 23.0% -- 7.7% --
------------------------------ ------------------------------
Operating (loss) income (48.5)% 17.7% (15.9)% 17.1%
============================== ==============================
Revenues.
Revenues increased 5.8% and 5.0% for the three and nine months ended
September 30, 2000, respectively, compared with the same periods of the prior
year. These increases were primarily attributable to digital customer growth,
the continued growth in national and local advertising sales, and management
fees charged to an affiliate company. The increase was partially offset by a
decrease in Pay Per View revenues as a result of comparatively fewer national
sporting events during 2000.
Direct operating and programming
These expenses, which are comprised mainly of programming costs and
technical expenses, decreased by 19.2% and 7.4% for the three and nine months
ended September 30, 2000, respectively, compared with the same periods of the
prior year. These decreases were primarily attributable to the decrease in
programming costs due to more favorable rates as a result of Adelphia's
acquisition of FVP, and was offset by digital customer growth as well as an
increase in programming rates and channel additions.
Selling, general and administrative
These expenses, which are comprised mainly of costs relating to system
offices, customer service representatives, sales and administrative employees,
decreased 12.6% and 9.3% for the three and nine months ended September 30, 2000,
respectively, compared with the same periods of the prior year. These decreases
were primarily attributable to synergies realized from a reduction in corporate
overhead due to the acquisition of FVP by Adelphia. These decreases were offset
by marketing campaigns to enhance customer awareness and other costs associated
with the rollout of digital cable and high speed data.
Depreciation and amortization
Depreciation and amortization decreased 45.4% and 33.1% for the three and
nine months ended September 30, 2000, respectively, 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.
Transaction costs
Transaction costs amounting to approximately $17,000 were recognized in the
three and nine months ended September 30, 1999. The costs were primarily
attributable to compensation related to the sale of the Company to Adelphia on
October 1, 1999.
Interest expense - net
Interest expense - net increased 7.2% and 4.6% for the three and nine months
ended September 30, 2000, respectively, compared with the same periods of the
prior year. These increases were primarily attributable to an increase in the
average interest rate on outstanding variable rate indebtedness.
Other (expense) income
Other income includes a gain of approximately $9,000 for the nine months
ended September 30, 1999. This gain is due to the asset exchange with Intermedia
Partners, L.P. 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 same 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 nine months ended September 30, 1999 and 2000
were $75,120 and $113,053, respectively. The increase in capital expenditures
for the nine months ended September 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 approximately $160,000 to
$185,000.
At September 30, 2000, the Company's total outstanding debt aggregated
approximately $1,179,461, which included $305,603 of parent debt and
approximately $873,858 of subsidiary public, bank and other debt. As of
September 30, 2000, Holdings' subsidiaries had an aggregate of approximately
$119,000 in unused credit lines and cash and cash equivalents.
The Company's weighted average interest rate on amounts payable to banks was
approximately 7.5% at September 30, 1999 compared to approximately 8.8% at
September 30, 2000. At September 30, 2000, approximately 67.3% 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 three months based on
amounts outstanding at September 30, 2000:
Three months ending December 31, 2000 $ 15,300
Year ending December 31, 2001 37,072
Year ending December 31, 2002 47,072
Year ending December 31, 2003 58,321
Year ending December 31, 2004 62,709
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 Holdings, 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 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 September 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
September 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 September 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 average floor
rates of 5.95% and 6.30% and average 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 September 30, 2000.
Expected Maturity
-------------------------------------------------------- Fair
2000 2001 2002 2003 2004 Thereafter Total Value
---------- ----------- ---------- ---------- ----------- ------------ ---------- -----------
Debt:
Fixed Rate $ - $ - $ - $ - $ - $ 528,658 $ 528,658 $ 469,359
Average Interest Rate - - - - - 11.54% - -
Variable Rate 13,538 34,575 44,575 55,825 60,212 442,219 650,944 650,944
Average Interest Rate 8.80% 8.59% 8.66% 8.81% 8.89% 9.03% - -
Interest Rate Swaps,
Caps and Collars:
Variable to Fixed Swaps $ 15,000 $ - $ - $ - $ - $ - $ 15,000 $ 30
Average Pay Rate 5.96% - - - - - - -
Average Receive Rate 6.73% - - - - - - -
Interest Rate Caps - - 50,000 - - - 50,000 93
Average Cap Rate - - 7.25% - - - - -
Interest Rate Collars - 100,000 100,000 - - - 200,000 176
Maximum Cap Rates - 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 September 30, 2000, plus the
borrowing margin in effect at September 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 September 30, 2000.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
27.01 Financial Data Schedule (supplied for the information of the Commission).
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the quarter ending September 30,
2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
FRONTIERVISION HOLDINGS, L.P.
By: FrontierVision Partners, L.P., its general partner
By: Adelphia GP Holdings, L.L.C., its general partners
By: ACC Operations, Inc., its sole member
Date: November 14, 2000 By: /s/ TIMOTHY J. RIGAS
------------------------------------------------------
Timothy J. Rigas
Executive Vice President, Chief Financial Officer,
Chief Accounting Officer, and Treasurer
FRONTIERVISION HOLDINGS CAPITAL CORPORATION
Date: November 14, 2000 By: /s/ TIMOTHY J. RIGAS
------------------------------------------------------
Timothy J. Rigas
Executive Vice President, Chief Financial Officer,
Chief Accounting Officer, and Treasurer
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
Date: November 14, 2000 By: /s/ TIMOTHY J. RIGAS
------------------------------------------------------
Timothy J. Rigas
Executive Vice President, Chief Financial Officer,
Chief Accounting Officer, and Treasurer