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, 2001
_____ Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
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
August 14, 2001: 100 and 1,000, respectively.
*FrontierVision Holdings, L.P., 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, 2000 and June 30, 2001 3
Condensed Consolidated Statements of Operations - Three and Six Months Ended
June 30, 2000 and 2001 4
Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2000
and 2001 5
Notes to Condensed Consolidated Financial Statements 6
Balance Sheets of FrontierVision Holdings Capital Corporation -
December 31, 2000 and June 30, 2001 9
Note to Balance Sheets 10
Balance Sheets of FrontierVision Holdings Capital II Corporation -
December 31, 2000 and June 30, 2001 11
Note to Balance Sheets 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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 Holdings,
L.P. and subsidiaries ("Holdings" 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 filed under Registration Statement No. 333-64224 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.
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
December 31, June 30,
2000 2001
------------------ -----------------
ASSETS
Property, plant and equipment - net $ 595,019 $ 720,957
Intangible assets - net 1,719,828 1,754,003
Cash and cash equivalents 7,076 7,163
Subscriber receivables - net 14,896 16,324
Prepaid expenses and other assets - net 26,156 25,231
------------------ -----------------
Total assets $ 2,362,975 $ 2,523,678
================== =================
LIABILITIES AND PARTNERS' EQUITY
Subsidiary debt $ 873,112 $ 831,157
Parent debt 313,340 328,909
Other debt 21,588 18,026
Accounts payable 28,547 54,688
Subscriber advance payments and deposits 7,985 9,786
Accrued interest and other liabilities 36,664 35,570
Deferred income taxes 15,751 15,887
------------------ -----------------
Total liabilities 1,296,987 1,294,023
------------------ -----------------
Commitments and contingencies (Note 6)
Partners' equity:
FrontierVision Partners, L.P. 1,064,922 1,228,425
FrontierVision Holdings, L.L.C. 1,066 1,230
------------------ -----------------
Total partners' equity 1,065,988 1,229,655
------------------ -----------------
Total liabilities and partners' equity $ 2,362,975 $ 2,523,678
================== =================
<FN>
See the accompanying notes to condensed consolidated financial statements.
</FN>
-3-
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------- -----------------------------------
2000 2001 2000 2001
----------------- ----------------- ----------------- -----------------
Revenues $ 78,576 $ 86,981 $ 153,413 $ 169,467
----------------- ----------------- ----------------- -----------------
Operating expenses:
Direct operating and programming 28,259 31,043 54,573 60,112
Selling, general and administrative 12,839 13,902 25,022 26,611
Depreciation and amortization 24,364 28,767 48,290 55,870
----------------- ----------------- ----------------- -----------------
Total 65,462 73,712 127,885 142,593
----------------- ----------------- ----------------- -----------------
Operating income 13,114 13,269 25,528 26,874
Other (expense) income:
Interest expense (26,181) (24,223) (52,446) (49,998)
Gain on cable systems exchange - - - 72,831
Other - (527) - (2,058)
----------------- ----------------- ----------------- -----------------
Total (26,181) (24,750) (52,446) 20,775
(Loss) income before income taxes (13,067) (11,481) (26,918) 47,649
Income tax expense (379) (575) (740) (136)
----------------- ----------------- ----------------- -----------------
Net (loss) income $ (13,446) $ (12,056) $ (27,658) $ 47,513
================= ================= ================= =================
<FN>
See the accompanying notes to condensed consolidated financial statements.
</FN>
-4-
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Six Months Ended
June 30,
-----------------------------------
2000 2001
----------------- ----------------
Cash flows from operating activities:
Net (loss) income $ (27,658) $ 47,513
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization 48,290 55,870
Deferred income tax expense 740 136
Gain on cable systems exchange - (72,831)
Non cash interest expense 12,942 14,653
Other - 2,058
Changes in operating assets and liabilities, net of effects
of acquisitions and cable systems exchange:
Subscriber receivables (1,037) (1,000)
Prepaid expenses and other assets 1,848 (4,161)
Accounts payable and accrued interest and other liabilities (1,603) 21,930
Subscriber advance payments and deposits 1,666 1,823
----------------- ----------------
Net cash provided by operating activities 35,188 65,991
----------------- ----------------
Cash flows from investing activities:
Expenditures for property, plant and equipment (48,934) (137,324)
Acquisitions (3,128) -
----------------- ----------------
Net cash used for investing activities (52,062) (137,324)
----------------- ----------------
Cash flows from financing activities:
Repayments of debt (12,174) (44,734)
Partner capital contributions 28,536 116,154
----------------- ----------------
Net cash provided by financing activities 16,362 71,420
----------------- ----------------
(Decrease) increase in cash and cash equivalents (512) 87
Cash and cash equivalents, beginning of period 7,412 7,076
----------------- ----------------
Cash and cash equivalents, end of period $ 6,900 $ 7,163
================= ================
<FN>
See the accompanying notes to condensed consolidated financial statements.
</FN>
-5-
FRONTIERVISION HOLDINGS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
1. The Partnership and Basis of Presentation
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 (the "Formation
Transaction") and, as a result, FVOP and its wholly-owned subsidiary,
FrontierVision Capital Corporation ("Capital"), are wholly-owned, consolidated
subsidiaries of Holdings. The Formation Transaction was accounted for at
predecessor cost. As used herein, the "Company" collectively refers to Holdings,
Holdings Capital, FrontierVision Operating Partners, Inc. ("FVOP Inc."), FVOP,
Capital and FrontierVision Holdings Capital II Corporation ("Holdings Capital
II").
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 Holdings' consolidated financial statements as of
October 1, 1999.
On December 2, 1998, Holdings, along with Holdings Capital II, co-issued
$91,298 aggregate principal amount at maturity of Discount Notes, Series B. Net
proceeds from the issuance were contributed to FVOP as a capital contribution.
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
-6-
related notes contained in the Company's December 31, 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, June 30,
2000 2001
---------------- -----------------
Subsidiary Debt:
Bank Credit Facility:
Revolving Credit Facility, interest based on various floating rate
options (8.69% and 5.90% average at December 31, 2000
and June 30, 2001, respectively) $ 200,000 $ 175,000
Term loans, interest based on various floating LIBOR rate
options (8.97% and 6.26% weighted average at
December 31, 2000 and June 30, 2001, respectively) 462,406 446,369
11% Senior Subordinated Notes due 2006 210,706 209,788
---------------- -----------------
Total $ 873,112 $ 831,157
================ =================
Parent Debt:
11 7/8% Senior Discount Notes due 2007 $ 313,340 $ 328,909
================ =================
Other Debt:
Capital leases $ 21,588 $ 18,026
================ =================
4. Supplemental Financial Information
Cash payments for interest were $31,078 and $37,927 for the six months ended
June 30, 2000 and 2001, respectively. Accumulated depreciation of property,
plant and equipment amounted to $50,952 and $76,437 at December 31, 2000 and
June 30, 2001, respectively. Accumulated amortization of intangible assets
amounted to $66,171 and $92,825 at December 31, 2000 and June 30, 2001,
respectively.
-7-
5. Income Taxes
Income tax expense for the six months ended June 30, 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
consolidated statement of operations. Such amount was not material for the three
and six months ended June 30, 2001. As of January 1, 2001 and June 30, 2001, the
fair value of interest rate swaps, caps and collars was not material.
8. Recent Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets". These statements make
significant changes to the accounting for business combinations, goodwill, and
intangible assets. SFAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations with limited exceptions for combinations
initiated prior to July 1, 2001. In addition, it further clarifies the criteria
for recognition of intangible assets separately from goodwill. This statement is
effective for business combinations completed after June 30, 2001.
SFAS No. 142 discontinues the practice of amortizing goodwill and
indefinite-lived intangible assets and initiates an annual review for
impairment. Impairment would be examined more frequently if certain indicators
are encountered. Intangible assets with a determinable useful life will continue
to be amortized over their useful lives. SFAS No. 142 applies to goodwill and
intangible assets acquired after June 30, 2001. Goodwill and intangible assets
existing prior to July 1, 2001 will be affected when the Company adopts the
statement. SFAS No. 142 is effective for fiscal years beginning after December
15, 2001. The Company is evaluating the impact of the adoption of these
standards and has not yet determined the effect of adoption on its financial
position and results of operations.
-8-
PART I - FINANCIAL INFORMATION (Continued)
FRONTIERVISION HOLDINGS CAPITAL CORPORATION
BALANCE SHEETS (Unaudited)
December 31, June 30,
2000 2001
--------------- ----------------
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>
-9-
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 has had no
operations from inception through June 30, 2001.
-10-
PART I - FINANCIAL INFORMATION (Continued)
FRONTIERVISION HOLDINGS CAPITAL II CORPORATION
BALANCE SHEETS (Unaudited)
December 31, June 30,
2000 2001
---------------- -----------------
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,
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>
-11-
FRONTIERVISION HOLDINGS CAPITAL 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 has had no operations from inception through June 30, 2001.
-12-
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 (the "Formation
Transaction") and, as a result, FVOP and its wholly-owned subsidiary,
FrontierVision Capital Corporation ("Capital"), are wholly-owned, consolidated
subsidiaries of Holdings. The Formation Transaction was accounted for at
predecessor cost. As used herein, the "Company" collectively refers to Holdings,
Holdings Capital, FrontierVision Operating Partners, Inc. ("FVOP Inc."), FVOP,
Capital and FrontierVision Holdings Capital II Corporation ("Holdings Capital
II").
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 Holdings' consolidated financial statements as of
October 1, 1999.
On December 2, 1998, Holdings, along with Holdings Capital II, co-issued
$91,298 aggregate principal amount at maturity of Discount Notes, Series B. Net
proceeds from the issuance were contributed to FVOP as a capital contribution.
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 June 30, 2001, the Company owned
systems with broadband networks that passed in front of approximately 1,067,000
homes and served approximately 709,000 basic subscribers. In addition to
traditional analog cable television, the Company, or one of its affiliates,
offers a wide range of telecommunications services including digital cable
television, high speed data and Internet access, paging and telephony.
-13-
Results of Operations
Three and Six Months Ended June 30, 2000 and 2001
The following table illustrates the Company's operating activities:
Percentage of Revenues
---------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------
2000 2001 2000 2001
-------------- ------------------------------------------
Revenues 100.0% 100.0% 100.0% 100.0%
Expenses:
Direct operating and programming 36.0% 35.7% 35.6% 35.5%
Selling, general and administrative 16.3% 16.0% 16.3% 15.7%
Depreciation and amortization 31.0% 33.1% 31.5% 33.0%
---------------------------------------------------------
Operating income 16.7% 15.2% 16.6% 15.8%
=========================================================
Revenues.
Revenues increased 10.7% and 10.5% for the three and six months ended June
30, 2001, compared with the same periods of the prior year. This increase was
primarily attributable to the implementation of rate increases in substantially
all of the Company's systems in 2001, the growth of digital cable television,
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 9.9% and 10.1% for the three and six months
ended June 30, 2001, compared with the same periods of the prior year. This
increase was primarily attributable to digital cable television, 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 8.3% and 6.4% for the three and six months ended June 30, 2001,
compared with the same periods of 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 18.1% and 15.7% for the three and
six months ended June 30, 2001, compared with the same periods 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.
-14-
Interest expense
Interest expense decreased 7.5% and 4.7% for the three and six months ended
June 30, 2001, compared with the same periods 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 six months ended June 30, 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 six months ended June 30, 2000 and 2001, were
$48,934 and $137,324, respectively. The increase in capital expenditures for the
six months ended June 30, 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
that capital expenditures from July 1, 2001 through December 31, 2001 will be in
a range of approximately $80,000 to $150,000.
At June 30, 2001, the Company's total outstanding debt aggregated
approximately $1,178,092, which included $328,909 of parent debt and
approximately $849,183 of subsidiary public, bank and other debt. As of June 30,
2001, Holdings' 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 8.5% at June 30, 2000, compared to approximately 6.2% at June 30,
2001. At June 30, 2001, approximately 67.0% 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.
-15-
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, 2001:
Six months ending December 31, 2001 $ 19,439
Year ending December 31, 2002 46,378
Year ending December 31, 2003 57,628
Year ending December 31, 2004 62,015
Year ending December 31, 2005 319,021
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, advances from affiliates
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 operations of the Company are 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.
Cable television companies operate under franchises granted by local
authorities. Because such franchises are non-exclusive, the Company is subject
to competition with other cable operators and, in some cases, systems operated
by the municipal franchising authorities themselves. The Company is also subject
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to competition from DBS and wireless service providers, which are not subject to
regulation on the local level, since they do not utilize the public rights of
way. These providers are also exempt from many of the federal regulations
applicable to the cable industry. This difference in regulatory schemes hinders
the Company's ability to compete on a level playing field.
The Company is subject to rate regulation by certain franchising authorities
that have petitioned the FCC for certification to regulate the Company's rates.
Such rate regulation, however, is limited to the basic, or lowest level, service
tier.
Federal regulations also limit the Company's discretion to select certain
programming services, by mandating the carriage of local broadcast television
stations, franchise-required public, educational and governmental channels, and
unaffiliated commercial leased access programming services. Such mandatory
carriage obligations could increase if the FCC decides to extend such mandatory
carriage rules to the digital level of service, which issue is currently pending
before the FCC. These mandatory carriage requirements limit the capacity
available to the Company for revenue-generating programming services.
Additionally, the FCC is currently considering a rulemaking to determine the
regulatory status of Internet service. Specifically, the FCC is reviewing
whether Internet service is a cable service and, therefore, subject to
regulation at the local level, or a telecommunications service and, therefore,
subject to regulation at the state level. The outcome of the decision could have
an impact on such factors as the rates the Company may charge for such service,
the extent to which the Company would have to make its Internet facilities
available to the franchising authorities and unaffiliated service providers, and
the rates the Company must pay utilities for pole attachments. For further
information regarding regulatory and competitive matters and their effect on the
Company, see the Company's most recent Annual Report on Form 10-K.
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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 ended June 30, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
FRONTIERVISION HOLDINGS, L.P.
By: FrontierVision Partners, L.P., its general partner
By: Adelphia GP Holdings, L.L.C., its general partner
By: ACC Operations, Inc., its sole member
Date: August 14, 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 HOLDINGS CAPITAL CORPORATION
Date: August 14, 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 HOLDINGS CAPITAL II CORPORATION
Date: August 14, 2001 By: /s/ TIMOTHY J. RIGAS
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Timothy J. Rigas
Executive Vice President, Chief Financial Officer,
Chief Accounting Officer, and Treasurer
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