UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
- ----
1934
For the quarterly period ended February 29, 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 Number: 0-16899
ARAHOVA COMMUNICATIONS, INC.
(Successor by Merger to Century Communications Corp.)
(Exact name of registrant as specified in its charter)
Delaware 25-1844576
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One North Main Street
Coudersport, PA 16915-1141
(Address of principal executive offices) (Zip code)
814-274-9830
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has 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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
--
Adelphia Communications Corporation is the holder of all shares of outstanding
common stock, par value $.01, of Arahova Communications, Inc. consisting of
1,000 shares as of April 13, 2000.
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ARAHOVA COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX
Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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Condensed Consolidated Balance Sheets - May 31, 1999 and February 29, 2000............................... 2
Condensed Consolidated Statements of Operations - Nine Months Ended February 28, 1999,
Four Months Ended September 30, 1999 and Five Months Ended February 29, 2000.......................... 3
Condensed Consolidated Statements of Operations - Three Months Ended February 28, 1999,
and Three Months Ended February 29, 2000.............................................................. 4
Condensed Consolidated Statements of Cash Flows - Nine Months Ended February 28, 1999,
Four Months Ended September 30, 1999 and Five Months Ended February 29, 2000......................... 5
Notes to Condensed Consolidated Financial Statements..................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................................... 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk........................................... 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................... 21
Item 2. Changes in Securities................................................................................ 21
Item 3. Defaults Upon Senior Securities...................................................................... 22
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 22
Item 5. Other Information.................................................................................... 22
Item 6. Exhibits and Reports on Form 8-K..................................................................... 22
SIGNATURES.................................................................................................... 23
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ARAHOVA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
Old Arahova New Arahova
---------------- ----------------
May 31, February 29,
1999 2000
---------------- ----------------
ASSETS
Cable systems, at cost, net of accumulated depreciation and
amortization:
<S> <C> <C>
Property, plant and equipment $ 585,980 $ 956,344
Intangible assets 459,833 6,486,305
---------------- ----------------
Total 1,045,813 7,442,649
Cash and cash equivalents 626,155 105,004
Investments 74,899 114,735
Subscriber receivables - net 24,798 32,518
Prepaid expenses and other assets - net 31,934 77,911
---------------- ----------------
Total $ 1,803,599 $ 7,772,817
================ ================
LIABILITIES AND COMMON STOCKHOLDERS'
EQUITY (DEFICIENCY)
Parent debt $ 1,873,640 $ 1,847,990
Subsidiary debt 169,050 581,206
Accounts payable 44,096 89,240
Subscriber advance payments and deposits 25,747 22,076
Accrued interest and other liabilities 76,180 126,558
Deferred income taxes 5,290 1,633,505
---------------- ----------------
Total liabilities 2,194,003 4,300,575
Minority interests 74,915 600,111
Commitments and contingencies (Note 8)
Common stockholders' equity (deficiency):
Common stock, par value $.01 per share:
New Arahova, 1,000 shares authorized,
issued and outstanding -- --
Old Arahova Class A, 400,000,000 shares authorized,
67,232,335 shares issued and 33,423,167 shares outstanding 672 --
Old Arahova Class B, 300,000,000 shares authorized,
42,322,059 shares issued and outstanding 423 --
Additional paid-in-capital 191,234 3,372,538
Related party receivables - net -- (469,923)
Other, including 33,809,168 treasury shares at May 31, 1999 (143,818) (5,952)
Accumulated deficit (513,830) (24,532)
---------------- ----------------
Total common stockholders' equity (deficiency) (465,319) 2,872,131
---------------- ----------------
Total $ 1,803,599 $ 7,772,817
================ ================
See notes to condensed consolidated financial statements.
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ARAHOVA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share amounts)
Old Arahova New Arahova
----------------------------------- ----------------
Nine Months Four Months Five Months
Ended Ended Ended
February 28, September 30, February 29,
1999 1999 2000
----------------- ----------------- ----------------
<S> <C> <C> <C>
Revenues $ 485,927 $ 231,230 $ 334,830
Operating expenses:
Direct operating and programming 188,331 92,455 107,291
Selling, general and administrative 96,087 47,610 58,401
Depreciation and amortization 125,864 59,665 101,583
Stock compensation -- 26,232 --
Merger and integration costs -- 174,153 5,297
----------------- ----------------- ----------------
Total 410,282 400,115 272,572
----------------- ----------------- ----------------
Operating income (loss) 75,645 (168,885) 62,258
Other (expense) income:
Interest expense - net (130,593) (53,929) (75,442)
Minority interests in
income of subsidiaries (9,334) (4,911) (12,793)
Other 5,186 337 --
----------------- ----------------- ----------------
Total (134,741) (58,503) (88,235)
Loss before income taxes (59,096) (227,388) (25,977)
Income tax benefit (expense) 19,104 (5,837) 1,445
----------------- ----------------- ----------------
Net loss from continuing operations (39,992) (233,225) (24,532)
Gain on sale of discontinued operations (less
applicable income taxes of $28,255) 312,142 -- --
----------------- ----------------- ----------------
Net income (loss) 272,150 (233,225) (24,532)
Other comprehensive (loss) income - net of income
taxes (13,265) 11,511 (5,952)
----------------- ----------------- ----------------
Comprehensive income (loss) $ 258,885 $ (221,714) $ (30,484)
================= ================= ================
Basic and diluted net loss from continuing
operations per share $ (0.53) $ (3.07)
Basic and diluted gain on sale of discontinued
operations per share 4.16 --
----------------- -----------------
Basic and diluted net income (loss) per share $ 3.63 $ (3.07)
================= =================
Basic and diluted weighted average shares of
common stock outstanding (in thousands) 74,976 75,921
================= =================
See notes to condensed consolidated financial statements.
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ARAHOVA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share amounts)
Old Arahova New Arahova
---------------- ----------------
Three Months Three Months
Ended Ended
February 28, February 29,
1999 2000
---------------- ----------------
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Revenues $ 164,776 $ 217,197
Operating expenses:
Direct operating and programming 66,375 69,579
Selling, general and administrative 31,848 38,314
Depreciation and amortization 43,290 69,200
Merger and integration costs -- 2,157
---------------- ------------------
Total 141,513 179,250
---------------- ------------------
Operating income 23,263 37,947
Other expense:
Interest expense - net (42,004) (47,753)
minority interests in
income of subsidiaries (2,871) (6,919)
Other (39) --
---------------- ------------------
Total (44,914) (54,672)
Loss before income taxes (21,651) (16,725)
Income tax benefit (expense) 27,622 (151)
---------------- ------------------
Net income (loss) from continuing operations 5,971 (16,876)
Gain on sale of discontinued operations (less applicable
income taxes of $28,255) 312,142 --
---------------- ------------------
Net income (loss) 318,113 (16,876)
Other comprehensive loss - net of income taxes (2,577) (5,952)
---------------- ------------------
Comprehensive income (loss) $ 315,536 $ (22,828)
================ ==================
Basic net income from continuing operations per share $ 0.08
Basic gain on sale of discontinued operations per share 4.15
----------------
Basic net income per share $ 4.23
================
Basic weighted average shares of common stock outstanding
(in thousands) 75,146
================
Diluted net income from continuing operations per share $ 0.08
Diluted gain on sale of discontinued operations per share 4.08
----------------
Diluted net income per share $ 4.16
================
Diluted weighted average shares of common stock outstanding
(in thousands) 76,449
================
See notes to condensed consolidated financial statements.
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ARAHOVA COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Old Arahova New Arahova
----------------------------------- -----------------
Nine Months Four Months Five Months
Ended Ended Ended
February 28, September 30, February 29,
1999 1999 2000
----------------- ----------------- -----------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ 272,150 $ (233,225) $ (24,532)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 125,864 59,665 101,583
Parent's and other minority interests in income of subsidiaries 9,334 4,911 12,793
(Decrease) increase in deferred taxes (1,892) 202 (6,553)
Gain on sale of discontinued operations (340,397) -- --
Other (6,008) -- --
Amortization of restricted stock -- 6,504 --
Write-off of employee receivables -- 1,437 --
Acceleration of stock options -- 11,669 --
Noncash interest expense 42,587 19,647 27,868
Stock compensation -- 26,232 --
Changes in operating assets and liabilities, net of
effect of acquisitions:
Subscriber receivables (17,072) 2,240 (1,607)
Prepaid expenses and other assets (3,968) (5,403) (6,615)
Accounts payable and accrued liabilities (5,269) 3,641 41,360
---------------- ---------------- ----------------
Net cash provided by (used for) operating activities 75,329 (102,480) 144,297
---------------- ---------------- ----------------
Cash flows used for investing activities:
Capital expenditures (79,997) (52,630) (78,207)
Acquisition of cable and other assets (3,461) (14,303) (247,315)
Proceeds from sale of radio stations 11,538 -- --
Proceeds from sale of discontinued operations 360,115 -- --
Amounts invested in and advanced to related parties -- -- (469,923)
---------------- ---------------- ----------------
Net cash provided by (used for) investing activities 288,195 (66,933) (795,445)
---------------- ---------------- ----------------
Cash flows (used for) provided by financing activities:
Proceeds from debt -- 880,000 421,199
Repayments of debt (29,050) (1,000) (892,249)
Issuance of common stock 4,930 5,468 --
Purchase of treasury stock (1,505) (7,891) --
---------------- ---------------- ----------------
Net cash (used for) provided by financing activities (25,625) 876,577 (471,050)
---------------- ---------------- ----------------
Increase (decrease) in cash and cash equivalents - continuing operations 337,899 707,164 (1,122,198)
Cash flow of discontinued operations - net 4,765 -- --
Cash and cash equivalents, beginning of period 285,498 626,155 1,227,202
---------------- ---------------- ----------------
Cash and cash equivalents, end of period $ 628,162 $ 1,333,319 $ 105,004
================ ================ ================
See notes to condensed consolidated financial statements.
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ARAHOVA COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands, except per share amounts)
1. Basis of Presentation, Interim Financial Statements and Merger:
The accompanying unaudited condensed consolidated financial statements of
Arahova Communications, Inc. and subsidiaries ("Arahova" or "the Company") have
been prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. On October 1, 1999, Adelphia Communications Corporation
("Adelphia") and Century Communications Corp. ("Century") consummated a merger
("the Merger") whereby Century was merged with and into Adelphia Acquisition
Subsidiary, Inc. ("Merger Sub"), a wholly owned subsidiary of Adelphia, pursuant
to an Agreement and Plan of Merger ("the Merger Agreement"), dated as of March
5, 1999, as amended as of July 12, 1999 and July 29, 1999 by and among Adelphia,
Century and Merger Sub. As a result of the Merger, Century has become a wholly
owned subsidiary of Adelphia. The Merger Sub is sometimes referred to herein as
the "Successor Corporation". The name of the Successor Corporation was changed
to Arahova on October 1, 1999. As used herein, "the Company" refers to the
predecessor corporation as well as Arahova, as the successor to the predecessor
corporation. The entities for which condensed consolidated financial statements
are presented for periods prior to October 1, 1999 are referred to herein as
"Old Arahova", and the entities for which condensed consolidated financial
statements are presented for periods subsequent to September 30, 1999 are
referred to herein as "New Arahova". Due to the October 1, 1999 application of
purchase accounting resulting from the acquisition of Old Arahova by Adelphia,
the predecessor condensed consolidated financial statements of Old Arahova are
not comparable to the successor condensed consolidated financial statements of
New Arahova. In addition, Old Arahova previously presented classified balance
sheets and statements of cash flows under the direct method. These financial
statements have been reclassified to conform to New Arahova's presentation.
In the opinion of management, all adjustments, consisting of only normal
recurring accruals necessary for a fair presentation of the financial position
of Arahova at February 29, 2000 and the results of operations for the three and
nine months ended February 28, 1999, the four months ended September 30, 1999,
and the three and five months ended February 29, 2000 have been included. These
condensed consolidated financial statements should be read in conjunction with
Century's consolidated financial statements and notes thereto included in its
Annual Report on Form 10-K for the year ended May 31, 1999. Certain
reclassifications have been made to prior period balances to conform to the
current period's presentation. The results of operations for the periods ended
September 30, 1999 and February 29, 2000 listed above are not necessarily
indicative of the results to be expected for the period ending May 31, 2000.
On or about March 10, 1999, a lawsuit was commenced by the filing of a class
action complaint (the "Complaint") by one of Century's Class A common
stockholders on behalf of himself and all others similarly situated naming
Century's Class B common stockholders and all of Century's directors as
defendants for alleged breaches of fiduciary duty in connection with approval of
the Merger consideration. Century and Adelphia were also named as defendants for
allegedly aiding and abetting in the foregoing alleged breaches of fiduciary
duty. The Complaint seeks damages in an unspecified amount and such other relief
as may be appropriate. On July 21, 1999, the court granted Century's and the
other defendants' motion for extension of time to answer or otherwise respond to
the complaint to the earlier of November 15, 1999 or twenty days after the
effective date of the Merger. On October 21, 1999, Adelphia and Century filed
motions to strike the Complaint, and several of the individual defendants moved
to dismiss all counts in the Complaint against them for lack of personal
jurisdiction over each of them. On January 3, 2000, the court dismissed all
counts in the Complaint as to two of the individual defendants. On January 13,
2000, the court granted defendants' motions to strike and dismissed the
plaintiff's complaint in its entirety for failure to state a claim upon which
relief can be granted. The court entered judgment on February 16, 2000. The
plaintiff has not filed an appeal in this action within the time provided by
local court rules for the filing of an appeal.
At the effective time of the Merger, Adelphia purchased Citizens Utilities
Company's ("Citizens") 50% interest in the Century/Citizens Cable Television
Joint Venture ("CCJV"), one of Century's 50% owned joint ventures, for a
purchase price of approximately $131,900, comprised of approximately $27,700 in
cash and approximately 1,850,000 shares of Adelphia Class A common stock. As of
October 1, 1999 this joint venture served approximately 92,300 basic subscribers
in California and was jointly owned by Century and Citizens Cable Company, a
subsidiary of Citizens. On December 15, 1999 Adelphia's interest in CCJV of
$133,400 was contributed to Arahova.
In addition, Century sold its shares of Class A common stock of Citizens to
Dr. Leonard Tow, former Chairman and Chief Executive Officer of Century, at the
effective time of the Merger at fair market value, based on the closing market
price of such shares on the date the Merger Agreement was signed. Based on that
closing price, the aggregate sales price was approximately $39,800.
The Merger has been accounted for using the purchase method of accounting.
Accordingly, the preliminary allocation of Adelphia's purchase price to acquire
Old Arahova has been reflected in New Arahova's condensed consolidated financial
statements as of October 1, 1999, as adjusted through February 29, 2000. A final
allocation of the purchase price will be made upon resolution of pre-acquisition
contingencies and completion of final appraisals. The approximate $4,950,148
aggregate purchase price was comprised of the following:
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Issuance of Adelphia Class A common stock 2,705,000
Assumption of debt and working capital 1,711,000
Deferred tax asset realized by Adelphia (277,852)
Cash 812,000
-------------------
$ 4,950,148
===================
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The value assigned to the Adelphia Class A common stock was based on the
average closing price of Adelphia Class A common stock a few days before and
after the Merger was agreed to and announced on March 5, 1999.
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The following table reflects the opening condensed consolidated balance
sheet of New Arahova, as adjusted through February 29, 2000, which includes the
effects of the preliminary purchase accounting adjustments resulting from the
allocation of Adelphia's purchase prices to acquire Old Arahova and Citizen's
50% interest in CCJV.
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New Arahova
-----------------
October 1, 1999
-----------------
ASSETS
Cable systems:
<S> <C>
Property, plant and equipment $ 769,766
Intangible assets 5,896,025
----------------
Total 6,665,791
Cash and cash equivalents 1,227,202
Investments 105,328
Subscriber receivables - net 26,422
Prepaid expenses and other assets - net 46,772
----------------
Total $ 8,071,515
================
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Parent debt $ 1,820,700
Subsidiary debt 1,052,955
Accounts payable 32,022
Subscriber advance payments and deposits 33,248
Accrued interest and other liabilities 88,767
Deferred income taxes 1,643,163
----------------
Total liabilities 4,670,855
Parent's interest in subsidiary and other minority interests 161,512
Common stockholders' equity:
Common stock, par value $.01 per share:
New Arahova, 1,000 shares authorized, issued and outstanding --
Additional paid-in-capital 3,239,148
----------------
Total common stockholders' equity 3,239,148
----------------
Total $ 8,071,515
================
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As a result of the application of purchase accounting, New Arahova has
recorded its assets and liabilities at their preliminary fair values on October
1, 1999. As of February 29, 2000, the allocation of Adelphia's purchase price to
acquire Old Arahova had not been finalized. Accordingly, the Company may make
additional refinements to the preliminary allocation of Adelphia's purchase
prices to acquire Old Arahova and Citizen's 50% interest in CCJV in future
periods. Certain of the more significant effects of purchase accounting are
described below.
The $769,766 assigned to New Arahova's property, plant and equipment will be
depreciated over useful lives ranging primarily from 5 to 20 years. The
$5,896,025 assigned to New Arahova's intangible assets is primarily comprised of
franchise costs and will be amortized over useful lives of primarily 40 years.
2. Significant Events Subsequent to May 31, 1999:
On December 7, 1999, Arahova acquired cable systems that served
approximately 19,000 basic subscribers at the date of acquisition in Moreno
Valley and Riverside County, California and were purchased for an aggregate
price of approximately $32,000. The acquisition was accounted for under the
purchase method of accounting. Accordingly, the financial results of the
acquired systems are included in the consolidated results of Arahova effective
from the date acquired.
On December 7, 1999, subsidiaries of Arahova consummated a transaction with
AT&T to form a joint venture limited partnership in the Los Angeles, CA area.
Pursuant to this agreement, the Company and Adelphia contributed cable systems
totaling approximately 525,000 basic subscribers and approximately $744,000 in
debt. AT&T contributed cable systems totaling approximately 275,000 subscribers
and $213,000 in debt. Arahova and Adelphia hold a combined interest of 75% and
AT&T holds a 25% interest in the partnership. The cable systems contributed by
Arahova and Adelphia have been recorded at historical cost. The acquisition of
the cable systems contributed by AT&T has been accounted for under the purchase
method of accounting. The financial results of the cable systems contributed by
AT&T are included in the consolidated results of operations of Arahova effective
from the date acquired. As part of this transaction, the Company and AT&T
exchanged cable systems owned by the Company in certain communities in northern
California for certain cable systems owned by AT&T in southern California,
allowing each of them to unify operations in existing service areas. AT&T
exchanged its East San Fernando Valley cable system serving approximately
103,500 basic subscribers for the Company's northern California cable systems
(San Pablo, Benecia, Fairfield and Rohnert Park, California), serving
approximately 96,500 basic subscribers. No gain or loss was recognized on this
system swap due to the application of purchase accounting in connection with the
Merger. Adelphia, the parent of Arahova, manages the joint venture. For pro
forma information, see the Company's Current Report on Form 8-K filed on
February 22, 2000.
On December 7, 1999, in connection with the closing of the above described
joint venture, a subsidiary of Arahova closed on a $1,000,000 credit facility.
The credit facility consists of a $500,000, 8 year reducing revolving credit
loan and a $500,000, 8 year term loan. Proceeds from the initial borrowings were
used to repay existing indebtedness.
3. Debt:
The aggregate fair value assigned in purchase accounting to New Arahova's
debt and related interest rate swap was less than the aggregate recorded value
at the date of the merger by $65,878. The fair value of the Company's debt is
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same remaining
maturities. Such excess will be amortized over the respective remaining 1 to 8
year lives of the underlying debt obligations.
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Debt is summarized as follows:
Parent Debt:
Old Arahova New Arahova
---------------- ----------------
May 31, February 29,
1999 2000
---------------- ----------------
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9 1/2% Senior Notes due 2000 $ 150,000 $ 150,000
9 3/4% Senior Notes due 2002 200,000 201,645
Senior Discount Notes due 2003 316,618 324,733
9 1/2% Senior Notes due 2005 250,000 251,150
8 7/8% Senior Notes due 2007 250,000 242,935
8 3/4% Senior Notes due 2007 225,000 216,480
8 3/8% Senior Notes due 2017 100,000 94,140
8 3/8% Senior Notes due 2007 100,000 94,310
Senior Discount Notes due 2008 282,022 272,597
---------------- ----------------
Total parent debt $ 1,873,640 $ 1,847,990
================ ================
Subsidiary Debt:
Old Arahova New Arahova
---------------- ----------------
May 31, February 29,
1999 2000
---------------- ----------------
Notes to banks $ 89,000 $ 517,000
9.47% Senior Secured Notes due 2002 80,000 64,206
Other debt 50 --
---------------- ----------------
Total subsidiary debt $ 169,050 $ 581,206
================ ================
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Certain subsidiaries of the Company had credit facilities with $1,067,500 of
available borrowings of which $517,000 was outstanding at February 29, 2000.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks.
On April 14, 2000, a subsidiary of Arahova, along with co-borrowers,
affiliates and subsidiaries of Adelphia, closed a new $2,250,000 bank credit
facility. The bank credit facility consists of both a reducing revolving credit
portion and a term loan portion.
4. Investments:
As a result of a contract with At Home Corporation ("@Home") to provide
@Home high speed internet access on certain systems, Arahova has received a
warrant contract to purchase up to 5,260,000 shares of @Home Series A common
stock at $5.25 per share. The investment in @Home warrants is classified as an
available-for-sale security. During the three and five months ended February 29,
2000, Arahova recognized revenue of $2,520 and $3,626, respectively, related to
these warrants. Arahova's investment in @Home warrants of $26,734 at February
29, 2000 includes $9,057 of unrealized loss.
5. Stock Compensation:
During the four months ended September 30, 1999, certain employees of Old
Arahova exercised options in a manner that caused Old Arahova to recognize
compensation expense for all options outstanding under the option plans. This
resulted in stock compensation expense of $26,232 during the four months ended
September 30, 1999. Any remaining options outstanding at the date of the Merger
rolled over into options to acquire Adelphia Class A common stock. New Arahova
does not have its own stock compensation plan.
6. Net Loss Per Weighted Average Share of Common Stock:
For the nine months ended February 28, 1999 and the four months ended
September 30, 1999, diluted net loss per common share is equal to basic net loss
per common share because Old Arahova's outstanding options and other potential
common shares had an anti-dilutive effect for such periods. Subsequent to the
Merger, all shares of New Arahova common stock are held by Adelphia. As such,
disclosure of net loss per weighted average share of common stock is not
required for periods subsequent to the Merger.
7. Supplemental Financial Information:
Cash payments for interest were $102,846, $48,331 and $75,284 for the nine
months ended February 28, 1999, the four months ended September 30, 1999 and the
five months ended February 29, 2000, respectively. Accumulated depreciation of
property, plant and equipment amounted to $520,127 and $34,936 at May 31, 1999
and February 29, 2000, respectively. Accumulated amortization of intangible
assets amounted to $395,268 and $63,989 at May 31, 1999 and February 29, 2000,
respectively. Interest expense - net includes interest income of $5,812 and
$13,244 for the three months ended February 28, 1999, and the three months ended
February 29, 2000, respectively, and $13,237, $14,679 and $23,465 for the nine
months ended February 28, 1999, the four months ended September 30, 1999 and the
five months ended February 29, 2000, respectively. Interest income includes
interest income from affiliates on related party receivables balances.
8. Commitments and Contingencies:
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations and Legal Proceedings for a discussion of
material commitments and contingencies.
9. Recent Accounting Pronouncements:
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. Management of the Company has not completed its evaluation of the
impact of SFAS No. 133 on the Company's condensed consolidated financial
statements. In July 1999, SFAS No. 137 was issued to delay the effective date of
SFAS No. 133 to fiscal quarters of fiscal years beginning after June 15, 2000.
At its January 2000 meeting, the Emerging Issues Task Force ("EITF") reached
consensus with respect to issues related to EITF 98-3, "Determining Whether a
Transaction is an Exchange of Similar Productive Assets or a Business
Combination." As a result of this consensus, the Company will be required to
account for cable system swaps as a purchase and a disposition of a business at
fair value. Management of the Company will monitor the impact of EITF 98-3 as it
relates to future transactions of the Company.
10. Reclassifications:
Certain prior period amounts have been reclassified to conform with the
current period presentation.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
ARAHOVA COMMUNICATIONS, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share amounts)
Introduction
On October 1, 1999, Adelphia Communications Corporation ("Adelphia") and
Century Communications Corp. ("Century") consummated a merger (the "Merger")
whereby Century was merged with and into Adelphia Acquisition Subsidiary, Inc.
("Merger Sub"), a wholly owned subsidiary of Adelphia, pursuant to an Agreement
and Plan of Merger (the "Merger Agreement"), dated as of March 5, 1999, as
amended as of July 12, 1999 and July 29, 1999, by and among Adelphia, Century
and Merger Sub. As a result of the Merger, Century has become a wholly owned
subsidiary of Adelphia. Merger Sub is sometimes referred to herein as the
"Successor Corporation." The name of the Successor Corporation was changed to
Arahova Communications, Inc. ("Arahova") on October 1, 1999. As used herein, the
"Company" refers to the predecessor corporation as well as Arahova, as the
successor to the predecessor corporation.
On or about March 10, 1999, a lawsuit was commenced by the filing of a class
action complaint (the "Complaint") by one of Century's Class A common
stockholders on behalf of himself and all others similarly situated naming
Century's Class B common stockholders and all of Century's directors as
defendants for alleged breaches of fiduciary duty in connection with approval of
the Merger consideration. Century and Adelphia were also named as defendants for
allegedly aiding and abetting in the foregoing alleged breaches of fiduciary
duty. The Complaint seeks damages in an unspecified amount and such other relief
as may be appropriate. On July 21, 1999, the court granted Century's and the
other defendants' motion for extension of time to answer or otherwise respond to
the complaint to the earlier of November 15, 1999 or twenty days after the
effective date of the Merger. On October 21, 1999, Adelphia and Century filed
motions to strike the Complaint, and several of the individual defendants moved
to dismiss all counts in the Complaint against them for lack of personal
jurisdiction over each of them. On January 3, 2000, the court dismissed all
counts in the Complaint as to two of the individual defendants. On January 13,
2000, the court granted defendants' motions to strike and dismissed Plaintiff's
complaint in its entirety for failure to state a claim upon which relief can be
granted. The court entered judgment on February 16, 2000. The plaintiff has not
filed an appeal in this action within the time provided by local court rules for
the filing of an appeal.
At the effective time of the Merger, Adelphia purchased Citizens Utilities
Company's ("Citizens") 50% interest in the Century/Citizens Cable Television
Joint Venture, one of Century's 50% owned joint ventures, for a purchase price
of approximately $131,900, comprised of approximately $27,700 in cash and
approximately 1,850,000 shares of Adelphia Class A common stock. As of October
1, 1999 this joint venture served approximately 92,300 basic subscribers in
California and was jointly owned by Century and Citizens Cable Company, a
subsidiary of Citizens. On December 15, 1999, Adelphia's interest in CCJV of
$133,400 was contributed to Arahova.
In addition, Century sold its shares of Class A common stock of Citizens
Utilities Company to Dr. Leonard Tow, former Chairman and Chief Executive
Officer of Century, at the effective time of the Merger at fair market value,
based on the closing market price of such shares on the date the Merger
Agreement was signed. Based on that closing price, the aggregate sales price was
approximately $39,800.
On December 7, 1999, subsidiaries of Arahova consummated a transaction with
AT&T to form a joint venture limited partnership in the Los Angeles, CA area.
Pursuant to this agreement, the Company and Adelphia contributed cable systems
totaling approximately 525,000 basic subscribers and approximately $744,000 in
debt. AT&T contributed cable systems totaling approximately 275,000 subscribers
and $213,000 in debt. Arahova and Adelphia hold a combined interest of 75% and
AT&T holds a 25% interest in the partnership. The cable systems contributed by
Arahova and Adelphia have been recorded at historical
<PAGE>
ARAHOVA COMMUNICATIONS, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share amounts)
cost. The acquisition of the cable systems contributed by AT&T has been
accounted for under the purchase method of accounting. The financial results of
the cable systems contributed by AT&T are included in the consolidated results
of operations of Arahova effective from the date acquired. As part of this
transaction, the Company and AT&T exchanged cable systems owned by the Company
in certain communities in northern California for certain cable systems owned by
AT&T in southern California, allowing each of them to unify operations in
existing service areas. AT&T exchanged its East San Fernando Valley cable system
serving approximately 103,500 basic subscribers for the Company's northern
California cable systems (San Pablo, Benecia, Fairfield and Rohnert Park,
California), serving approximately 96,500 basic subscribers. No gain or loss was
recognized on this system swap due to the application of purchase accounting in
connection with the Merger. Adelphia, the parent of Arahova, manages the joint
venture. For pro forma information, see the Company's Current Report on Form 8-K
filed on February 22, 2000.
Results of Operations
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q, including Management's Discussion and Analysis of Financial Condition
and Results of Operations, is forward-looking, such as information relating to
the 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 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, 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. 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. 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, under
the caption "Risk Factors."
The Company is primarily engaged in the ownership and operation of cable
television systems in the United States and earns its revenues primarily from
subscriber fees for basic, satellite, premium and ancillary services (such as
installations and equipment rental), local and national advertising sales, high
speed data services and pay-per-view programming. At February 28, 1999 and
February 29, 2000, the Company's cable systems served approximately 1,338,000
and 1,624,000 basic subscribers, respectively. Certain of the Company's cable
systems are owned 50% by the Company and 50% by unaffiliated entities. At
February 29, 2000, these 50% -owned systems served approximately 246,000 basic
subscribers in the aggregate.
Adjusted Arahova Three and Nine Months Ended February 28, 1999 and
February 29, 2000
As described in Note 1 to the accompanying condensed consolidated financial
statements, the Merger occurred on October 1, 1999. Accordingly, the entities
for which financial statements are presented for periods prior to October 1,
1999 are referred to herein as Old Arahova, and the entities for which financial
statements are presented for periods subsequent to September 30, 1999 are
referred to herein as New Arahova. Due to the October 1, 1999 application of the
preliminary purchase accounting in connection with the Merger, the predecessor
condensed consolidated financial statements of Old Arahova are not comparable to
the successor condensed consolidated financial statements of New Arahova.
Due to the consummation of the Merger, the Company's February 29, 2000
condensed consolidated statement of operations for the three and nine months
ended February 29, 2000 includes information reflecting the three and five month
period ended February 29, 2000 and the four month periods ended September 30,
1999.
For purposes of the following table and discussion, the operating results of
Old Arahova have been combined with the operating results of New Arahova (this
combination will be referred to herein as Adjusted Arahova) in order to provide
a more meaningful basis for comparing the three and nine months ended February
28, 1999 and February 29, 2000. Depreciation, amortization and certain other
line items included in the operating results of Adjusted Arahova are not
necessarily comparable between periods as the three and nine month successor
period ended February 29, 2000 includes the effect of the preliminary purchase
accounting adjustments related to the Merger. The combining of predecessor and
successor accounting periods is not in accordance with generally accepted
accounting principles. See Note 1 to the accompanying condensed consolidated
financial statements. The results of Adjusted Arahova for the three and nine
months ended February 29, 2000 are not necessarily indicative of the results to
be expected for Arahova for the period ending May 31, 2000.
The unaudited results of operations for Adjusted Arahova are as follows:
<TABLE>
<CAPTION>
Adjusted Arahova
-------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
February 28, February 29, February 28, February 29,
1999 2000 1999 2000
--------------------------- --------------------------
<S> <C> <C> <C> <C>
Revenues $ 164,776 $ 217,197 $ 485,927 $ 566,060
Operating expenses:
Direct operating and programming 66,375 69,579 188,331 199,746
Selling, general and administrative 31,848 38,314 96,087 106,011
Depreciation and amortization 43,290 69,200 125,864 161,248
Stock compensation -- -- -- 26,232
Merger and integration costs -- 2,157 -- 179,450
------------ ------------ ------------ ------------
Total 141,513 179,250 410,282 672,687
------------ ------------ ------------ ------------
Operating income (loss) 23,263 37,947 75,645 (106,627)
Other (expense) income:
Interest expense - net (42,004) (47,753) (130,593) (129,371)
Minority interests in
income of subsidiaries (2,871) (6,919) (9,334) (17,704)
Other (39) -- 5,186 337
------------ ------------ ------------ ------------
Total (44,914) (54,672) (134,741) (146,738)
Loss before income taxes (21,651) (16,725) (59,096) (253,365)
Income tax benefit (expense) 27,622 (151) 19,104 (4,392)
------------ ------------ ------------ ------------
Net income (loss) from
continuing operations $ 5,971 $ (16,876) $ (39,992) $ (257,757)
============ ============ ============ ============
</TABLE>
<PAGE>
The following table is derived from the unaudited results of operations for
Adjusted Arahova shown above and sets forth the historical percentage
relationship to revenues of the components of operating income for the periods
indicated.
<TABLE>
<CAPTION>
Adjusted Arahova
-----------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
February 28, February 29, February 28, February 28,
1999 2000 1999 2000
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Direct operating and programming 40.3% 32.0% 38.8% 35.3%
Selling, general and administrative 19.3% 17.6% 19.8% 18.7%
Depreciation and amortization 26.3% 31.9% 25.9% 28.5%
Stock compensation -- -- -- 4.6%
Merger and integration costs -- 1.0% -- 31.7%
-------------- -------------- -------------- --------------
Operating income (loss) 14.1% 17.5% 15.5% (18.8%)
============== ============== ============== ==============
</TABLE>
Adjusted Arahova Revenues. Revenues increased approximately 31.8% and 16.5%
for the three and nine months ended February 29, 2000 compared with the same
periods of the prior year. The increases are attributable to acquisitions, basic
subscriber growth, and cable rate increases.
Adjusted Arahova Direct Operating and Programming. These expenses, which are
mainly basic and premium programming costs and technical expenses increased 4.8%
and 6.1% for the three and nine months ended February 29, 2000 compared with the
same periods of the prior year. The increases are primarily due to incremental
costs associated with increased subscribers partially offset by lower
programming rates and other technical expenses.
Adjusted Arahova Selling, General and Administrative. These expenses, which
are mainly comprised of costs related to system offices, customer service
representatives and sales and administrative employees, increased 20.3% and
10.3% for the three and nine months ended February 29, 2000 compared with the
same periods of the prior year. The increases were due primarily to incremental
costs associated with subscriber growth.
Adjusted Arahova Stock Compensation. In September 1999, certain employees of
Old Arahova exercised options in a manner that caused Old Arahova to recognize
compensation expense for all options outstanding under the option plans, which
resulted in stock compensation expense of $26,232.
Adjusted Arahova Merger and Integration Costs. These expenses, which are
comprised of compensation, legal and consulting costs, were incurred in
conjunction with the merger with Adelphia, which was completed on October 1,
1999.
Adjusted Arahova Interest Expense - Net. Adjusted Arahova interest expense -
net increased 13.7% for the three months ended February 29, 2000 and decreased
0.9% for the nine months ended February 29, 2000 compared with the same periods
of the prior year. The increase is primarily due to incremental debt related to
the acquisitions, the amortization of debt discount recorded as a result of the
Merger, and an increase in the average debt outstanding. The decrease in the
nine months ended February 29, 2000 is due to the increase in interest income
from affiliate borrowings, partially offset by an increase in the average debt
outstanding and the amortization of debt discount recorded as a result of the
Merger.
Liquidity and Capital Resources
The Company's internally-generated cash, along with third party financings,
primarily the issuance of debt securities to the public, have enabled it to fund
its working capital requirements, capital expenditures for property, plant and
equipment, acquisitions, investments and debt service. The Company has funded
the principal obligations on its long-term borrowings by refinancing the
principal with the issuance of debt securities in the public market and through
private institutions as well as internally generated cash flow and the sale of
certain business segments. The debt instruments to which the Company and its
subsidiaries are a party impose restrictions on the incurrence of additional
indebtedness.
The subsidiaries' credit facilities and the Company's public debt
instruments, among other things, require the maintenance of certain financial
and operating covenants, restrict the use of proceeds from such borrowing, limit
the incurrence of additional indebtedness, restrict the purchase or redemption
of its capital stock and limit the ability to pay dividends and management fees
and make capital expenditures.
At February 29, 2000, the Company's total outstanding debt aggregated
$2,429,196, which included $1,847,990 of parent debt and $581,206 of subsidiary
debt. As of February 29, 2000, the Company had an aggregate of $655,504 in
unused credit lines and cash and cash equivalents. On April 14, 2000, a
subsidiary of Arahova, along with co-borrowers, affiliates and subsidiaries of
Adelphia, closed a new $2,250,000 bank credit facility. This bank credit
facility consists of both a reducing revolving credit portion and a term loan
portion.
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 February 29, 2000:
<TABLE>
<S> <C>
Three months ending May 31, 2000 $ --
Year ending May 31, 2001 170,000
Year ending May 31, 2002 231,000
Year ending May 31, 2003 479,000
Year ending May 31, 2004 64,750
</TABLE>
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 Arahova or its subsidiaries, of public debt and
the negotiation of new or amended credit facilities.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well defined interest rate risks.
The cable television and other telecommunication businesses are capital
intensive and typically require continual financing for the construction,
modernization, maintenance, expansion and acquisition of cable and other
telecommunication systems. 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 plans 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. The
upgraded system will be completely addressable and provide two-way communication
capability. The additional bandwidth will enable the Company to offer additional
video programming and data services. A portion of the bandwidth will be
allocated to new service offerings such as two-way data, telephony and
video-on-demand.
Capital expenditures for Adjusted Arahova for the nine months ended February
28, 1999 and February 29, 2000 were $79,997 and $130,837, respectively. The
Company estimates that capital expenditures will be in the range of
approximately $43,000 to $53,000 from March 1, 2000 through May 31, 2000.
Merger Related Costs
The Company had employment agreements primarily with four executive officers
including Dr. Leonard Tow, former Chairman and Chief Executive Officer of
Century. For purposes of these employment agreements, a "threatened change of
control" occurred and such employees had the right to terminate these employment
agreements. During the quarter ended August 31, 1999, each of these executive
officers exercised his right to terminate his employment agreement but continued
working for the Company through the closing of the Merger. Pursuant to the
employment agreement, upon such termination, each executive officer was entitled
to receive his base salary through the end of the term of his employment
agreement, an annual cash bonus for the remainder of the term equal to his most
recently awarded cash bonus, continuation of medical, dental, life and
disability insurance for the remainder of the term on the same basis as provided
while the agreement was in effect and the use of office space for one year. In
addition, upon termination, all of his Company stock options vested and became
exercisable and the restrictions on all of his shares of restricted stock of the
Company lapsed. The total cost to the Company of the termination of the
executive employment agreements was approximately $227,400. Approximately
$167,200 of these costs were recorded by the Company during the four months
ended September 30, 1999 and the remaining $60,200 of these costs, which
resulted from the completion of the Merger, were recorded upon completion of the
Merger.
The Company incurred certain other costs upon completion of the Merger.
Approximately $77,000 of these costs relate primarily to investment banking,
legal and accounting services incurred in relation to the completion of the
Merger. The Company also incurred employee severance related costs related to
the Merger and the continuance of the employment of key personnel through a
period of time after the completion of the Merger. The total cost to the Company
of these employee severance related costs was approximately $10,400.
The Company incurred total incremental compensation, legal and consulting
costs of $174,153 during the four months ended September 30, 1999 in connection
with the Merger. These costs include approximately $167,200 of costs noted above
which were recorded during the four months ended September 30, 1999 in relation
to the termination of the executive employment agreements.
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 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 the 1996 Act or
future legislative or rulemaking proceedings or changes to the rate regulations.
No assurance can be given as to what other future actions Congress, the FCC or
other regulatory authorities may take or the effects thereof on the Company.
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 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 satellites ("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. The law allows DBS providers to begin offering local broadcast
channels. DBS compainies 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
No material changes have occurred during the nine months ended February 29,
2000 for interest rate swaps. Principal outstanding on variable rate debt
increased approximately $428,000 and the carrying value of fixed rate debt over
fair value was approximately $33,272 at February 29, 2000.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On or about March 10, 1999, a lawsuit was commenced by the filing of a class
action complaint (the "Complaint") by one of Century's Class A common
stockholders on behalf of himself and all others similarly situated naming
Century's Class B common stockholders and all of Century's directors as
defendants for alleged breaches of fiduciary duty in connection with approval of
the Merger consideration. Century and Adelphia were also named as defendants for
allegedly aiding and abetting in the foregoing alleged breaches of fiduciary
duty. The Complaint seeks damages in an unspecified amount and such other relief
as may be appropriate. On July 21, 1999, the court granted Century's and the
other defendants' motion for extension of time to answer or otherwise respond to
the complaint to the earlier of November 15, 1999 or twenty days after the
effective date of the Merger. On October 21, 1999, Adelphia and Century filed
motions to strike the Complaint, and several of the individual defendants moved
to dismiss all counts in the Complaint against them for lack of personal
jurisdiction over each of them. On January 3, 2000, the court dismissed all
counts in the Complaint as to two of the individual defendants. On January 13,
2000, the court granted defendants' motions to strike and dismissed Plaintiff's
complaint in its entirety for failure to state a claim upon which relief can be
granted. The court entered judgment on February 16, 2000. The plaintiff has not
filed an appeal in this action within the time provided by local court rules for
the filing of an appeal.
On or about March 24, 2000, ML Media Partners, L.P. ("ML Media") commenced
an action by filing a Verified Complaint (the "Complaint") in the Supreme Court
of the State of New York, New York County, against Arahova Communications, Inc.
("Arahova"), Century Communications Corp., a Texas subsidiary of Arahova
("Century"), and Adelphia Communications Corporation ("Adelphia"). In the nine
count Complaint, ML Media alleges that it entered into a joint venture agreement
(the "Agreement") with Century which, as subsequently modified, governed the
ownership, operation and disposition of cable television systems in Puerto Rico
(the "Joint Venture"). The Complaint alleges that Adelphia and its affiliates
took over Century's interest in the Joint Venture on or around October 1, 1999,
and have, according to the Complaint, breached their fiduciary obligations to
the Joint Venture and violated certain provisions of the Agreement. The
Complaint further alleges that ML Media gave Century notice that ML Media was
exercising its rights under the Agreement to require that Century elect to (A)
purchase ML Media's interest in the Joint Venture at an appraised fair value, or
(B) seek to sell the cable systems to one or more third parties. Century,
according to the Complaint, elected to pursue the sale of the cable systems to a
third party but indicated that it was evaluating whether it would also make its
own offer for the cable systems. The Complaint alleges that Century or its
affiliates' potential participation in the sale process is improper. The
Complaint asks for, among other things, the dissolution of the Joint Venture and
the appointment of a receiver to effect a prompt sale of the Joint Venture. The
parties have until May 31, 2000 to take discovery, including depositions, in the
action. Arahova and the other defendants have until April 28, 2000 to respond to
the Complaint. Arahova's management believes the law suit is without merit and
will vigorously defend it, and believes in any event that this matter will not
have a material adverse effect on Arahova.
The Company is also subject to various legal proceedings and claims that
arise in the ordinary course of business. Management currently believes that
resolving these matters will not have a material adverse impact on the Company's
financial position or its results of operations.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Each exhibit identified below is filed as part of this report.
a) Exhibits
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
10.01 Agreement of Limited Partnership of Century-TCI California
Communications, L.P., dated as of December 7, 1999 (Incorporated
herein by reference is Exhibit 10.115 to the Form 10-K for Adelphia
Communications Corporation for the year ended December 31, 1999)
(File No.0-16014).
10.02 Credit Agreement dated as of December 3, 1999 among Century-TCI
California, L.P., Certain Lenders, Societe Generale and Deutsche
Bank Securities Inc., as Co-Syndication Agents, Salomon Smith
Barney Inc. as Lead Arranger and Sole Book Manager, Mellon Bank,
N.A. as Documentation Agent and Citibank, N.A. as Administrative
Agent (Incorporated herein by reference is Exhibit 10.116 to the
Form 10-K for Adelphia Communications Corporation for the year
ended December 31, 1999) (File No. 0-16014).
27.01 Financial Data Schedule (supplied for the information of the
Commission)
</TABLE>
b) Reports on Form 8-K
A Form 8-K was filed for the event dated December 7, 1999, which
reported information under item 2. A Form 8-K\A was filed for the event
dated December 7, 1999, which reported information under item 7.
Financial statements were filed with such Form 8-K\A.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARAHOVA COMMUNICATIONS, INC.
(Registrant)
Date: April 14, 2000 By: /s/ Timothy J. Rigas
----------------------
Timothy J. Rigas
Executive Vice President (authorized
officer), Chief Financial Officer,
Chief Accounting Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE FOR ARAHOVA COMMUNICATIONS, INC. FOR THE NINE MONTHS
ENDED FEBRUARY 29, 2000
</LEGEND>
<CIK> 0000785080
<NAME> ARAHOVA COMMUNICATIONS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> FEB-29-2000
<CASH> 105,004
<SECURITIES> 0
<RECEIVABLES> 32,518<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 956,344<F2>
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 7,772,817
<CURRENT-LIABILITIES> 0
<BONDS> 2,429,196
0
0
<COMMON> 0
<OTHER-SE> 2,872,131
<TOTAL-LIABILITY-AND-EQUITY> 7,772,817
<SALES> 0
<TOTAL-REVENUES> 566,060
<CGS> 0
<TOTAL-COSTS> 672,687
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129,371
<INCOME-PRETAX> (253,365)
<INCOME-TAX> 4,392
<INCOME-CONTINUING> (257,757)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (257,757)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>RECEIVABLE NET OF ALLOWANCE
<F2>PP&E NET OF DEPRECIATION
</FN>
</TABLE>
