Item 1. Financial Statements
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
(Unaudited)
March 31, Sept. 30,
1994 1994
<S> <C> <C>
ASSETS:
Cable television systems, at cost, net of
accumulated depreciation and amortization:
Property, plant and equipment..........................$ 446,290 $ 490,411
Intangible assets...................................... 417,788 539,812
Total.......................................... 864,078 1,030,223
Cash and cash equivalents................................ 74,075 7,616
Investments.............................................. 23,922 44,132
Preferred equity investment in Managed Partnership....... 18,338 18,338
Note receivable from Managed Partnership................. 15,000 15,000
Subscriber receivables - net............................. 18,021 19,191
Prepaid expenses and other assets - net.................. 38,772 46,891
Related party investments and receivables - net.......... 21,640 44,031
Total..........................................$1,073,846 $1,225,422
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY):
Notes payable of subsidiaries to banks and institutions..$ 870,875 $1,038,048
12 1/2% Senior Notes due 2002............................ 400,000 400,000
10 1/4% Senior Notes due 2000 (face amount $100,000 at
September 30, 1994)..................................... 108,765 98,942
11 7/8% Senior Debentures due 2004 (face amount $125,000) 124,442 124,455
9 7/8% Senior Debentures due 2005 (face amount $130,000). 127,882 127,937
9 1/2% Pay-In-Kind Notes due 2004........................ 150,000 156,917
Other debt............................................... 11,747 17,862
Accounts payable......................................... 27,016 37,484
Subscriber advance payments and deposits................. 13,385 14,268
Accrued interest and other liabilities................... 66,077 71,127
Deferred income taxes.................................... 91,721 116,149
Total liabilities.............................. 1,991,910 2,203,189
Stockholders' equity (deficiency):
Class A Common Stock, $.01 par value, 50,000,000 shares
authorized, 13,507,604 shares outstanding.............. 135 135
Class B Common Stock, $.01 par value, 25,000,000 shares
authorized, 10,944,476 shares outstanding.............. 109 109
Additional paid-in capital.............................. 198,431 198,431
Accumulated deficit.....................................(1,116,739) (1,176,442)
Total stockholders' equity (deficiency)........ (918,064) (977,767)
Total..........................................$1,073,846 $1,225,422
</TABLE>
See notes to interim consolidated financial statements.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
Three Months Ended Six Months
Ended
September 30, September 30,
1993 1994 1993 1994
<S> <C> <C> <C> <C>
Revenues............................... $ 79,388 $ 90,795 $ 159,046 $ 174,815
Operating expenses:
Direct operating and programming...... 22,363 26,632 44,695 51,528
Selling, general and administrative... 12,577 15,117 25,394 29,810
Depreciation and amortization......... 23,621 25,267 45,316 46,756
Total............................ 58,561 67,016 115,405 128,094
Operating income....................... 20,827 23,779 43,641 46,721
Other income (expense):
Interest income from affiliates....... 1,629 2,386 3,064 4,755
Other income.......................... 283 270 283 863
Priority investment income............ 5,575 5,575 11,150 11,150
Interest expense...................... (46,096) (48,412) (90,131) (95,325)
Equity in net loss of joint ventures.. (5,374) (8,984) (15,321) (21,618)
Total............................ (43,983) (49,165) (90,955) (100,175)
Loss before income taxes and cumulative
effect of change in accounting
principle............................. (23,156) (25,386) (47,314) (53,454)
Income tax benefit (expense)........... (660) 1,119 (1,790) (104)
Loss after income taxes and before
cumulative effect of change in
accounting principle.................. (23,816) (24,267) (49,104) (53,558)
Cumulative effect of change in
accounting for income taxes........... -- -- (89,660) --
Net loss............................... $ (23,816) $ (24,267) $ (138,764) $ (53,558)
Loss per weighted average share of
common stock after income taxes and
before cumulative effect of change in
accounting principle.................. $ (1.55)$ (.99) $ (3.21) $ (2.19)
Cumulative effect of change in
accounting for income taxes........... -- -- (5.85) --
Net loss per weighted average share of
common stock.......................... $ (1.55) $ (.99) $ (9.06) $ (2.19)
Weighted average shares of common stock
outstanding........................... 15,319,476 24,452,080 15,319,476 24,452,080
</TABLE>
See notes to interim consolidated financial statements.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
Six Months Ended
September 30,
1993 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss..............................................$ (138,764) $ (53,558)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation........................................ 28,068 31,920
Amortization........................................ 17,271 14,836
Non cash interest................................... 143 7,162
Equity in net loss of joint ventures................ 15,321 21,618
Cumulative effect of change in accounting principle. 89,660 --
Increase in deferred income taxes................... 1,477 36
Changes in operating assets and liabilities:
Subscriber receivables........................... (4,890) 674
Prepaid expenses and other assets................ (3,665) (8,865)
Accounts payable................................. (1,003) 9,483
Subscriber advance payments and deposits......... (2,032) (1,171)
Accrued interest and other liabilities........... 5,003 530
Net cash provided by operating activities.............. 6,589 22,665
Cash flows from investing activities:
Net cash used for acquisitions........................ -- (47,693)
Expenditures for property, plant and equipment........ (31,153) (40,703)
Demand notes to Managed Systems....................... (15,000) --
Amounts invested in and advanced to Olympus and
related parties...................................... (8,772) (47,889)
Investments in other joint ventures................... (4,903) (20,587)
Net cash used for investing activities................. (59,828) (156,872)
Cash flows from financing activities:
Proceeds from debt.................................... 206,238 93,787
Repayments of debt.................................... (167,339) (26,039)
Debt financing costs.................................. (1,767) --
Net cash provided by financing activities.............. 37,132 67,748
Decrease in cash and cash equivalents.................. (16,107) (66,459)
Cash and cash equivalents, beginning of year........... 38,671 74,075
Cash and cash equivalents, end of period...............$ 22,564 $ 7,616
</TABLE>
See notes to interim consolidated financial statements.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
The accompanying unaudited consolidated financial statements of
Adelphia Communications Corporation and its majority owned subsidiaries
("Adelphia") have been prepared in accordance with the rules and regulations
of the Securities and Exchange Commission.
In the opinion of management, all adjustments, consisting of only
normal recurring accruals necessary to present fairly the unaudited results
of operations for the three months and six months ended September 30, 1993
and 1994 have been included. It is suggested that these interim
consolidated financial statements be read in conjunction with the Annual
Report on Form 10-K for the fiscal year ended March 31, 1994 ("Annual
Report").
A. Significant Events Subsequent to the 1994 Annual Report:
On April 12, 1994, Adelphia acquired a 34% equity interest in Niagara
Frontier Hockey, L.P., which owns the Buffalo Sabres National Hockey League
franchise, for a purchase price of $15,000; $10,000 of which has been paid
to date, with the remainder to be paid in three installments over the next
year. Effective with the June 1994 quarter, Adelphia consolidated with its
operations the operations of Empire Sports Network, the Buffalo area
regional sports network.
On May 27, 1994, Adelphia signed a letter of intent (subject to various
conditions, including obtaining bank financing) to increase the overall
investment of Adelphia and the companies it manages (the "Adelphia Group")
in cable systems held by Tele-Media Investment Partnership, L.P. and other
Tele-media controlled entities("Tele-Media"). The letter of intent provides
that the Adelphia Group invest between $63,000 and $75,000 in Tele-Media, in
exchange for controlling interests in Tele-Media.
On June 16, 1994, Adelphia invested $34,000 in TMC Holdings Corporation
("THC"), the parent company of Tele-Media Company of Western Connecticut.
THC owns cable television systems serving approximately 43,000 subscribers
in Western Connecticut. The investment in THC provides Adelphia with a
$30,000 preferred equity interest in THC and a 75% non-voting common equity
interest, with a liquidation preference to the remaining 25% common stock
ownership interest in THC. Adelphia has the right to convert such interest
to a 75% voting common equity interest, with a liquidation preference to the
remaining shareholder's 25% common stock ownership interest, on demand
subject to certain regulatory approvals. The acquisition of THC was
accounted for using the purchase method of accounting. The consolidated
statements of operations and cash flows include the operations of the
acquired system from June 16, 1994. Debt acquired, included in notes
payable of subsidiaries to banks and institutions, was $52,000.
On June 30, 1994, Adelphia acquired from Olympus Communications, L.P.
("Olympus") 85% of the common stock of Northeast Cable, Inc. ("Northeast
Cable") for a purchase price of $31,875. Northeast Cable owns cable
television systems serving approximately 36,500 subscribers in Eastern
Pennsylvania. Of the purchase price, $16,000 was paid in cash and the
remainder resulted in a decrease in Adelphia's receivable from Olympus. The
acquisition of Northeast Cable was accounted for using the purchase method
of accounting. Debt acquired, included in notes payable of subsidiaries to
banks and institutions, was $42,300.
On October 28, 1994, Adelphia announced the signing of definitive agreements
for the purchase of all of the cable systems of WB Cable Associates, Ltd.
("WB Cable"), Clear Channels Cable TV Co. ("Clear Channels") and the
Benjamin Terry family (the "Terry Family"), which together serve a total of
69,200 subscribers for an aggregate purchase price of $106.3 million in cash
and $16 million of
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Significant Events Subsequent to the 1994 Annual Report, continued:
Adelphia Class A Common Stock. Adelphia may assign the rights under any of
these agreements to an affiliate. WB Cable currently provides cable service
from one headend and security monitoring services from one location in West
Boca Raton, Florida. The Terry Family cable systems are located in and
around Henderson, North Carolina and the Clear Channels cable systems are
located in and around Kittanning, Pennsylvania.
B. Notes Payable to Banks and Institutions:
The following updates to September 30, 1994 the disclosures made
in Note 3 of the Annual Report.
Commitments for additional borrowings............................$ 58,750
Weighted average interest rate.................................. 8.72%
Percentage of principal balance that bears interest at fixed rates
for at least one year........................................... 57.9%
C. Investments and Related Party Receivables:
The following table summarizes the investments in and unsecured
receivables from Olympus and related parties:
<TABLE>
March 31, Sept. 30,
1994 1994
<S> <C> <C>
Investment in Olympus.......................................$(75,961) $(84,755)
Amounts due from Olympus.................................... 85,938 89,298
Amounts due from other related parties - net................ 11,663 39,488
$ 21,640 $ 44,031
</TABLE>
The investment in Olympus represents a 50% voting interest in such
partnership and is being accounted for using the equity method. Summarized
unaudited results of operations of Olympus, for the nine months ended
September 30, 1993 and 1994, are as follows:
<TABLE>
Nine Months Ended
Sept 30,
1993 1994
<S> <C> <C>
Revenues.....................................................$ 73,478 $ 72,575
Net loss..................................................... (68,324) (15,610)
Net loss of general partners after priority return
requirements................................................(109,922) (62,834)
</TABLE>
D. Accounting for Income Taxes:
The provision for income tax expense for the six months ended
September 30, 1994 was $104, of which $68 and $36 are current and deferred
tax expense, respectively.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
E. Supplemental Cash Flow Information:
<TABLE>
Six Months Ended
September 30,
1993 1994
<S> <C> <C>
Cash payments for interest.................................... $86,187 $86,047
Noncash financing and investment activities - capital leases.. 6,386 --
</TABLE>
F. Reclassification:
Certain prior period amounts have been reclassified to conform to the
current presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Adelphia Communications Corporation ("Adelphia" or the "Company")
earned substantially all of its revenues in the six months ended September
30, 1994 from monthly subscriber fees for basic, satellite, premium and
ancillary services (such as installations and equipment rentals), local and
national advertising sales, pay-per-view programming, home shopping networks
and competitive access telecommunications services. Certain changes in the
way the Company offers and charges for subscriber services were implemented
as of September 1, 1993 under the 1992 Cable Act and the Company's revised
method of offering certain services. See "Regulatory and Competitive
Matters" below.
The changes in Adelphia's results of operations for the six months
ended September 30, 1994, compared to the same period in the prior year,
were primarily the result of acquisitions and expanding existing cable
television operations.
The high level of depreciation and amortization associated with the
major acquisitions completed since fiscal 1987, the recent upgrading and
expansion of systems and interest costs associated with financing activities
will continue to have a negative impact on the reported results of
operations. Significant charges for depreciation, amortization and interest
are expected to be incurred in the future by the Olympus joint venture,
which will also impact Adelphia's future results of operations. Adelphia
expects to report net losses for the next several years.
The Company currently offers competitive access telecommunications
services through a subsidiary, Hyperion Telecommunications, Inc.
("Hyperion"). Since Hyperion's formation in October 1992, it has formed
operating companies or entered into joint venture partnerships to develop
and operate competitive access networks in twelve select metropolitan areas.
The investment in Hyperion resulted in a reduction in the Company's
operating income before depreciation and amortization for the six months
ended September 30, 1993 and 1994 of $534 and $955, respectively. The
equity in net loss of Hyperion's joint venture partnerships amounted to $337
and $345 for the six months ended September 30, 1993 and 1994, respectively.
The following tables set forth certain cable television system data
for the periods indicated for both Company Owned, Olympus and Managed
Systems. The "Olympus Systems" are systems currently owned by the Olympus
joint venture. The "Managed Systems" are affiliated systems managed by
Adelphia.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
Results of Operations, continued:
September 30,
1993 1994 % change
Homes Passed by Cable
<S> <C> <C> <C>
Company Owned Systems...........................1,177,696 1,263,841 7.3 %
Olympus Systems................................. 403,073 413,349 2.5 %
Managed Systems................................ 265,364 268,423 1.2 %
Total Systems...................................1,846,133 1,945,613 5.4 %
Basic Subscribers
Company Owned Systems........................... 864,673 949,617 9.8 %
Olympus Systems................................. 228,542 243,288 6.5 %
Managed Systems................................. 190,994 194,721 2.0 %
Total Systems...................................1,284,209 1,387,626 8.1 %
</TABLE>
Exclusive of acquisitions, basic subscribers grew 2.4%, 6.5% and 2.0%
for Company Owned, Olympus and Managed Systems, respectively, during the
twelve months ended September 30, 1994.
The information for September 30, 1993 and 1994 in the table
immediately above reflects actual homes passed and basic subscribers for
Olympus' South Dade system. At July 31, 1992, prior to Hurricane Andrew,
the South Dade system had 157,992 homes passed by cable and 71,193 basic
subscribers, respectively. At
September 30, 1993 and 1994 the South Dade system served 58,309 and
71,962 basic
subscribers, respectively. Additionally, 1993 homes passed and basic
subscribers have been restated to reflect the Northeast acquisition from
Olympus by the Company.
The following table is derived from Adelphia's Interim Consolidated
Financial Statements included in this interim report and sets forth the
historical percentage relationship of the components of operating income to
revenues contained in such financial statements for the periods indicated.
<TABLE>
Percentage of Revenues
for the Six Months
Ended Sept 30,
1993 1994
<S> <C> <C>
Revenues................................................. 100.0% 100.0%
Operating expenses:
Direct operating and programming........................ 28.1% 29.5%
Selling, general and administrative..................... 16.0% 17.1%
Operating income before depreciation and amortization... 55.9% 53.5%
Depreciation and amortization........................... 28.5% 26.7%
Operating income......................................... 27.4% 26.7%
</TABLE>
Revenues increased approximately 10% and 14% for the six months and
three months ended September 30, 1994, compared to the same period in the
prior year. Approximately 83% and 87% of such increases was attributable to
the incremental revenues from acquisitions. Approximately 6% and 1% of such
increases were from basic subscriber growth, 0% and 0% from rate increases,
and the other 11% and 12% was from the expansion of advertising sales and
other services. Revenues for the three months ended September 30, 1994
fully reflected the repackaging and adjustment of equipment and installation
charges, effective in July 1993, and rates for basic services and certain
other satellite programming services
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Results of Operations, continued
under CableSelect, the Company's method of offering services that was
implemented effective September 1, 1993.
Operating expenses (exclusive of depreciation and amortization)
increased
16% and 20% for the six and three-month periods ended September 30, 1994,
compared to the same periods in the prior year, primarily due to
consolidating the operating expenses of systems acquired after September 30,
1993.
Operating income before depreciation and amortization increased 5%
and 10% for the six-month and three-month periods compared to the same
periods last year. Priority investment income remained unchanged for the
six and three month periods. EBITDA (earnings before interest, income
taxes, depreciation and amortization, equity in net loss of Olympus and
cumulative effect of change in accounting principle) increased 6.6% for the
six-month period and 10.3% for the three-month period this year versus last
year, primarily due to increased revenues and interest income from
affiliates and other income, partially offset by increased operating
expenses. While EBITDA is not an alternative to GAAP operating income,
management believes EBITDA is a meaningful measure of performance as
substantially all of the Company's financing agreements contain financial
covenants based on EBITDA.
Interest expense increased approximately 6% and 5% for the six and
three months ended September 30, 1994, compared to the same periods in the
prior year.
48% and 82% of the increase for the six and three months ended September 30,
1994 was due to additional interest cost associated with incremental debt
related to acquisitions.
Net loss for the six months ended September 30, 1994 decreased by
61%, primarily due to the cumulative effect of the change in accounting
principle for the Company of $89,660 recognized in the six months ended
September 30, 1993. Net loss for the three months ended September 30, 1994
increased by 2%.
The Company has assessed the impact of FAS 106 "Post Retirement
Benefits Other Than Pensions" and FAS 112 "Post Employment Benefits" and has
concluded there is no material effect, present or future, of such accounting
pronouncements on its financial statements.
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 significant capital resources for these purposes
and for investments in Olympus and other affiliates, funded through long-
term borrowings and, to a lesser extent, 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 generally has funded its working capital requirements, capital
expenditures, investments in Olympus and other affiliates, and acquisitions
through long-term borrowings and internally generated funds. The Company
generally has funded the principal and interest obligations on its long-term
borrowings from banks and insurance companies by refinancing the principal
with new borrowings or through the public issuance of debt securities, and
by paying the interest out of internally generated funds. The Company has
funded the interest obligations on its public borrowings out of internally
generated funds.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Liquidity and Capital Resources, continued
The Company's financing strategy has been to maintain its public long-
term debt at the parent holding company level while the Company's
consolidated subsidiaries have their own senior and subordinated credit
arrangements with banks and insurance companies. The Company's public
indentures and subsidiary
credit agreements contain covenants that, among other things, require the
maintenance of certain financial ratios (including compliance with certain
debt to cash flow ratios in order to incur additional indebtedness); place
limitations on borrowings, investments, affiliate transactions, dividends
and distributions; and contain certain cross default provisions relating to
Adelphia or its subsidiaries.
At September 30, 1994, the Company's total outstanding debt aggregated
$1,964,161, which included $908,251 of parent debt and $1,055,910 of
subsidiary debt. At September 30, 1994, the Company had an aggregate amount
of $58,750 in unused credit lines with banks, part of which is subject to
achieving certain levels of operating performance, and $7,616 in cash and
cash equivalents. Subsequent to September 30, 1994 an affiliate entered into
binding commitments with a group of banks for a new credit facility, $20,000
of which will be made available to the Company. Additionally, the Company
has the ability to pay interest on its 9 1/2% PIK notes due 2004 by issuing
additional notes totalling approximately $81,000 in lieu of cash interest
payments through February 15, 1999.
The Company's unused lines of credit are currently provided by reducing
revolving credit facilities whose revolver periods expire through March 31,
1999. The Company's weighted average interest rate of notes payable to
banks and institutions was approximately 8.72% at September 30, 1994,
compared to 8.80% at September 30, 1993. At September 30, 1994,
approximately 57.9% of such debt was subject to fixed interest rates for at
least one year under the terms of such debt or applicable interest rate swap
agreements.
Maturities of debt for the four years and six months after September 30,
1994, including the debt acquired through the THC and Northeast Cable
acquisitions, are as follows:
Six months ended March 31, 1995............................. $ 10,829
Year ended March 31, 1996................................... 120,357
Year ended March 31, 1997................................... 231,406
Year ended March 31, 1998................................... 283,379
Year ended March 31, 1999................................... 260,835
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Liquidity and Capital Resources, continued
The following table presents condensed cash flow information (amounts
in thousands) for Adelphia for the six months ended September 30, 1993 and
1994 (see Adelphia's Interim Consolidated Financial Statements and Notes
thereto included in this report).
<TABLE>
Six Months Ended
September 30,
1993 1994
<S> <C> <C>
Cash provided by operating activities.....................$ 6,589 $ 22,665
Net cash used for investment activities:
Acquisitions............................................. -- (47,693)
Capital expenditures..................................... (31,153) (40,703)
Amounts advanced to Managed Systems for demand notes
receivable.............................................. (15,000) --
Amounts invested in and advanced to Olympus and related
parties - net........................................... (8,772) (47,889)
Investments in other joint ventures....................... (4,903) (20,587)
Total........................................... (59,828) (156,872)
Net cash provided by financing activities:
Borrowings-net of repayments and costs................... 37,132 67,748
Decrease in cash and cash equivalents.....................$ 16,107 $ 66,459
Other information:
Operating income.........................................$ 43,641 $ 46,721
Depreciation and amortization............................ 45,316 46,756
Priority investment income............................... 11,150 11,150
Interest income from affiliates.......................... 3,064 4,755
EBITDA(1)................................................ 103,454 110,245
Interest expense......................................... (90,131) (95,325)
</TABLE>
(1) See EBITDA discussion and Results of Operations section
To maintain the overall technical quality of its systems at high
industry standards, Adelphia plans to undertake additional discretionary
capital expenditures as they become feasible during the remainder of the
current fiscal year, financed through internally generated funds and long-
term borrowings.
During the six months ended September 30, 1994, Adelphia made net
advances to Olympus of $3,360, primarily for capital expenditures and
working capital purposes.
On September 29, 1993, the Board of Directors of the Company
authorized the Company to make loans in the future to Highland Video
Associates, L.P. and Syracuse Hilton Head Holdings, L.P. up to an amount of
$25,000 each.
During the six months ended September 30, 1994, Adelphia made advances in
the net amount of $27,825 to these related parties to provide funds mainly
for capital expenditures and working capital purposes.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Liquidity and Capital Resources, continued
On April 12, 1994, for a purchase price of $15,000, $10,000 of which
has been paid to date, Adelphia purchased (i) convertible preferred units in
Niagara Frontier Hockey, L.P., (the "Sabres Partnership") which owns the
Buffalo Sabres National Hockey League Franchise, representing a 34% equity
interest and (ii) warrants allowing Adelphia to increase its interest to
40%. Adelphia believes this investment will be competitively advantageous
in the Buffalo cable television market. The Sabres Partnership will
control, through a wholly-owned subsidiary, the Crossroads Arena, a new
sports and entertainment facility expected to be completed in late 1996.
Adelphia's convertible preferred units will earn a 4% cumulative preferred
distribution beginning after the first
National Hockey League game is played at the Crossroads Arena. Effective
with the June 1994 quarter, Adelphia consolidated with its operations the
operations of Empire Sports Network, the Buffalo area regional sports
network.
On May 12, 1994, Adelphia invested $3,000 for a 20% interest in
SuperCable ALK International, a cable operator in Caracas, Venezuela. In
April, 1994, Adelphia invested $4,200 in Commonwealth Security Systems, Inc.
in exchange for an 8.75% $4,200 convertible note and warrants. The note is
convertible into a 33% fully-diluted common equity interest on demand. The
warrants entitle Adelphia to acquire up to a 40% fully diluted common equity
interest for an additional $670.
On June 16, 1994, Adelphia invested $34,000 in TMC Holdings Corporation
("THC"), the parent of Tele-Media Company of Western Connecticut. THC owns
cable television systems serving approximately 43,000 subscribers in Western
Connecticut. The investment in THC provides Adelphia with a $30,000
preferred equity interest in THC and a 75% non-voting common equity
interest, with a liquidation preference to the remaining 25% common stock
ownership interest in THC. Adelphia has the right to convert such interest
to a 75% voting common equity interest, with a liquidation preference to the
remaining shareholder's 25% common stock ownership interest, on demand
subject to certain regulatory approvals. The acquisition of THC was
accounted for using the purchase method of accounting. The consolidated
statements of operations and cash flows include the operations of the
acquired system from June 16, 1994. Debt acquired, included in notes
payable of subsidiaries to banks and institutions, was $52,000.
On June 30, 1994, Adelphia acquired from Olympus 85% of the common
stock of Northeast Cable, Inc. ("Northeast Cable") for a purchase price of
$31,875. Northeast Cable owns cable television systems serving
approximately 36,500 subscribers in Eastern Pennsylvania. Of the purchase
price, $16,000 was paid in cash and the remainder resulted in a decrease in
Adelphia's receivable from Olympus. The acquisition of Northeast Cable was
accounted for using the purchase method of accounting. The consolidated
statements of operations and cash flows do not include the operations of the
acquired system for the three months ended June 30, 1994. Debt acquired,
included in notes payable of subsidiaries to banks and institutions, was
$42,300.
During the six months ended September 30, 1994, Adelphia purchased on
the open market $10,000 of its 10 1/4% Senior Notes due in 2000 at a price
of 94.5% of face value plus accrued interest.
On October 28, 1994, Adelphia announced the signing of definitive
agreements for the purchase of all of the cable systems of WB Cable
Associates, Ltd. ("WB Cable"), Clear Channels Cable TV Co. ("Clear
Channels") and the Benjamin Terry family (the "Terry Family"), which
together serve a total of 69,200 subscribers for an aggregate purchase price
of $106.3 million in cash and $16 million of
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Liquidity and Capital Resources, continued
Adelphia Class A Common Stock. WB Cable currently provides cable service
from one headend and security monitoring services from one location in West
Boca Raton, Florida. The Terry Family cable systems are located in and
around Henderson, North Carolina and the Clear Channels cable systems are
located in and around Kittanning, Pennsylvania.
On November 8, 1994, Page Call, Inc., a company 49.9% owned by
Adelphia, was a successful bidder for three regional narrowband PCS
licenses, covering 62% of the country's population. Page Call, Inc., was
recently established to develop a nationwide paging service. Page Call,
Inc.'s aggregate final bid for the three licenses was $52,900, an amount
reduced to $31,800 due to its "designated entity" status. Adelphia's
investment is expected to be less than $10,000.
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 Adelphia of public or private equity or debt,
the
negotiation of new or amended credit facilities, or entering into
acquisitions, joint ventures or other investment or financing activities.
The Company's ability to borrow under current credit facilities and to enter
into refinancings and new financings is limited by covenants contained in
Adelphia's indentures and its subsidiaries' 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 existing credit facilities, and future
financing sources will be sufficient to meet its short-term and long-term
liquidity and capital requirements. Although in the past the Company has
been able to refinance its indebtedness or obtain new financing, there can
be no assurance that the Company will be able to do so in the future.
Management believes that the telecommunications industry, including the
cable television and telephone industries, is in a period of consolidation
characterized by mergers, joint ventures, acquisitions, sales of all or part
of cable 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. Management
also believes that the Company is well positioned to participate in this
consolidation trend due to its well-clustered cable systems, the quality of
its cable plant, its management strengths and its relationships within the
cable industry. 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, except as otherwise stated
herein, the Company has not reached any agreements, in principle or
otherwise, with respect to any material transaction and no assurances can be
given as to whether any such transaction may be consummated or, if so, when.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
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.
Many aspects of such regulation are currently the subject of judicial
proceedings and administrative or legislative proceedings or proposals. On
October 5, 1992, Congress passed the 1992 Cable Act, which significantly
expands 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 which will increase 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 original rate regulations became
effective on September 1, 1993. Amendments to the rate regulations became
effective May 15, 1994. Further amendments were adopted on November 10,
1994. The FCC ordered an interim rate freeze effective April 5, 1993 which
was extended through May 15, 1994.
The original rate regulations required a reduction of existing rates
charged for basic services and regulated cable programming services to the
greater of (i) the applicable benchmark level or (ii) the rates in force as
of September 30,
1992, reduced by 10%, adjusted forward for inflation. The amended
regulations will generally require a reduction of up to 17 percent from the
rates for
regulated services in force as of September 30, 1992, adjusted forward for
inflation and certain other factors. Rate reductions are not required to
the extent that a cable operator at its option elects to use an alternative
cost-of-service methodology and shows that rates for basic and cable
programming services are reasonable. The FCC has adopted interim rules to
govern cost-of-service
showings by cable operators. Refunds with interest will be required to be
paid by cable operators who are required to reduce regulated rates after
September 1, 1993, calculated retroactively from the date of a local
franchising authority's
decision with regard to basic rates, and from the date a complaint is filed
with the FCC with regard to the rates charged for regulated programming
services. The FCC has reserved the right to reduce or increase the
benchmarks it has established. The rate regulations will also limit future
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. On November 10, 1994, the FCC adopted an
alternative method for adjusting the rates charged for a cable programming
services tier when new services are added. This will allow cable operators
to increase rates by as much as $1.50 over a two year period to reflect the
addition of up to seven new channels of service on cable programming service
tiers. In addition, a new programming tier can be created, the rate for
which would not be regulated as long as certain conditions are met, such as
not moving services from existing tiers to the new one. 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.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Regulatory and Competitive Matters, continued
The FCC has adopted regulations implementing most of the requirements
of the 1992 Cable Act and is in the process of completing certain additional
rulemaking proceedings before the 1992 Cable Act can be fully implemented.
As noted above, amendments to the rate regulations were recently announced
and the FCC is also likely to continue to modify, clarify or refine the rate
regulations and benchmark methodology. In addition, litigation has been
instituted challenging various portions of the 1992 Cable Act and the
rulemaking proceedings including the rate regulations. The Company cannot
predict the effect or outcome of the future rulemaking proceedings, changes
to the rate regulations, or litigation. Further, because the FCC has only
recently issued its interim rules and has not adopted final cost-of-service
rules, the Company has not determined to what extent it will be able to
utilize cost-of-service showings to justify rates.
Effective as of September 1, 1993, in accordance with the 1992 Cable
Act, the Company repackaged certain existing cable services by adjusting
rates for basic service and introduced a new method of offering certain
cable services. The Company adjusted the basic service rates and related
equipment and installation rates in all of its systems in order for such
rates to be in compliance with the applicable benchmark or equipment and
installation cost levels. The amended rules may require further adjustments
to the Company's rates. The Company also implemented a program in all of
its systems called "CableSelect" under which most of the Company's
satellite-delivered programming services are now offered individually on a
per channel basis, or as a group at a price of approximately 15% to 20%
below the sum of the per channel prices of all such services. For
subscribers who elect to customize their channel lineup, the Company will
provide, for a monthly rental fee, an electronic device located on
the cable line outside the home, enabling a subscriber's television to
receive only those channels selected by the subscriber. These basic service
rate
adjustments and the CableSelect program have also been implemented in all
systems managed by the Company. The Company believes CableSelect provides
increased programming choices to the Company's subscribers while providing
flexibility to the Company to respond to future changes in areas such as
customer demand and
programming. Certain programmers have taken the position that the Company's
new
method of offering services is inconsistent with their programming
agreements. The Company disagrees and is in discussions with these
programmers. Revenues
from regulated programming services and equipment, and revenues from
CableSelect
services per subscriber for the quarter ended December 31, 1993 (the first
full quarter reflecting the impact of the implementation of rate regulations
on
September 1, 1993) declined 3.0% compared to the quarter ended June 30, 1993
(the last quarter not impacted by the implementation of rate regulations on
September 1, 1993). The decline in revenue was partially offset by
increases in prices for HBO, Cinemax, TMC, Disney, Showtime, and Prism; and
by increases in the average
number of basic subscribers. A letter of inquiry, one of at least 63 sent
by the FCC to numerous cable operators, was received by an Olympus System
regarding the implementation of this new method of offering services. The
Company has responded in writing to the FCC's inquiry.
As part of its reconsideration of the original rate regulations, the
FCC has established guidelines for evaluating such "a la carte" packages on
a case-by-case basis based on a number of factors. The FCC has indicated
that "a la carte" packages which are determined to be evasions of rate
regulations rather than true enhancements of subscriber choice will be
treated as regulated tiers, and cable operators engaging in such practices
may be subject to fines and/or further rate adjustments. On November 10,
1994 the FCC ruled that, prospectively, any a la carte package will be
treated as a regulated tier, except for packages involving premium services.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Regulatory and Competitive Matters, continued
The Company is currently unable to predict the effect that the amended
regulations, future FCC treatment of "a la carte" packages or other future
FCC rulemaking proceedings will have on its business and results of
operations in future periods. No assurance can be given at this time that
such matters will not have a material negative financial impact on the
Company's business and results of operations in the future. Also, 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 contains
provisions which encourage competition from such other sources.
Additionally, recent court and administrative decisions have removed certain
of the restrictions that have limited entry into the cable television
business by potential competitors such as telephone companies, and proposals
now under consideration by the FCC, and which are being and from time to
time have been considered by Congress, could result in the elimination of
other such restrictions. The Company cannot predict the extent to which
competition will materialize from other cable television operators, 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.
FCC rules permit local telephone companies to offer "video dialtone"
service for video programmers, including channel capacity for the carriage
of video programming and certain non-common carrier activities such as video
processing,
billing and collection and joint marketing agreements. On December 15,
1992, New Jersey Bell Telephone Company filed an application with the FCC to
operate a
"video dialtone" service in portions of Dover County, New Jersey, in which
the Company serves approximately 20,000 subscribers. The FCC approved the
application on July 18, 1994. The Company has appealed this decision to the
U.S. Court of Appeals for the District of Columbia. This case is presently
pending.
On December 17, 1992, the Chesapeake and Potomac Telephone Company of
Virginia and Bell Atlantic Video Service Company ("Bell Atlantic Video")
filed suit in U.S. District Court in Alexandria, Virginia seeking to declare
unconstitutional the provisions in the 1984 Cable Act that prohibit
telephone companies from owning cable television systems in their telephone
service areas. On August 24, 1993, the court held that the 1984 Cable Act
cross-ownership
provision is unconstitutional, and it issued an order enjoining the FCC from
enforcing the cross-ownership ban. The U.S. Justice Department has appealed
this decision to the U.S. Court of Appeals for the Fourth Circuit. Several
other federal district courts have also struck down the cross-ownership ban
on first amendment grounds. In addition, legislation which would alter or
eliminate the cross-ownership ban is under active consideration in Congress.
The Company cannot predict the outcome of the cross-ownership ban
litigation. However, the Company believes that the provision of video
programming by telephone companies in competition with the Company's
existing operations could have an adverse effect on the Company's financial
condition and results of operations. At this time, the impact of any such
effect is not known or estimable.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the stockholders of the Company was held on
September 20, 1994. Stockholders entitled to a total of 121,471,275 votes
out of 123,452,364 votes attributable to all shares of the Company's
outstanding capital stock were represented at the meeting either in person
or by proxy. At such meeting, one director (the "Class A Director") was
elected by vote of the holders of Class A Common Stock voting as a separate
class, and six directors ("Class A and B Directors") were elected by vote of
the holders of Class A Common Stock and the holders of Class B Common Stock
voting together. No other matters were voted on at the meeting. The
stockholder voting results are as follows:
<TABLE>
<S> <C> <C> <C> <C>
(a) Class A Director Elected Broker
Vote for Withheld Non-Votes
Perry S. Patterson 11,512,753 13,762 0
(b) Class A and B Directors Elected
Class of Broker
Stock Vote for Withheld Non-Votes
Pete J. Metros Class A 11,514,085 12,430 0
Class B 109,944,760 0 0
Daniel R. Milliard Class A 11,514,085 12,430 0
Class B 109,944,760 0 0
John J. Rigas Class A 11,514,085 12,430 0
Class B 109,944,760 0 0
James P. Rigas Class A 11,514,085 12,430 0
Class B 109,944,760 0 0
Michael J. Rigas Class A 11,514,085 12,430 0
Class B 109,944,760 0 0
Timothy J. Rigas Class A 11,514,085 12,430 0
Class B 109,944,760 0 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27.01. Financial Data Schedule (Supplied for the
information of the Commission).
Exhibit 99.01. Additional Exhibits. (Press Release of the
Company dated November 8, 1994).
(b) Reports on Form 8-K filed during the quarter ended September 30,
1994:
None.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SIGNATURE
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.
ADELPHIA COMMUNICATIONS
CORPORATION
(Registrant)
Date: November 14, 1994 By: /s/ Timothy J. Rigas
Timothy J. Rigas
Senior Vice President (authorized
officer), Chief Financial Officer and
Chief Accounting Officer<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION
INDEX
Page Number
PART I-FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets - March 31, 1994 and
September 30, 1994.................................... 1
Consolidated Statements of Operations - Three Months and
Six Months ended September 30, 1993 and 1994.......... 2
Consolidated Statements of Cash Flows - Six Months
Ended September 30, 1993 and 1994..................... 3
Notes to Interim Consolidated Financial Statements....... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 6
PART II-OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...... 16
Item 6. Exhibits and Reports on Form 8-K......................... 16
ADELPHIA COMMUNICATIONS CORPORATION
EXHIBIT INDEX
Exhibit No. DESCRIPTION
27.01 Financial Data Schedule
99.01 Press release by Adelphia
Communications Corporation
dated November 8, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's unaudited consolidated financial statements as of and for
September 30, 1994, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 7,166
<SECURITIES> 0
<RECEIVABLES> 19,191<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 490,411<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,225,422
<CURRENT-LIABILITIES> 0
<BONDS> 1,964,161
<COMMON> 244
0
0
<OTHER-SE> (978,011)
<TOTAL-LIABILITY-AND-EQUITY> 1,225,422
<SALES> 0
<TOTAL-REVENUES> 174,815
<CGS> 0
<TOTAL-COSTS> 128,094
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95,325
<INCOME-PRETAX> (53,454)
<INCOME-TAX> 104
<INCOME-CONTINUING> (53,558)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (53,558)
<EPS-PRIMARY> (2.19)
<EPS-DILUTED> (2.19)
<FN>
<F1>Receivables shown net of Allowance for Doubtful Accounts
<F2>PP&E shown net of Accumulated Depreciation
</FN>
</TABLE>
PRESS RELEASE
FOR RELEASE: IMMEDIATE
CONTACT: Timothy J. Rigas, Senior Vice President
(814) 274-9830
Coudersport, PA November 8, 1994 -- Adelphia Communications Corporation
("Adelphia") (NASDAQ:ADLAC) announced today that it is a 49.9% owner of Page
Call, Inc., a Delaware corporation, which was a successful bidder on three
regional narrowband PCS licenses, covering 62% of the country's population.
More specifically, the company was the winning bidder on three of the
licenses in the "six (6) block -- R001-6 (the northeast); R002-6 (the
southeast); and R003-6 (the Midwest). Each of these licenses is for 50/12.5
paired spectrum.
The company is owned 50.1% by Lisa-Gaye Shearing and 49.9% by Adelphia. Ms.
Shearing has been a financial executive in the communications industry for
many years. Adelphia is one of the country's ten largest cable television
operators and is active in the competitive access network industry.
Page Call, Inc. intends to use its narrowband PCS licenses as the basis for
a planned nationwide paging service. The company expects to market its
paging services to consumers through a series of marketing affiliation
agreements with cable television operators. It will market to business
users through a separate distribution system. Page Call, Inc. expects to
begin construction of its infrastructure shortly after the award of its
licenses by the FCC in 1995.
Ms. Shearing is enthusiastic about the industry's prospects. "The paging
industry has enjoyed excellent subscriber growth rates, averaging around 30%
per annum, and the outlook is strong for continued growth. As new service
options, such as acknowledgment paging, become widely available, the
industry's revenue base will be further expanded. With these licenses in
hand, Page Call, Inc. is well-positioned to provide its subscribers with the
full range of paging services on a local, regional and national basis," said
Ms. Shearing.
Mr. John Rigas, President and CEO of Adelphia, agrees. "With the company's
existing activities in cable television and telecommunications, Adelphia is
committed to the future of the wired communications industry. With this
investment, Adelphia will have an important stake in wireless communications
as well."
Adelphia's experience and contacts in the cable television industry will be
valuable to Page Call, Inc. as it puts its consumer marketing strategy into
action. Last year, for the first time in the paging industry, new consumer
subscriptions outsold new business subscriptions. "A well-thought out
consumer strategy is more important than ever before," said Mr Rigas.
Page Call, Inc. is a "designated entity" according to the FCC's preference
rules. Although Adelphia owns 49.9% of the company, Ms. Shearing has
retained 85.1% of Page Call, Inc.'s voting shares as required by the FCC.
Page Call, Inc.'s aggregate final bid price for the licenses was $52.9
million. Because of its designated entity status, however, the company's
final bid price will be subject to a 40% bidding credit, reducing the
aggregate cost of the licenses to a net $31.8 million.
"The main benefit of the designated entity preference bidding credit was
that it helped designated entity companies stay in the bidding process,"
said Ms. Shearing. She stressed, however, that the importance of the
installment payment plan made available to designated entities could not be
over-emphasized. "The availability of a favorable ten-year payment schedule
for the license price and reasonable interest rates was critical to our
ability to attract a high quality investor like Adelphia," said Ms.
Shearing.
Ms. Shearing was most recently Managing Director of the boutique investment
banking firm Communications Equity Associates' London office. Ms. Shearing
was previously a corporate lender with Toronto-Dominion Bank, the world's
largest lender to the communications industry, co-heading their
communications lending area.
Adelphia owns or manages cable systems serving over 1,370,000 subscribers in
twelve states. In addition, Adelphia is actively involved in the
construction of SONET-based competitive access networks and will provide
switched telephone service in four New York state cities within the next six
months.
It is estimated that Adelphia's investment in Page Call, Inc. will be less
than $10 million over the next twelve months.
