FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1994
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: 0-16014
ADELPHIA COMMUNICATIONS
CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-2417713
(State or jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
5 West
Third Street, P.O. Box 472, Coudersport, PA 16915
(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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of
the latest practicable date:
At August 12, 1994, 13,507,604 shares of Class A Common
Stock, par value $0.01, and
10,944,476 shares of Class B Common Stock, par value
$0.01 per share, of the registrant
were outstanding.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
June 30, March 31,
1994 1994
ASSETS: (Unaudited)
<S> <C> <C>
Cable television systems, at cost, net of
accumulated depreciation and amortization:
Property, plant and equipment......................... $ 480,500 $ 446,290
Intangible assets...................................... 539,564 417,788
Total.......................................... 1,020,064 864,078
Cash and cash equivalents................................ 14,992 74,075
Investments.............................................. 37,975 23,922
Preferred equity investments in Managed Partnerships..... 18,338 18,338
Note receivable from Managed Partnership................. 15,000 15,000
Subscriber receivables - net............................. 19,059 18,021
Prepaid expenses and other assets - net.................. 39,964 38,772
Related party investments and receivables - net.......... 42,264 21,640
Total.......................................... $1,207,656 $1,073,846
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY):
Notes payable of subsidiaries to banks and institutions.. $1,011,310 $ 870,875
12 1/2% Senior Notes due 2002............................ 400,000 400,000
10 1/4% Senior Notes due 2000 (face amount $100,000 at
June 30, 1994).......................................... 98,909 108,765
11 7/8% Senior Debentures due 2004 (face amount $125,000) 124,448 124,442
9 7/8% Senior Debentures due 2005 (face amount $130,000). 127,909 127,882
9 1/2% Pay-In-Kind Notes due 2004........................ 150,000 150,000
Other debt............................................... 11,813 11,747
Accounts payable......................................... 29,105 27,016
Subscriber advance payments and deposits................. 14,624 13,385
Accrued interest and other liabilities................... 75,704 66,077
Deferred income taxes.................................... 117,286 91,721
Total liabilities.............................. $2,161,108 $1,991,910
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..................................... (1,152,127) (1,116,739)
Total stockholders' equity (deficiency)........ (953,452) (918,064)
Total.......................................... $1,207,656 $1,073,846
</TABLE>
See notes to consolidated financial statements.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE> Three Months Ended
June 30,
1994 1993
<S> <C> <C>
Revenues............................................... $ 84,020 $ 79,658
Operating expenses:
Direct operating and programming...................... 24,896 22,332
Selling, general and administrative................... 14,693 12,817
Depreciation and amortization......................... 21,489 21,695
Total............................................ 61,078 56,844
Operating income....................................... 22,942 22,814
Other income (expense):
Interest income from affiliates....................... 2,369 1,435
Other income.......................................... 593 --
Priority investment income............................ 5,575 5,575
Interest expense...................................... (46,913) (44,035)
Equity in net loss of Olympus joint venture........... (12,634) (9,947)
Total............................................ (51,010) (46,972)
Loss before taxes and cumulative effect of change
in accounting principle............................... (28,068) (24,158)
Income tax expense..................................... (1,223) (1,130)
Loss before cumulative effect of change in
accounting principle.................................. (29,291) (25,288)
Cumulative effect of change in accounting for income
taxes................................................. -- (89,660)
Net loss............................................... $ (29,291) $ (114,948)
Loss per weighted average share of common stock before
cumulative effect of change in accounting principle.. $ (1.20) $ (1.65)
Cumulative effect of change in accounting for income
taxes................................................. -- (5.85)
Net loss per weighted average share of common stock.... $ (1.20) $ (7.50)
Weighted average shares of common stock outstanding.... 24,452,080 15,319,476
</TABLE>
See notes to consolidated financial statements
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
Three Months Ended
June 30,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $ (29,291) $ (114,948)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation........................................ 15,157 13,862
Amortization........................................ 6,332 7,833
Noncash interest expense............................ 3,741 71
Equity in net loss of Olympus....................... 12,634 9,947
Cumulative effect of change in accounting principle. -- 89,660
Provision for deferred tax income taxes............. 1,173 961
Changes in operating assets and liabilities:
Subscriber receivables........................... 806 (752)
Prepaid expenses and other assets................ (1,049) (504)
Accounts payable................................. 1,104 (346)
Subscriber advance payments and deposits......... (815) (3,376)
Accrued interest and other liabilities........... 1,773 91
Net cash provided by operating activities.............. 11,565 2,499
Cash flows from investing activities:
Net cash used for acquisitions........................ (47,693) --
Expenditures for property, plant and equipment........ (18,287) (17,217)
Amounts advanced to Managed Systems for notes
receivable........................................... -- (20,000)
Amounts invested in and advanced to Olympus and
related parties - net................................ (25,366) (13,320)
Investments in other joint ventures................... (14,262) (3,785)
Net cash used for investing activities................. (105,608) (54,322)
Cash flows from financing activities:
Proceeds from debt.................................... 49,311 97,563
Repayments of debt.................................... (14,351) (59,142)
Net cash provided by financing activities.............. 34,960 38,421
Decrease in cash and cash equivalents.................. (59,083) (13,402)
Cash and cash equivalents, beginning of year........... 74,075 38,671
Cash and cash equivalents, end of period............... $ 14,992 $ 25,269
Supplemental disclosure of cash flow activity - Cash
payments for interest................................. $ 41,653 $ 44,476
</TABLE>
See notes to 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 ended June 30,
1994 and 1993 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 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. ("TMIP"). The letter of intent
provides that the Adelphia Group invest between $63,000 and $75,000
in TMIP, in exchange for controlling interests in TMIP.
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 Stock
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. 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.
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;
$7,500 of which was paid on April 12, 1994 with the remainder to be
paid in four 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.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
B. Notes Payable to Banks and Institutions:
The following updates to June 30, 1994 the disclosures made in
Note 3 of the Annual Report.
<TABLE>
<S> <C>
Commitments for additional borrowings............................. $101,219
Weighted average interest rate....................................... 8.67%
Percentage of principal balance that bears interest at fixed rates
for at least one year...............................................60.64%
</TABLE>
C. Investments and Related Party Receivables:
The following table summarizes the investments in and
receivables from Olympus and related parties:
<TABLE>
<S> <C> <C>
June 30, March 31,
1994 1994
Investment in Olympus....................................... $(63,999) $(75,961)
Amounts due from Olympus.................................... 76,382 85,938
Amounts due from other related parties - net................ 29,881 11,663
$ 42,264 $ 21,640
</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 six months ended June 30, 1994 and 1993, are as follows:
<TABLE>
Six Months Ended
June 30,
<S> <C> <C>
1994 1993
Revenues..................................................... $ 49,917 $ 48,295
Loss before cumulative effect of change in accounting
principle................................................... (12,598) (9,025)
Net loss..................................................... (12,598) (68,525)
Net loss of general partners after priority return
requirements................................................ (43,395) (95,873)
</TABLE>
D. Accounting for Income Taxes:
The provision for income tax expense for the three months ended
June 30, 1994 was $1,223, of which $50 and $1,173 are current and
deferred tax expense, respectively.
E. Reclassification:
Certain amounts in fiscal 1994 have been reclassified to
conform to the fiscal 1995 presentation.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Dollars in thousands)
Results of Operations
Adelphia Communications Corporation ("Adelphia" or the
"Company") earned substantially all of its revenues in the three
months ended June 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
new method of offering certain services. See "Regulatory and
Competitive Matters" below.
The changes in Adelphia's results of operations for the three
months ended June 30, 1994, compared to the same period in the
prior year, were primarily the result of 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 eight select metropolitan areas. The investment
in Hyperion resulted in a reduction in the Company's operating
income before depreciation and amortization for the three months
ended June 30, 1994 of $610. The equity in net loss of Hyperion's
joint venture partnerships amounted to $190 for the three months
ended June 30, 1994.
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.
<TABLE>
June 30,
1994 1993 % change
<S> <C> <C> <C>
Homes Passed by Cable
Company Owned Systems........................... 1,236,586 1,126,717 9.8 %
Olympus Systems................................. 410,295 446,265 (8.1)%
Managed Systems................................. 265,989 264,783 0.5 %
Total Systems................................... 1,912,870 1,837,765 4.1 %
Basic Subscribers
Company Owned Systems........................... 941,865 827,024 13.9 %
Olympus Systems................................. 235,657 256,511 (8.1)%
Managed Systems................................. 192,214 179,642 7.0 %
Total Systems................................... 1,369,736 1,263,177 8.4 %
</TABLE>
Results of Operations, continued
The information for June 30, 1994 and 1993 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
June 30, 1994 and 1993 the South Dade system served 69,585 and
52,555 basic
subscribers, respectively, and at August 1, 1994 served 70,945
basic subscribers.
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 Three Months
Ended June 30,
1994 1993
<S> <C> <C>
Revenues................................................. 100.0% 100.0%
Operating expenses:
Direct operating and programming........................ 29.6% 28.0%
Selling, general and administrative..................... 17.5% 16.1%
Depreciation and amortization........................... 25.6% 27.2%
Operating income......................................... 27.3% 28.6%
</TABLE>
Revenues increased approximately 5.5% for the three months
ended June 30, 1994, compared to the same period in the prior year.
Approximately 86% of such increases were attributable to basic
subscriber growth, with the remainder primarily attributable to the
expansion of advertising sales and other services. Revenues for
the three months ended June 30, 1994 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 under CableSelect, the Company's method of
offering services that was implemented effective September 1, 1993.
Operating expenses (exclusive of depreciation and amortization)
increased
12.6% for the three month period ended June 30, 1994, compared to
the same period in the same year, primarily due to increased costs
of providing programming to subscribers, incremental costs (such as
increased administrative and personnel costs) associated with
increased subscribers and revenues and increased costs related to
the implementation of the 1992 Cable Act and regulations
thereunder.
Operating income before depreciation and amortization decreased 0.2%
for the three month period compared to last year. This decrease
was primarily due to increased costs associated with governmental
regulation without corresponding rate increases. Priority
investment income remained unchanged for the three month
periods. EBITDA (earnings before interest, income taxes,
depreciation and amortization, equity in net loss of Olympus,
extraordinary loss and cumulative effect of change in accounting
principle) increased 2.8% for the three month period, primarily due
to increased revenues, interest income from affiliates and other
income and partially offset by increased operating expenses.
Interest expense increased approximately 6.5% for the three
months ended June 30, 1994, compared to the same period in the
prior year, primarily due to increased interest cost associated
with incremental debt, as well as lengthening the life of fixed rate
maturities.
Results of Operations, continued
Net loss for the three months ended June 30, 1994 decreased by
74.5%, primarily due to the cumulative effect of the change in
accounting principle for the Company of $89,660 recognized in the
three months ended June 30, 1993. Loss
before income taxes and cumulative effect of change in accounting
principle increased by 16.2%, primarily due to increases in net
loss to Olympus and interest expense.
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.
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 June 30, 1994, the Company's total outstanding debt
aggregated approximately $1,924,389, which included approximately
$901,266 of parent debt and $1,023,123 of subsidiary debt. At June
30, 1994, the Company had an aggregate of $101,219 in unused credit
lines with banks, part of which is subject to achieving certain
levels of operating performance, and $14,992 in cash and cash
equivalents.
The Company's unused lines of credit are currently provided by
reducing revolving credit facilities whose revolver periods expire
on July 1, 1994 through March 31, 1999. The Company's weighted
average interest rate of notes payable to banks and institutions
was approximately 8.67% at June 30, 1994, compared to 8.34% at June
30, 1993. At June 30, 1994, approximately 60.64% 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 nine months after June
30, 1994, including the debt acquired through the THC and Northeast
Cable acquisitions, are as follows:
<TABLE>
<S> <C>
Nine months ended March 31, 1995................................ $ 18,201
Year ended March 31, 1996....................................... 113,917
Year ended March 31, 1997....................................... 222,096
Year ended March 31, 1998....................................... 271,749
Year ended March 31, 1999....................................... 250,934
</TABLE>
Liquidity and Capital Resources, continued
The following table presents condensed cash flow information
(amounts in thousands) for Adelphia for the three months ended June
30, 1994 and 1993 (see Adelphia's Interim Consolidated Financial
Statements and Notes thereto included in this report).
<TABLE>
Three Months Ended
June 30,
1994 1993
<S> <C> <C>
Cash provided by operating activities..................... $ 11,565 $ 2,499
Net cash used for investment activities:
Acquisitions............................................. (47,693) --
Capital expenditures..................................... (18,287) (17,217)
Amounts advanced to Managed Systems for notes
receivable.............................................. -- (20,000)
Amounts invested in and advanced to Olympus and related
parties - net........................................... (25,366) (13,320)
Investments in other joint ventures....................... (14,262) (3,785)
Total........................................... (105,608) (54,322)
Net cash provided by financing activities:
Borrowings-net of repayments and costs................... 34,960 38,421
Decrease in cash and cash equivalents..................... $ (59,083) $ (13,402)
Other information:
Operating income......................................... $ 22,942 $ 22,814
Depreciation and amortization............................ 21,489 21,695
Priority investment income............................... 5,575 5,575
Other income............................................. 593 --
Interest income from affiliates.......................... 2,369 1,435
EBITDA<F1>............................................... 52,968 51,519
Interest expense, excluding noncash interest............. (43,172) (43,964)
<FN>
<F1> Earnings before interest expense, income taxes, depreciation,and
amortization, equity in net loss of Olympus and extraordinary loss.
</TABLE>
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 three months ended June 30, 1994, Adelphia reduced
amounts due from Olympus by $9,556.
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 three months ended June
30, 1994, Adelphia made advances in the net amount of $18,218 to
these related parties to provide funds for capital expenditures and
working capital purposes.
Liquidity and Capital Resources, continued
On April 12, 1994, for a purchase price of $15,000; $7,500 of
which was paid on April 12, 1994, 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 a $4,200 8.75% 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 Stock
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 three months ended June 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 1/2% of face value plus accrued interest.
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
Liquidity and Capital Resources, continued
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 principal 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.
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.
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,
Regulatory and Competitive Matters, continued
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. 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 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
Regulatory and Competitive Matters, continued
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. The Company is
examining its a la carte packages and may modify certain packages
in light of these guidelines.
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.
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
Regulatory and Competitive Matters, continued
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. Similar suits have been filed in other
federal district courts. On June 15, 1994, the United States
District Court for the Western District Court of Washington 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.
<PAGE>
PART II - OTHER INFORMATION
Item. 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
Date of Report Item Reported Financial Statements Filed
April 27, 1994 Item 5 No
April 28, 1994 Item 5 No
May 5, 1994 Item 5 No
May 27, 1994 Item 5 No
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.
ADELPHIA COMMUNICATIONS CORPORATION
(Registrant)
Date: August 15, 1994 By: /s/ Timothy J. Rigas
Timothy J. Rigas
Senior Vice President (authorized
officer), Chief Financial Officer and
Chief Accounting Officer<PAGE>
<TABLE>
ADELPHIA COMMUNICATIONS CORPORATION
INDEX
Page
Number
PART I-FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Balance Sheets - June 30, 1994 and
March 31, 1994........................................ 1
Consolidated Statements of Operations - Three Months ended
June 30, 1994 and 1993................................ 2
Consolidated Statements of Cash Flows - Three Months
Ended June 30, 1994 and 1993.......................... 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 6. Exhibits................................................. 15
</TABLE>
