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 December 31, 1993
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 are 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 February 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.
<PAGE>
Item 1. Financial Statements
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
December 31, March 31,
1993 1993
ASSETS:
Cable television systems, at cost, net of accumulated
depreciation and amortization:
Property, plant and equipment - net................. $ 412,588 $ 398,859
Intangible assets - net............................. 421,480 439,599
Total....................................... 834,068 838,458
Cash and cash equivalents............................. 3,821 38,671
Investments........................................... 19,922 15,467
Preferred Equity Investment in Managed Systems........ 18,338 --
Notes receivable from Managed Systems................. 15,000 --
Subscriber receivables................................ 20,017 17,541
Prepaid expenses and other assets - net............... 37,093 27,929
Related party investments and receivables - net....... 9,450 11,527
Total....................................... $ 957,709 $ 949,593
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY):
Notes payable of subsidiaries to banks and
institutions......................................... $ 919,275 $ 962,900
12 1/2% Senior Notes due 2002......................... 400,000 400,000
11 7/8% Senior Debentures due 2004 (face value
$125,000)............................................ 124,435 124,416
9 7/8% Senior Debentures due 2005 (face value
$130,000)............................................ 127,856 127,781
13% Senior Subordinated Notes due 1996 (face value
$100,000)............................................ 99,453 99,329
10 1/4% Senior Notes due 2000 (face value $110,000)... 108,731 --
Other debt............................................ 18,534 16,673
Accounts payable...................................... 21,095 21,105
Subscriber advance payments and deposits.............. 11,010 14,140
Accrued interest and other liabilities................ 68,763 51,863
Deferred income taxes................................. 91,720 --
Total....................................... 1,990,872 1,818,207
Stockholders' equity (deficiency):
Class A Common Stock, $.01 par value 50,000,000
shares authorized, 4,375,000 issued and outstanding. 44 44
Class B Common Stock, $.01 par value 25,000,000
shares authorized, 10,944,476 shares issued and
outstanding......................................... 109 109
Paid-in capital...................................... 60,112 60,112
Accumulated deficit.................................. (1,093,428) (928,879)
Stockholders' equity (deficiency)..................... (1,033,163) (868,614)
Total....................................... $ 957,709 $ 949,593
See notes to consolidated financial statements.
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
December 31, December 31,
1993 1992 1993 1992
Revenues................................ $ 80,245 $ 77,342 $ 239,865 $ 225,921
Operating expenses:
Direct operating and programming....... 22,675 21,319 67,370 61,110
Selling, general and administrative.... 12,758 11,983 38,152 35,628
Depreciation and amortization.......... 22,200 21,336 67,516 66,145
Total......................... 57,633 54,638 173,038 162,883
Operating income........................ 22,612 22,704 66,827 63,038
Other income (expense):
Interest income from affiliates........ 1,265 1,333 3,755 3,960
Other income........................... 287 370 570 1,002
Priority investment income............. 5,575 5,575 16,725 16,725
Interest expense....................... (46,626) (42,833) (136,757) (120,318)
Equity in net loss of Olympus joint
venture partnership................... (8,087) (1,819) (23,408) (36,309)
Total......................... (47,586) (37,374) (139,115) (134,940)
Loss before taxes, extraordinary loss,
and cumulative effect of change in
accounting principle................... (24,974) (14,670) (72,288) (71,902)
Income tax expense...................... (811) -- (2,601) --
Loss before extraordinary loss and
cumulative effect of change in
accounting principle................... (25,785) (14,670) (74,889) (71,902)
Extraordinary loss on early retirement
of debt................................ -- -- -- (14,386)
Cumulative effect of change in
accounting for income taxes............ -- -- (89,660) --
Net loss................................ $ (25,785) $ (14,670) $ (164,549) $ (86,288)
Loss per weighted average share of
common stock before extraordinary
loss and cumulative effect of change in
accounting principle................... $ (1.68) $ ( .96) $ (4.89) $ (4.77)
Extraordinary loss on early retirement
of debt................................ -- -- -- ( .95)
Cumulative effect of change in
accounting for income taxes............ -- -- (5.85) --
Net loss per weighted average share of
common stock........................... $ (1.68) $ ( .96) $ (10.74) $ (5.72)
Weighted average share of common stock
outstanding............................ 15,319,476 15,319,476 15,319,476 15,084,931
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
December 31, December 31,
1993 1992 1993 1992
Cash flows from operating activities:
Net loss.................................$(25,785) $(14,670)$(164,549) $(86,288)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation........................... 12,837 13,358 40,905 40,214
Amortization and accretion of
original issue discount.............. 9,251 8,021 26,665 26,046
Equity in net loss of Olympus.......... 8,087 1,819 23,408 36,309
Extraordinary loss..................... -- -- -- 14,386
Cumulative effect of a change in
accounting principle................. -- -- 89,660 --
Increase in deferred taxes............. 583 -- 2,060 --
Changes in operating assets and
liabilities:
Subscriber receivables............... 2,414 (1,342) (2,476) (3,166)
Prepaid expenses and other assets.... (2,396) (1,560) (6,509) (10,590)
Accounts payable..................... 993 (9,478) (10) (10,577)
Subscriber advance payments and
deposits............................ (1,098) (371) (3,130) (399)
Accrued interest & other liabilities. 3,097 1,186 8,100 17,648
Net cash provided by (used for)
operating activities................. 7,983 (3,037) 14,124 23,583
Cash flows from investment activities:
Net cash used for acquisitions........... -- -- -- (14,501)
Expenditures for property, plant and
equipment............................... (16,769) (17,691) (47,903) (49,139)
Expenditures for support equipment....... (326) (8,163) (345) (8,163)
Demand notes to Managed Systems.......... -- -- (15,000) (9,305)
Amounts invested in and advanced to
Olympus and related parties - net....... (12,559) (804) (21,331) (54,683)
Investments in other joint ventures...... (18,338) -- (22,793) (13,000)
Net cash used for investment activities... (47,992) (26,658) (107,372)(148,791)
Cash flows from financing activities:
Proceeds from debt....................... 153,000 169,663 359,238 1,078,067
Repayments of debt.......................(131,374) (54,165) (298,713) (846,529)
Debt financing costs..................... (360) (357) (2,127) (15,236)
Redemption premium....................... -- -- -- (10,000)
Sale of Class A Common Stock............. -- -- -- 21,725
Net cash provided by financing activities. 21,266 115,141 58,398 228,027
Increase (decrease) in cash and
cash equivalents......................... (18,743) 85,446 (34,850) 102,819
Cash and cash equivalents, beginning
of period................................ 22,564 28,546 38,671 11,173
Cash and cash equivalents, end of period..$ 3,821 $113,992 $ 3,821 $113,992
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
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 and nine months ended December 31, 1993 and 1992, 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, 1993 ("Annual Report").
A. Significant Events Subsequent to the 1993 Annual Report:
On July 28, 1993, Adelphia Communications Corporation and Subsidiaries
("ACC") issued $110,000 aggregate principal amount of unsecured 10 1/4% Senior
Notes due July 2000. Interest is due on the notes semi-annually. The notes,
which are effectively subordinated to all liabilities of the subsidiaries,
contain restrictions and covenants similar to the restrictions on the 12 1/2%
Senior Notes. The notes are not redeemable prior to the maturity date of July
15, 2000. Net proceeds of the notes, after offering costs, aggregated
$106,691.
On January 14, 1994, ACC completed the public offering of 9,132,604 shares
of Class A Common Stock. Of the 9,132,604 shares, 3,300,000 shares were sold
to the public at $18.00 per share, with an underwriting discount of $.855 per
share. Partnerships controlled by the family of John J. Rigas, President and
CEO of ACC, agreed to purchased the other 5,832,604 shares at the public
offering price less the underwriting discount. Net proceeds to ACC before
offering expenses were $156,579 or $17.145 per share. Net proceeds were used
to redeem ACC's $100,000 aggregate principal amount of outstanding 13% Senior
Subordinated Notes due 1996 and to reduce existing bank debt of subsidiaries.
B. Notes Payable to Banks and Institutions:
The following updates, as of the nine months ended December 31, 1993, the
disclosures made in Note 3 of the Annual Report.
Commitments for additional borrowings............... $122,056
Weighted average interest rate...................... 8.72%
Percentage of principal balance that bears interest
at fixed rates for at least one year............. 67%
C. Notes Receivable from and Preferred Investment in Managed Systems:
During the nine months ended December 31, 1993, ACC made loans to managed
partnerships, in the net amount of $20,000, for the purpose of acquiring from
unrelated parties cable television systems serving Palm Beach County, Florida.
Interest rates are based upon one of the following rates: prime rate plus 1.25%
to 2.00% or LIBOR rate plus 2.25% to 3.00%. As of December 31, 1993, $15,000
was outstanding, and the balance is expected to be repaid during fiscal 1994.
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
On October 6, 1993, ACC purchased the preferred Class B Limited Partnership
Interest in Syracuse Hilton Head Holdings, L.P. ("SHHH"), for a price of
$18,338 from Robin Media Group, an unrelated party. SHHH is a joint venture of
the Rigas Family and Tele-Communications, Inc. ("TCI") and owns systems managed
by ACC. The Class B Limited Partnership Interest has a preferred return of 14%
which is payable currently at the option of SHHH, and is senior in priority to
the partnership interests of the Rigas Family and TCI. SHHH is obligated to
redeem the Class B Limited Partnership Interest by June 11, 1996 and December
31, 1996.
D. Related Party Investments and Receivables:
The following table summarizes the investments in and receivables from Olympus
and related parties:
Dec.31, March 31,
1993 1993
Investment in Olympus...................................... $(85,100) $(61,692)
Amounts due from Olympus................................... 77,971 69,384
Amounts due from other related parties - net............... 16,579 3,835
$ 9,450 $ 11,527
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 1992, are as follows:
Nine Months Ended
September 30,
1993 1992
Revenues................................................. $ 73,478 $ 69,460
Net loss................................................. (68,324) (21,530)
Net loss of general partners after priority return
requirements............................................ (110,202) (63,612)
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
E. Accounting for Income Taxes:
ACC adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," effective April 1, 1993. This Statement
supersedes Accounting Principles Board Opinion No. 11, "Accounting for Income
Taxes," which ACC had followed previously and under which ACC recorded no
deferred tax liability. The cumulative effect of adopting SFAS No. 109 at
April 1, 1993 was to increase the net loss by $89,660 for the nine months ended
December 31, 1993.
Deferred income taxes reflect the net tax effects of: (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) operating loss and tax credit carryforwards. The tax effects of
significant items comprising ACC's net deferred tax liability as of April 1,
1993 are as follows:
Deferred tax liabilities:
Differences between book and tax basis of property.................. $ 192,444
Other............................................................... 8,401
200,845
Deferred tax assets:
Reserves not currently deductible................................... 687
Operating loss carryforwards........................................ 326,544
327,231
Valuation allowance................................................. (216,046)
Subtotal.................................................. 111,185
Net deferred tax liability.......................................... $ 89,660
As a result of applying SFAS No. 109, $110,498 of previously unrecorded
deferred tax benefits from operating loss carryforwards incurred by ACC were
recognized at April 1, 1993 as part of the cumulative effect of adopting the
Statement. Under prior accounting, a part of these benefits would have been
recognized as a reduction of income tax expense from continuing operations in
the nine months ended December 31, 1993.
The provision for income tax expense for the nine months ended December 31,
1993 was $2,601 of which $541 and $2,060 are current and deferred tax expense,
respectively.
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
F. Supplemental Cash Flow Information:
Nine Months Ended
December 31,
1993 1992
Cash payments for interest.................................. $130,423 $109,678
Noncash financing and investment activities - capital leases 6,399 --
G. Reclassification:
Certain amounts in fiscal 1993 have been reclassified to conform to the
fiscal 1994 presentation.
<PAGE>
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 nine months ended December 31, 1993
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 the Company's results of operations for the nine months and
three months ended December 31, 1993, compared to the same periods in the prior
year, were generally the result of the expansion of existing cable television
operations since December 31, 1992 and the cumulative effect of a change in
accounting principle of the Company.
The high level of (i) depreciation and amortization associated with prior
acquisitions and the upgrading and expansion of systems and (ii) 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 the Company's future results of
operations. The Company 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 nine months ended December 31, 1993 of
$1,109,000. The equity in net loss of Hyperion's joint venture partnerships
amounted to $276,000 for the nine months ended December 31, 1993.
<PAGE>
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.
December 31,
1993 1992 %Change
Homes Passed by Cable
Company Owned Systems........................... 1,131,979 1,120,487 1.0%
Olympus Systems................................. 453,901 438,378 3.5%
Managed Systems................................. 265,618 200,911 32.2%
Total Systems................................... 1,851,498 1,759,776 5.2%
Basic Subscribers
Company Owned Systems........................... 831,880 814,688 2.1%
Olympus Systems................................. 269,726 232,475 16.0%
Managed Systems................................. 192,624 135,906 41.7%
Total Systems................................... 1,294,230 1,183,069 9.4%
The information for December 31, 1993 and 1992 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 December 31, 1993 and 1992 the South Dade system served
60,678 basic subscribers and approximately 29,000 basic subscribers,
respectively, and at February 7, 1994 served 61,911 basic subscribers.
The following table is derived from Adelphia's 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.
Percentage of Revenues
for the Nine Months
Ended December 31,
1993 1992
Revenues................................................ 100.0% 100.0%
Operating expenses:
Direct operating and programming....................... 28.1% 27.0%
Selling, general and administrative.................... 15.9% 15.8%
Operating income before depreciation and amortization.. 56.0% 57.2%
Depreciation and amortization.......................... 28.1% 29.3%
Operating income........................................ 27.9% 27.9%
Revenues increased approximately 6.2% and 3.8% for the nine months and
three months ended December 31, 1993, respectively, compared to the same
periods in the prior year. Approximately 73% of such increases were
attributable to basic subscriber growth and rate increases, with the remainder
primarily attributable to the expansion of advertising sales and other
services. Revenues for the three months ended December 31, 1993 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 new method of offering services that
was implemented effective September 1, 1993. In addition, the Company's
revenues during the current nine month and three month periods were subject to
the FCC rate freeze, which has been in effect since April 5, 1993, and was
recently extended to May 15, 1994. See "Regulatory and Competitive Matters"
below.
Operating expenses (exclusive of depreciation and amortization) increased
9.1% and 6.4% for the nine and three month periods ended December 31, 1993,
compared to the same 1992 periods, 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 increased 4.0% and
1.8% for the nine month and three month periods compared to last year. These
increases were primarily due to increased revenues partially offset by
increased operating expenses. Interest income from affiliates, other income
and priority investment income remained relatively unchanged for the nine and
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 3.0%
and 1.2% for the nine month and three month periods, respectively, primarily
due to increased revenues and partially offset by increased operating expenses.
Interest expense increased 13.7% and 8.9% for the nine and three months
ended December 31, 1993, compared to the same prior year periods, primarily due
to higher levels of debt outstanding and the refinancing of short-term floating
rate debt with long-term fixed rate debt during fiscal 1993 and the nine months
ended December 31, 1993. Equity in net loss of Olympus decreased 35.5% for the
nine months ended December 31, 1993 due to decreases in the net loss of Olympus
during the period.
Effective April 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109) which requires an asset and liability approach for financial accounting
and reporting for income taxes. SFAS 109 generally provides that deferred tax
assets and liabilities be recognized for temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities and expected benefits of utilizing net operating loss carry
forwards. SFAS 109 resulted in the cumulative recognition of an additional
liability by the Company of approximately $89,660,000. The cumulative effect
of adopting SFAS 109 at April 1, 1993 on the Company's financial statements was
to increase the net loss by $89,660,000. In August 1993, the Congress passed
and the President signed new tax legislation which, among other things,
increases the corporate Federal income tax rate from 34% to 35%.
Net loss for the nine month period increased by 90.7%, primarily due to the
cumulative effect of the change in accounting principle for the Company noted
above. Net loss for the three month period increased by 75.8%, primarily due
to increases in equity in net loss of Olympus and interest expense. Loss before
income taxes, extraordinary loss and cumulative effect of change in accounting
principle increased by 0.5% and 69.0% for the nine month period and the three
month period.
Liquidity and Capital Resources
The cable television business is capital intensive and typically requires
continual financing for the construction, modernization, maintenance, expansion
and acquisition of cable systems. The Company historically has committed
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 December 31, 1993, the Company's total outstanding debt aggregated
approximately $1,798,284,000 which included approximately $860,475,000 of
parent debt and $937,809,000 of subsidiary debt. At December 31, 1993, the
Company had an aggregate of $122,056,000 in unused credit lines with banks,
part of which is subject to achieving certain levels of operating performance,
and $3,821,000 in cash and cash equivalents. Based on the results of
operations of subsidiaries for the quarter ended December 31, 1993,
approximately $150,759,000 of available assets could have been transferred to
Adelphia at such date under the most restrictive covenants in the subsidiary
credit agreements.
The Company's unused lines of credit are currently provided by reducing
revolving credit facilities whose revolver periods expire on April 1, 1994
through March 31, 1999. The Company's weighted average interest rate of notes
payable to banks and institutions was approximately 8.72% at December 31, 1993,
compared to 7.94% at December 31, 1992. At December 31, 1993, approximately
67% 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.
Scheduled maturities for notes payable of subsidiaries to banks and
institutions are currently expected to total $133,000 for the remainder of
fiscal 1994.
The following table presents condensed cash flow information (amounts in
thousands) for Adelphia for the nine months ended December 31, 1993 and 1992
(see Adelphia's Consolidated Financial Statements and Notes thereto included in
this report).
Nine Months Ended
December 31,
1993 1992
Cash provided by operating activities.................... $ 14,124 $ 23,583
Net cash used for investment activities:
Net cash used for acquisitions.......................... -- (14,501)
Capital expenditures.................................... (48,248) (57,302)
Demand notes to Managed Systems......................... (15,000) (9,305)
Amounts invested in and advanced to Olympus and related
parties - net.......................................... (21,331) (54,683)
Investment in other joint ventures....................... (22,793) (13,000)
Total.......................................... (107,372) (148,791)
Net cash provided by financing activities:
Borrowings-net of repayments and costs.................. 58,398 206,302
Proceeds from the issuance of Class A Common Stock...... -- 21,725
Total.......................................... 58,398 228,027
Increase (decrease) in cash and cash equivalents......... $ (34,850) $ 102,819
Other information:
Operating income........................................ 66,827 63,038
Depreciation and amortization........................... 67,516 66,145
Priority investment income.............................. 16,725 16,725
Other income............................................ 570 1,002
Interest income from affiliates......................... 3,755 3,960
EBITDA (1).............................................. 155,393 150,870
Interest expense........................................ 136,757 120,318
(1) Earnings before interest expense, income taxes, depreciation and
amortization, equity in net loss of Olympus, extraordinary loss and
cumulative effect of change in accounting principle.
On July 28, 1993, Adelphia issued, in a private placement, $110,000,000
aggregate principal amount of unsecured 10-1/4% Senior Notes due 2000. The 10-
1/4% Notes which are effectively subordinated to all liabilities of the
subsidiaries, were issued pursuant to an indenture containing restrictions
substantially the same as the indenture for the 12-1/2% Senior Notes due 2002.
Pursuant to a related registration rights agreement, Adelphia granted to
holders of the 10-1/4% Notes certain registration rights regarding a registered
exchange offer for, or the registration of, the 10-1/4% Notes. The net
proceeds from the 10-1/4% Notes, after offering costs, aggregated $106,961,000,
which was used to repay bank debt of subsidiaries to extend the scheduled
maturities of the Company's long-term debt. The 9-7/8% Senior Debentures due
2005, issued March 11, 1993, contained registration rights substantially
similar to those of the 10-1/4% Senior Notes due July 2000. Registered
exchange offers relating to the 9-7/8% Debentures and the 10-1/4% Notes have
been completed.
On January 14, 1994, Adelphia completed the public offering of 9,132,604
shares of Class A Common Stock. Of the 9,132,604 shares, 3,300,000 shares were
offered to the public at $18.00 per share, with an underwriting discount of
$.855 per share. Partnerships controlled by the family of John J. Rigas,
President and CEO of Adelphia, agreed to purchase the other 5,832,604 shares at
the public offering price less the underwriting discount. Net proceeds to
Adelphia before offering expenses were $156,579,000 or $17.145 per shares. Net
proceeds were used to redeem Adelphia's $100,000,000 aggregate principal amount
of outstanding 13% Senior Subordinated Notes due 1996 and to reduce existing
bank debt of subsidiaries.
<PAGE>
The following table sets forth the actual capitalization of the Company at
December 31, 1993 and as adjusted to give effect to the January 14, 1994 public
offering:
December 31, 1993
Actual As Adjusted
(dollars in thousands)
Total Debt:
Notes of Subsidiaries to Banks (a)................ $ 402,775 $ 346,542
Notes of Subsidiaries to Institutions ............ 516,500 516,500
Total Subsidiaries' Debt........................ 919,275 863,042
12 1/2% Senior Notes Due 2002..................... 400,000 400,000
11 7/8% Senior Debentures Due 2004................ 124,435 124,435
9 7/8% Senior Debentures due 2005................ 127,856 127,856
10 1/4% Senior Notes due 2000 .................... 108,731 108,731
13 % Senior Subordinated Notes Due 1996 (a)....... 99,453 --
Other Debt........................................ 18,534 18,534
Total Debt...................................... 1,798,284 1,642,598
Stockholders' Equity (Deficiency):
Preferred Stock, $.01 Par Value, 5,000,000 Shares
Authorized, None Issued.......................... --
Class A Common Stock, $.01 Par Value, 50,000,000
shares authorized, 4,375,000 and 13,507,604 shares
issued and outstanding, liquidation preference,
$1.00 per share (b)(c)........................... 44 135
Class B Common Stock, $.01 Par Value, 25,000,000
Shares Authorized, 10,944,476 Shares Issued and
Outstanding...................................... 109 109
Paid-In Capital (c)............................... 60,112 216,254
Accumulated Deficit (d)............................. (1,093,428) (1,094,242)
Stockholders' Equity (Deficiency)............... (1,033,163) (877,744)
Total Capitalization............................ $ 765,121 $ 764,854
(a) Gives effect to the application of $100,000,000 of the estimated net
proceeds from the January 14, 1994 stock offering for the redemption of
the Senior Subordinated Notes, and the application of the remainder
($56,234,000) to reduce bank debt.
(b) Does not include an aggregate of 700,000 shares of Class A Common Stock
reserved for issuance to officers and other key employees pursuant to
Adelphia's Stock Option Plan of 1986 and Restricted Stock Bonus Plan.
(c) Gives effect to the issuance of 9,132,604 shares of Class A Common Stock,
par value $.01 per share, pursuant to the January 14, 1994 stock offering.
(d) Gives effect to the redemption at par of the Senior Subordinated Notes,
with accretion requirements of $547,000, and the treatment as an expense of
deferred debt cost of $267,000.
<PAGE>
During the nine months ended December 31, 1993, the Company made capital
expenditures of $48,248,000. The Company currently expects capital
expenditures in fiscal 1994 to approximate those in fiscal 1993. An additional
$6,399,000 in support equipment was acquired and financed through capitalized
lease obligations during the nine months ended December 31, 1993. During the
current nine month period, the Company advanced an aggregate of $8,587,000 to
Olympus primarily for capital expenditures and working capital purposes,
including advances of $213,000 during the three months ended December 31, 1993.
Also, the Company received priority investment income from Olympus totalling
$16,725,000 for the nine months ended December 31, 1993.
During the nine months ended December 31, 1993, the Company made loans in
the net amount of $20,000,000 to managed partnerships, to facilitate the
acquisition of cable television systems serving Palm Beach County, Florida from
unrelated parties. As of December 31, 1993, $15,000,000 was outstanding, and
the balance is expected to be repaid during fiscal 1994. In addition, during
the nine months ended December 31, 1993, the Company made advances net of
repayments in the amount of $12,744,000 to other related parties 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. ("Highland") and Syracuse Hilton Head
Holdings, L.P. ("SHHH") up to an amount of $25,000,000 for each. SHHH and
Highland own the cable systems managed by the Company for fees.
On October 6, 1993, Adelphia purchased the preferred Class B Limited
Partnership Interest in Syracuse Hilton Head Holdings, L.P. ("SHHH"), for a
price of $18,338,000 from Robin Media Group, an unrelated party. SHHH is a
joint venture of the Rigas Family and Tele-Communications, Inc. ("TCI") and
owns systems managed by Adelphia. The Class B Limited Partnership Interest
has a preferred return of 14% which is payable currently at the option of SHHH,
and is senior in priority to the partnership interests of the Rigas Family
and TCI. SHHH is obligated to redeem the Class B Limited Partnership Interest
by June 11, 1996 and December 31, 1996.
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, 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 Cable Television Consumer Protection and Competition Act of
1992 (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. On May 3, 1993, the Federal Communications
Commission (the "FCC") released 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 rate regulations became effective on
September 1, 1993. The FCC ordered an interim rate freeze effective April 5,
1993, which has recently been extended through May 15, 1994.
The 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. 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. On July 15, 1993, the FCC announced
a proposal to adopt rules providing for traditional cost-of-service
requirements 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 from the
effective date of the FCC's rate regulations 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
also limit future increases in regulated rates to an inflation indexed amount
plus increases above the inflation index if certain costs such as taxes,
franchise fees, costs associated with specific franchise requirements and
increased programming costs. 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. The
FCC is also likely to continue to modify, clarify or refine the rate
regulations and benchmark methodology. The FCC is currently considering
whether to reduce the benchmarks it has established. In addition, litigation
has been instituted challenging various portions of the 1992 Cable Act and the
rulemaking proceedings. 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 not yet adopted final cost-of-service
rules, the Company cannot predict whether it would 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 introducing 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 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 are also being
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 the average number of basic
subscribers. As part of its survey of post-September 1, 1993 cable rates of
the 25 largest multiple systems operators in the United States, the FCC is
reviewing the cable rates of 11 of such operators, including the Company, that
offer certain of their cable services on a per-channel basis. A letter of
inquiry, one of at least 52 sent by the FCC to numerous cable operators, was
recently 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.
The Company is currently unable to predict the effect that future FCC rate
rulemaking proceedings will have on its business and results of operations in
future periods. No assurances can be given at this time that such matters will
not have a material adverse effect 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 Company's systems from other operators of cable television
systems and from other distribution systems capable of delivering television
programming to the home. The 1992 Cable Act contains provisions which
encourage competition from other sources or distribution systems capable of
delivering television programming to homes. 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 Company is
opposing the application, and the matter has not been resolved by the FCC.
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 Cable Communications Policy Act of 1984
(the "1984 Cable Act") that prohibit telephone companies from owning a cable
television system 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. In addition, legislation which would
alter or eliminate the cross ownership ban has been introduced in Congress and
is under active consideration.
The Company cannot predict the outcome or effect of the New Jersey Bell
video dialtone proceeding or the Bell Atlantic Video litigation. However, the
Company believes that the provision of video programming by telephone companies
with considerable financial resources in competition with the Company's
existing operations could have an adverse effect on the Company's financial
condition and results of operations. The magnitude of any such effect is not
currently known or estimable.
Olympus
For the nine months ended September 30, 1993 total revenues for Olympus
increased from $69,460,000 to $73,478,000 or 5.8% over the prior year period.
The increase was primarily the result of basic subscriber growth and rate
increases, which were partially offset by the effects of Hurricane Andrew on
the South Dade system, net of business interruption insurance proceeds.
Operating expenses (excluding depreciation, amortization and management fees)
decreased 9.6% from $31,847,000 to $28,786,000 as compared to the 1992 nine
month period, primarily due to reduced direct, operating and programming
expenses. As a result, operating income before depreciation, amortization and
management fees increased from $37,613,000 to $44,692,000 or 18.8%, and
operating income increased 175.0% from $5,057,000 to $13,907,000, as compared
to the nine months ended September 30, 1992.
Interest expense for the nine months ended September 30, 1993 decreased
9.5% from $25,114,000 to $22,731,000, primarily due to lower average amounts
of outstanding debt and lower effective average interest rates. Net loss
increased from $21,530,000 to $68,324,000 for the nine months ended September
30, 1993, primarily due to the cumulative effect of a change in accounting
principle of $59,500,000 resulting from the adoption of SFAS 109 by Olympus.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: 10.01 Agreement for the Purchase of Class A Common Stock by
the Rigas family, dated January 7, 1994, is filed herewith.
(b) Reports on Form 8-K filed during the quarter ended December 31, 1993:
Date of Report Item Reported Financial Statements Filed
January 7, 1994 Item 5 None
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: February 14, 1993 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 - December 31, 1993 and
March 31, 1993....................................... 1
Consolidated Statements of Operations - Three Months and
Nine Months ended December 31, 1993 and 1992......... 2
Consolidated Statements of Cash Flows - Three Months and
Nine Months Ended December 31, 1993 and 1992......... 3
Notes to Consolidated Financial Statements.............. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 8
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................... 20
[CONFORMED COPY]
EXHIBIT 10.01
January 7, 1994
Adelphia Communications Corporation
5 West Third Street
Coudersport, PA 16915
Re: PURCHASE OF CLASS A COMMON STOCK
Gentlemen:
The undersigned, for each of themselves (collectively, the "Rigas
Purchasers"), hereby severally agree to purchase directly from you, and you
agree to sell to the Rigas Purchasers, upon the terms and subject to the
conditions set forth herein, a total of 5,832,604 shares (the "Shares") of the
Class A Common Stock, par value $.01 per share (the "Class A Common Stock"), of
Adelphia Communications Corporation, a Delaware corporation (the "Company"), at
$17.145 per share as disclosed on the cover page of the Prospectus. Schedule 1
hereto sets forth the amount of Shares to be purchased by each of the under-
signed. Each capitalized term used herein without being defined herein shall
have the meaning ascribed to it in that certain underwriting agreement, of even
date herewith, between the Company and Salomon Brothers, Inc. (the
"Underwriter"), with respect to the offering and sale of 3,000,000 shares of
Class A Common Stock (the "Underwriting Agreement").
The parties hereto agree that the Rigas Purchasers are entitled to reply on
the representations and warranties made by the Company in the Underwriting
Agreement; provided, however, that the Rigas Purchasers each represent and
warrant that such representations and warranties are true and correct to the
best of their respective knowledge.
The purchase and sale of the Shares as contemplated hereby shall take place
on the Closing Date concurrently with the closing on the Underwritten
Securities. No underwriting commissions or discounts shall be paid to any
underwriter for such purchase or sale of the Shares. The Shares shall be
purchased and shall be held for investment.
The obligations of the parties hereto are conditioned upon (i) the
concurrent closing on the purchase and sale of the Underwritten Securities as
contemplated by the Underwriting Agreement, and (ii) the concurrent extension of
margin loans by the Underwriter to the Rigas Purchasers for the purposes of
making the purchase of the Shares as contemplated by the Underwriting Agreement,
the Registration Agreement and the oral agreements so even date herewith between
the Rigas Purchasers and the Underwriter. This agreement shall be terminated
without liability on the part of any party hereto in the event that the
Underwriting Agreement, the Registration Agreement or such oral agreements are
terminated prior to the consummation of the purchase and sale of the
Underwritten Securities.
<PAGE>
This Agreement shall be effective upon execution and delivery, by the
parties thereto, of the Underwriting Agreement.
This Agreement may be executed in one or more counterparts each of which,
taken together, shall constitute one and the same agreement.
Adelphia Communications Corporation
January 7, 1994
Page 2
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York without giving effect to the principles
of conflicts of law thereof.
Very truly yours,
HIGHLAND HOLDINGS
/s/ Michael J. Rigas
General Partner
SYRACUSE HILTON HEAD HOLDINGS, L.P.
By: Doris Holdings L.P., General Partner
By: /s/ Michael J. Rigas
General Partner
Agreed to and accepted by
ADELPHIA COMMUNICATIONS CORPORATION
By: /s/ Jim Boso
Name:
Title:Vice President
<PAGE>
Schedule I
Highland Holdings 4,374,453 shares
Syracuse Hilton Head Holdings, L.P. 1,458,151 shares
Total 5,832,604 shares
