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, 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 February 10, 1995, 13,906,691 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.
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Item 1. Financial Statements
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
March 31, Dec. 31,
ASSETS 1994 1994
(Unaudited)
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Cable television systems, at cost, net of
accumulated depreciation and amortization:
Property, plant and equipment.......................... $ 446,290 $ 503,044
Intangible assets...................................... 417,788 533,278
Total.......................................... 864,078 1,036,322
Cash and cash equivalents................................ 74,075 8,931
Investments.............................................. 23,922 35,956
Preferred equity investment in Managed Partnership....... 18,338 18,338
Note receivable from Managed Partnership................. 15,000 28,000
Subscriber receivables - net............................. 18,021 20,613
Prepaid expenses and other assets - net.................. 38,772 46,823
Related party investments and receivables - net.......... 21,640 32,779
Total.......................................... $1,073,846 $1,227,762
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Notes payable of subsidiaries to banks and institutions.. $ 870,875 $1,051,022
12 1/2% Senior Notes due 2002............................ 400,000 400,000
10 1/4% Senior Notes due 2000 (face amount $100,000 at
December 31, 1994)...................................... 108,765 98,976
11 7/8% Senior Debentures due 2004 (face amount $125,000) 124,442 124,463
9 7/8% Senior Debentures due 2005 (face amount $130,000). 127,882 127,965
9 1/2% Pay-In-Kind Notes due 2004........................ 150,000 156,917
Other debt............................................... 11,747 17,207
Accounts payable......................................... 27,016 46,683
Subscriber advance payments and deposits................. 13,385 12,773
Accrued interest and other liabilities................... 66,077 79,944
Deferred income taxes.................................... 91,721 117,322
Total liabilities.............................. 1,991,910 2,233,272
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.............................. 198,431 199,824
Accumulated deficit..................................... (1,116,739) (1,205,578)
Total stockholders' equity (deficiency).................. (918,064) (1,005,510)
Total.......................................... $1,073,846 $1,227,762
See notes to interim consolidated financial statements.
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ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
1993 1994 1993 1994
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Revenues............................... $ 80,245 $ 92,737 $ 239,865 $ 267,552
Operating expenses:
Direct operating and programming...... 22,675 27,644 67,370 79,172
Selling, general and administrative... 12,758 16,409 38,152 46,219
Depreciation and amortization......... 22,200 26,043 67,516 72,799
Total............................ 57,633 70,096 173,038 198,190
Operating income....................... 22,612 22,641 66,827 69,362
Other income (expense):
Interest income from affiliates....... 1,265 2,912 3,755 7,667
Other income.......................... 287 76 570 939
Priority investment income............ 5,575 5,575 16,725 16,725
Interest expense...................... (46,626) (49,668) (136,757) (144,993)
Equity in net loss of joint ventures.. ( 8,087) (8,744) (23,408) (30,362)
Total............................ (47,586) (49,849) (139,115) (150,024)
Loss before income taxes and cumulative
effect of change in accounting
principle............................. (24,974) (27,208) (72,288) (80,662)
Income tax expense..................... (811) (1,214) (2,601) (1,318)
Loss after income taxes and before
cumulative effect of change in
accounting principle.................. (25,785) (28,422) (74,889) (81,980)
Cumulative effect of change in
accounting for income taxes........... -- -- (89,660) --
Net loss............................... $ (25,785) $ (28,422) $ (164,549) $ (81,980)
Loss per share of common stock
before cumulative effect of change in
accounting principle.................. $ (1.68) $ (1.16) $ (4.89) $ (3.35)
Cumulative effect of change in
accounting for income taxes........... -- -- (5.85) --
Net loss per share of common stock.... $ (1.68) $ (1.16) $ (10.74) $ (3.35)
Weighted average shares of common stock
outstanding........................... 15,319,476 24,452,080 15,319,476 24,452,080
See notes to interim consolidated financial statements.
</TABLE>
<TABLE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
December 31,
1993 1994
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Cash flows from operating activities:
Net loss.............................................. $ (164,549) $ (81,980)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation........................................ 40,905 50,616
Amortization........................................ 26,665 22,183
Non cash interest................................... -- 7,322
Equity in net loss of joint ventures................ 23,408 30,362
Cumulative effect of change in accounting principle. 89,660 --
Increase in deferred income taxes................... 2,060 1,209
Changes in operating assets and liabilities, net of
effects of acquisitions:
Subscriber receivables........................... (2,476) (748)
Prepaid expenses and other assets................ (6,509) (9,405)
Accounts payable................................. (10) 18,682
Subscriber advance payments and deposits......... (3,130) (2,666)
Accrued interest and other liabilities........... 8,100 9,576
Debt financing costs............................. (2,127) --
Net cash provided by operating activities.............. 11,997 45,151
Cash flows from investing activities:
Net cash used for acquisitions........................ -- (47,693)
Expenditures for property, plant and equipment........ (48,248) (71,095)
Demand notes to Managed Systems....................... (15,000) --
Amounts invested in and advanced to Olympus and
related parties....................................... (21,331) (44,927)
Investments in other joint ventures................... (22,793) (26,161)
Net cash used for investing activities................. (107,372) (189,876)
Cash flows from financing activities:
Proceeds from debt.................................... 359,238 110,453
Repayments of debt.................................... (298,713) (30,872)
Net cash provided by financing activities.............. 60,525 79,581
Decrease in cash and cash equivalents.................. (34,850) (65,144)
Cash and cash equivalents, beginning of year........... 38,671 74,075
Cash and cash equivalents, end of period............... $ 3,821 $ 8,931
</TABLE>
See notes to interim consolidated financial statements.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
The accompanying unaudited consolidated financial statements of
Adelphia Communications Corporation and its majority owned subsidiaries
("Adelphia") have been prepared in accordance with the rules and regulations
of the Securities and Exchange Commission.
In the opinion of management, all adjustments, consisting of only normal
recurring accruals necessary to present fairly the unaudited results of
operations for the three months and nine months ended December 31, 1993 and
1994 have been included. It is suggested that these interim consolidated
financial statements be read in conjunction with the consolidated financial
statements included in the Annual Report on Form 10-K for the fiscal year
ended March 31, 1994 ("Annual Report").
A. Significant Events Subsequent to the 1994 Annual Report:
On April 12, 1994, Adelphia acquired a 34% equity interest in Niagara
Frontier Hockey, L.P., which owns the Buffalo Sabres National Hockey League
franchise, for a purchase price of $15,000; $14,000 of which has been paid
through February 1, 1995.
On June 16, 1994, Adelphia invested $34,000 in TMC Holdings Corporation
("THC"), the parent of Tele-Media Company of Western Connecticut. THC owns
cable television systems serving approximately 43,000 subscribers in Western
Connecticut. The investment in THC provides Adelphia with a $30,000
preferred equity interest in THC and a 75% non-voting common equity
interest, with a liquidation preference to the remaining 25% common stock
ownership interest in THC. Adelphia has the right to convert such interest
into a 75% voting common equity interest, with a liquidation preference to
the remaining shareholders' 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 assumed, included in notes payable
of subsidiaries to banks and institutions, was $52,000 at closing.
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
include the operations of the acquired system from June 30, 1994. Debt
assumed, included in notes payable of subsidiaries to banks and
institutions, was $42,300 at closing.
On October 28, 1994, Adelphia announced the signing of definitive
agreements for the purchase of all of the cable systems of WB Cable
Associates, Ltd. ("WB Cable"), Clear Channels Cable TV Co. ("Clear
Channels") and the Benjamin Terry family (the "Terry Family"), which
together serve a total of 69,200 subscribers
for an aggregate purchase price of $106,300 in cash and $16,000 of Adelphia
Class
A Common Stock. Adelphia may assign the rights under any of these agreements
to an affiliate. WB Cable currently provides cable service from one headend
and security monitoring services from one location in West Boca Raton,
Florida. The Terry Family cable systems are located in and around
Henderson, North Carolina and the Clear Channels cable systems are located
in and around Kittanning, Pennsylvania. On January 10, 1995, Adelphia
issued 399,087 shares of Class A Common Stock in connection with the merger
of a wholly-owned subsidiary of
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Significant Events Subsequent to the 1994 Annual Report, continued:
Adelphia into Oxford Cablevision, Inc., one of the Terry Family cable
systems. Adelphia assigned the rights to purchase the stock of the other
Terry Family cable systems to a managed system.
On November 23, 1994, Adelphia entered into a new letter of intent
(subject to various conditions, including the obtaining of certain 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") and certain other Tele-Media
controlled entities (collectively, "Tele-Media"). The letter of intent
provides that the Adelphia Group invest between $63,000 and $75,000 in Tele-
Media, in exchange for controlling interests in Tele-Media. On December 27,
1994, Adelphia exchanged its existing investment in TMIP with a managed system
for a note in the amount of $13,000.
On January 31, 1995, Adelphia acquired Tele-Media of Martha's Vineyard,
L.P. for $11,875, a cable system serving 6,500 subscribers. This system
will become part of Adelphia's New England cluster.
B. Notes Payable to Banks and Institutions:
The following updates to December 31, 1994 the disclosures made in Note
3 of the Annual Report.
<TABLE>
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Commitments for additional borrowings................................$ 40,000
Weighted average interest rate....................................... 9.06%
Percentage of principal balance that bears interest at fixed rates
for at least one year............................................... 45.3%
</TABLE>
Subsequent to December 31, 1994, a subsidiary of Adelphia entered into
binding commitments with a group of banks for a credit facility, which will
increase Adelphia's commitments for additional borrowings by $135,000.
C. Investments:
The Company's non-consolidated investments are as follows:
<TABLE>
Balance At
March 31, December 31,
1994 1994
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Cost Basis Investments:
TMIP......................................... $13,000 $ --
Niagara Frontier Hockey, L.P................. -- 10,000
Alternate access (Hyperion)
venture..................................... 1,379 2,312
Commonwealth Security, Inc................... -- 4,200
SuperCable................................... -- 3,000
Other........................................ 1,753 2,430
16,132 21,942
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
C. Investments, continued: Balance At
March 31, December 31,
1994 1994
Equity Basis Investments:
Gross Investment:
Alternate access (Hyperion)
ventures..................................... $ 8,284 $11,890
Page Call, Inc................................ -- 3,205
Other......................................... 127
Cumulative equity in net losses............... (494) (1,208)
7,790 14,014
Total................................... $ 23,922 $35,956
</TABLE>
D. Investments and Related Party Receivables:
The following table summarizes investments in and unsecured
receivables from Olympus and related parties:
March 31, December 31,
1994 1994
Investment in Olympus............................... $(75,961) $(93,215)
Amounts due from Olympus............................ 85,938 92,077
Amounts due from other related parties - net........ 11,663 33,917
$ 21,640 $ 32,779
The investment in Olympus represents a 50% voting interest in such
partnership and is being accounted for using the equity method. Summarized
unaudited results of operations of Olympus, for the nine months ended
September 30, 1993 and 1994, are as follows:
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Nine Months Ended
Sept. 30,
1993 1994
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Revenues..................................................... $ 73,478 $ 72,575
Net loss..................................................... (68,324) (15,610)
Net loss of general partners after priority return
requirements................................................ (110,102) (62,834)
</TABLE>
The prior year nine-month loss includes the cumulative change effect of
$59,000 for the adoption of FAS 109.
E. Accounting for Income Taxes:
The provision for income tax expense for the nine-months ended December
31, 1994 was $1,318, of which $109 and $1,209 are current and deferred tax
expense, respectively.
F. Supplemental Cash Flow Information:
<TABLE>
Nine Months Ended
December 31,
1993 1994
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Cash payments for interest..... ............................. $130,423 $130,151
Noncash financing and investment activities - capital leases.. 6,399 --
</TABLE>
On December 27, 1994, Adelphia exchanged its existing investment in TMIP
to a managed system for a note in the amount of $13,000.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Investments, continued:
G. Reclassification:
Certain prior period amounts have been reclassified to conform to the
current presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Adelphia Communications Corporation ("Adelphia" or the "Company")
earned substantially all of its revenues in the nine months ended December
31, 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 under the Company's
revised method of offering certain services. See "Regulatory and
Competitive Matters" below.
The changes in Adelphia's results of operations for the nine months
ended December 31, 1994, compared to the same period in the prior year, were
primarily the result of acquisitions and expanding existing cable television
operations.
The high level of depreciation and amortization associated with the
major acquisitions completed since fiscal 1987, the recent upgrading and
expansion of systems and interest costs associated with financing activities
will continue to have a negative impact on the reported results of
operations. Significant charges for depreciation, amortization and interest
are expected to be incurred in the future by the Olympus joint venture,
which will also impact Adelphia's future results of operations. Adelphia
expects to report net losses for the next several years.
The Company currently offers competitive access telecommunications
services through a subsidiary, Hyperion Telecommunications, Inc.
("Hyperion"). Since Hyperion's formation in October 1992, it has formed
operating companies or entered into joint venture partnerships to develop
and operate competitive access networks in twelve select metropolitan areas.
The investment in Hyperion resulted in a reduction in the Company's
operating income before depreciation and amortization for the nine-months
ended December 31, 1993 and 1994 of $1,109 and $1,595, respectively. The
equity in net loss of Hyperion's joint venture partnerships amounted to $276
and $714 for the nine months ended December 31, 1993 and 1994, respectively.
The following tables set forth certain cable television system data as
of the periods indicated for 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>
December 31,
1993 1994 % change
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Homes Passed by Cable
Company Owned Systems........................... 1,180,989 1,268,531 7.4%
Olympus Systems................................. 404,890 415,896 2.7%
Managed Systems................................. 265,618 374,076 40.8%
Total Systems............................. 1,851,497 2,058,503 11.2%
Basic Subscribers
Company Owned Systems........................... 868,195 957,954 10.3%
Olympus Systems................................. 233,411 251,933 7.9%
Managed Systems................................. 192,623 284,200 47.5%
Total Systems............................ 1,294,229 1,494,087 15.4%
</TABLE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Results of Operations, continued:
Exclusive of acquisitions, basic subscribers grew 2.4%, 7.9% and 2.6%
for Company Owned, Olympus and Managed Systems, respectively, during the
twelve months ended December 31, 1994.
Additionally, 1993 homes passed and basic subscribers have been
retroactively restated to reflect the acquisition of Northeast Cable from
Olympus by the Company on June 30, 1994. The 1994 homes passed and basic
subscribers for Managed Systems include TMIP.
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 Nine Months
Ended Dec. 31,
1993 1994
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Revenues................................................. 100% 100%
Operating expenses:
Direct operating and programming........................ 28 30
Selling, general and administrative..................... 16 17
44 47
Operating income before depreciation and amortization... 56 53
Depreciation and amortization........................... 28 27
Operating income........................................ 28% 26%
</TABLE>
Revenues increased approximately 12% and 16% for the nine months and
three months ended December 31, 1994, compared to the same periods in the
prior year. Approximately 95% and 83% of such increases was attributable to
the incremental revenues from acquisitions. Approximately 5% and 13% of
such increases were from basic subscriber growth, 0% and 0% from rate
increases, and the other 4% for the three months was from the expansion of
advertising sales and other services. Revenues for the three months ended
December 31, 1994 fully reflected the repackaging and adjustment of
equipment and installation charges, effective in July 1993, and rates for
basic services and certain other satellite programming services under
CableSelect, the Company's method of offering services that was implemented
effective September 1, 1993.
Operating expenses (exclusive of depreciation and amortization)
increased
19% and 24% for the nine-month and three-month periods ended December 31,
1994, compared to the same periods in the prior year, primarily due to the
operating expenses of systems acquired after December 31, 1993.
Operating income before depreciation and amortization increased 6% and
9% for the nine month and three month periods ended December 31, 1994
compared to the same periods in the prior year. Priority investment income
remained unchanged for the nine month and three month periods. EBITDA
(earnings before interest, income taxes, depreciation and amortization,
equity in net loss of joint ventures, cumulative effect of change in
accounting principle) increased 8% and 10% for the nine month and three
month periods this year versus last year, primarily due to increased
revenues and interest income from affiliates and other income, partially
offset by increased operating expenses. While EBITDA is not an
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Results of Operations, continued:
alternative to GAAP operating income, management believes EBITDA is a
meaningful
measure of performance as substantially all of the Company's financing
agreements contain financial covenants based on EBITDA.
Interest expense increased approximately 6% and 7% for the nine-months
and three-months ended December 31, 1994, compared to the same periods in
the prior year. 57% and 55% of the increase for the nine-months and three-
months ended December 31, 1994 was due to additional interest cost
associated with incremental debt related to acquisitions.
Net loss for the nine months ended December 31, 1994 decreased by 50%,
primarily due to the cumulative effect of the change in accounting principle
for the Company of $89,660 recognized in the nine months ended December 31,
1993. There was no significant change in the net loss for the three months
ended December 31, 1994.
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, 1994, the Company's total outstanding debt aggregated
$1,976,550, which included $908,321 of parent debt and $1,068,229 of
subsidiary debt. At December 31, 1994, the Company had an aggregate amount
of $40,000 in
unused credit lines with banks, part of which is subject to achieving
certain levels of operating performance, and $8,931 in cash and cash
equivalents.
Subsequent to December 31, 1994, a subsidiary of Adelphia entered into
binding commitments with a group of banks for a new credit facility which
will increase Adelphia's commitments for additional borrowings by $135,000.
Additionally, the Company has the ability to pay interest on its 9 1/2% PIK
Notes due 2004 by
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Liquidity and Capital Resources, continued:
issuing additional notes totalling approximately $81,000 in lieu of cash
interest payments through February 15, 1999.
The Company's unused lines of credit are currently provided by reducing
revolving credit facilities whose revolver periods expire through March 31,
1999. The Company's weighted average interest rate of notes payable to
banks and institutions was approximately 9.06% at December 31, 1994,
compared to 8.72% at December 31, 1993. At December 31, 1994, approximately
45.3% 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.
Approximately 71% of the Company's total indebtedness of $1,976,550 is at
fixed interest rates as of December 31, 1994.
Maturities of debt for the four years and three months after December
31, 1994, including the debt acquired through the THC and Northeast Cable
acquisitions described below, are as follows:
Three months ended March 31, 1995...................... $ 7,892
Year ended March 31, 1996.............................. 133,354
Year ended March 31, 1997.............................. 232,560
Year ended March 31, 1998.............................. 284,071
Year ended March 31, 1999.............................. 260,835
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 nine-months ended December 31, 1994, Adelphia made net
advances to Olympus of $6,139, 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 Holdings and Syracuse
Hilton Head Holdings, L.P. (managed companies) up to an amount of $25,000
each. During the nine-months ended December 31, 1994, Adelphia made advances
in the net amount of $22,254 to these related parties to provide funds
mainly for capital expenditures and working capital purposes.
On April 12, 1994, for a purchase price of $15,000, $14,000 of which has
been paid to date, Adelphia purchased (i) convertible preferred units in
Niagara Frontier Hockey, L.P., (the "Sabres Partnership") which owns the
Buffalo Sabres National Hockey League Franchise, representing a 34% equity
interest and (ii) warrants allowing Adelphia to increase its interest to
40%. Adelphia believes this investment will be competitively advantageous
in the Buffalo cable television market. The Sabres Partnership will
control, through a wholly-owned subsidiary, the Crossroads Arena, a new
sports and entertainment facility expected to be completed in late 1996.
Adelphia's convertible preferred units will earn a 4% cumulative preferred
distribution beginning after the first
National Hockey League game is played at the Crossroads Arena.
On May 12, 1994, Adelphia invested $3,000 for a 20% interest in
SuperCable ALK International, a cable operator in Caracas, Venezuela. In
April, 1994, Adelphia invested $4,200 in Commonwealth Security Systems, Inc.
in exchange for an 8.75% $4,200 convertible note and warrants. The note is
convertible into a 33% fully-diluted common equity interest on demand. The
warrants entitle
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Liquidity and Capital Resources, continued:
Adelphia to acquire up to a 40% fully diluted common equity interest for an
additional $670.
On June 16, 1994, Adelphia invested $34,000 in TMC Holdings Corporation
("THC"), the parent of Tele-Media Company of Western Connecticut. THC owns
cable television systems serving approximately 43,000 subscribers in Western
Connecticut. The investment in THC provides Adelphia with a $30,000
preferred equity interest in THC and a 75% non-voting common equity
interest, with a liquidation preference to the remaining 25% common stock
ownership interest in
THC. Adelphia has the right to convert such interest to a 75% voting common
equity interest, with a liquidation preference to the remaining
shareholders' 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 assumed, included in notes payable of subsidiaries to
banks and institutions, was $52,000 at closing.
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 include the operations of the
acquired system since June 30, 1994. Debt assumed, included in notes
payable of subsidiaries to banks and institutions, was $42,300 at closing.
In May, 1994, Adelphia purchased on the open market $10,000 of its 10
1/4% Senior Notes due in 2000 at a price of 94.5% of face value plus accrued
interest.
On October 28, 1994, Adelphia announced the signing of definitive
agreements for the purchase of all of the cable systems of WB Cable
Associates, Ltd. ("WB Cable"), Clear Channels Cable TV Co. ("Clear
Channels") and the Benjamin Terry family (the "Terry Family"), which
together serve a total of 69,200 subscribers for an aggregate purchase price
of $106,300 in cash and $16,000 of Adelphia Class A Common Stock. WB Cable
currently provides cable service from one headend and security monitoring
services from one location in West Boca Raton, Florida. The Terry Family
cable systems are located in and around Henderson, North Carolina and the
Clear Channels cable systems are located in and around Kittanning,
Pennsylvania. On January 10, 1995, Adelphia issued 399,087 shares of Class
A Common Stock in connection with the merger of a wholly-owned subsidiary of
Adelphia into Oxford Cablevision, Inc., one of the Terry Family cable
systems.
Adelphia assigned the rights to purchase the stock of the other Terry Family
cable systems to a managed system.
On November 8, 1994, Page Call, Inc., a company 49.9% owned by Adelphia,
was a successful bidder for three regional narrowband PCS licenses,
covering 62% of the country's population. Page Call, Inc., was recently
established to
develop a nationwide paging service. Page Call, Inc.'s aggregate final bid
for the three licenses was $52,900, an amount reduced to $31,800 due to its
"designated entity" status.
On January 31, 1995, Adelphia acquired Tele-Media of Martha's Vineyard,
L.P. for $11,875, a cable system serving 6,500 subscribers. This system
will become part of Adelphia's New England cluster.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Liquidity and Capital Resources, continued:
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.
During the nine months ended December 31, 1994, the increase in capital
expenditures and accounts payable was primarily attributed to the companies
acquired and an increase in the level of expenditures for new technology and
rebuild activity. The increase in accrued interest and other liabilities
resulted from the timing of the payment of interest due on the Company's
indebtedness.
The Company believes that cash and cash equivalents, internally
generated funds, borrowings under existing credit facilities, and future
financing sources will be sufficient to meet its short-term and long-term
liquidity and capital
requirements. Although in the past the Company has been able to refinance
its indebtedness or obtain new financing, there can be no assurance that the
Company will be able to do so in the future.
Management believes that the telecommunications industry, including the
cable television and telephone industries, is in a period of consolidation
characterized by mergers, joint ventures, acquisitions, sales of all or part
of cable companies or their assets, and other partnering and investment
transactions of various structures and sizes involving cable or other
telecommunications companies. The Company continues to evaluate new
opportunities that allow for the expansion of its business through the
acquisition of additional cable
television systems in geographic proximity to its existing regional markets
or in locations that can serve as a basis for new market areas. Management
also believes that the Company is well positioned to participate in this
consolidation trend due to its well-clustered cable systems, the quality of
its cable plant, its management strengths and its relationships within the
cable industry. The Company, like other cable television companies, has
participated from time to time and is participating in preliminary
discussions with third parties regarding a variety of potential
transactions, and the Company has considered and expects to continue to
consider and explore potential transactions of various types with other
cable and telecommunications companies. However, except as otherwise stated
herein, the Company has not reached any agreements, in principle or
otherwise, with respect to any material transaction and no assurances can be
given as to whether any such transaction may be consummated or, if so, when.
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 ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Regulatory and Competitive Matters, continued:
industry, such as mandatory carriage of local broadcast stations and
retransmission consent, and which will increase the administrative costs of
complying with such regulations. The FCC has adopted rate regulations that
establish, on a system-by-system basis, maximum allowable rates for (i)
basic and cable programming services (other than programming offered on a
per-channel or
per-program basis), based upon a benchmark methodology, and (ii) associated
equipment and installation services based upon cost plus a reasonable
profit.
Under the FCC rules, franchising authorities are authorized to regulate
rates for
basic services and associated equipment and installation services, and the
FCC will regulate rates for regulated cable programming services in response
to
complaints filed with the agency. The original rate regulations became
effective on September 1, 1993. Amendments to the rate regulations became
effective May 15, 1994. Further amendments were adopted on November 10,
1994. The FCC ordered an interim rate freeze effective April 5, 1993 which
was extended through May 15, 1994.
The original rate regulations required a reduction of existing rates
charged for basic services and regulated cable programming services to the
greater of (i) the applicable benchmark level or (ii) the rates in force as
of September 30,
1992, reduced by 10%, adjusted forward for inflation. The amended
regulations will generally require a reduction of up to 17 percent from the
rates for
regulated services in force as of September 30, 1992, adjusted forward for
inflation and certain other factors. Rate reductions are not required to
the extent that a cable operator at its option elects to use an alternative
cost-of-service methodology and shows that rates for basic and cable
programming services are reasonable. The FCC has adopted interim rules to
govern cost-of-service
showings by cable operators. Refunds with interest will be required to be
paid by cable operators who are required to reduce regulated rates after
September 1, 1993, calculated retroactively from the date of a local
franchising authority's
decision with regard to basic rates, and from the date a complaint is filed
with the FCC with regard to the rates charged for regulated programming
services. The FCC has reserved the right to reduce or increase the
benchmarks it has established. The rate regulations will also limit future
increases in regulated rates to an inflation indexed amount plus increases
in certain costs such as taxes, franchise fees, costs associated with
specific franchise requirements and increased programming costs. Cost-based
adjustments to these capped rates can also be made in the event a cable
operator adds or deletes channels. On November 10, 1994, the FCC adopted an
alternative method for adjusting the rates charged for a cable programming
services tier when new services are added. This will allow cable operators
to increase rates by as much as $1.50 over a two year period to reflect the
addition of up to seven new channels of service on cable programming service
tiers. In addition, a new programming tier can be created, the rate for
which would not be regulated as long as certain conditions are met, such as
not moving services from existing tiers to the new one. Because of the
limitation on rate increases for regulated services, future revenue growth
from cable services will rely to a much greater extent than has been true in
the past on increased revenues from unregulated services and new subscribers
than from increases in previously unregulated rates.
The FCC has adopted regulations implementing virtually all of the
requirements of the 1992 Cable Act. 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. 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 issued its interim
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Regulatory and Competitive Matters, continued:
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 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 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.
On November 10, 1994 the FCC ruled that, prospectively, any a la carte
package will be treated as a regulated tier, except for packages involving
premium services. 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.
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. Olympus responded
in writing to the FCC's inquiry. On November 18, 1994, the Cable Services
Bureau of the FCC issued a decision holding that the "CableSelect" program
was an evasion of the rate regulations and ordered this package to be
treated as a regulated tier. This decision, and all other letter of inquiry
decisions, were principally decided on the number of programming services
moved from regulated tiers to a la carte packages. Adelphia has appealed
this decision to the full Commission. The Company cannot predict the
outcome or effect of this proceeding.
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
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
Regulatory and Competitive Matters, continued:
administrative decisions have removed certain of the restrictions that have
limited entry into the cable television business by potential competitors
such as telephone companies, and proposals now under consideration by the
FCC, and which
are being and from time to time have been considered by Congress, could
result in the elimination of other such restrictions. The Company cannot
predict the extent to which competition will materialize from other cable
television operators, other distribution systems for delivering television
programming to
the home, or other potential competitors, or, if such competition
materializes, the extent of its effect on the Company.
FCC rules permit local telephone companies to offer "video dialtone"
service for video programmers, including channel capacity for the carriage
of video programming and certain non-common carrier activities such as video
processing,
billing and collection and joint marketing agreements. On December 15,
1992, New Jersey Bell Telephone Company filed an application with the FCC to
operate a
"video dialtone" service in portions of Dover County, New Jersey, in which
the Company serves approximately 20,000 subscribers. The FCC approved the
application on July 18, 1994. The Company has appealed this decision to the
U.S. Court of Appeals for the District of Columbia. This case is presently
pending.
A number of telephone companies have filed suit seeking to void as
unconstitutional the provisions in the 1984 Cable Act that prohibit
telephone companies from owning cable television systems in their telephone
service areas. The U.S. Courts of Appeal for the Fourth and Ninth Circuits
have struck down the cross-ownership ban on first amendment grounds. Several
federal district courts have also struck down the cross-ownership ban on the
same grounds. In addition, legislation which would alter or eliminate the
cross-ownership ban is under active consideration in Congress.
The Company cannot predict the ultimate outcome of the video dialtone
proceeding or the cross-ownership ban litigation. However, the Company
believes that the provision of video programming by telephone companies in
competition with the Company's existing operations could have an adverse
effect on the Company's financial condition and results of operations. At
this time, the impact of any such effect is not known or estimable.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27.01. Financial Data Schedule (Supplied for the
information of the Commission).
(b) Reports on Form 8-K filed during the quarter ended December 31,
1994:
Date of Report Item Reported Financial
Statements
November 2, 1994 Items 5,7 None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADELPHIA COMMUNICATIONS CORPORATION
(Registrant)
Date: February 14, 1995 By: /s/ Timothy J. Rigas
Timothy J. Rigas
Senior Vice President (authorized
officer), Chief Financial Officer
and
Chief Accounting Officer
ADELPHIA COMMUNICATIONS CORPORATION
INDEX
Page
Number
PART I-FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets - March 31, 1994 and
December 31, 1994................................ 1
Consolidated Statements of Operations - Three Months and
Nine Months ended December 31, 1993 and 1994..... 2
Consolidated Statements of Cash Flows - Nine Months
Ended December 31, 1993 and 1994................. 3
Notes to Interim Consolidated Financial Statements... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 8
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Statement for Adelphia Communication Corp. for
the 9 months ended December 31, 1994
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> DEC-31-1994
<CASH> 8,931
<SECURITIES> 0
<RECEIVABLES> 20,613<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 503,044<F2>
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 1,227,762
<CURRENT-LIABILITIES> 0
<BONDS> 1,976,550
<COMMON> 244
0
0
<OTHER-SE> (1,005,510)
<TOTAL-LIABILITY-AND-EQUITY> 1,227,762
<SALES> 0
<TOTAL-REVENUES> 267,552
<CGS> 0
<TOTAL-COSTS> 198,190
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144,993
<INCOME-PRETAX> (80,662)
<INCOME-TAX> 1,318
<INCOME-CONTINUING> (81,980)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (81,980)
<EPS-PRIMARY> (3.35)
<EPS-DILUTED> (3.35)
<FN>
<F1>Amount ne of Allownace
<F2>PP&E Net of Depreciation
<F3>See Footnote #2
</FN>
</TABLE>
