FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1995
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the transition period from to
.
Commission File Number: 0-16014
ADELPHIA COMMUNICATIONS
CORPORATION
(Exact name of
registrant as specified in its charter)
Delaware 23-2417713
(State or jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
5 West Third
Street, P.O. Box 472, Coudersport, PA 16915
(Address of principal executive offices)
(Zip code)
814-274-9830
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
x No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of
the latest practicable date:
At August 11, 1995, 15,364,009 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.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
March 31, June 30,
1995 1995
ASSETS:
<S> <C> <C>
Cable television systems, at cost, net of
accumulated depreciation and amortization:
Property, plant and equipment.......................... $ 518,405 $ 531,169
Intangible assets...................................... 546,116 555,757
Total.......................................... 1,064,521 1,086,926
Cash and cash equivalents................................ 5,045 13,518
Investments.............................................. 48,968 52,682
Preferred equity investment in Managed Partnerships...... 18,338 18,338
Subscriber receivables - net............................. 20,433 20,983
Prepaid expenses and other assets - net.................. 48,352 59,126
Related party investments and receivables - net.......... 61,634 67,170
Total.......................................... $1,267,291 $1,318,743
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY):
Notes payable of subsidiaries to banks and institutions.. $1,086,350 $1,166,196
12 1/2% Senior Notes due 2002............................ 400,000 400,000
10 1/4% Senior Notes due 2000............................ 99,011 99,046
11 7/8% Senior Debentures due 2004....................... 124,470 124,478
9 7/8% Senior Debentures due 2005........................ 127,994 128,024
9 1/2% Pay-In-Kind Notes due 2004........................ 164,370 164,370
Other debt............................................... 19,415 17,954
Accounts payable......................................... 42,872 40,278
Subscriber advance payments and deposits................. 16,494 14,284
Accrued interest and other liabilities................... 87,751 91,974
Deferred income taxes.................................... 110,139 108,958
Total liabilities.............................. 2,278,866 2,355,562
Commitments and contingencies (Note G):
Stockholders' equity (deficiency):
Class A Common Stock, $.01 par value, 50,000,000 shares
authorized, 14,906,691 and 15,364,009 shares
outstanding, respectively.............................. 149 154
Class B Common Stock, $.01 par value, 25,000,000 shares
authorized, 10,944,476 shares outstanding.............. 109 109
Additional paid-in capital.............................. 211,190 216,185
Accumulated deficit..................................... (1,223,023) (1,253,267)
Total stockholders' equity (deficiency)........ (1,011,575) (1,036,819)
Total.......................................... $1,267,291 $1,318,743
See notes to interim consolidated financial statements.
</TABLE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
Three Months Ended
June 30,
1994 1995
<S> <C> <C>
Revenues............................................... $ 84,020 $ 96,921
Operating expenses:
Direct operating and programming...................... 24,896 28,522
Selling, general and administrative................... 14,693 16,870
Depreciation and amortization......................... 21,489 27,624
Total............................................ 61,078 73,016
Operating income....................................... 22,942 23,905
Other income (expense):
Interest income from affiliates....................... 2,369 3,410
Other income.......................................... 593 --
Priority investment income............................ 5,575 5,575
Interest expense...................................... (46,913) (53,124)
Equity in loss of joint ventures...................... (12,634) (11,054)
Total........................................... (51,010) (55,193)
Loss before income taxes............................... (28,068) (31,288)
Income tax (expense) benefit........................... (1,223) 1,044
Net loss............................................... $ (29,291) $ (30,244)
Net loss per weighted average share of common stock.... $ (1.20) $ (1.15)
Weighted average shares of common stock outstanding.... 24,452,080 26,293,511
</TABLE>
See notes to interim consolidated financial statements
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
<TABLE>
Three Months Ended
June 30,
1994 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $ (29,291) $ (30,244)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation........................................ 15,157 17,557
Amortization........................................ 6,332 10,067
Noncash interest expense............................ 3,741 73
Equity in loss of joint ventures.................... 12,634 11,054
Deferred income tax expense (benefit)............... 1,173 (1,181)
Changes in operating assets and liabilities, net of
effects of acquisitions:
Subscriber receivables........................... 806 (550)
Prepaid expenses and other assets................ (1,049) (9,080)
Accounts payable................................. 1,104 (2,594)
Subscriber advance payments and deposits......... (815) (2,210)
Accrued interest and other liabilities........... 1,773 4,223
Net cash provided by (used for) operating activities... 11,565 (2,885)
Cash flows from investing activities:
Cable television systems acquired..................... (47,693) (17,846)
Expenditures for property, plant and equipment........ (18,287) (26,377)
Amounts invested in and advanced to Olympus and
related parties...................................... (25,366) (18,593)
Investments in other joint ventures................... (14,262) (4,211)
Net cash used for investing activities................. (105,608) (67,027)
Cash flows from financing activities:
Proceeds from debt.................................... 49,311 102,006
Repayments of debt.................................... (14,351) (23,621)
Net cash provided by financing activities.............. 34,960 78,385
Increase (decrease) in cash and cash equivalents....... (59,083) 8,473
Cash and cash equivalents, beginning of year........... 74,075 5,045
Cash and cash equivalents, end of period............... $ 14,992 $ 13,518
</TABLE>
See notes to interim consolidated financial statements.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
The accompanying unaudited interim consolidated financial statements of
Adelphia Communications Corporation and its majority owned subsidiaries
("Adelphia") have been prepared in accordance with the rules and regulations
of the Securities and Exchange Commission.
In the opinion of management, all adjustments, consisting of only normal
recurring accruals necessary to present fairly the unaudited results of
operations for the three months ended June 30, 1994 and 1995, 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, 1995 ("Annual Report").
A. Significant Events Subsequent to the 1995 Annual Report:
On April 3, 1995, Olympus Communications, L.P. ("Olympus") acquired all
of the cable and security systems of WB Cable Associates, Ltd. ("WB Cable")
serving approximately 44,000 subscribers for a purchase price of $82,000. WB
Cable provides cable services from one headend and security monitoring
services from one location in West Boca Raton, Florida. Of the purchase
price, $77,000 was paid in cash and $5,000 was paid in Adelphia Class A
Common Stock. The acquisition was accounted for under the purchase method of
accounting, and was financed principally through borrowings under an Olympus
credit agreement.
On April 12, 1995, Adelphia acquired cable systems from Clear Channels
Cable TV Company located in Kittanning, Bethlehem and Freeport, Pennsylvania,
for $17,456. These systems serve approximately 10,700 subscribers. The
acquisition of these systems has been accounted for using the purchase method
of accounting. The consolidated statements of operations and cash flows
include the operations of the acquired systems since April 12, 1995.
On June 12, 1995, Adelphia announced the signing of definitive agreements
for the purchase of all of the cable systems of Eastern Telecom Corporation,
Robinson Cable TV, Inc. and First Carolina Cable TV, L.P. These systems
together serve approximately 58,000 subscribers located in western
Pennsylvania and Vermont and are being purchased for an aggregate price of
$92,000. Concurrently, Olympus announced the signing of a definitive
agreement for the purchase of all of the southeast Florida cable systems of
the Leadership Cable division of Fairbanks Communications, Inc., which serve
approximately 50,000 subscribers, for a purchase price of $94,000.
On June 28, 1995, Adelphia and other relevant parties terminated their
previously announced November 1994 letter of intent to increase by $63,000 to
$75,000 the overall investment of Adelphia and the companies it manages (the
"Adelphia Group") in cable systems held by Tele-Media Investment Partnership,
L.P. and certain other Tele-Media controlled entities (collectively, "Tele-
Media"). The Adelphia Group will continue to hold its existing investments
in and recent acquisitions of Tele-Media cable systems.
B. Notes Payable to Banks and Institutions:
The following updates to June 30, 1995 the disclosures made in Note 3 to
Adelphia's consolidated financial statements contained in the Annual Report.
Commitments for additional borrowings........................... $ 15,000
Weighted average interest rate................................... 9.04%
Percentage of principal balance that bears interest at fixed rates
for at least one year........................................... 58.9%
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
C. Investments:
Adelphia's nonconsolidated investments are as follows:
March 31, June 30,
1995 1995
Investments accounted for using the equity method:
Gross investment:
Alternate access ventures............................$12,840 $ 15,965
Page Call, Inc....................................... 6,915 7,179
Other................................................ 2,847 2,857
Cumulative equity in net losses...................... (1,458) (1,868)
Total...................................... 21,144 24,133
Investments accounted for using the cost method:
Niagara Frontier Hockey, L.P..........................15,000 15,000
Alternate access ventures............................. 2,924 3,141
Commonwealth Security, Inc............................ 4,200 4,200
SuperCable............................................ 3,000 3,163
Other................................................ 2,700 3,045
Total...................................... 27,824 28,549
Total investments....................................$48,968 $ 52,682
D. Investments and Related Party Receivables:
The following table summarizes the investments in and receivables from
Olympus and related parties:
March 31, June 30,
1995 1995
Investment in Olympus............................. $(48,688) $(51,092)
Amounts due from Olympus.......................... 60,631 60,227
Amounts due from other related parties - net...... 49,691 58,035
$ 61,634 $ 67,170
The investment in Olympus represents a 50% voting interest in such
partnership and is being accounted for using the equity method. Summarized
unaudited results of operations of Olympus, for the six months ended June 30,
1994 and 1995, are as follows:
Six Months Ended
June 30,
1994 1995
Revenues.......................................... ...$ 49,917 $ 54,212
Net loss.............................................. (12,598) (12,403)
Net loss of general partners after priority return
requirements......................................... (43,395) (57,432)
E. Accounting for Income Taxes:
The income tax benefit for the three months ended June 30, 1995 was
$1,044, which is comprised of current tax expense of $137 and a deferred tax
benefit of $1,181.
F. Supplemental Cash Flow Information:
Cash payments for interest were $41,653 and $48,661 for the three months
ended June 30, 1994 and 1995, respectively. During the three months ended
June 30, 1995, $5,000 of Adelphia Class A Common Stock was issued in
conjunction with the WB Cable acquisition (see Note A).
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
G. Commitments and Contingencies
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations for a discussion of material commitments
and contingencies.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in thousands)
Results of Operations
Adelphia Communications Corporation ("Adelphia" or the "Company") earned
substantially all of its revenues in the three months ended June 30, 1994 and
1995 from monthly subscriber fees for basic, satellite, premium and ancillary
services (such as installations and equipment rentals), local and national
advertising sales, pay-per-view programming, home shopping networks and
competitive access telecommunications services. Certain changes in the way
the Company offers and charges for subscriber services were implemented as of
September 1, 1993 under the 1992 Cable Act and the Company's new method of
offering certain services. See "Regulatory and Competitive Matters" below.
The changes in Adelphia's results of operations for the three months
ended June 30, 1995, 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
significant number of acquisitions in recent years, 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. Also, significant charges for depreciation, amortization and
interest are expected to be incurred in the future by the Olympus joint
venture, which will also adversely 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 three months ended June
30, 1994 and 1995 of $610 and $627, respectively. The equity in net loss of
Hyperion's joint venture partnerships amounted to $190 and $511 for the three
months ended June 30, 1994 and 1995, respectively.
The following tables set forth certain cable television system data for
the periods indicated for both Company Owned, Olympus and Managed Systems.
The "Olympus Systems" are systems currently owned by the Olympus joint
venture. The "Managed Systems" are affiliated systems managed by Adelphia.
June 30,
1994 1995 % change
Homes Passed by Cable
Company Owned Systems..................... 1,236,586 1,355,405 9.6%
Olympus Systems........................... 410,295 561,506 36.9%
Managed Systems............................ 265,989 415,734 56.3%
Total Systems..............................1,912,870 2,332,645 21.9%
Basic Subscribers
Company Owned Systems...................... 941,865 995,054 5.6%
Olympus Systems............................ 235,657 336,863 42.9%
Managed Systems............................ 192,214 297,933 55.0%
Total Systems..............................1,369,736 1,629,850 19.0%
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
Exclusive of acquisitions, basic subscribers grew 2.7%, 6.3% and 4.1% for
Company Owned, Olympus and Managed Systems, respectively, during the twelve
months ended June 30, 1995.
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.
Percentage of Revenues
for the Three Months
Ended June 30,
1994 1995
Revenues.......................................... 100.0% 100.0%
Operating expenses:
Direct operating and programming................. 29.6% 29.4%
Selling, general and administrative.............. 17.5% 17.4%
Depreciation and amortization.................... 25.6% 28.5%
Operating income................................. 27.3% 24.7%
Revenues increased approximately 15.4% for the three months ended June
30, 1995, compared with the same period in the prior year. The increase was
attributable to the following:
Acquisitions......................................... 68%
Basic subscriber growth.............................. 19%
Rate increases....................................... 0%
Advertising sales and other services.............. 13%
100%
Revenues for the three months ended June 30, 1994 and 1995 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
14.7% for the three month period ended June 30, 1995, compared with the same
period in the prior year, primarily due to the increased operating expenses
from acquired systems, increased programming costs and incremental costs
associated with increased subscribers.
Operating income before depreciation and amortization increased 16.0% for
the three month period ended June 30, 1995 compared with the three months
ended June 30, 1994, primarily due to the impact of acquisitions. Priority
investment income remained unchanged for the three month periods. EBITDA
(earnings before interest, income taxes, depreciation and amortization,
equity in net loss of joint ventures and other non-cash charges) increased
14.2% for the three month period ended June 30, 1995 compared with the same
period of the prior year primarily due to the acquisition of cable systems
during fiscal 1995. Increased revenues and operating expenses during fiscal
1995 compared with the prior year primarily reflect the impact of
acquisitions consummated during fiscal 1995. While EBITDA is not an
alternative to operating income as defined by generally accepted accounting
principles, the Company's 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 13.2% for the three months ended
June 30, 1995, compared with the same period in the prior year.
Approximately 42% of the
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
increase during the current period was due to additional expense associated
with incremental debt related to acquisitions.
Net loss for the three months ended June 30, 1995 increased by 3.3%
primarily due to an increase in interest expense and additional net loss of
acquired systems, partially offset by increased operating income.
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 and entities. These expenditures
were 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
entities through long-term borrowings, primarily from banks and insurance
companies, short-term borrowings, internally generated funds and the issuance
of parent company public debt and equity. 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 loans or
through the issuance of parent company debt securities, and by paying the
interest out of internally generated funds. Adelphia has funded the interest
obligations on its public borrowings from internally generated funds.
The Company's financing strategy has been to maintain its public long-
term debt at the parent holding company level while the Company's
consolidated subsidiaries have their own senior and subordinated credit
arrangements with banks and insurance companies. The Company's public
indentures and subsidiary credit agreements contain covenants that, among
other things, require the maintenance of certain financial ratios (including
compliance with certain debt to cash flow ratios in order to incur additional
indebtedness); place limitations on borrowings, investments, affiliate
transactions, dividends and distributions; and contain certain cross default
provisions relating to Adelphia or its subsidiaries.
At June 30, 1995, the Company's total outstanding debt aggregated
approximately $2,100,068, which included approximately $915,918 of parent
debt and $1,184,150 of subsidiary debt. At June 30, 1995, the Company had an
aggregate of $15,000 in unused credit lines with banks, part of which is
subject to achieving certain levels of operating performance, and $13,518 in
cash and cash equivalents.
The Company's unused line of credit is currently provided by a reducing
revolving credit facility whose revolver period expires on September 30,
2003. The Company's weighted average interest rate of notes payable to banks
and institutions was approximately 9.04% at June 30, 1995 compared to 8.67%
at June 30, 1994. At June 30, 1995, approximately 58.9% of such debt was
subject to fixed interest rates for at least one year under the terms of such
debt or applicable interest rate swap agreements.
Maturities of debt for the four years and nine months after June 30, 1995
are as follows:
Nine months ended March 31, 1996.......................... $ 101,405
Year ended March 31, 1997................................. 225,970
Year ended March 31, 1998................................. 272,840
Year ended March 31, 1999................................. 275,192
Year ended March 31, 2000................................. 125,584
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
On April 12, 1995, Adelphia acquired cable systems from Clear Channels
Cable TV Company located in Kittanning, Bethlehem and Freeport, Pennsylvania,
for $17,456. These systems serve approximately 10,700 subscribers. The
acquisition of these systems has been accounted for using the purchase method
of accounting. The consolidated statements of operations and cash flows
include the operations of the acquired systems since April 12, 1995.
On June 12, 1995, Adelphia announced the signing of definitive agreements
for the purchase of all of the cable systems of Eastern Telecom Corporation,
Robinson Cable TV, Inc. and First Carolina Cable TV, L.P. These systems
together serve approximately 58,000 subscribers located in western
Pennsylvania and Vermont and are being purchased for an aggregate price of
$92,000.
On June 28, 1995, Adelphia and other relevant parties terminated their
previously announced November 1994 letter of intent to increase by $63,000 to
$75,000 the overall investment of Adelphia and the companies it manages (the
"Adelphia Group") in cable systems held by Tele-Media Investment Partnership,
L.P. and certain other Tele-Media controlled entities (collectively, "Tele-
Media"). The Adelphia Group will continue to hold its existing investments
in and recent acquisitions of Tele-Media cable systems.
On April 3, 1995, Olympus acquired all of the cable and security systems
of WB Cable Associates, Ltd. ("WB Cable") serving approximately 44,000
subscribers for a purchase price of $82,000. WB Cable provides cable
services from one headend and security monitoring services from one location
in West Boca Raton, Florida. Of the purchase price, $77,000 was paid in cash
and $5,000 was paid in Adelphia Class A Common Stock. The acquisition was
accounted for under the purchase method of accounting, and was financed
principally through borrowings under an Olympus credit agreement.
On May 12, 1995, an Olympus subsidiary entered into a $475,000 revolving
credit facility with several banks, maturing December 31, 2003. The proceeds
at closing were used to repay existing bank debt. At June 30, 1995, $95,000
of unused committments was available.
On June 12, 1995, Olympus announced the signing of a definitive agreement
for the purchase of all of the southeast Florida cable systems of the
Leadership Cable division of Fairbanks Communications, Inc., which serve
approximately 50,000 subscribers, for a purchase price of $94,000, which
would include $40,000 in cash and the remaining in seller financing.
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 for each. During the three months ended June 30, 1995, the
Company made advances in the net amount of $8,344 to these and other related
parties, primarily for capital expenditures and working capital purposes.
During the year ended March 31, 1994, the Company made loans in the net
amount of $15,000 to SHHH, to facilitate the acquisition of cable television
systems serving Palm Beach County, Florida from unrelated parties. On
December 27, 1994, Adelphia exchanged its existing investment in TMIP with a
Managed System for a note in the amount of $13,000.
The Company plans to continue to explore and consider new commitments,
arrangements or transactions to refinance existing debt, increase the
Company's liquidity or decrease the Company's leverage. These could include,
among other things, the future issuance by Adelphia of public or private
equity or debt and the
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
negotiation of new or amended credit facilities. These could also include
entering into acquisitions, joint ventures or other investment or financing
activities, although no assurance can be given that any such transactions
will be consummated. 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.
Company believes that cash and cash equivalents, internally generated
funds, borrowings under the existing credit facility, 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 or that the terms of
such financings would be favorable.
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. The Company, like other cable television companies, has
participated from time to time and is participating in preliminary
discussions with third parties regarding a variety of potential transactions,
and the Company has considered and expects to continue to consider and
explore potential transactions of various types with other cable and
telecommunications companies.
However, except as otherwise stated herein, the Company has not reached any
agreements, in principal or otherwise, with respect to any material
transaction and
no assurances can be given as to whether any such transaction may be
consummated or, if so, when.
Regulatory and Competitive Matters
The cable television operations of the Company may be adversely affected
by changes and developments in governmental regulation, competitive forces
and technology. The cable television industry and the Company are subject to
extensive regulation at the federal, state and local levels. Many aspects of
such regulation are currently the subject of judicial proceedings and
administrative or legislative proceedings or proposals. On October 5, 1992,
Congress passed the 1992 Cable Act, which significantly expands the scope of
regulation of certain subscriber rates and a number of other matters in the
cable industry, such as mandatory carriage of local broadcast stations and
retransmission consent, and which will increase the administrative costs of
complying with such regulations. The FCC has adopted rate regulations that
establish, on a system-by-system basis, maximum allowable rates for (i) basic
and cable programming services (other than programming offered on a per-
channel or per-program basis), based upon a benchmark methodology, and (ii)
associated equipment and installation services based upon cost plus a
reasonable profit. Under the FCC rules, franchising authorities are
authorized to regulate rates for basic services and associated equipment and
installation services, and the FCC will regulate rates for regulated cable
programming services in response to complaints filed with the agency. The
original rate regulations became effective on September 1, 1993. Amendments
to the rate regulations became effective May 15, 1994. 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,
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
1992, reduced by 10%, adjusted forward for inflation. The amended
regulations 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 six 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. The U.S. Court of Appeals for the
District of Columbia Circuit recently upheld all aspects of the FCC's rate
regulations except for certain minor matters. 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. The Company
cannot predict the effect or outcome of future rulemaking proceedings or
changes to the rate regulations. Further, because the FCC has only issued
its interim rules and has not adopted final cost-of-service rules, the
Company has not determined to what extent it will be able to utilize cost-of-
service showings to justify rates.
Effective as of September 1, 1993, in accordance with the 1992 Cable Act,
the Company 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
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.
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
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
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.
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.
Cable television companies operate under franchises granted by local
authorities which are subject to renewal and renegotiation from time to time.
Because such franchises are generally non-exclusive, there is a potential for
competition with the Systems from other operators of cable television
systems, including public systems operated by municipal franchising
authorities themselves, and from other distribution systems capable of
delivering television programming to homes. The 1992 Cable Act contains
provisions which encourage competition from such other sources.
Additionally, recent court and administrative decisions have removed certain
of the restrictions that have limited entry into the cable television
business by potential competitors such as telephone companies, and proposals
now under consideration by the FCC, and which are being and from time to time
have been considered by Congress, could result in the elimination of other
such restrictions. The Company cannot predict the extent to which
competition will materialize from other cable television operators, other
distribution systems for delivering television programming to the home, or
other potential competitors, or, if such competition materializes, the extent
of its effect on the Company.
FCC rules permit local telephone companies to offer "video dialtone"
service for video programmers, including channel capacity for the carriage of
video programming and certain non-common carrier activities such as video
processing, billing and collection and joint marketing agreements. On
December 15, 1992, New Jersey Bell Telephone Company filed an application
with the FCC to operate a "video dialtone" service in portions of Dover
County, New Jersey, in which the Company serves approximately 20,000
subscribers. The FCC approved the application on July 18, 1994. The Company
has appealed this decision to the U.S. Court of Appeals for the District of
Columbia. This case is presently pending.
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. The U.S. Supreme Court has agreed to review this issue. In
addition, legislation which would eliminate the cross-ownership ban has been
passed by both houses of Congress.
Direct broadcast satellite ("DBS") service became available to consumers
during 1994. A single DBS satellite can provide more than 100 channels of
programming. DBS service can be received virtually anywhere in the United
States through the installation of a small outdoor antenna. DBS service is
being heavily marketed on a nation-wide basis. The extent to which DBS will
be competitive with cable systems will depend on the continued availability
of reception equipment and programming at reasonable prices to the consumer.
The Company cannot predict the ultimate outcome of the video dialtone
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
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:
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: August 14, 1995 By: /s/ Timothy J. Rigas
Timothy J. Rigas
Executive 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, 1995 and
June 30, 1995......................................... 1
Consolidated Statements of Operations - Three Months ended
June 30, 1994 and 1995................................ 2
Consolidated Statements of Cash Flows - Three Months
Ended June 30, 1994 and 1995.......................... 3
Notes to Interim Consolidated Financial Statements....... 4
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 7
PART II-OTHER INFORMATION
Item 1.Legal Proceedings................................. 15
Item 2.Changes in Securities............................. 15
Item 3.Defaults Upon Senior Securities................... 15
Item 4.Submission of Matters to a Vote of Security Holders 15
Item 5.Other Information.................................. 15
Item 6.Exhibits and Reports on Form 8-K................... 15
SIGNATURE................................................ 16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule for Adelphia Communications Corp. for the
3 months ended June 30, 1995
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1995
<CASH> 13,518
<SECURITIES> 0
<RECEIVABLES> 20,983<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 531,169
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 1,318,743
<CURRENT-LIABILITIES> 0
<BONDS> 2,100,068
<COMMON> 263
0
0
<OTHER-SE> (1,037,082)
<TOTAL-LIABILITY-AND-EQUITY> 1,318,743
<SALES> 0
<TOTAL-REVENUES> 96,921
<CGS> 0
<TOTAL-COSTS> 73,016
<OTHER-EXPENSES> (2,069)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,124
<INCOME-PRETAX> (31,288)
<INCOME-TAX> (1,044)
<INCOME-CONTINUING> (30,244)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,244)
<EPS-PRIMARY> (1.15)
<EPS-DILUTED> (1.15)
<FN>
<F2>
PP&E net of Depreciation
<F1>Amount net of Allowance
</FN>
</TABLE>
