15
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
- -------
For the quarterly period ended December 31, 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 other 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 (Zip code)
executive offices)
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 14, 1996, 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.
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION
INDEX
Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1995 and December 31, 1995.......... 3
Consolidated Statements of Operations - Three and Nine Months Ended
December 31, 1994 and 1995................................................ 4
Consolidated Statements of Cash Flows - Nine Months Ended
December 31, 1994 and 1995................................................ 5
Notes to Interim Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................. 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 17
Item 2. Changes in Securities.............................................. 17
Item 3. Defaults Upon Senior Securities.................................... 17
Item 4. Submission of Matters to a Vote of Security Holders................ 17
Item 5. Other Information.................................................. 17
Item 6. Exhibits and Reports on Form 8-K................................... 17
SIGNATURE................................................................... 18
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share amounts)
March 31, Dec. 31,
ASSETS: 1995 1995
------------- ------------
Cable television systems, at cost, net of depreciation and amortization:
<S> <C> <C>
Property, plant and equipment ........................... $ 518,405 $ 547,052
Intangible assets ....................................... 546,116 541,300
------------ -------------
Total .............................................. 1,064,521 1,088,352
Cash and cash equivalents .................................... 5,045 22,802
Investments .................................................. 48,968 60,406
Equity investment in Managed Partnership ..................... 18,338 18,338
Subscriber receivables - net ................................. 20,433 27,494
Prepaid expenses and other assets - net ...................... 48,352 58,768
Related party investments and receivables - net .............. 61,634 65,287
------------ -------------
Total .............................................. $ 1,267,291 $ 1,341,447
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY):
Notes payable of subsidiaries to banks and institutions ...... $ 1,086,350 $ 1,204,455
12 1/2% Senior Notes due 2002 ................................ 400,000 400,000
10 1/4% Senior Notes due 2000 ................................ 99,011 99,120
11 7/8% Senior Debentures due 2004 ........................... 124,470 124,494
9 7/8% Senior Debentures due 2005 ............................ 127,994 128,086
9 1/2% Senior Pay-In-Kind Notes due 2004 ..................... 164,370 172,178
Other debt ................................................... 19,415 18,801
Accounts payable ............................................. 42,872 73,151
Subscriber advance payments and deposits ..................... 16,494 13,453
Accrued interest and other liabilities ....................... 87,751 92,388
Deferred income taxes ........................................ 110,139 106,595
------------ -------------
Total liabilities .................................. 2,278,866 2,432,721
------------ -------------
Commitments and contingencies (Note G)
Stockholders' equity (deficiency):
Class A Common Stock, $.01 par value, 50,000,000 and
200,000,000 shares authorized, respectively;
14,906,691 and 15,364,009 shares outstanding, respectively 149 154
Class B Common Stock, $.01 par value, 25,000,000 shares
authorized and 10,944,476 shares outstanding ............. 109 109
Additional paid-in capital ................................. 211,190 216,185
Accumulated deficit ........................................ (1,223,023) (1,307,722)
------------ ------------
Total stockholders' equity (deficiency) ............ (1,011,575) (1,091,274)
------------ ------------
Total .............................................. $ 1,267,291 $ 1,341,447
============ ============
See notes to interim consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
December 31, December 31,
1994 1995 1994 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues ............................ $ 92,737 $ 102,457 $ 267,552 $ 296,460
--------- --------- --------- ---------
Operating expenses:
Direct operating and programming .. 27,644 32,066 79,172 90,218
Selling, general and administrative 16,409 16,981 46,219 50,961
Depreciation and amortization ..... 26,043 25,679 72,799 79,468
--------- --------- --------- ---------
Total ..................... 70,096 74,726 198,190 220,647
--------- --------- --------- ---------
Operating income .................... 22,641 27,731 69,362 75,813
--------- --------- --------- ---------
Other income (expense):
Interest income from affiliates ... 2,912 2,087 7,667 8,875
Other income ...................... 76 -- 939 --
Priority investment income from
Olympus ......................... 5,575 6,575 16,725 18,725
Interest expense .................. (49,668) (53,281) (144,993) (159,159)
Equity in loss of joint ventures .. (8,744) (10,636) (30,362) (31,319)
--------- --------- --------- ---------
Total ..................... (49,849) (55,255) (150,024) (162,878)
--------- --------- --------- ---------
Loss before income taxes ............ (27,208) (27,524) (80,662) (87,065)
Income tax benefit (expense) ........ (1,214) 1,127 (1,318) 2,366
--------- --------- --------- ---------
Net loss ............................ $ (28,422) $ (26,397) $ (81,980) $ (84,699)
========= ========= ========= =========
Net loss per weighed average share
of common stock ................... $ (1.16) $ (1.00) $ (3.35) $ (3.22)
========= ========= ========= =========
Weighted average shares of
common stock outstanding .......... 24,452 26,308 24,452 26,303
========= ========= ========= =========
</TABLE>
See notes to interim consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine Months Ended December 31,
----------------------------------
1994 1995
------------ ----------
Cash flows from operating activities:
<S> <C> <C>
Net loss .................................................. $ (81,980) $ (84,699)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation ........................................ 50,616 50,812
Amortization ........................................ 22,183 28,656
Noncash interest expense ............................ 7,322 8,032
Equity in loss of joint ventures .................... 30,362 31,319
Deferred income tax expense (benefit) ............... 1,209 (3,544)
Change in operating assets and liabilities, net
of effects of acquisitions:
Subscriber receivables ........................... (748) (7,061)
Prepaid expenses and other assets ................ (9,405) (21,187)
Accounts payable ................................. 18,682 30,279
Subscriber advance payments and deposits ......... (2,666) (3,041)
Accrued interest and other liabilities ........... 9,576 3,803
--------- ---------
Net cash provided by operating activities ................... 45,151 33,369
--------- ---------
Cash flows from investing activities:
Cable television systems acquired ......................... (47,693) (17,846)
Expenditures for property, plant and equipment ............ (71,095) (72,445)
Amounts invested in and advanced to Olympus and
related parties ......................................... (44,927) (27,360)
Investments in other joint ventures ....................... (26,161) (13,785)
--------- ---------
Net cash used for investing activities ...................... (189,876) (131,436)
--------- ---------
Cash flows from financing activities:
Proceeds from debt ........................................ 110,453 226,469
Repayments of debt ........................................ (30,872) (110,645)
--------- ---------
Net cash provided by financing activities ................... 79,581 115,824
--------- ---------
(Decrease) increase in cash and cash equivalents ............ (65,144) 17,757
Cash and cash equivalents, beginning of period .............. 74,075 5,045
--------- ---------
Cash and cash equivalents, end of period .................... $ 8,931 $ 22,802
========= =========
</TABLE>
See notes to interim consolidated financial statements.
<PAGE>
=============================================================================
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
=============================================================================
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
The accompanying unaudited interim financial statements of Adelphia
Communications Corporation and its majority owned subsidiaries ("Adelphia" or
the "Company") 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 and nine months ended December 31, 1994 and 1995, have
been included. These interim consolidated financial statements should be read in
conjunction with Adelphia's consolidated financial statements included in its
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 cable and security monitoring 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 has been 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, New 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 a definitive agreement
for the purchase of all of the cable systems of First Carolina Cable TV, L.P.
These systems together serve approximately 34,000 subscribers located in Vermont
and are being purchased for an aggregate price of $48,500.
On October 27, 1995, certain of the Company's wholly-owned subsidiaries
entered into a $190,000 credit facility with a bank maturing in October 1996.
Proceeds of $108,000 were used to repay existing debt, for working capital
purposes and the remaining $43,500 of the proceeds was used to acquire the
cable systems of Eastern Telecom Corporation and Robinson Cable TV, Inc.
These systems serve approximately 24,000 subscribers located in western
Pennsylvania.
On January 5, 1996, Olympus acquired all of the southeast Florida cable
systems of the Leadership Cable division of Fairbanks Communications, Inc.,
which serve approximately 50,000 cable and security monitoring subscribers for a
purchase price of $95,800. The purchase price consists of $40,000 in cash and a
seller note due December 30, 1997 totaling $55,800 plus accrued interest. The
cash portion of the acquisition price was financed through borrowings under an
Olympus credit agreement.
B. Notes Payable to Banks and Institutions:
The following updates to December 31, 1995 the disclosures made in Note 3 to
Adelphia's consolidated financial statements contained in the Annual Report:
<PAGE>
Commitments for additional borrowings.......................... $92,000
Weighted average interest rate................................. 8.62%
Percentage of principal balance that bears interest
at fixed rates for at least one year........................ 38%
C. Investments:
Adelphia's nonconsolidated investments are as follows:
March 31, Dec. 31,
1995 1995
---------- ----------
Investments accounted for using the equity method:
Gross investment:
Alternate access ventures .................... $ 12,840 $ 20,950
Page Call, Inc. .............................. 6,915 10,150
Other ........................................ 2,847 --
Cumulative equity in net losses ................ (1,458) (3,794)
-------- --------
Total ..................................... 21,144 27,306
-------- --------
Investments accounted for using the cost method:
Niagara Frontier Hockey, L.P. .................. 15,000 17,750
Alternate access ventures ...................... 2,924 4,004
Commonwealth Security, Inc. .................... 4,200 4,200
SuperCable ..................................... 3,000 3,163
Other .......................................... 2,700 3,983
-------- --------
Total ..................................... 27,824 33,100
-------- --------
Total investments .............................. $ 48,968 $ 60,406
======== ========
D. Investments and Related Party Receivables:
The following table summarizes the investments in and receivables from
Olympus and related parties:
March 31, Dec. 31,
1995 1995
--------- --------
Investment in Olympus ...................... $(48,688) $(53,371)
Amounts due from Olympus ................... 60,631 61,644
Amounts due from other related parties - net 49,691 57,014
-------- --------
$ 61,634 $ 65,287
======== ========
<PAGE>
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, 1994 and 1995, are as follows:
Nine Months Ended
September 30
------------------------
1994 1995
------- --------
Revenues.............................................$ 72,575 $ 85,376
Net loss............................................. (15,610) (16,235)
Net loss of general partners after
priority return requirements....................... (62,834) (61,670)
E. Accounting for Income Taxes:
The income tax benefit for the three months ended December 31, 1995 was
$1,127, which is comprised of current tax expense of $55 and a deferred tax
benefit of $1,182. For the nine month period ended December 31, 1995 the income
tax benefit was $2,366, which is comprised of current tax expense of $1,178 and
a deferred tax benefit of $3,544.
F. Supplemental Cash Flow Information:
Cash payments for interest were $130,151 and $147,111 for the nine months
ended December 31, 1994 and 1995, respectively. During the nine months ended
December 31, 1995, $5,000 of Adelphia Class A Common Stock was issued in
conjunction with the WB Cable acquisition by Olympus (see Note A).
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>
==============================================================================
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
==============================================================================
(Dollars in thousands)
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 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. See "Regulatory and Competitive
Matters" below.
The changes in Adelphia's results of operations for the nine months ended
December 31, 1995, compared to the same period in the prior year, were primarily
the result of acquisitions and expanding existing cable television operations
and the impact of an increase in rates which became effective October 1, 1995.
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.
A subsidiary of the Company, Hyperion Telecommunications, Inc. ("Hyperion")
and its subsidiaries owns certain investments in competitive access
telecommunications ventures, and manages those investments. As of July 1, 1995,
a subsidiary that provides management services with respect to the business
operations of those investments was classified an unrestricted subsidiary by the
Company's Board of Directors. The capital investments in the joint ventures
remain in a restricted subsidiary. The investment in Hyperion resulted in a
reduction in the Company's operating income before depreciation and amortization
for nine-months ended December 31, 1994 and 1995 of $1,595 and $1,614,
respectively. The equity in net loss of Hyperion's joint venture partnerships
amounted to $714 and $1,192 for the nine months ended December 31, 1994 and
1995, respectively.
<PAGE>
The following tables set forth certain cable television system data for 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.
December 31, Percent
----------------------
1994 1995 Increase
---------- ---------- ---------
Homes Passed by Cable
Company Owned Systems ........ 1,268,531 1,358,116 7.1%
Olympus Systems .............. 415,893 562,330 35.2%
Managed Systems .............. 374,076 415,671 11.1%
--------- --------- -----
Total Systems ................ 2,058,500 2,336,117 13.5%
========= ========= =====
Basic Subscribers
Company Owned Systems ........ 957,954 1,002,760 4.7%
Olympus Systems .............. 251,933 343,332 36.3%
Managed Systems .............. 284,200 305,758 7.6%
--------- --------- -----
Total Systems ................ 1,494,087 1,651,850 10.6%
========= ========= =====
Exclusive of acquisitions, basic subscribers grew 3.5%, 3.2% and 3.8% for
Company Owned, Olympus and Managed Systems, respectively, during the twelve
months ended December 31, 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 period indicated.
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -------------------
1994 1995 1994 1995
------- ------- -------- --------
Revenues .............................. 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Direct operating and programming .... 29.8% 31.3% 29.6% 30.4%
Selling, general and administrative . 17.7% 16.6% 17.3% 17.2%
Depreciation and amortization ....... 28.1% 25.1% 27.2% 26.8%
Operating income ...................... 24.4% 27.0% 25.9% 25.6%
Revenues increased approximately 10.5% and 10.8%, respectively, for the
three and nine month periods ended December 31, 1995, compared with the same
periods in the prior year. The increase was attributable to the following:
Three Nine
Months Months
Ended Ended
Dec. 31, Dec. 31,
1995 1995
---- ----
Acquisitions ........................................... 20% 44%
Basic subscriber growth ................................ 23% 21%
Rate increases ......................................... 38% 13%
Advertising sales and other services ....................... 19% 22%
Operating expenses (exclusive of depreciation and amortization) increased
11.3% and 12.6% for the three and nine month periods ended December 31, 1995,
compared with the same periods 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 9.7% and
9.2% for the three and nine month periods ended December 31, 1995 compared with
the same periods of the prior year. The increase is attributable to a
combination of acquisitions, an increase in subscriber rates, internal
subscriber growth and the expansion of advertising and other non-cable services.
Priority investment income increased 17.9% and 12.0% for the three and nine
month periods ended December 31, 1995. EBITDA (earnings before interest, income
taxes, depreciation and amortization, equity in net loss of joint ventures and
other non-cash charges) increased 8.4% and 9.2% for the three and nine month
periods ended December 31, 1995 compared with the same periods of the prior
year. 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 7.3% and 9.8% for the three and
nine months ended December 31, 1995, compared with the same periods of the prior
year. The increase in the level of indebtedness, excluding incremental debt
related to acquisitions, resulted in approximately 84% of the increase in
interest expense during the current quarter and 77% of the increase during the
nine months ended December 31, 1995. Incremental debt related to acquisitions
was responsible for approximately 20% and 30% of the increase in interest
expense during the three months and nine month periods ended December 31, 1995.
Partially offsetting the impact of these increases in interest expense was the
positive impact of a decrease in the average interest rate on total debt
outstanding during the three and nine month periods ended December 31, 1995 as
compared with the same periods of the prior year.
Net loss for the three month period ended December 31, 1995 declined by
7.1% compared with the same quarter of the prior year primarily due to increased
operating income and increased priority investment income from Olympus,
partially offset by increased interest expense and increased equity in net loss
of joint ventures. Net loss for the nine month period ended December 31, 1995
increased by 3.3% compared with the same period of the prior year primarily due
to an increase in interest expense, partially offset by increased operating
income, priority investment income from Olympus and interest income from
affiliates.
<PAGE>
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 and 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 December 31, 1995, the Company's total outstanding debt aggregated
$2,147,134, which included $923,878 of parent debt and $1,223,256 of subsidiary
debt. At December 31, 1995, certain of the Company's wholly-owned subsidiaries
had a $190,000 credit facility with a bank, which is subject to achieving
certain levels of operating performance. The terms of the loan provide for
senior secured notes maturing in October 1996. Proceeds of $108,000 were used to
repay existing debt, for working capital purposes and the remaining $43,500 of
the proceeds was used to acquire the cable systems of Eastern Telecom
Corporation and Robinson Cable TV, Inc. These systems serve approximately 24,000
subscribers located in western Pennsylvania. Additionally, the bank has
committed for a portion of a nine year $690,000 revolving credit facility
expected to be completed during the quarter ended March 31, 1996. A portion of
such facility would be utilized to repay the outstanding balance of the term
loan due October 1996. The Company had $22,802 in cash and cash equivalents
available at December 31, 1995.
The Company's weighted average interest rate on notes payable to banks and
institutions was approximately 8.62% at December 31, 1995 compared to 9.06% at
December 31, 1994. At December 31, 1995, approximately 38% 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. During the three months ended
September 30, 1995 the obligations as a counterparty under certain interest rate
swap agreements were assumed by an affiliate of the Company. These interest rate
swap agreements have a notional principal amount of $270,000 and expire through
November 1998. The Company's obligation under these agreements is unchanged.
Maturities of debt for the four years and three months after
December 31, 1995 are as follows:
<PAGE>
Three months ended March 31, 1996.........................$ 47,718
Year ended March 31, 1997.................................. 326,654
Year ended March 31, 1998................................. 278,724
Year ended March 31, 1999.................................. 260,226
Year ended March 31, 2000.................................. 125,918
On April 12, 1995, Adelphia acquired cable systems from Clear Channels
Cable TV Company located in Kittanning, New 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 a definitive agreement
for the purchase of all of the cable systems of First Carolina Cable TV, L.P.
These systems together serve approximately 34,000 subscribers located in Vermont
and are being purchased for an aggregate price of $48,500.
On April 3, 1995, Olympus acquired all of the cable and security systems of
WB Cable Associates, Ltd. ("WB Cable") serving approximately 44,000 cable and
security monitoring 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 has been 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 December 31, 1995, $56,000 of
unused commitments was available.
On January 5, 1996, Olympus acquired all of the southeast Florida cable
systems of the Leadership Cable division of Fairbanks Communications, Inc.,
which serve approximately 50,000 cable and security monitoring subscribers for a
purchase price of $95,800. The purchase price consists of $40,000 in cash and a
seller note due December 30, 1997 totaling $55,800 plus accrued interest. The
cash portion of the acquisition price was financed through borrowings under an
Olympus credit agreement.
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 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.
The 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
<PAGE>
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. Pursuant to the
1992 Cable Act, which significantly expanded the scope of regulation of
subscriber rates and a number of other matters in the cable industry, the
Federal Communications Commission (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. Several amendments to the rate regulations have
subsequently been adopted.
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 generally required a reduction after May 15, 1994, 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. Refunds with interest are 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 rate regulations 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 allows
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
<PAGE>
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 have been made and the FCC is also likely to continue to modify,
clarify or refine the rate regulations. The Telecommunications Act of 1996 (the
"1996 Act"), deregulates the rates for cable programming services on March 31,
1999. The Company cannot predict the effect or outcome of this or future
rule making proceedings or changes to the rate regulations.
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 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 appealed this decision to the full Commission which affirmed
the Cable Services Bureau's decision. Adelphia has sought reconsideration of
this decision. 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 has appealed this ruling to the U.S. Court of
Appeals for the District of Columbia Circuit. 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.
<PAGE>
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.
The 1996 Act eliminates the restriction against ownership and operation of
cable systems by local telephone companies within their local exchange service
areas. Telephone companies are now free to enter the retail video distribution
business through any means, such as direct satellite broadcast ("DBS"),
multi-channel multipoint distributions systems ("MMDS"), satellite master
antenna television ("SMATV") or as traditional franchised cable systems
operators. Alternatively, the 1996 Act authorizes local telephone companies to
operate "open video systems" without obtaining a local cable franchise, although
telephone companies operating such systems can be required to make payments to
local governmental bodies in lieu of cable franchise fees. Up to two-thirds of
the channel capacity on an "open video system" must be available to programmers
unaffiliated with the local telephone company. The open video system concept
will replace the FCC's video dialtone rules. The 1996 Act also includes numerous
provisions designed to make it easier for cable operators and others to compete
directly with local exchange telephone carriers.
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 believes that the provision of video programming by telephone
companies in competition with the Company's existing operations could have an
adverse effect on the Company's financial condition and results of operations.
At this time, the impact of any such effect is not known or estimable.
<PAGE>
- ------------------------------------------------------------------------------
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------
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:
A Form 8-K dated December 7, 1995 was filed during the quarter ended
December 31, 1995, which reported information under items 5 and 7 thereof. No
financial statements were filed.
<PAGE>
- ------------------------------------------------------------------------------
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADELPHIA COMMUNICATIONS CORPORATION
(Registrant)
Date: February 14, 1996 By: /s/ Timothy J. Rigas
----------------------
Timothy J. Rigas
Executive Vice President (authorized
officer), Treasurer, Chief Financial
Officer and Chief Accounting Officer
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Statement for Adelphia Communications Corp. for the
9 months ended December 31, 1995
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 22,802
<SECURITIES> 0
<RECEIVABLES> 27,494<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 547,052<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,341,447
<CURRENT-LIABILITIES> 0
<BONDS> 2,147,134
0
0
<COMMON> 263
<OTHER-SE> (1,091,537)
<TOTAL-LIABILITY-AND-EQUITY> 1,341,447
<SALES> 0
<TOTAL-REVENUES> 296,460
<CGS> 0
<TOTAL-COSTS> 220,647
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159,159
<INCOME-PRETAX> (87,065)
<INCOME-TAX> (2,366)
<INCOME-CONTINUING> (84,699)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (84,699)
<EPS-PRIMARY> (3.22)
<EPS-DILUTED> (3.22)
<FN>
<F1>Receivables net of Allowance
<F2>PP&E net of Depreciation
</FN>
</TABLE>
