SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended March 31, 1997
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.)
Main at Water Street
Coudersport, PA 16915-1141
(Address of principal executive offices) (Zip code)
814-274-9830
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value.
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to the
Form 10-K. X
Aggregate market value of outstanding Class A Common Stock $.01 par value, held
by non-affiliates of the Registrant at June 18, 1997 was $68.1 million based on
the closing sale price as computed by the NASDAQ National Market system as of
that date. For purposes of this calculation only, affiliates are deemed to be
directors and executive officers of the Registrant.
At June 18, 1997, 16,130,880 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.
Documents Incorporated by Reference
Portions of Amendment No. 2 to Registration Statement No. 333-19327 of Olympus
Communications, L.P. and Olympus Capital Corporation on Form S-4 are
incorporated by reference into Part II hereof.
Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders are
incorporated by reference into Part III hereof.
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ADELPHIA COMMUNICATIONS CORPORATION
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS 2
ITEM 2. PROPERTIES 20
ITEM 3. LEGAL PROCEEDINGS 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.... 24
ITEM 6. SELECTED FINANCIAL DATA 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 67
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 67
ITEM 11. EXECUTIVE COMPENSATION 67
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 67
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 67
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K 67
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PART I
ITEM 1. BUSINESS
(Dollars in thousands, except per share amounts)
Introduction
Adelphia Communications Corporation ("Adelphia" and, collectively with
its subsidiaries, the "Company") is the seventh largest cable television
operator in the United States. As of March 31, 1997, cable systems owned or
managed by the Company (the "Systems") in the aggregate passed 2,653,422 homes
and served 1,868,440 basic subscribers.
The Company's owned cable systems (the "Company Systems") are located
in ten states and are organized into seven regional clusters: Western New York,
Virginia, Western Pennsylvania, New England, Eastern Pennsylvania, Ohio and
Coastal New Jersey. The Company Systems are located primarily in suburban areas
of large and medium-sized cities within the 50 largest television markets
("areas of dominant influence" or "ADIs," as measured by The Arbitron Company).
At March 31, 1997, the Company Systems passed 1,569,953 homes and served
1,138,414 basic subscribers.
The Company owns a 50% voting interest and non-voting preferred limited
partnership interests entitling the Company to a 16.5% priority return in
Olympus Communications, L.P. ("Olympus"). Olympus is a joint venture which owns
cable systems (the "Olympus Systems") located in some of the fastest growing
areas of Florida. The Olympus Systems in Florida form a substantial part of an
eighth regional cluster, Southeastern Florida. A wholly-owned subsidiary of the
Company is the managing general partner of Olympus. As of March 31, 1997, the
Olympus Systems passed 650,742 homes and served 416,760 basic subscribers. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Olympus."
The Company also provides, for a fee, management and consulting
services to certain partnerships and corporations (the "Managed Partnerships").
John J. Rigas and certain members of his immediate family, including entities
they own or control (collectively, the "Rigas Family") have substantial
ownership interests in the Managed Partnerships. As of March 31, 1997, cable
systems (the "Managed Systems") owned by the Managed Partnerships passed 432,727
homes and served 313,266 basic subscribers.
John J. Rigas, the Chairman, President, Chief Executive Officer and
majority stockholder of Adelphia, is a pioneer in the cable television industry,
having built his first system in 1952 in Coudersport, Pennsylvania. Adelphia was
incorporated in Delaware on July 1, 1986 for the purpose of reorganizing five
cable television companies, then principally owned by the Rigas Family, into a
holding company structure in connection with the initial public offering of its
Class A Common Stock, $.01 par value. Prior to 1982, the Company grew
principally by obtaining municipal cable television franchises to construct new
cable television systems. Since 1982, the Company has grown principally by
acquiring and developing existing cable systems. The Company's operations
consist of providing telecommunications services primarily over its broadband
networks. The Company did not have any material foreign operations or foreign
sales in the year ended March 31, 1997.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Annual Report on Form 10-K, including Management's Discussion and Analysis of
Financial Condition and Results of Operations, is forward-looking, such as
information relating to the effects of future regulation, future capital
commitments and the effects of competition. Such forward-looking information
involves important risks and uncertainties that could significantly affect
expected results in the future from those expressed in any forward-looking
statements made by, or on behalf of, the Company. These "forward looking
statements" can be identified by the use of forward-looking terminology such as
"believes", "expects," "may," "will," "should," "intends" or "anticipates" or
the negative thereof or other variations thereon or comparable terminology, or
by discussions of strategy that involve risks and uncertainties. These risks and
uncertainties include, but are not limited to, uncertainties relating to
economic conditions, acquisitions and divestitures, government and regulatory
policies, the pricing and availability of equipment, materials, inventories and
programming, technological developments and changes in the competitive
environment in which the Company operates. Persons reading this Annual Report on
Form 10-K are cautioned that forward looking statements herein
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are only predictions, that no assurance can be given that the future results
will be achieved, and that actual events or results may differ materially as a
result of the risks and uncertainties facing the Company.
Video Services
Cable television systems receive a variety of television, radio and
data signals transmitted to receiving sites ("headends") by way of off-air
antennas, microwave relay systems and satellite earth stations. Signals are then
modulated, amplified and distributed primarily through coaxial and fiber optic
cable to subscribers, who pay fees for the service. Cable television systems are
generally constructed and operated pursuant to non-exclusive franchises awarded
by state or local government authorities for specified periods of time.
Cable television systems typically offer subscribers a package of basic
video services consisting of local and distant television broadcast signals,
satellite-delivered non-broadcast channels (which offer programming such as
news, sports, family entertainment, music, weather, shopping, etc.) and public,
governmental and educational access channels.
In addition, digital radio and premium service channels, which provide
movies, live and taped concerts, sports events and other programming, are
offered for an extra monthly charge. At March 31, 1997, over 95% of subscribers
of the Systems were also offered pay-per-view programming, which allows the
subscriber to order special events or movies and to pay on a per event basis.
Local, regional and national advertising time is sold in the majority of the
Systems, with commercial advertisements inserted on certain satellite-delivered
non-broadcast channels.
Competitive Local Exchange Services
The Company is currently offering competitive local exchange carrier
("CLEC") services through a consolidated unrestricted subsidiary, Hyperion
Telecommunications, Inc. ("Hyperion"). Hyperion is a leading provider of local
telecommunications services over state-of-the-art fiber optic networks in
selected markets within the United States. As of March 31, 1997, Hyperion's 15
operating networks served 33 cities with approximately 3,461 route miles of
fiber optic cable connecting 1,270 buildings. Hyperion's 21 networks (which
include six currently under construction) have generally been developed by
partnering with a local cable operator or utility provider (the "Local
Partner"). This approach has allowed Hyperion to rapidly construct high-capacity
networks which generally have broader coverage of its markets than those of
other CLECs. Hyperion believes that the breadth of its networks will allow it to
originate and terminate a significant proportion of its customers' local
telephone calls over its own network, instead of relying on the network of the
incumbent local exchange carrier ("LEC"). Hyperion also believes that working
with a Local Partner significantly reduces the cost of constructing its fiber
optic networks through the utilization of existing cable or utility facilities
and by sharing construction costs with its Local Partners, who usually upgrade
the capacity of their cable or utility infrastructure during construction of the
telecommunications network. Hyperion's service offerings include dedicated
access, switched local dial tone, long distance and enhanced data services
including frame relay, high speed internet access and video conferencing.
In the markets where Hyperion's 21 networks are currently operating or
under construction, Hyperion believes it has an addressable market of
approximately $5.2 billion annually, substantially all of which is currently
provided by the incumbent LECs. This addressable market estimate does not
include the markets for enhanced data services, wireless resale, internet
access, or long distance services, which Hyperion has the ability to enter at
its option.
On April 15, 1996, Hyperion completed a private placement to
institutional investors and realized net proceeds of $168.6 million upon
issuance of $329 million aggregate principal amount at maturity of 13% Senior
Discount Notes and warrants to purchase an aggregate of 613,427 common shares of
Hyperion. If all warrants were exercised, the warrants would represent
approximately 5.71% of the common stock of Hyperion on a fully diluted basis.
The 13% notes will not require payment of interest until October 15, 2001, and
may not be redeemed prior to April 15, 2001. Hyperion is using the net proceeds
from the offering to expand its existing markets, to complete construction of
new networks, to enter additional markets, to repay certain indebtedness owed to
Adelphia, and for working capital purposes.
High-Speed Data Services
Power Link, the Company's high-speed data service, which includes
residential, institutional, and business service offerings, constitutes an
alternative to the traditional slower speed data offerings available through
Internet Service
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Providers (ISPs). Power Link offers customers speeds greater than those
available through a T1 line, at costs that compare to a typical ISP plus a
second telephone line.
The Company's full two-way high-speed data service provides customers
with Internet access at speeds up to 300 times faster than typical 28.8 Kbps
modems. Since the service does not require a telephone line, there is never a
busy signal. Additionally, as with traditional cable services, this service is
always on, providing instant access to the Internet. In service areas where
two-way cable has not been deployed, the Company offers a hybrid data product
combining a high-speed downstream path and a telephone return path. The hybrid
service allows Adelphia to deploy high-speed data services to all of its service
areas.
Residential Telephone Service
Currently, the Company is offering residential telephone services as
part of a technical trial in Buffalo, New York. After several months of testing,
the Company is now evaluating the mechanisms to deploy telephony services in
larger areas, as well as developing the necessary tools and processes for
service provisioning and maintenance. The Company expects to continue to
evaluate options concerning offering residential service.
Other Services
Adelphia is a 49.9% owner of Page Call, Inc. ("Page Call") which was a
successful bidder in November 1994 on three regional narrowband PCS licenses,
covering 62% of the country's population. On June 11, 1997, the Company
announced that Adelphia has agreed to sell its interest in Page Call to Benbow
PCS Ventures, Inc. for a total of $16,500 payable in Series A Convertible
Preferred Stock of Arch Communications Group, Inc. and cash. The transaction is
subject to normal closing conditions including approval of the Federal
Communications Commission.
Adelphia began providing wireless messaging services with the formation
of its wholly owned subsidiary, Page Time, Inc. in November 1994. Page Time,
Inc. offers one-way messaging services for resale to the Company's systems by
establishing its own reselling arrangements with existing paging network
operators. The Company, Olympus and Managed Systems currently provide paging
services through Page Time to approximately 16,000 customers.
In addition to the activities described above, the Company has made a
substantial commitment to technological development as a member of Cable
Television Laboratories, Inc., a not-for-profit research and development company
serving the cable industry. The Company has also joined other industry members
in a partnership venture in Digital Cable Radio, a satellite-delivered,
multichannel music service featuring "compact disc" quality sound, which is
marketed as a premium service.
Operating Strategy
The Company's strategy has been to provide superior customer service
while maximizing operating efficiencies. By acquiring and developing systems in
geographic proximity, the Company has been able to realize significant operating
efficiencies through the consolidation of many managerial, administrative and
technical functions. The Systems have consolidated virtually all of their
administrative operations, including customer service, service call dispatching,
marketing, human resources, advertising sales and government relations into
regional offices. Each regional office has a related technical center which
contains the facilities necessary for the Systems' technical functions,
including construction, installations and system maintenance and monitoring.
Consolidating customer service functions into regional offices allows the
Company to provide customer service through better training and staffing of
customer service representatives, and by providing more advanced
telecommunications and computer equipment and software to its customer service
representatives than would otherwise be economically feasible in smaller
systems.
The Company considers technological innovation to be an important
component of cost-effective improvement of its products and customer
satisfaction. Through the use of fiber optic cable and other technological
improvements, the Company has increased system reliability, channel capacity and
its ability to deliver advanced cable television, data transmission and
telephony services. These improvements have enhanced customer service, reduced
operating expenses and allowed the Company to introduce additional services,
such as cable modems and impulse-ordered pay-per-view programming, which expand
customer choices and will increase Company revenues. The Company has developed
new
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cable construction architecture which allows it to readily deploy fiber
optic cable in its systems. Management believes that the Company is among the
leaders of the cable industry in the deployment of fiber optic cable.
Recent Development of the Systems
The Company has focused on acquiring and developing systems in markets
which have favorable historical growth trends. The Company believes that the
strong household growth trends in its Systems' market areas are a key factor in
positioning itself for future growth in basic subscribers.
On February 10, 1997, Adelphia acquired the assets of Small Cities
Cable Television, L.P. and Small Cities Cable Television, Inc. These systems
served approximately 6,000 subscribers at the date of acquisition primarily
located in Vermont and were purchased for an aggregate price of $12,000 paid in
cash and Adelphia Class A Common Stock. On July 12, 1996, Adelphia acquired
cable systems serving 32,500 subscribers primarily in Vermont from First
Carolina Cable TV, L.P. for $48,500. On April 1, 1996, Adelphia purchased the
cable property of Cable TV Fund 11-B, Ltd. from Jones Intercable. This system
was acquired for $84,267 and served approximately 39,700 subscribers at the
acquisition date in the New York counties of Erie and Niagara. On January 9,
1996, Adelphia completed the acquisition of the cable systems of Eastern Telecom
Corporation and Robinson Cable TV, Inc. for $43,000. These systems served
approximately 24,000 subscribers at the acquisition date located in western
Pennsylvania. 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 served approximately 10,700 subscribers
at the acquisition date. On January 31, 1995, the Company acquired Tele-Media of
Martha's Vineyard, L.P. for $11,775, a cable system which served, at the date of
acquisition, approximately 7,000 subscribers in Martha's Vineyard,
Massachusetts. On January 10, 1995, Adelphia issued 399,087 shares of Class A
Common Stock in connection with the merger of a wholly-owned subsidiary of
Adelphia into Oxford Cablevision, Inc. ("Oxford"), one of the Benjamin Terry
family (the "Terry Family") cable systems. Oxford served approximately 4,200
subscribers, at the acquisition date, located in the North Carolina counties of
Granville and Warren. On June 30, 1994, Adelphia acquired from Olympus 85% of
the common stock of Northeast Cable, Inc. ("Northeast Cable") for a purchase
price of $31,875. Northeast Cable owns cable television systems which served
approximately 36,500 subscribers, at the acquisition date, in Eastern
Pennsylvania. On June 16, 1994, Adelphia invested $34,000 for a majority equity
position in TMC Holdings Corporation ("THC"), the parent of Tele-Media Company
of Western Connecticut. THC owns cable television systems which served
approximately 43,000 subscribers at the acquisition date in Western Connecticut.
On January 5, 1996, Olympus acquired all of the southeast Florida cable
systems of the Leadership Cable division of Fairbanks Communications, Inc.,
which served approximately 50,000 cable and security monitoring subscribers at
the acquisition date for a purchase price of $95,800. On April 3, 1995, Olympus
purchased all of the cable and security systems of WB Cable Associates, Ltd.
("WB Cable") which served approximately 44,000 cable and security monitoring
subscribers at the date of acquisition, for a purchase price of $82,000. WB
Cable provides cable service from one headend and security monitoring services
from one location in West Boca Raton, Florida. On February 28, 1995, ACP
Holdings, Inc., a wholly owned subsidiary and managing general partner of
Olympus, certain shareholders of Adelphia, Olympus and various Telesat Entities
("Telesat"), wholly-owned subsidiaries of FPL Group, Inc., entered into an
investment agreement whereby Telesat agreed to contribute to Olympus
substantially all of the assets associated with certain cable television
systems, which served approximately 50,000 subscribers at February 28, 1995 in
southern Florida, in exchange for general and limited partner interests and
newly issued preferred limited partner interests in Olympus.
The Company will continue 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 market areas
or in locations that can serve as the basis for new market areas, either
directly or indirectly through joint ventures, where appropriate.
The following table indicates the growth of the Company Systems and
Olympus Systems by summarizing the number of homes passed by cable and the
number of basic subscribers for each of the five years in the period ended March
31, 1997. The table also indicates the numerical growth in subscribers
attributable to acquisitions and the numerical and percentage growth
attributable to internal growth.
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<TABLE>
<CAPTION>
Year Ended March 31,
1993 1994 1995 1996 1997
COMPANY SYSTEMS:
Homes passed (b)
<S> <C> <C> <C> <C> <C>
Beginning of Year 1,145,308 1,172,755 1,207,425 1,340,808 1,422,077
Internal Growth (c) 20,507 10,623 39,012 30,665 35,049
% Internal Growth 1.8% 0.9% 3.2% 2.3% 2.5%
Acquired Homes Passed 6,940 24,047 94,371 50,604 112,827
End of Year 1,172,755 1,207,425 1,340,808 1,422,077 1,569,953
Basic subscribers (d)
Beginning of Year 825,553 852,335 888,167 975,066 1,039,704
Internal Growth (c) 21,216 17,355 31,651 29,215 20,396
% Internal Growth 2.6% 2.0% 3.6% 3.0% 2.0%
Acquired Subscribers 5,566 18,477 55,248 35,423 78,314
End of Year 852,335 888,167 975,066 1,039,704 1,138,414
Basic Penetration (e) 72.7% 73.6% 72.7% 73.1% 72.5%
OLYMPUS SYSTEMS (a):
Homes passed (b)
Beginning of Year 408,616 386,971 406,753 512,052 631,602
Internal Growth (c) (21,645) 19,782 11,911 12,050 19,140
% Internal Growth (5.3%) 5.1% 2.9% 2.4% 3.0%
Acquired Homes Passed -- -- 93,388 107,500 --
End of Year 386,971 406,753 512,052 631,602 650,742
Basic subscribers (d)
Beginning of Year 237,766 211,025 239,357 306,317 403,901
Internal Growth (c) (26,741) 28,332 19,198 9,329 12,859
% Internal Growth (11.2%) 13.4% 8.0% 3.0% 3.2%
Acquired Subscribers -- -- 47,762 88,255 --
End of Year 211,025 239,357 306,317 403,901 416,760
Basic Penetration (e) 54.5% 58.8% 59.8% 63.9% 64.0%
<FN>
(a) Data included for the South Dade System at March 31, 1993, 1994, 1995, 1996
and 1997 reflects actual homes passed and basic subscribers. At July 31,
1992, prior to Hurricane Andrew, the South Dade system had 157,992 homes
passed by cable and 71,193 basic subscribers, respectively. At March 31,
1993, 1994, 1995, 1996 and 1997, the South Dade system served 40,999,
65,398, 74,601, 80,725 and 85,859 basic subscribers, respectively. Data for
the Northeast Cable System is included under Company Systems and excluded
from the Olympus Systems for all periods presented.
(b) A home is deemed to be "passed" by cable if it can be connected to the
distribution system without any further extension of the cable distribution
plant.
(c) The number of additional homes passed or additional basic subscribers not
attributable to acquisitions of new cable systems.
(d) A home with one or more television sets connected to a cable system is
counted as one basic subscriber. Bulk accounts (such as motels or
apartments) are included on a "subscriber equivalent" basis in which the
total monthly bill for the account is divided by the basic monthly charge
for a single outlet in the area.
(e) Basic subscribers as a percentage of homes passed by cable.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
Market Areas
The Systems are "clustered" in eight market areas in the eastern
portion of the United States as follows:
MARKET AREA LOCATION OF SYSTEMS
<S> <C>
Southeastern Florida Portions of southern Dade, Citrus, Orange, Hillsborough, Palm Beach, Martin and
St. Lucie Counties and Hilton Head, South Carolina
Western New York Suburbs of Buffalo and the adjacent Niagara Falls area, and Syracuse and adjacent
communities
Virginia Winchester, Charlottesville, Staunton, Richland, Martinsville and surrounding
communities in Virginia, and South Boston and Elizabeth City, North Carolina
Western Pennsylvania Suburbs of Pittsburgh and several small communities in western Pennsylvania
New England Cape Cod communities, South
Shore communities (the area between
Boston and Cape Cod, Massachusetts),
Martha's Vineyard, Massachusetts;
and Bennington, Burlington, Rutland
and Montpelier, Vermont and
surrounding communities in Vermont,
New Hampshire and New York, and
Seymour, Connecticut
Eastern Pennsylvania Suburbs of Philadelphia and suburbs of Scranton
Ohio Suburbs of Cleveland and the city of Mansfield and surrounding communities,
Mt. Vernon and portions of Kalamazoo County, Michigan
Coastal New Jersey Ocean County, New Jersey
</TABLE>
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<TABLE>
<CAPTION>
The following table summarizes by market area the homes passed by
cable, basic subscribers and premium service units for the Systems as of March
31, 1997.
Homes Basic Basic Premium Premium
Passed Subscribers Penetration Units Penetration
Company Systems:
<S> <C> <C> <C> <C> <C>
Western New York 364,000 255,250 70.12% 128,612 50.39%
New England 323,133 228,649 70.76% 110,303 48.24%
Virginia 233,846 180,285 77.10% 76,285 42.31%
Western Pennsylvania 220,186 159,355 72.37% 62,136 38.99%
Ohio 172,869 123,938 71.69% 62,800 50.67%
Coastal New Jersey 127,544 98,952 77.58% 53,906 54.48%
Eastern Pennsylvania 128,375 91,985 71.65% 58,651 63.76%
Total 1,569,953 1,138,414 72.51% 552,693 48.55%
Olympus Systems:
Southeastern Florida 650,742 416,760 64.04% 194,125 46.58%
Managed Systems:
Southeastern Florida 230,755 177,503 76.92% 49,109 27.67%
Virginia 60,436 43,850 72.56% 23,440 53.45%
Western New York 71,064 42,469 59.76% 28,288 66.61%
Western Pennsylvania 35,167 25,231 71.75% 10,773 42.70%
Eastern Pennsylvania 35,305 24,213 68.58% 20,726 85.60%
Total 432,727 313,266 72.39% 132,336 42.24%
Total Systems:
Southeastern Florida 881,497 594,263 67.42% 243,234 40.93%
Western New York 435,064 297,719 68.43% 156,900 52.70%
Virginia 294,282 224,135 76.16% 99,725 44.49%
New England 323,133 228,649 70.76% 110,303 48.24%
Western Pennsylvania 255,353 184,586 72.29% 72,909 39.50%
Ohio 172,869 123,938 71.69% 62,800 50.67%
Eastern Pennsylvania 163,680 116,198 70.99% 79,377 68.31%
Coastal New Jersey 127,544 98,952 77.58% 53,906 54.48%
Total 2,653,422 1,868,440 70.42% 879,154 47.05%
</TABLE>
Financial Information
The financial data regarding the Company's revenues, results of
operations and identifiable assets for each of the Company's last three fiscal
years is set forth in, and incorporated herein by reference to, Item 8,
Financial Statements and Supplementary Data of this Form 10-K.
Technological Developments
The Company has made a substantial commitment to the technological
development of the Systems and has actively sought to upgrade the technical
capabilities of its cable plant in a cost efficient manner. This development
will allow the Company to further increase the reliability of its services, to
increase channel capacity for the delivery of additional programming and to
provide new telecommunications services. Currently, all of the Systems have a
minimum of 35-channel capacity and are capable of delivering one-way data
transmission and digital video services. Further, as of March 31, 1997 over
95.0% of the subscribers to the Systems are served with "addressable capable"
technology, which permits the cable operator to remotely activate the cable
television services to be delivered to subscribers who are equipped with
addressable converters. With addressable converters, the Company can immediately
add to or reduce the services provided to a subscriber from the Company's
headend site, without the need to dispatch a service technician to the
subscriber's home. Addressable technology has allowed the Company to offer
pay-per-view programming. This technology has assisted the Company in reducing
pay service theft and, by allowing the Company to automatically cut off a
subscriber's service, has been effective in collecting delinquent subscriber
payments.
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In most of its recent upgrades, the Company has utilized a Modified
Passive Network Architecture ("MPNA") which utilizes fiber optic cable as an
alternative to the coaxial cable that historically has been used to distribute
cable signals to the subscriber's home. The MPNA design deploys on average one
fiber node for every two miles of fiber optic cable, or approximately one fiber
node for every 180 homes passed. The Company believes this compares favorably
with current industry averages. This deep penetration of fiber optic cable into
the Systems' networks has the advantages of providing increased reliability to
customers, improved bandwidth and easier implementation of the return path plant
capabilities. This will position the Company to offer additional video
programming services, to utilize the expanded bandwidth potential of digital
compression technology and to meet the anticipated transmission requirements for
high-definition television, digital television, high-speed data and telephone
services.
Subscriber Services and Rates
The Company's revenues are derived principally from monthly
subscription fees for basic, satellite and premium services. Rates to
subscribers vary from market to market and in accordance with the type of
service selected. Although services vary from system to system because of
differences in channel capacity and viewer interests, each of the Systems
typically offers a basic package ranging from $5.75 to $16.85 per month. Most of
the Systems also offer satellite services in a separate CableValue package
ranging from $7.50 to $23.60 per month. A number of the Systems also offer
certain satellite services on an unregulated, individual only basis. These
offerings, ranging from 2 to 6 channels, have monthly rates ranging from $.055
to $1.15 per service. The System's rates for premium services range from $7.00
to $13.00 per service per month. An installation fee, which the Company may
wholly or partially wave during a promotional period, is usually charged to new
subscribers. Subscribers are free to terminate cable service at any time without
charge, but often are charged a fee for reconnection or change of service.
The Cable Communications Policy Act of 1984 (the "1984 Cable Act," as
amended by the 1992 Cable Act), deregulated basic service rates for systems in
communities meeting the FCC's definition of effective competition. Pursuant to
the FCC's definition of effective competition adopted following enactment of the
1984 Cable Act, substantially all of the Company's franchises were rate
deregulated. However, in June 1991, the FCC amended its effective competition
standard, which increased the number of cable systems which could be subject to
local rate regulation. The 1992 Cable Act contains a new definition of effective
competition under which nearly all cable systems in the United States are
subject to regulation of basic service rates. Additionally, the legislation (i)
eliminated the 5% annual basic rate increase allowed by the 1984 Cable Act
without local approval; (ii) allows the FCC to adjudicate the reasonableness of
rates for non-basic service tiers, other than premium services, for cable
systems not subject to effective competition in response to complaints filed by
franchising authorities and/or cable subscribers; (iii) prohibits cable systems
from requiring subscribers to purchase service tiers above basic service in
order to purchase premium services if the system is technically capable of doing
so; (iv) allows the FCC to impose restrictions on the retiering and
rearrangement of cable services under certain circumstances; and (v) permits the
FCC and franchising authorities more latitude in controlling rates and rejecting
rate increase requests. The Telecommunications Act of 1996 (the "1996 Act") ends
FCC regulation on nonbasic tier rates on March 31, 1999. See "Legislation and
Regulation."
For a discussion of recent FCC rate regulation and related
developments, see "Legislation and Regulation" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Regulatory and
Competitive Matters."
Franchises
The 1984 Cable Act provides that cable operators may not offer cable
service to a particular community without a franchise unless such operator was
lawfully providing service to the community on July 1, 1984 and the franchising
authority does not require a franchise. The Systems operate pursuant to
franchises or other authorizations issued by governmental authorities,
substantially all of which are nonexclusive. Such franchises or authorizations
awarded by a governmental authority generally are not transferable without the
consent of the authority. As of March 31, 1997, the Company held 488 franchises,
Olympus held 118 franchises and the Managed Systems held 125 franchises. Most of
these franchises can be terminated prior to their stated expiration by the
relevant governmental authority, after due process, for breach of material
provisions of the franchise.
Under the terms of most of the Company's franchises, a franchise fee
(generally ranging up to 5% of the gross
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revenues of the cable system) is payable to the governmental authority. For the
past three years, franchise fee expense incurred by the Company has averaged
approximately 2.5% of gross system revenues.
The franchises issued by the governmental authorities are subject to
periodic renewal. In renewal hearings, the authorities generally consider, among
other things, whether the franchise holder has provided adequate service and
complied with the franchise terms. In connection with a renewal, the authority
may impose different and more stringent terms, the impact of which cannot be
predicted. To date, all of the Company's material franchises have been renewed
or extended, at or effective upon their stated expiration, generally on modified
terms. Such modified terms have not been materially adverse to the Company.
The Company believes that all of its material franchises are in good
standing. From time to time, the Company notifies the franchising authorities of
the Company's intent to seek renewal of the franchise in accordance with the
procedures set forth in the 1984 Cable Act. The 1984 Cable Act process requires
that the governmental authority consider the franchise holder's renewal proposal
on its own merits in light of the franchise holder's past performance and the
community's needs and interests, without regard to the presence of competing
applications. See "Legislation and Regulation." The 1992 Cable Act alters the
administrative process by which operators utilize their 1984 Cable Act franchise
renewal rights. Such changes could make it easier in some instances for a
franchising authority to deny renewal of a franchise.
Competition
Although the Company and the cable television industry have
historically faced modest competition, the competitive landscape is changing and
competition will increase. The Company believes that the increase in competition
within its communities will occur gradually over a period of time.
At the present time, cable television systems compete with other
communications and entertainment media, including off-air television broadcast
signals which a viewer is able to receive directly using the viewer's own
television set and antenna. The extent to which a cable system competes with
over-the-air broadcasting depends upon the quality and quantity of the broadcast
signals available by direct antenna reception compared to the quality and
quantity of such signals and alternative services offered by a cable system. In
many areas, television signals which constitute a substantial part of basic
service can be received by viewers who use their own antennas. Local television
reception for residents of apartment buildings or other multi-unit dwelling
complexes may be aided by use of private master antenna services. Cable systems
also face competition from alternative methods of distributing and receiving
television signals and from other sources of entertainment such as live sporting
events, movie theaters and home video products, including videotape recorders
and compact disc players. In recent years, the FCC has adopted policies
providing for authorization of new technologies and a more favorable operating
environment for certain existing technologies that provide, or may provide,
substantial additional competition for cable television systems. The extent to
which cable television service is competitive depends in significant part upon
the cable television system's ability to provide an even greater variety of
programming and other services than that available off-air or through
competitive alternative delivery sources. In addition, certain provisions of the
1992 Cable Act and the 1996 Act are expected to increase competition
significantly in the cable industry. See "Legislation and Regulation."
The 1992 Cable Act prohibits the award of exclusive franchises,
prohibits franchising authorities from unreasonably refusing to award additional
franchises and permits them to operate cable systems themselves without
franchises.
Individuals presently have the option to purchase earth stations, which
allow the direct reception of satellite-delivered program services formerly
available only to cable television subscribers. Most satellite-distributed
program signals are being electronically scrambled to permit reception only with
authorized decoding equipment, generally at a cost to the viewer. From time to
time, legislation has been introduced in Congress which, if enacted into law,
would prohibit the scrambling of certain satellite-distributed programs or would
make satellite services available to private earth stations on terms comparable
to those offered to cable systems. Broadcast television signals are being made
available to owners of earth stations under the Satellite Home View Copyright
Act of 1988, which became effective January 1, 1989 for a six-year period. This
Act establishes a statutory compulsory license for certain transmissions made by
satellite owners to home satellite dishes for which carriers are required to pay
a royalty fee to the Copyright Office. This Act has been extended by Congress
until December 31, 1999. The 1992 Cable Act enhances the right of cable
competitors to purchase nonbroadcast satellite-delivered programming. See
"Legislation and Regulation--Federal Regulation."
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Video programming is now being delivered to individuals by high-powered
direct broadcast satellites ("DBS") utilizing video compression technology. This
technology has the capability of providing more than 100 channels of programming
over a single high-powered DBS satellite with significantly higher capacity
available if multiple satellites are placed in the same orbital position. Video
compression technology may also be used by cable operators in the future to
similarly increase their channel capacity. DBS service can be received virtually
anywhere in the United States through the installation of a small rooftop or
side-mounted antenna, and it is more accessible than cable television service
where a cable plant has not been constructed or where it is not cost effective
to construct cable television facilities. DBS service is being heavily marketed
on a nationwide basis by several service providers. One DBS service provider is
proposing to deliver at least some local television stations via satellite, thus
lessening the distinction between cable television and DBS service.
Cable communications systems also compete with wireless program
distribution services such as multichannel, multipoint distribution service
("MMDS"), commonly called wireless cable systems, which use low-power microwave
frequencies to transmit video programming over-the-air to subscribers. There are
MMDS operators who are authorized to provide or are providing broadcast and
satellite programming to subscribers in areas served by the Company's Systems.
MMDS systems are less capital intensive, are not required to obtain local
franchises or to pay franchise fees and are subject to fewer regulatory
requirements than cable television systems. MMDS systems' ability to compete
with cable television systems has previously been limited by channel capacity,
the inability to obtain programming and regulatory delays. Recently, however,
MMDS systems have developed digital compression technology which provides for
more channel capacity and better signal delivery. Although relatively few MMDS
systems in the United States are currently in operation or under construction,
virtually all markets have been licensed or tentatively licensed. A series of
actions taken by the FCC, including reallocating certain frequencies to wireless
services, are intended to facilitate the development of wireless cable
television spectrum that will be used by wireless operators to provide
additional channels of programming over longer distances. Several Regional Bell
Operating Companies acquired interests in major MMDS companies. The Company is
unable to predict whether wireless video services will have a material impact on
its operations.
Additional competition may come from private cable television systems
servicing condominiums, apartment complexes and certain other multiple unit
residential developments. The operators of these private systems, known as
satellite master antenna television ("SMATV") systems, often enter into
exclusive agreements with apartment building owners or homeowners' associations
which preclude franchised cable television operators from serving residents of
such private complexes. However, the 1984 Cable Act gives franchised cable
operators the right to use existing compatible easements within their franchise
areas upon nondiscriminatory terms and conditions. Accordingly, where there are
preexisting compatible easements, cable operators may not be unfairly denied
access or discriminated against with respect to the terms and conditions of
access to those easements. There have been conflicting judicial decisions
interpreting the scope of the access right granted by the 1984 Cable Act,
particularly with respect to easements located entirely on private property.
Further, while a franchised cable television system typically is obligated to
extend service to all areas of a community regardless of population density or
economic risk, a SMATV system may confine its operation to small areas that are
easy to serve and more likely to be profitable. Under the 1996 Act, SMATV
systems can interconnect non-commonly owned buildings without having to comply
with local, state and federal regulatory requirements that are imposed upon
cable systems providing similar services, as long as they do not use public
rights-of-way. The U.S. Copyright Office has concluded that SMATV systems are
"cable systems" for purposes of qualifying for the compulsory copyright license
established for cable systems by federal law.
The FCC has authorized a new interactive television service which will
permit non-video transmission of information between an individual's home and
entertainment and information service providers. This service will provide an
alternative means for DBS systems and other video programming distributors,
including television stations, to initiate the new interactive television
services. This service may also be used by the cable television industry.
The FCC also has initiated a new rulemaking proceeding looking toward
the allocation of frequencies in the 28 Ghz range for a new multi-channel
wireless video service which could make 98 video channels available in a single
market. It cannot be predicted at this time whether competitors will emerge
utilizing such frequencies or whether such competition would have a material
impact on the operations of cable television systems.
The FCC has recently allocated a sizable amount of spectrum in the 31
Ghz band for use by a new wireless service, Local Multipoint Distribution
Service ("LMDS"), which among other uses, can deliver over 100 channels of
digital programming directly to consumers' homes. The FCC proposes to auction
this spectrum to the public this fall, with cable
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operators and local telephone companies restricted in their participation in
this auction. The extent to which the winning licenses in this service will use
this spectrum in particular regions of the country to deliver multichannel video
programming to subscribers, and therefore provide competition for franchised
cable systems, is at this time uncertain.
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 DBS, MMDS, SMATV or as
traditional franchised cable system 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 of an "open video
system" must be available to programmers unaffiliated with the local telephone
company. The open video system concept replaces 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. With certain limited exceptions, neither a local exchange carrier nor
a cable operator can acquire more than 10% of the other entity operating within
its own service area.
Advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, are constantly
occurring. Thus, it is not possible to predict the effect that ongoing or future
developments might have on the cable industry. The ability of cable systems to
compete with present, emerging and future distribution media will depend to a
great extent on obtaining attractive programming. The availability and exclusive
use of a sufficient amount of quality programming may in turn be affected by
developments in regulation or copyright law. See "Legislation and Regulation."
The cable television industry competes with radio, television and print
media for advertising revenues. As the cable television industry continues to
develop programming designed specifically for distribution by cable, advertising
revenues may increase. Premium programming provided by cable systems is subject
to the same competitive factors which exist for other programming discussed
above. The continued profitability of premium services may depend largely upon
the continued availability of attractive programming at competitive prices.
Employees
At June 7, 1997, there were 3,154 full-time employees of the Company,
Olympus, and the Managed Partnerships, of which 116 employees were covered by
collective bargaining agreements at three locations. The Company considers its
relations with its employees to be good.
Legislation and Regulation
The Company's existing and anticipated businesses are regulated by the
FCC, some state governments and most local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies may materially affect the Company's
existing and anticipated businesses. The following is a summary of federal laws
and regulations affecting the growth and operation of the Company's existing and
anticipated businesses and a description of certain state and local laws.
Cable Television/Federal Laws and Regulations
Cable Communications Policy Act of 1984 (the "1984 Cable Act")
The 1984 Cable Act became effective on December 29, 1984. This federal
statute, which amended the Communications Act of 1934 (the "Communications
Act"), created uniform national standards and guidelines for the regulation of
cable television systems. Violations by a cable television system operator of
provisions of the Communications Act, as well as of FCC regulations, can subject
the operator to substantial monetary penalties and other sanctions. Among other
things, the 1984 Cable Act affirmed the right of franchising authorities (state
or local, depending on the practice in individual states) to award one or more
franchises within their jurisdictions. It also prohibited non-grandfathered
cable television systems from operating without a franchise in such
jurisdictions. In connection with new franchises, the 1984 Cable Act provides
that in granting or renewing franchises, franchising authorities may establish
requirements for cable-related facilities and equipment, but may not establish
or enforce requirements for video programming or information
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services other than in broad categories.
Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act")
On October 5, 1992, Congress enacted the 1992 Cable Act. This
legislation effected significant changes to the legislative and regulatory
environment in which the cable industry operates. It amended the 1984 Cable Act
in many respects. The 1992 Cable Act became effective on December 4, 1992,
although certain provisions, most notably those dealing with rate regulation and
retransmission consent, became effective at later dates. The legislation also
required the FCC to initiate a number of rulemaking proceedings to implement
various provisions of the statute. The 1992 Cable Act allows for a greater
degree of regulation on the cable industry with respect to, among other things:
(i) cable system rates for both basic and certain nonbasic services, (ii)
programming access and exclusivity arrangements, (iii) access to cable channels
by unaffiliated programming services, (iv) leased access terms and conditions,
(v) horizontal and vertical ownership of cable systems, (vi) customer service
requirements, (vii) franchise renewals, (viii) television broadcast signal
carriage and retransmission consent, (ix) technical standards, (x) subscriber
privacy, (xi) consumer protection issues, (xii) cable equipment compatibility,
(xiii) obscene or indecent programming and (xiv) requiring subscribers to
subscribe to tiers of service other than basic service as a condition of
purchasing premium services. Additionally, the legislation encourages
competition with existing cable systems by allowing municipalities to own and
operate their own cable systems without having to obtain a franchise, preventing
franchising authorities from granting exclusive franchises or unreasonably
refusing to award additional franchises covering an existing cable system's
service area and prohibiting the common ownership of cable systems and
co-located MMDS or SMATV systems. The 1992 Cable Act also precludes video
programmers affiliated with cable television companies from favoring cable
operators over competitors and requires such programmers to sell their
programming to other multichannel video distributors. This provision may limit
the ability of cable programming suppliers to offer exclusive programming
arrangements to cable television companies. A number of provisions in the 1992
Cable Act relating to, among other things, rate regulation, have had a negative
impact on the cable industry and the Company's business.
Telecommunications Act of 1996
The 1996 Act significantly revised the federal regulatory structure. As
it pertains to cable television, the 1996 Act, among other things, (i)
eliminates the regulation of certain nonbasic programming services in 1999, (ii)
expands the definition of effective competition, the existence of which
displaces rate regulation, (iii) eliminates the restriction against the
ownership and operation of cable systems by telephone companies within their
local exchange service areas and (iv) liberalizes certain of the FCC's
cross-ownership restrictions. The FCC has been conducting a number of rulemaking
proceedings in order to implement many of the provisions of the 1996 Act.
FCC Regulation
The FCC, the principal federal regulatory agency with jurisdiction over
cable television, has promulgated regulations covering such areas as the
registration of cable systems, cross-ownership between cable systems and other
communications businesses, carriage of television broadcast programming,
consumer education and lockbox enforcement, origination cablecasting and
sponsorship identification, children's programming, the regulation of basic
cable service rates in areas where cable systems are not subject to effective
competition, signal leakage and frequency use, technical performance,
maintenance of various records, equal employment opportunity, and antenna
structure notification, marking and lighting. The FCC has the authority to
enforce these regulations through the imposition of substantial fines, the
issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations. Furthermore, the 1992 Cable Act required the FCC to adopt
regulations covering, among other things, cable rates, signal carriage, consumer
protection and customer service, leased access, indecent programming, programmer
access to cable television systems, programming agreements, technical standards,
consumer electronics equipment compatibility, ownership of home wiring, program
exclusivity, equal employment opportunity, and various aspects of direct
broadcast satellite system ownership and operation. The 1996 Act requires
certain changes to various provisions of these regulations. A brief summary of
the most material federal regulations as adopted to date follows.
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Rate Regulation
The 1984 Cable Act codified existing FCC preemption of rate regulation
for premium channels and optional nonbasic program tiers. The 1984 Cable Act
also deregulated basic cable rates for cable television systems determined by
the FCC to be subject to effective competition. The 1992 Cable Act substantially
changed the statutory and FCC rate regulation standards. The 1992 Cable Act
replaced the FCC's old standard for determining effective competition, under
which most cable systems were not subject to local rate regulation, with a
statutory provision that has resulted in nearly all cable television systems
becoming subject to local rate regulation of basic service. Additionally, the
1992 Cable Act eliminated the 5% annual rate increase for basic service
previously allowed by the 1984 Cable Act without local approval; required the
FCC to adopt a formula, for franchising authorities to enforce, to assure that
basic cable rates are reasonable; allows the FCC to review rates for nonbasic
service tiers (other than per-channel or per-program services) in response to
complaints filed by franchising authorities; prohibits cable television systems
from requiring customers to purchase service tiers above basic service in order
to purchase premium services if the system is technically capable of doing so;
required the FCC to adopt regulations to establish, on the basis of actual
costs, the price for installation of cable service, remote controls, converter
boxes and additional outlets; and allows the FCC to impose restrictions on the
retiering and rearrangement of cable services under certain limited
circumstances. The 1996 Act expands the definition of effective competition to
cover situations where a local telephone company or its affiliate, or any
multichannel video provider using telephone company facilities, offers
comparable video service by any means except DBS. Satisfaction of this test
deregulates both basic and nonbasic tiers. The 1996 Act ends FCC regulation of
nonbasic tier rates on March 31, 1999.
The FCC's regulations set standards for the regulation of basic and
nonbasic cable service rates (other than per-channel or per-program services).
The FCC's original rules became effective on September 1, 1993. The rules have
been amended several times. The rate regulations adopt a benchmark price cap
system for measuring the reasonableness of existing basic and nonbasic service
rates, and a formula for future rate increases based on inflation and increases
in certain costs. Alternatively, cable operators have the opportunity to make
cost-of-service showings which, in some cases, may justify rates above the
applicable benchmarks. The rules also require that charges for cable-related
equipment (e.g., converter boxes and remote control devices) and installation
services be unbundled from the provision of cable service and based upon actual
costs plus a reasonable profit. Local franchising authorities and/or the FCC are
empowered to order a reduction of existing rates which exceed the benchmark
level for either basic and/or nonbasic cable services and associated equipment,
and refunds could be required. The retroactive refund period for basic cable
service rates is limited to one year. A significant number of franchising
authorities have become certified by the FCC to regulate the rates charged by
the Company for basic cable service and for associated equipment. The Company's
ability to implement rate increases consistent with its past practices will
likely be limited by the regulations that the FCC has adopted.
Carriage of Broadcast Television Signals
The 1992 Cable Act contains new mandatory carriage requirements. These
new rules allow commercial television broadcast stations which are "local" to a
cable system (i.e., the system is located in the station's Area of Dominant
Influence), to elect every three years whether to require the cable system to
carry the station, subject to certain exceptions, or whether the cable system
will have to negotiate for "retransmission consent" to carry the station. Local,
noncommercial television stations are also given mandatory carriage rights,
subject to certain exceptions, within the larger of (i) a 50 mile radius from
the station's city of license or (ii) the station's Grade B contour (a measure
of signal strength). Unlike commercial stations, noncommercial stations are not
given the option to negotiate retransmission consent for the carriage of their
signal. In addition, cable systems will have to obtain retransmission consent
for the carriage of all "distant" commercial broadcast stations, except for
certain "superstations," (i.e., commercial satellite-delivered independent
stations such as WTBS). The 1992 Cable Act also eliminated, effective December
4, 1992, the FCC's regulations requiring the provision of input selector
switches. The statutory must-carry provisions for noncommercial stations became
effective on December 4, 1992. Must-carry rules for both commercial and
noncommercial stations and retransmission consent rules for commercial stations
were adopted by the FCC on March 11, 1993. The must-carry requirement for
commercial stations went into effect on June 2, 1993, and any stations for which
retransmission consent had not been obtained (other than must-carry stations,
non-commercial stations and superstations) had to be dropped as of October 6,
1993. The most recent election between must-carry and retransmission consent for
local commercial television broadcast stations was on October 1, 1996. A number
of stations previously carried by the Company's cable television systems elected
retransmission consent. The Company was able to reach agreements with
broadcasters who elected retransmission consent and has therefore not been
required to pay
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cash compensation to broadcasters for retransmission consent or been required by
broadcasters to remove broadcast stations from the cable television channel
line-ups. The Company has, however, agreed to carry some services (e.g., ESPN2
and a new service by FOX) in specified markets pursuant to retransmission
consent arrangements which it believes are comparable to those entered into by
most other large cable operators.
Channel Set-Asides
The 1984 Cable Act permits local franchising authorities to require
cable operators to set aside certain channels for public, educational and
governmental access programming. The Company believes that none of the Systems'
franchises contain unusually onerous access requirements. The 1984 Cable Act
further requires cable systems with thirty-six or more activated channels to
designate a portion of their channel capacity for commercial leased access by
unaffiliated third parties. While the 1984 Cable Act presently allows cable
operators substantial latitude in setting leased access rates, the 1992 Cable
Act requires leased access rates to be set according to a formula determined by
the FCC. The FCC has recently revised the existing rate formula in a way which
will significantly lower the rates cable operators have been able to charge. It
is possible that such leased access will result in competition to services
offered by the Company on the other channels of its cable systems.
Competing Franchises
Questions concerning the ability of municipalities to award a single
cable television franchise and to impose certain franchise restrictions upon
cable television companies have been considered in several recent federal
appellate and district court decisions. These decisions have been somewhat
inconsistent and, until the U.S. Supreme Court rules definitively on the scope
of cable television's First Amendment protections, the legality of the
franchising process and of various specific franchise requirements is likely to
be in a state of flux. It is not possible at the present time to predict the
constitutionally permissible bounds of cable franchising and particular
franchise requirements. However, the 1992 Cable Act, among other things,
prohibits franchising authorities from unreasonably refusing to grant franchises
to competing cable systems and permits franchising authorities to operate their
own cable systems without franchises.
Cross-Ownership
The 1996 Act repealed the 1984 Cable Act's prohibition on LECs
providing video programming directly to customers within their local exchange
telephone service areas, except in rural areas or by specific waiver of FCC
rules. The 1996 Act also authorized LECs to operate "open video systems" without
obtaining a local cable franchise, although LECs operating such systems can be
required to make payments to local governmental bodies in lieu of cable
franchise fees. Where demand exceeds channel capacity, up to two-thirds of the
channels on an "open video system" must be available to programmers unaffiliated
with the LEC.
The 1996 Act eliminated the FCC rule prohibiting common ownership
between a cable system and a national broadcast television network. The 1996 Act
also eliminated the statutory ban covering certain common ownership interests,
operation or control between a television station and cable system within the
station's Grade B signal coverage area. However, the parallel FCC rules against
cable/television station cross-ownership remains in place, subject to review by
the FCC within two years. Finally, the 1992 Cable Act prohibits common
ownership, control or interest in cable television systems and MMDS facilities
or SMATV systems having overlapping service areas, except in limited
circumstances. The 1996 Act exempts cable systems facing "effective competition"
from the MMDS and SMATV cross-ownership restrictions.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the
number of cable systems which a single cable operator can own. In general, no
cable operator can have an attributable interest in cable systems which pass
more than 30% of all homes nationwide. Attributable interests for these purposes
include voting interests of 5% or more (unless there is another single holder of
more than 50% of the voting stock), officerships, directorships and general
partnership interests. The FCC has stayed the effectiveness of these rules
pending the outcome of the appeal from the U.S. District Court decision holding
the multiple ownership limit provision of the 1992 Cable Act unconstitutional.
The FCC has also adopted rules which limit the number of channels on a
cable system which can be occupied by programming in which the cable system's
owner has an attributable interest. The limit is 40% of all activated channels.
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Franchise Transfers
The 1992 Cable Act requires franchising authorities to act on any
franchise transfer request submitted after December 4, 1992 within 120 days
after receipt of all information required by FCC regulations and by the
franchising authority. Approval is deemed to be granted if the franchising
authority fails to act within such period.
Technical Requirements
Historically, the FCC has imposed technical standards applicable to the
cable channels on which broadcast stations are carried, and has prohibited
franchising authorities from adopting standards which were in conflict with or
more restrictive than those established by the FCC. The FCC has recently revised
such standards and made them applicable to all classes of channels which carry
downstream NTSC video programming. Local franchising authorities are permitted
to enforce the FCC's new technical standards. The FCC also has adopted
additional standards applicable to cable television systems using frequencies in
the 108-137 MHz and 225-400 MHz bands in order to prevent harmful interference
with aeronautical navigation and safety radio services, and has also established
limits on cable system signal leakage. Periodic testing by cable operators for
compliance with these technical standards and signal leakage limits is required.
The Company believes that the Systems are in compliance with these standards in
all material respects. The 1992 Cable Act requires the FCC to update
periodically its technical standards to take into account changes in technology.
The FCC has adopted regulations to implement the requirements of the 1992 Cable
Act designed to improve the compatibility of cable systems and consumer
electronics equipment.
Pole Attachments
The FCC currently regulates the rates and conditions imposed by certain
public utilities for use of their poles, unless under the Federal Pole
Attachments Act, state public service commissions are able to demonstrate that
they regulate rates, terms and conditions of the cable television pole
attachments. A number of states (including Massachusetts, Michigan, New Jersey,
New York, Ohio and Vermont) and the District of Columbia have certified to the
FCC that they regulate the rates, terms and conditions for pole attachments. In
the absence of state regulation, the FCC administers such pole attachment rates
through use of a formula which it has devised and from time to time revises. The
1996 Act directs the FCC to adopt a new rate formula for any attaching party,
including cable systems, which offers telecommunications services. This new
formula will result in significantly higher attachment rates for cable systems
which choose to offer such services.
Other Matters
FCC regulation also includes matters regarding a cable system's
carriage of local sports programming; restrictions on origination and
cablecasting by cable system operators; application of the rules governing
political broadcasts; customer service; home wiring; and limitations on
advertising contained in nonbroadcast children's programming.
Copyright
Cable television systems are subject to federal copyright licensing
covering carriage of broadcast signals. In exchange for making semi-annual
payments to a federal copyright royalty pool and meeting certain other
obligations, cable operators obtain a statutory license to retransmit broadcast
signals. The amount of this royalty payment varies, depending on the amount of
system revenues from certain sources, the number of distant signals carried, and
the location of the cable system with respect to over-the-air television
stations.
Various bills have been introduced into Congress over the past several
years that would eliminate or modify the cable television compulsory license. At
the request of Congress, the Copyright Office has commenced an inquiry into
possible revisions of the compulsory license. Without the compulsory license,
cable operators might need to negotiate rights from the copyright owners for
each program carried on each broadcast station in the channel lineup. Such
negotiated agreements could increase the cost to cable operators of carrying
broadcast signals. The 1992 Cable Act's retransmission consent provisions
expressly provide that retransmission consent agreements between television
broadcast stations and cable operators do not obviate the need for cable
operators to obtain a copyright license for the programming carried on each
broadcaster's signal.
Copyrighted music performed in programming supplied to cable television
systems by pay cable networks (such as
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HBO) and basic cable networks (such as USA Network) has generally been licensed
by the networks through private agreements with the American Society of
Composers and Publishers ("ASCAP") and BMI, Inc. ("BMI"), the two major
performing rights organizations in the United States. As a result of extensive
litigation, ASCAP and BMI are both now required to offer "through to the viewer"
licenses to the cable networks which would cover the retransmission of the cable
networks' programming by cable systems to their subscribers.
Copyrighted music performed by cable systems themselves on local
origination channels, PEG channels, and in locally inserted advertising and
cross promotional announcements must also be licensed. A blanket license is
available from BMI. Cable industry negotiations with ASCAP are still in
progress.
Cable Television/State and Local Regulation
Because a cable television system uses local streets and rights-of-way,
cable television systems are subject to state and local regulation, typically
imposed through the franchising process. State and/or local officials are
usually involved in franchise selection, system design and construction, safety,
service rates, consumer relations, billing practices and community related
programming and services.
Cable television systems generally are operated pursuant to
nonexclusive franchises, permits or licenses granted by a municipality or other
state or local government entity. Franchises generally are granted for fixed
terms and in many cases are terminable if the franchise operator fails to comply
with material provisions. The 1984 Cable Act established renewal procedures and
criteria designed to protect incumbent franchises against arbitrary denials of
renewal. While these formal procedures are not mandatory unless timely invoked
by either the cable operator or the franchising authority, they can provide
substantial protection to incumbent franchisees. Even after the formal renewal
procedures are invoked, franchising authorities and cable operators remain free
to negotiate a renewal outside the formal process. Nevertheless, renewal is by
no means assured, as the franchisee must meet certain statutory standards. Even
if a franchise is renewed, a franchising authority may impose new and more
onerous requirements such as upgrading facilities and equipment, although the
municipality must take into account the cost of meeting such requirements. The
1992 Cable Act makes several changes to the process under which a cable operator
seeks to enforce its renewal rights which could make it easier in some cases for
a franchising authority to deny renewal.
Franchises usually call for the payment of fees, often based on a
percentage of the system's gross subscriber revenues, to the granting authority.
Although franchising authorities may impose franchise fees under the 1984 Cable
Act, such payments cannot exceed 5% of a cable system's annual gross revenues.
In those communities in which franchise fees are required, the Company currently
pays franchise fees ranging up to 5% of gross revenues. Franchising authorities
are also empowered in awarding new franchises or renewing existing franchises to
require cable operators to provide cable-related facilities and equipment and to
enforce compliance with voluntary commitments. In the case of franchises in
effect prior to the effective date of the 1984 Cable Act, franchising
authorities may enforce requirements contained in the franchise relating to
facilities, equipment and services, whether or not cable-related. The 1984 Cable
Act, under certain limited circumstances, permits a cable operator to obtain
modifications of franchise obligations.
Upon receipt of a franchise, the cable system owner usually is subject
to a broad range of obligations to the issuing authority directly affecting the
business of the system. The terms and conditions of franchises vary materially
from jurisdiction to jurisdiction, and even from city to city within the same
state, historically ranging from reasonable to highly restrictive or burdensome.
The 1984 Cable Act places certain limitations on a franchising authority's
ability to control the operation of a cable system operator and the courts have
from time to time reviewed the constitutionality of several general franchise
requirements, including franchise fees and access channel requirements, often
with inconsistent results. On the other hand, the 1992 Cable Act prohibits
exclusive franchises, and allows franchising authorities to exercise greater
control over the operation of franchised cable systems, especially in the area
of customer service and rate regulation. The 1992 Cable Act also allows
franchising authorities to operate their own multichannel video distribution
system without having to obtain a franchise and permits states or local
franchising authorities to adopt certain restrictions on the ownership of cable
systems. Moreover, franchising authorities are immunized from monetary damage
awards arising from regulation of cable systems or decisions made on franchise
grants, renewals, transfers and amendments.
The specific terms and conditions of a franchise and the laws and
regulations under which it was granted directly affect the profitability of the
cable television system. Cable franchises generally contain provisions governing
charges for basic
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cable television services, fees to be paid to the franchising authority, length
of the franchise term, renewal, sale or transfer of the franchise, territory of
the franchise, design and technical performance of the system, use and occupancy
of public streets and number and types of cable services provided. The 1996 Act
prohibits a franchising authority from either requiring or limiting a cable
operator's provision of telecommunications services.
Various proposals have been introduced at the state and local levels
with regard to the regulation of cable television systems, and a number of
states have adopted legislation subjecting cable television systems to the
jurisdiction of centralized state governmental agencies, even to the exclusion
of local community regulation. Some of these states regulate jointly and impose
regulation of a character similar to that of a public utility. Attempts in other
states to regulate cable television systems are continuing and can be expected
to increase. Such proposals and legislation may be preempted by federal statute
and/or FCC regulation. To date, the states in which the Company operates that
have enacted such state level regulation are New York, New Jersey, Massachusetts
and Vermont. The Company cannot predict whether other states in which it
currently operates, or in which it may acquire systems, will engage in such
regulation in the future.
The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation relating to the cable
television industry. Other existing federal regulations, copyright licensing
and, in many jurisdictions, state and local franchise requirements currently are
the subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals which could change, in varying degrees,
the manner in which cable television systems operate. Neither the outcome of
these proceedings nor their impact upon the cable television industry or the
Company can be predicted at this time.
Telephony and Telecommunications/Federal Laws and Regulations
The 1996 Act also alters federal, state and local laws and regulations
regarding telecommunications providers and services, including the Company, and
creates a favorable environment in which the Company may provide telephone and
other telecommunications services and facilities. The following is a summary of
the key provisions of the 1996 Act that could materially affect the
telecommunications business of the Company.
The 1996 Act was intended to promote the provision of competitive
telephone services and facilities by cable television companies and others. The
1996 Act declares that no state or local laws or regulations may prohibit or
have the effect of prohibiting the ability of any entity to provide any
interstate or intrastate telecommunications service. States are authorized to
impose "competitively neutral" requirements regarding universal service, public
safety and welfare, service quality, and consumer protection. The 1996 Act
further provides that cable operators and affiliates providing
telecommunications services are not required to obtain a separate franchise from
local franchising authorities ("LFAs") for such services. An LFA may not order a
cable operator or affiliate to discontinue providing telecommunications services
or discontinue operating its cable system on the basis that it has failed to
obtain a separate franchise or renewal for the provision of telecommunications
services. The 1996 Act prohibits LFAs from requiring cable operators to provide
telecommunications service or facilities as a condition of the grant of a
franchise, franchise renewal, or franchise transfer, except that LFAs may seek
"institutional networks" as part of such franchise negotiations.
The 1996 Act provides that, when cable operators provide
telecommunications services, LFAs may require reasonable, competitively neutral
compensation for management of the public rights-of-way. The LFA must publicly
disclose such compensation requirements.
The Company believes that it qualifies as a connecting carrier under
federal law and therefore does not need FCC certification to provide intrastate
service. In the event that it is determined that the Company must seek FCC
certification, the Company believes that such certification will be granted by
the FCC in a timely manner. The Company may be required to file certain tariffs
and reports with the FCC.
Interconnection and Other Telecommunications Carrier Obligations
To facilitate the entry of new telecommunications providers (including
cable operators), the 1996 Act imposes interconnection obligations on all
telecommunications carriers. All carriers must interconnect their networks with
other carriers and must not deploy network features and functions that interfere
with interoperability. LECs also have a set of separate identified obligations
beyond those that apply to new entrants: (i) good faith negotiation with those
seeking
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interconnection, (ii) unbundling, equal access and non-discrimination
requirements, (iii) resale of services, including "resale at wholesale rates,"
(iv) notice of changes in the network that would affect interconnection and
interoperability and (v) physical collocation unless shown that practical
technical reasons, or space limitations, make physical collocation impractical.
Under the 1996 Act, individual interconnection rates must be just and
reasonable, based on cost, and may include a reasonable profit. Traffic
termination charges shall be "mutual and reciprocal." The 1996 Act permits
carriers to agree on a "bill and keep" system, but does not require such a
system.
The 1996 Act contemplates that interconnection agreements will be
negotiated by the parties and submitted to a state public service commission
("SPSC") for approval. A SPSC may become involved, at the request of either
party, if negotiations fail. If the state regulator refuses to act, the FCC may
determine the matter. If the SPSC acts, an aggrieved party's remedy is to file a
case in federal district court. The 1996 Act provides for a rural exemption to
interconnection requests, but also provides that the exception does not apply
where a cable operator makes an interconnection request of a rural LEC within
the operator's franchise area.
The 1996 Act requires that all telecommunications providers (including
cable operators that provide telecommunications services) must contribute
equitably to a Universal Service Fund ("USF"), and the FCC may exempt an
interstate carrier or class of carriers if their contribution would be minimal
under the USF formula. The 1996 Act allows states to determine which intrastate
telecommunications providers contribute to the USF. The 1996 Act prohibits
geographic end user rate de-averaging to protect rural subscribers' rates.
FCC Interconnection Order
The FCC recently released its First Report and Order to effectuate the
interconnection provisions of the 1996 Act. In general, the FCC's First Report
and Order appears favorable to the promotion of competition at the local level.
To summarize, the FCC first has asserted broad federal jurisdiction over
interconnection issues and the power to bind both state and local governments.
The FCC also has established procedures for the negotiation, arbitration and
resolution of interconnection agreements. It also has stated that new entrants
essentially always benefit from the terms of subsequent interconnection
agreements entered into by a given LEC with third parties and cannot waive their
"most favored nation" rights in this respect. The FCC also has specified the
manner in which actual physical interconnection must be made available to new
entrants and, in this connection, has specified the manner in which rates
charged to new entrants for physical interconnection must be calculated. The FCC
also has set forth the manner in which LECs must make essential network elements
available to new entrants for resale, again including the manner in which actual
rates are to be calculated.
The FCC Report and Order is subject to Petitions for Reconsideration
filed at the FCC and Petitions for Review consolidated before the United States
Court of Appeals for the Eighth Circuit. Additionally, the Eighth Circuit has
granted a stay of the pricing and "most favored nation" provisions of the First
Report and Order. The pricing provisions establish price ceilings and default
prices for interconnection elements, and the "most favored nation" provision
allows carriers to request the LEC to make available to them on the same terms
and conditions, any interconnection, service or network element contained in an
approved agreement to which the LEC is a party. The stay is limited to certain
FCC rules. None of the provisions of the 1996 Act has been stayed. Various
parties filed petitions to modify the stay with the Eighth Circuit. On November
1, 1996, the Eighth Circuit modified the stay to exclude certain non-pricing
portions of the rules that primarily relate to wireless telecommunications
providers. The outcome of these proceedings could affect and impair the
Company's ability to provide competitive local exchange services.
Internet Services/Federal Laws and Regulations
Transmitting indecent material via the Internet was made criminal by
the 1996 Act. However, on-line access providers are exempted from criminal
liability for simply providing interconnection service; they are also granted an
affirmative defense from criminal or other action where in "good faith" they
restrict access to indecent materials. These provisions have been challenged in
federal court. The 1996 Act further exempts on-line access providers from civil
liability for actions taken in good faith to restrict access to obscene,
excessively violent or otherwise objectionable material.
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Telephony and Telecommunications/State Law and Regulation
Adelphia's nonconsolidated joint venture, Olympus Communications, L.P.,
has systems in Florida. In 1995, the Florida Legislature amended Chapter 362 of
Florida Statutes by enacting "An Act Relating to Local Exchange
Telecommunications Companies" ("Florida Act") (Chapter 362, Fl. Stat. (1995)).
This new law substantially altered Florida law regarding telecommunications
providers and services, such as Olympus. The following is a summary of the key
provisions of the Florida Act and associated Florida Public Service Commission
("PSC") actions that could materially affect Olympus' telecommunications
business.
The Florida Act
The Florida Act vests in the PSC virtually exclusive jurisdiction over
intrastate telecommunications matters. The Florida Act limits municipalities to
taxation of certain telecommunications services or management of long distance
carriers' occupation of local rights-of-way. The Florida Act further directs the
PSC to employ flexible regulatory treatment to ensure the widest possible range
of telecommunications services, and provides that new entrants such as the
Company are subject to a lesser level of regulatory oversight than LECs.
PSC Actions
Pursuant to the Florida Act (and the 1996 Act and the FCC's First
Report and Order), the PSC is conducting several proceedings to address
competitive issues. To summarize, pursuant to the Florida Act, the PSC has
adopted rules requiring certification of CLEC Interexchange Telecommunications
Service Providers; Operator Service Providers; Alternative Access Vendor
Services; and Shared Tenant Services Providers. The Florida Act provides that
the PSC shall grant certification to applicants upon a showing of sufficient
technical, financial, and managerial capability to provide service in the
geographic area proposed to be served. The Company believes that Olympus meets
the statutory requirements for PSC certification for any type of intrastate
telecommunications service provider, and that any such application process
should be completed expeditiously. In addition, like the 1996 Act, the Florida
Act requires LECs to interconnect with certified CLECs. Approximately fourteen
interconnection agreements have been reached between LECs and CLECs to date,
while approximately five CLECs have requested PSC arbitration of stalled
agreements. The PSC is obligated under the Florida Act to arbitrate any disputes
in no more than 120 days from date of request. As well, the PSC has ordered
BellSouth, the state's largest LEC, to unbundle eight network elements for
resale by CLECs, and the PSC has ordered favorable interim rates for these
elements. The PSC has not yet adopted an order resolving wholesale discounts
associated with local service resale.
Based on the foregoing, the Company believes that the Florida Act and
actions of the PSC to date reflect a generally favorable legal and regulatory
environment for new entrants, such as Olympus, to intrastate telecommunications
in Florida.
ITEM 2. PROPERTIES
The Company's principal physical assets consist of cable television
operating plant and equipment, including signal receiving, encoding and decoding
devices, headends and distribution systems and subscriber house drop equipment
for each of its cable television systems. The signal receiving apparatus
typically includes a tower, antenna, ancillary electronic equipment and earth
stations for reception of satellite signals. Headends, consisting of associated
electronic equipment necessary for the reception, amplification and modulation
of signals, are located near the receiving devices. The Company's distribution
system consists primarily of coaxial and fiber optic cables and related
electronic equipment. Subscriber devices consist of decoding converters. The
physical components of cable television systems require maintenance and periodic
upgrading to keep pace with technological advances.
The Company's cables and related equipment are generally attached to
utility poles under pole rental agreements with local public utilities, although
in some areas the distribution cable is buried in underground ducts or trenches.
See "Legislation and Regulation-Federal Regulation."
The Company owns or leases parcels of real property for signal
reception sites (antenna towers and headends), microwave facilities and business
offices in each of its market areas, and owns most of its service vehicles. The
Company also leases certain cable, operating and support equipment from a
corporation owned by members of the Rigas Family. All
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leasing transactions between the Company and its officers, directors or
principal stockholders, or any of their affiliates, are, in the opinion of
management, on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
Substantially all of the assets of Adelphia's subsidiaries are subject
to encumbrances as collateral in connection with the Company's credit
arrangements, either directly with a security interest or indirectly through a
pledge of the stock in the respective subsidiaries. See Note 3 to the Adelphia
Communications Corporation Consolidated Financial Statements. The Company
believes that its properties, both owned and leased, are in good operating
condition and are suitable and adequate for the Company's business operations.
Hyperion's fiber optic cable, fiber optic telecommunications equipment
and other properties and equipment used in its networks, are owned or leased.
Fiber optic cable plant used in providing service is primarily on or under
public roads, highways or streets, with the remainder being on or under private
property. As of March 31, 1997, Hyperion's total telecommunications equipment in
service consists of fiber optic telecommunications equipment, fiber optic cable,
furniture and fixtures, leasehold improvements and construction in progress.
Such properties do not lend themselves to description by character and location
of principal units.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than routine
litigation incidental to the business, to which the Company or any of its
subsidiaries is a part of or to which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year 1997.
Executive Officers of the Registrant
The executive officers of the Company, first elected to hold their
respective positions on July 1, 1986 following the reorganization of the Company
as a holding company, serve at the discretion of the Board of Directors.
The executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
John J. Rigas 72 Chairman, Chief Executive Officer, President and Director
Michael J. Rigas 43 Executive Vice President, Operations and Director
Timothy J. Rigas 40 Executive Vice President, Chief Financial Officer, Chief
Accounting Officer, Treasurer and Director
James P. Rigas 39 Executive Vice President, Strategic Planning and Director
Daniel R. Milliard 49 Senior Vice President, Secretary and Director
</TABLE>
John J. Rigas is the founder, Chairman, President and Chief Executive
Officer of Adelphia and is President of its subsidiaries. Mr. Rigas has served
as President or general partner of most of the constituent entities which became
wholly-owned subsidiaries of Adelphia upon its formation in 1986, as well as the
cable television operating companies acquired by the Company which were wholly
or partially owned by members of the Rigas Family. Mr. Rigas has owned and
operated cable television systems since 1952. Among his business and community
service activities, Mr. Rigas is Chairman of the Board of Directors of Citizens
Bancorp., Inc., Coudersport, Pennsylvania, and a member of the Board of
Directors of Charles Cole Memorial Hospital. He is a director of the National
Cable Television Association and a past President of the Pennsylvania Cable
Television Association. He is also a member of the Board of Directors of C-SPAN
and the Cable
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Advertising Bureau, and is a Trustee of St. Bonaventure
University. He graduated from Rensselaer Polytechnic Institute with a B.S. in
Management Engineering in 1950.
John J. Rigas is the father of Michael J. Rigas, Timothy J. Rigas and
James P. Rigas, each of whom currently serves as a director and executive
officer of the Company.
Michael J. Rigas is Executive Vice President, Operations of Adelphia
and is a Vice President of its subsidiaries. Since 1981, Mr. Rigas has served as
a Senior Vice President, Vice President, general partner or other officer of the
constituent entities which became wholly-owned subsidiaries of Adelphia upon its
formation in 1986, as well as the cable television operating companies acquired
by the Company which were wholly or partially owned by members of the Rigas
Family. From 1979 to 1981, he worked for Webster, Chamberlain & Bean, a
Washington, D.C. law firm. Mr. Rigas graduated from Harvard University (magna
cum laude) in 1976 and received his Juris Doctor degree from Harvard Law School
in 1979.
Timothy J. Rigas is Executive Vice President, Chief Financial Officer,
Chief Accounting Officer and Treasurer of Adelphia and its subsidiaries. Since
1979, Mr. Rigas has served as Senior Vice President, Vice President, general
partner or other officer of the constituent entities which became wholly-owned
subsidiaries of Adelphia upon its formation in 1986, as well as the cable
television operating companies acquired by the Company which were wholly or
partially owned by members of the Rigas Family. Mr. Rigas graduated from the
University of Pennsylvania, Wharton School, with a B.S. degree in Economics (cum
laude) in 1978.
James P. Rigas is Executive Vice President, Strategic Planning of
Adelphia and is a Vice President of its subsidiaries, and also serves as Chief
Executive Officer of Hyperion. Since February 1986, Mr. Rigas has served as a
Senior Vice President, Vice President or other officer of the constituent
entities which became wholly-owned subsidiaries of Adelphia upon its formation
in 1986, as well as the cable television operating companies acquired by the
Company which were wholly or partially owned by members of the Rigas Family.
Among his business activities, Mr. Rigas is a member of the Board of Directors
of Cable Labs. Mr. Rigas graduated from Harvard University (magna cum laude) in
1980 and received a Juris Doctor degree and an M.A. degree in Economics from
Stanford University in 1984. From June 1984 to February 1986, he was a
consultant with Bain & Co., a management consulting firm.
Daniel R. Milliard is Senior Vice President and Secretary of Adelphia
and its subsidiaries, and also serves as President of Hyperion. Since 1982, Mr.
Milliard served as Vice President, Secretary and/or General Counsel of Adelphia
and the constituent entities which became wholly-owned subsidiaries of Adelphia,
as well as the cable television operating companies acquired by the Company
which were wholly or partially owned by members of the Rigas Family. He served
as outside general counsel to the Company's predecessors from 1979 to 1982. Mr.
Milliard graduated from American University in 1970 with a Bachelor of Science
degree in Business Administration. He received an M.A. degree in Business from
Central Missouri State University in 1971, where he was an Instructor in the
Department of Finance, School of Business and Economics, from 1971-1973, and
received a Juris Doctor degree from the University of Tulsa School of Law in
1976. He is a Director of Citizens Bancorp., Inc. in Coudersport, Pennsylvania
and President of the Board of Directors of Charles Cole Memorial Hospital.
Other Principal Employees
Orby G. Kelley, 65, joined the Company in 1986 and currently holds the
position of Vice President of Administration/Labor Relations. From 1981 until
joining the Company, Mr. Kelley served as Vice President Human
Resources--Columbus Operations for Warner Amex Cable Communications, Inc. Prior
to that time he served in a similar capacity for Colony Communications, Inc. and
Landmark Communications, Inc. Mr. Kelley received his B.A. degree from Old
Dominion University in 1958 and his M.B.A. from California Western University in
1980.
Daniel Liberatore, 46, has been Vice President of Engineering since
1986. He is responsible for technical operations, engineering and related
supervisory and management functions for the Company Systems. Mr. Liberatore
received a B.S. degree in Electrical Engineering from West Virginia University
and a Masters Degree in Engineering Management from the University of
Massachusetts. He previously served as director of engineering for Warner Amex
Cable Communications, Inc. from June 1982 until joining the Company. From
December 1980 to June 1982, Mr. Liberatore served as a Project Administrator for
Warner Amex Cable Communications, Inc.
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James R. Brown, 34, joined the Company in 1984 and currently holds the
position of Vice President of Finance. Mr. Brown graduated with a B.S. degree in
Industrial and Management Engineering from Rensselaer Polytechnic Institute in
1984.
Randall D. Fisher, 45, joined the Company in 1991 and is Vice
President, General Counsel and Assistant Corporate Secretary. Previously Mr.
Fisher was in private practice with the Washington, D.C. law firm of Baraff,
Koerner, Olender & Hochberg, P.C. Mr. Fisher earned his J.D. from Texas Tech
University. He received a Masters Degree in Public Administration from
Midwestern University in Wichita Falls, Texas, and a B.A. degree in Journalism
from the University of Texas at Austin.
Jack A. Olson, 42, joined the Company in 1982 and currently holds the
position of Vice President of Media Development. Mr. Olson has held various
sales and marketing positions with the Company and is currently responsible for
the sale of television advertising and the development and sales of other media
related services. Prior to joining the Company, Mr. Olson was a partner in a
family owned contract sales and marketing firm consulting to the cable industry.
John B. Glicksman, 37, joined the Company in February 1992 and
currently holds the position of Deputy General Counsel for Operations.
Previously Mr. Glicksman was in private practice with the Washington, D.C. law
firms of Leventhal, Senter & Lerman; Fleischman and Walsh; and Howrey & Simon.
Mr. Glicksman received his J.D. degree, with honors, from The National Law
Center, George Washington University, Washington, D.C. and his B.A. degree, with
high honors, from Trinity College, Hartford, Connecticut.
Larry Brett, 44, joined the Company in May 1995 and currently holds the
position of Corporate Director of Operations for the Florida cluster. Mr. Brett
was employed by TeleCable Corporation, a cable television operator, from 1979 to
1995 and last served as Vice President, Regional Operations, from 1982 to 1995.
Mr. Brett received a B.B.A. degree in finance and economics from Emory
University in 1974 and an M.B.A. degree from the University of Virginia's Darden
School in 1979.
Colin H. Higgin, 36, joined the Company in November 1992 as Deputy
General Counsel and Assistant Secretary. Mr. Higgin was an associate at
Proskauer Rose Goetz & Mendelsohn from 1991 to 1992 and Latham & Watkins from
1987 to 1991. Mr. Higgin graduated from the University of Pennsylvania, Wharton
School, with a B.S. degree in Economics in 1983 and received his J.D. from
Indiana University in 1987.
William C. Kent, 46, joined the Company in August 1994 as Corporate
Director of Operations for the New England, Ohio and Virginia clusters. From
1993 to 1994, Mr. Kent served as a consultant to the Multi-Media Services Group
of Southern New England Telephone. From 1991 to 1992, he served as Director of
Operations for the Providence, Rhode Island cable system for Times Mirror. Mr.
Kent was also employed by Viacom, Inc., a worldwide entertainment and media
concern, for seven years and last served as General Manager of a cable system.
He received a B.A. degree in English from Wittenberg University in 1973 and an
M.B.A. degree from Cleveland State University in 1981.
Michael C. Mulcahey, CPA, 39, joined the Company in 1991 and currently
holds the position of Director of Accounting and Assistant Treasurer. From 1987
to 1991, Mr. Mulcahey held accounting and tax positions with the Syracuse office
of Coopers & Lybrand. Mr. Mulcahey received his B.A. in Political Science from
State University of New York at Buffalo in 1980 and his M.B.A. from Eastern
Washington University in 1985.
James M. Kane, CPA, 34, joined the Company in April 1992 and currently
holds the position of Director of Finance. From 1989 to 1992, Mr. Kane served in
accounting and consulting positions with Price Waterhouse in Pittsburgh. From
1984 to 1987, Mr. Kane served in accounting positions with Coopers & Lybrand in
Pittsburgh. Mr. Kane received his B.S. degree in Accounting from Pennsylvania
State University in 1984 and his M.B.A. from Carnegie Mellon's Graduate School
of Industrial Administration in 1989.
Robert G. Wahl, 55, joined the Company in May 1990 and was appointed to
his present position of Corporate Director of Operations for the Western New
York, Eastern Pennsylvania, Western Pennsylvania and Coastal New Jersey clusters
in June 1994. From 1990 to 1994, Mr. Wahl served as General Manager of the
Company's Northeast system and, from 1992 to 1994, he also acted as Pittsburgh
Regional Manager. Prior to his employment with the Company, he served as Manager
of the Horvitz Newspapers, Inc., in Troy, New York. Mr. Wahl graduated from John
Carroll University in Cleveland with a B.S. degree in Business Administration in
1963.
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Charles R. Drenning, 51, is Senior Vice President, Engineering
Operations of Hyperion. Prior to joining Hyperion, Mr. Drenning was a District
Sales Manager for Penn Access Corporation, a competitive access provider in
Pittsburgh, Pennsylvania. In addition, he has over 22 years experience with AT&T
and the Bell System, where he served in a number of executive level positions in
sales and marketing, accounting, data processing, research and development, and
strategic planning. Mr. Drenning began his career with AT&T as a member of the
technical staff of Bell Laboratories in Columbus, Ohio. His seven years of
research work at the laboratories included both hardware and software
development for central office switching equipment. Mr. Drenning holds a B.S. in
Electrical Engineering and an M.S. in Computer Information Science from Ohio
State University. He is a member of the Pennsylvania Technical Institute and
IEEE.
Paul D. Fajerski, 48, is Senior Vice President, Marketing and Sales of
Hyperion. Prior to joining Hyperion, Mr. Fajerski was a District Sales Manager
for Penn Access Corporation. In addition, he has over 13 years experience with
AT&T and the Bell System where he served in a number of executive level
positions in sales and marketing. Mr. Fajerski holds a B.S. in Business
Administration from the College of Steubenville.
Randolph S. Fowler, 45, is Senior Vice President, Business Development
and Regulatory Affairs of Hyperion. Prior to joining Hyperion, Mr. Fowler was
Vice President of Marketing for Penn Access Corporation. He previously served
for four years as Director of Technology Transfer and Commercial Use of Space in
two NASA-sponsored technology transfer programs. In addition, he has over 17
years experience with AT&T and the Bell System, where he served in a number of
executive level positions in sales and marketing, operations, human resources,
business controls, and strategy development. Mr. Fowler holds a B.S. in Business
Administration from the University of Pittsburgh. He has developed and taught
courses in Marketing, Network Management, and Regulation for the University of
Pittsburgh's Graduate Program in Telecommunications. Mr. Fowler is a
contributing author for the Encyclopedia of Telecommunications.
Edward E. Babcock, Jr., CPA, 34, is Vice President, Finance of
Hyperion. Mr. Babcock joined Adelphia in May 1995 and previously held the
position of Director of Financial Administration and Chief Accounting Officer of
Adelphia. Prior to joining Adelphia, Mr. Babcock was the Vice President of
Finance and Administration of Pure Industries. Before joining Pure Industries,
Mr. Babcock spent eight years with the Pittsburgh office of Deloitte & Touche
LLP. Mr. Babcock received his B.S. degree in Accounting from The Pennsylvania
State University in 1984.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock is listed for trading on the
National Association of Securities Dealers Automated Quotations System National
Market System (NASDAQ-NMS). Adelphia's NASDAQ-NMS symbol is "ADLAC."
The following table sets forth the range of high and low closing bid
prices of the Class A Common Stock on NASDAQ/NMS. Such bid prices represent
inter-dealer quotations, without retail mark-up, mark-down or commission, and
may not necessarily represent actual transactions.
CLASS A COMMON STOCK
QUARTER ENDED: HIGH LOW
June 30, 1995 $ 10 3/4 $ 7 1/2
September 30, 1995 $ 11 1/4 $ 8 1/4
December 31, 1995 $ 9 3/4 $ 6 1/4
March 31, 1996 $ 8 7/8 $ 6 1/4
June 30, 1996 $ 7 7/8 $ 6 9/16
September 30, 1996 $ 11 $ 6 1/2
December 31, 1996 $ 10 1/4 $ 5 3/4
March 31, 1997 $ 7 1/8 $ 5 3/8
As of June 18, 1997, there were approximately 171 holders of record of
Adelphia's Class A Common Stock. As of June 18, 1997, two record holders were
registered clearing agencies holding Class A Common Stock on behalf of
24
<PAGE>
participants in such clearing agencies.
No established public trading market exists for Adelphia's Class B
Common Stock. As of the date hereof, the Class B Common Stock was held of record
by seven persons, principally members of the Rigas Family, including a
Pennsylvania general partnership all of whose partners are members of the Rigas
Family. The Class B Common Stock is convertible into shares of Class A Common
Stock on a one-to-one basis. As of June 18, 1997 the Rigas Family owned 99.1% of
the outstanding Class B Common Stock.
Adelphia has never paid a cash dividend on its common stock and
anticipates that for the foreseeable future any earnings will be retained for
use in its business. The ability of Adelphia to pay cash dividends on its common
stock is limited by the provisions of its indentures. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources."
On February 10, 1997, the Company issued 766,871 shares of Class A
Common Stock to Small Cities Cable of Newport, Inc. and Small Cities Cable
Television, L.P., as partial consideration valued at approximately $5,000,000
for the acquisition of certain cable television systems in Vermont by the
Company. This issuance was made in reliance upon the exemption from registration
contained in Section 4(2) of the Securities Act of 1933.
25
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
The selected consolidated financial data as of and for each of the five
years in the period ended March 31, 1997 have been derived from the audited
consolidated financial statements of the Company. This data should be read in
conjunction with the consolidated financial statements and related notes thereto
as of March 31, 1996 and 1997 and for each of the three years in the period
ended March 31, 1997 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Annual Report on
Form 10-K. The statement of operations data with respect to fiscal years ended
March 31, 1993 and 1994, and the balance sheet data at March 31, 1993, 1994 and
1995 have been derived from audited consolidated financial statements of the
Company not included herein. The statements of operations and balance sheet data
as of and for each of the four years ended March 31, 1997 of Hyperion have been
derived from audited consolidated financial statements of Hyperion not included
herein. The unaudited information of Hyperion for the fiscal year ended March
31, 1993 is derived from other Hyperion information.
<TABLE>
<CAPTION>
Year Ended March 31,
1993 1994 1995 1996 1997
Statements of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues $ 305,222 $ 319,045 $ 361,505 $ 403,597 $ 472,778
Direct operating and programming expenses 82,377 90,547 106,993 124,116 148,982
Selling, general and administrative expenses 49,468 52,801 63,487 68,357 81,763
Depreciation and amortization 90,406 89,402 97,602 111,031 124,066
Rate regulation charge -- -- -- 5,300 --
Operating income 82,971 86,295 93,423 94,793 117,967
Interest income from affiliates 5,216 9,188 11,112 10,623 8,367
Other income (expense) 1,447 (299) 1,453 -- --
Priority investment income from Olympus 22,300 22,300 22,300 28,852 42,086
Cash interest expense (164,695) (180,456) (180,942) (194,403) (199,332)
Noncash interest expense (164) (1,680) (14,756) (16,288) (41,360)
Equity in loss of joint ventures (46,841) (30,054) (44,349) (46,257) (59,169)
Gain on sale of investments -- -- -- -- 12,151
Loss before income taxes, extraordinary loss and
cumulative effect of change in accounting (99,766) (94,706) (111,759) (122,680) (119,290)
principle (a)
Income tax (expense) benefit (3,143) (2,742) 5,475 2,786 358
Loss before extraordinary loss and cumulative effect
of change in accounting principle (102,909) (97,448) (106,284) (119,894) (118,932)
Extraordinary loss on early retirement of debt (14,386) (752) -- -- (11,710)
Cumulative effect of change in accounting for
income taxes (a) (59,500) (89,660) -- -- --
Net loss $(176,795) $(187,860) $(106,284) $(119,894) $(130,642)
Loss per weighted average share of common stock
before extraordinary loss and cumulative effect
of change in accounting principle (6.80) (5.66) (4.32) (4.56) (4.50)
Net loss per weighted average share of common stock (11.68) (10.91) (4.32) (4.56) (4.94)
Cash dividends declared per common share $ -- $ -- $ -- $ -- $ --
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
March 31,
1993 1994 1995 1996 1997
Balance Sheet Data:
Adelphia excluding Hyperion
<S> <C> <C> <C> <C> <C>
Total Assets $ 945,277 $ 1,059,081 $ 1,244,079 $ 1,332,310 $ 1,469,225
Total Debt 1,726,285 1,773,743 1,986,069 2,124,618 2,328,364
Hyperion
Total Assets 4,316 14,765 23,212 35,269 174,601
Total Debt 4,814 19,968 35,541 50,855 215,675
Adelphia
Total Assets 949,593 1,073,846 1,267,291 1,367,579 1,643,826
Total Debt 1,731,099 1,793,711 2,021,610 2,175,473 2,544,039
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31,
1993 1994 1995 1996 1997
Other Data and Financial Ratios:
Adelphia excluding Hyperion
<S> <C> <C> <C> <C> <C>
Revenues $ 305,133 $ 318,628 $ 359,776 $ 400,275 $ 467,690
Affiliate interest and priority investment income 27,516 31,488 33,412 39,475 50,453
EBITDA (b) 203,191 209,894 228,067 250,451 297,610
Interest expense (164,859) (179,972) (192,377) (204,603) (212,315)
Capital expenditures 69,025 72,797 89,232 94,005 93,482
Total debt to EBITDA (c) 8.34 8.46 8.51 8.29 7.64
EBITDA to total interest expense (e) 1.23 1.17 1.19 1.22 1.40
EBITDA margin(d) 66.6% 65.9% 63.4% 62.6% 63.6%
Hyperion
Revenues $ 89 $ 417 $ 1,729 $ 3,322 $ 5,088
Affiliate interest and priority investment income -- -- -- -- --
EBITDA (b) (851) (1,958) (2,177) (2,452) (5,124)
Interest expense -- (2,164) (3,321) (6,088) (28,377)
Capital expenditures 1,950 3,097 2,850 6,084 36,127
Total debt to EBITDA (c) (2.88) (11.09) (9.09) (25.63) (32.68)
EBITDA to total interest expense (e) -- (.90) (.66) (.40) (0.18)
EBITDA margin (d) (956.2%) (469.5%) (125.9%) (73.8%) (100.7%)
Adelphia
Revenues $ 305,222 $ 319,045 $ 361,505 $ 403,597 $ 472,778
Affiliate interest and priority investment income 27,516 31,488 33,412 39,475 50,453
EBITDA (b) 202,340 207,936 225,890 247,999 292,486
Interest expense (164,859) (182,136) (195,698) (210,691) (240,692)
Capital expenditures 70,975 75,894 92,082 100,089 129,609
Cash provided by operating activities 1,275 26,952 48,936 64,287 34,794
Cash used for investing activity (163,425) (197,088) (247,275) (189,462) (322,047)
Cash provided by financing activities 189,648 205,540 129,309 130,939 337,983
Total debt to EBITDA (c) 8.41 8.53 8.65 8.35 8.53
EBITDA to total interest expense (e) 1.23 1.14 1.15 1.18 1.22
EBITDA margin (d) 66.3% 65.2% 62.5% 61.4% 61.9%
<FN>
(a) "Cumulative Effect of Change in Accounting Principle" refers to a change
in accounting principle for Olympus and the Company. Effective January 1,
1993 and April 1, 1993, respectively, Olympus and the Company adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," which requires an asset and liability
approach for financial accounting and reporting for income taxes. The
adoption of SFAS No. 109 resulted in the
27
<PAGE>
cumulative recognition of an
additional liability by Olympus and the Company of $59,500 and $89,660,
respectively.
(b) Earnings before interest expense, income taxes, depreciation and
amortization, equity in net loss of joint ventures, other noncash charges,
extraordinary loss and cumulative effect of change in accounting principle
("EBITDA"). EBITDA includes affiliate interest and priority investment
income on the Company's investment in Olympus, although there can be no
assurance that such priority investment income will be available to the
Company in the future. EBITDA and similar measurements of cash flow are
commonly used in the cable television industry to analyze and compare
cable television companies on the basis of operating performance, leverage
and liquidity. While EBITDA is not an alternative indicator of operating
performance to operating income or an alternative to cash flows from
operating activities as a measure of liquidity as defined by generally
accepted accounting principles, and, while EBITDA may not be comparable to
other similarly titled measures of other companies, 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.
(c) Based on total debt outstanding at the end of the period, divided by
annualized EBITDA for the quarter ending the period presented, the Company
believes that this presentation is consistent with covenant tests which
limit the incurrance of indebtedness in certain of the Company's loan
agreements and that this ratio is commonly used for the cable television
industry as a measure of leverage.
(d) Percentage represents EBITDA divided by revenues.
(e) Based on EBITDA for the period presented divided by interest expense
recorded for the applicable period.
</FN>
</TABLE>
28
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in thousands)
Results of Operations
General
Adelphia earned substantially all of its revenues in each of the last
three fiscal years 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 local exchange carrier ("CLEC") services.
The changes in Adelphia's results of operations for the years ended
March 31, 1996 and 1997, compared to the respective prior year, were primarily
the result of acquisitions, expanding existing cable television operations and
the impact of increased advertising sales and other service offerings as well as
an increase in cable rates, effective October 1, 1995 and August 1, 1996.
The high level of depreciation and amortization associated with the
significant number of acquisitions in recent years, the recent upgrading and
expansion of systems, interest costs associated with financing activities and
Hyperion Telecommunications, Inc.'s ("Hyperion") continued investment in the
CLEC business 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.
An 88% owned unrestricted subsidiary of the Company, Hyperion, together
with its subsidiaries owns certain investments in CLEC joint ventures and
manages those ventures. Hyperion is an unrestricted subsidiary for purposes of
the Company's indentures. Excluding the impact of Hyperion's operating results,
the Company's EBITDA (see definition below) would increase by $2,177, $2,452 and
$5,124 for the years ended March 31, 1995, 1996 and 1997, respectively. On April
15, 1996, Hyperion realized net proceeds of $168,600 upon issuance of notes and
warrants (see Liquidity and Capital Resources).
The following table is derived from Adelphia's consolidated financial
statements that are included in this Annual Report on Form 10-K and sets forth
the historical percentage relationship to revenues of the components of
operating income contained in such financial statements for the periods
indicated.
Percentage of Revenues
Year Ended March 31,
1995 1996 1997
Revenues 100.0% 100.0% 100.0%
Operating Expenses:
Direct operating and programming 29.6 30.8 31.5
Selling, general and administrative 17.6 16.9 17.3
Depreciation and amortization 27.0 27.5 26.2
Rate regulation -- 1.3 --
Operating Income 25.8% 23.5% 25.0%
29
<PAGE>
Comparison of the Years Ended March 31, 1995, 1996 and 1997
Revenues
The primary revenue sources reflected as a percentage of total revenues were as
follows:
Year Ended March 31,
1995 1996 1997
Regulated service and equipment fees... 73% 73% 74%
Premium programming fees............... 12% 12% 12%
Advertising sales and other services... 15% 15% 14%
Revenues increased approximately 11.6% for the year ended March 31,
1996 and 17.1% for the year ended March 31, 1997 compared with the respective
prior fiscal year. The increases were attributable to the following:
Year Ended March 31,
1996 1997
Acquisitions 36% 41%
Basic subscriber growth 20% 7%
Rate increases 20% 39%
Advertising sales and other services 24% 13%
Effective October 1, 1995 and August 1, 1996, certain rate increases
related to regulated cable services were implemented in substantially all of the
Company's Systems. No rate increases were implemented during the 1995 fiscal
year. Advertising revenues and revenues derived from other strategic service
offerings such as paging and CLEC services also had a positive impact on
revenues for the year ended March 31, 1997.
Direct Operating and Programming Expenses. Direct operating and
programming expenses, which are mainly basic and premium programming costs and
technical expenses, increased 16.0% and 20.0% for the years ended March 31, 1996
and 1997, respectively, compared with the respective prior year. Such increases
were primarily due to increased operating expenses from acquired systems,
increased programming costs and incremental costs associated with increased
subscribers. Because of regulatory limitations on the timing and extent to which
cost increases may be passed on to customers, direct operating and programming
expenses have increased at a greater rate than corresponding revenue increases.
As a result of recent FCC regulatory rulemaking decisions, the Company intends
to continue its systematic program of rate increases to reverse this trend.
Selling, General and Administrative Expenses. These expenses, which are
mainly comprised of costs related to system offices, customer service
representatives, and sales and administrative employees, increased 7.7% and
19.6% for the years ended March 31, 1996 and 1997, respectively, compared with
the respective prior year. The increases were primarily due to incremental costs
associated with acquisitions and subscriber growth. For the year ended March 31,
1996, selling, general and administrative expenses decreased as a percentage of
revenues compared to the prior year, primarily due to the favorable impact on
revenues of the above mentioned October 1, 1995 rate increases. For the year
ended March 31, 1997, selling, general and administrative expenses remained
relatively flat as a percentage of revenues compared to the prior year.
Depreciation and Amortization. Depreciation and amortization was higher
for the years ended March 31, 1996 and 1997, compared with the respective prior
year, primarily due to increased depreciation and amortization related to
acquisitions consummated during the years ended March 31, 1995, 1996 and 1997 as
well as increased capital expenditures made during the past several years.
Rate Regulation Expenses. The fiscal year ended March 31, 1996 includes
a $5,300 charge representing management's estimate of the total costs associated
with the resolution of subscriber rate disputes. Such costs include (i) an
estimate of
30
<PAGE>
credits to be extended to customers in future periods of up to $2,700, (ii)
legal and other costs incurred during the two fiscal years ended March 31, 1997,
and (iii) an estimate of legal and other costs to be incurred associated with
the ultimate resolution of this matter. On May 1, 1997, the Company reached a
settlement with the FCC regarding such rate disputes. Management expects the
amount recorded in the year ended March 31, 1996 to be adequate to cover the
settlement.
Priority Investment Income. Priority investment income is comprised of
payments received from Olympus of accrued priority return on the Company's
investment in PLP Interests in Olympus. Priority investment income increased
during the years ended March 31, 1996 and 1997 as compared with the respective
prior year due to increased payments by Olympus.
EBITDA. EBITDA (earnings before interest expense, income taxes,
depreciation and amortization, equity in net loss of joint ventures, other
non-cash charges, extraordinary loss and cumulative effect of change in
accounting principle) amounted to $225,890, $247,999 and $292,486 for the years
ended March 31, 1995, 1996 and 1997, respectively. The increases of 9.8% and
17.9% for the years ended March 31, 1996 and 1997, compared with the respective
prior fiscal year are primarily due to the acquisition of cable systems,
subscriber rate increases and increased priority investment income from Olympus.
Increased revenues and operating expenses for the years ended March 31, 1996 and
1997, compared with the respective prior year, primarily reflect the impact of
acquisitions and rate increases during fiscal 1996 and 1997. While EBITDA is not
an alternative to operating income or an alternative to cash flows from
operating activities as a measure of liquidity, as defined by generally accepted
accounting principles and, while EBITDA may not be comparable to other similarly
titled measures of other companies, 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. Interest expense increased approximately 7.7% and
14.2% for the years ended March 31, 1996 and 1997, respectively, compared with
the respective prior year. For the year ended March 31, 1996, interest expense
increased due to incremental debt outstanding during the year, partially offset
by a decrease in the average interest rate on outstanding debt during fiscal
1996 compared with the prior fiscal year. Approximately 27% of the increase in
interest expense in fiscal 1996 as compared with the prior year was attributable
to incremental debt related to acquisitions. Approximately 72% of the increase
in interest expense in fiscal 1997 as compared with the prior year was
attributable to the issuance of the Hyperion 13% Senior Discount Notes. Interest
expense includes non-cash accretion of original issue discount and non-cash
interest expense totaling $14,756, $16,288 and $41,360 for the years ended March
31, 1995, 1996 and 1997, respectively. The increase in non-cash interest for the
year ended March 31, 1997 is primarily due to the accretion of original issue
discount related to the Hyperion 13% Senior Discount Notes.
Equity in Loss of Joint Ventures. The equity in loss of joint ventures
represents primarily (i) the Company's pro rata share of Olympus' losses and the
accretion requirements of Olympus' preferred limited partner interests, and (ii)
Hyperion's pro rata share of its less than majority owned partnerships'
operating losses. The increase in the loss during the year ended March 31, 1996,
compared with the prior year, is due to an increase in the losses of certain
investments in the CLEC business in which the Company is a less than majority
partner partially offset by improved operating performance in Olympus. The
increase in the loss during the year ended March 31, 1997, compared with the
prior year, is primarily due to increased priority return payments made by
Olympus and an increase in the losses of certain Hyperion CLEC joint ventures,
partially offset by improved operating performance by Olympus.
Gain on Sale of Investments. On May 16, 1996, Hyperion completed the
sale of its 15.7% partnership interest in TCG South Florida to Teleport
Communications Group Inc. for an aggregate sales price of $11,618 resulting in a
gain of $8,405. On January 23, 1997, the Company received 284,245 shares of
Republic Industries, Inc. Common Stock in exchange for its interest in
Commonwealth Security, Inc. ("Commonwealth") for an aggregate sales price of
$9,315 resulting in a gain of $3,746.
Extraordinary Loss on Early Retirement of Debt. During the year ended
March 31, 1997, certain bank indebtedness was repaid and a portion of the 12
1/2% Senior Notes due 2002 was reacquired resulting in an extraordinary loss on
retirement of debt. The amount pertaining to the repayment of bank debt was
$2,079, which primarily represents the write-off of the remaining deferred debt
financing costs associated with the debt retired. The amount pertaining to the
12 1/2% Senior Notes was $9,631, which represents the excess of reacquisition
cost over the net carrying value of the related debt.
Net Loss. The Company reported net losses of $106,284, $119,894 and
$130,642 for the years ended March 31, 1995, 1996 and 1997, respectively. The
increase in net loss of $13,610 in fiscal 1996 when compared with the prior year
31
<PAGE>
was due primarily to an increase in interest expense and the impact of rate
regulation expenses, partially offset by increased operating income and priority
investment income from Olympus. The increase in net loss of $10,748 in fiscal
1997 when compared with the prior year was due primarily to an increase in
interest expense, extraordinary loss on early retirement of debt and equity in
net loss of joint ventures, partially offset by increased operating income,
priority investment income from Olympus and the gain on sale of investments.
Hyperion Telecommunications, Inc.
An 88% owned unrestricted subsidiary of the Company, Hyperion, together
with its subsidiaries, owns certain investments in CLEC joint ventures and
manages those ventures. Hyperion is an unrestricted subsidiary for purposes of
the Company's indentures. On April 15, 1996, Hyperion realized net proceeds of
$168,600 upon the issuance of notes and warrants (see "Liquidity and Capital
Resources"). For further information regarding Hyperion, see Hyperion's filings
pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934.
32
<PAGE>
<TABLE>
<CAPTION>
Summarized financial information of Adelphia, Hyperion and Adelphia
excluding Hyperion is as follows:
Adelphia Adelphia
excluding excluding
Adelphia Hyperion Hyperion Adelphia Hyperion Hyperion
As of and for the Year Ended March 31,
1996 1997
---------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Total debt $2,175,473 $ 50,855 $2,124,618 $2,544,039 $ 215,675 $2,328,364
Revenues $ 403,597 $ 3,322 $ 400,275 $ 472,778 $ 5,088 $ 467,690
Operating expenses:
Direct operating and
programming 124,116 2,690 121,426 148,982 3,432 145,550
Selling, general, and
administrative 68,357 3,084 65,273 81,763 6,780 74,983
Affiliate interest and priority
investment income 39,475 -- 39,475 50,453 -- 50,453
EBITDA(a) $ 247,999 $ (2,452) $ 250,451 $ 292,486 $ (5,124) $ 297,610
Interest expense (210,691) (6,088) (204,603) (240,692) (28,377) (212,315)
Capital expenditures (100,089) (6,084) (94,005) (129,609) (36,127) (93,482)
Cash paid for acquisitions (60,804) -- (60,804) (143,412) (5,040) (138,372)
Cash used for investments (24,333) (12,815) (11,518) (51,415) (34,769) (16,646)
For the Three Months Ended March 31,
1996 1997
----------------------------- ---------------------------
Revenues $ 107,137 $ 826 $ 106,311 $ 122,203 $ 1,477 $ 120,726
Operating expenses:
Direct operating and
programming 33,898 812 33,086 40,516 1,093 39,423
Selling, general, and
administrative 17,396 709 16,687 20,631 2,044 18,587
Affiliate interest and priority
investment income 11,875 -- 11,875 13,511 -- 13,511
EBITDA(a) $ 67,718 $ (695) $ 68,413 $ 74,567 $ (1,660) $ 76,227
Interest expense (51,532) (1,910) (49,622) (59,928) (7,618) (52,310)
Capital expenditures (27,644) (1,611) (26,033) (43,194) (21,177) (22,017)
Cash paid for acquisitions (42,958) -- (42,958) (7,042) -- (7,042)
Cash used for investments (10,548) (3,718) (6,830) (14,665) (11,371) (3,294)
<FN>
(a) Earnings before interest expense, income taxes, depreciation and
amortization, equity in loss of joint ventures and other non-cash
charges ("EBITDA"). While EBITDA is not an alternative indicator of
operating performance to operating income or an alternative to cash
flows from operating activities as a measure of liquidity, as defined by
generally accepted accounting principles, and, while EBITDA may not be
comparable to other similarly titled measures of other companies, the
Company's management believes EBITDA is a meaningful measure of
33
<PAGE>
performance as substantially all of the Company's financing agreements
contain financial covenants based on EBITDA.
</FN>
</TABLE>
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. During the three fiscal years in the
period ended March 31, 1997, the Company committed substantial capital resources
for these purposes and for investments in Olympus, CLEC joint ventures and other
affiliates and entities. These expenditures were funded through long-term
borrowings and internally generated funds. The Company's aggregate outstanding
borrowings as of March 31, 1997 were $2,544,039. 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.
Capital Expenditures. The Company has developed an innovative
fiber-to-feeder network architecture which is designed to increase channel
capacity and minimize future capital expenditures, while positioning the Company
to take advantage of future opportunities. Management believes its capital
expenditures program has resulted in higher levels of channel capacity and
addressability in comparison to other cable television operators.
In most of its recent upgrades, the Company has utilized a Modified
Passive Network Architecture ("MPNA") which utilizes fiber optic cable as an
alternative to the coaxial cable that historically has been used to distribute
cable signals to the subscriber's home. The MPNA design deploys on average one
fiber node for every two miles of fiber optic cable or approximately one fiber
node for every 180 homes passed. The Company believes this compares favorably
with current industry averages. This deep penetration of fiber optic cable into
the Systems' networks has the advantages of providing increased reliability to
customers, improved bandwidth, and easier implementation of the return path
plant capabilities. This will position the Company to offer additional video
programming services, to utilize the expanded bandwidth potential of digital
compression technology and to meet the anticipated transmission requirements for
high-definition television, digital television, high-speed data and telephone
services.
Capital expenditures for Adelphia without Hyperion for the years ended
March 31, 1995, 1996 and 1997 were $89,232, $94,005 and $93,482, respectively.
Capital expenditures including Hyperion for the years ended March 31, 1995, 1996
and 1997 were $92,082, $100,089 and $129,609, respectively. The increase in
capital expenditures for fiscal 1995, 1996 and 1997, compared to each respective
prior year, was primarily due to the acceleration of the rebuilding of plant
using fiber-to-feeder technology. See "Business--Competitive Local Exchange
Services." The Company expects the capital expenditures for fiscal 1998 to be in
a range similar to fiscal 1997.
Financing Activities. 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 and Hyperion has also
issued public long-term debt. The Company's ability to generate cash adequate to
meet its future needs will depend generally on its results of operations and the
continued availability of external financing. During the three-year period ended
March 31, 1997, the Company generally funded its working capital requirements,
capital expenditures, and investments in Olympus, CLEC joint ventures and other
affiliates and entities through long-term borrowings primarily from banks,
short-term borrowings, internally generated funds and the issuance of public
debt and equity and Hyperion public debt. 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 and subsidiary 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.
Most of Adelphia's directly-owned subsidiaries have their own senior
credit agreements with banks and/or insurance companies. Typically, borrowings
under these agreements are collateralized by the stock in and, in some cases, by
the assets of the borrowing subsidiary and its subsidiaries and, in some cases,
are guaranteed by such subsidiary's subsidiaries. At March 31, 1997, an
aggregate of $1,055,500 in borrowings was outstanding under these agreements.
These agreements contain certain provisions which, among other things, provide
for limitations on borrowings of and investments by the borrowing subsidiaries,
transactions between the borrowing subsidiaries and Adelphia and its other
subsidiaries and affiliates, and the payment of dividends and fees by the
borrowing subsidiaries. Several of these agreements also contain certain
cross-default provisions relating to Adelphia or other subsidiaries. These
agreements also require the maintenance of
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certain financial ratios by the borrowing subsidiaries. In addition, at March
31, 1997, an aggregate of $104,000 subordinated and unsecured borrowings by
Adelphia's subsidiaries was outstanding under credit agreements containing
limitations and restrictions similar to those mentioned above. See Note 3 to the
Adelphia Communications Corporation consolidated financial statements.
Management believes the Company is in compliance with the financial covenants
and related financial ratio requirements contained in its various credit
agreements, based on operating results for the three months ended March 31,
1997. In addition, as of March 31, 1997, Hyperion had outstanding $329,000
aggregate principal amount at maturity of 13% Senior Discount Notes due 2003,
with a carrying amount of $187,173, which were issued under an indenture dated
April 15, 1996.
At March 31, 1997, Adelphia's subsidiaries had an aggregate of $209,154
in unused credit lines with banks, which includes $24,500 also available to
Olympus and the Managed Partnerships, part of which is subject to achieving
certain levels of operating performance. In addition, the Company had an
aggregate $61,539 in cash and cash equivalents at March 31, 1997 which combined
with the Company's unused credit lines with banks aggregated to $274,539. The
Company has the ability to pay interest on its 9 1/2% Senior Pay-In-Kind Notes
by issuing additional notes totaling approximately $40,365 in lieu of cash
interest payments from April 1, 1997 through February 15, 1999. Based upon the
results of operations of subsidiaries for the quarter ended March 31, 1997,
approximately $360,230 of available assets could have been transferred to
Adelphia at March 31, 1997, under the most restrictive covenants of the
subsidiaries' credit agreements. The subsidiaries also have the ability to sell,
dividend or distribute certain assets to other subsidiaries or Adelphia, which
would have the net effect of increasing availability. At March 31, 1997, the
Company's unused credit lines were provided by reducing revolving credit
facilities whose revolver periods expire through September 30, 2004. The
Company's scheduled maturities of debt are currently $164,931 for fiscal 1998.
At March 31, 1997, the Company's total outstanding debt aggregated
$2,544,039, which included $1,184,209 of parent company debt and $1,359,830 of
subsidiary debt. Bank debt interest rates are based upon one or more of the
following rates at the option of Adelphia: prime rate plus 0% to 1.5%;
certificate of deposit rate plus 1.25% to 2.75%; or Eurodollar (or London
Interbank Offered) rate plus 1% to 2.5%. The Company's weighted average interest
rate on notes payable to banks and institutions was approximately 8.83% at March
31, 1997, compared to 8.36% at March 31, 1996. At March 31, 1997, approximately
45.5% of subsidiary debt was subject to fixed interest rates for at least one
year under the terms of such debt or applicable interest rate swap agreements.
Approximately 67.1% of the Company's total indebtedness is at fixed interest
rates as of March 31, 1997.
Adelphia has entered into interest rate swap agreements and interest
rate cap agreements with banks and affiliates to reduce the impact of changes in
interest rates on its debt. Adelphia enters into pay-fixed agreements to
effectively convert a portion of its variable-rate debt to fixed-rate debt.
Adelphia enters into receive-fixed agreements to effectively convert a portion
of its fixed-rate debt to variable-rate debt which is indexed to LIBOR. Interest
rate cap agreements are used to reduce the impact of increases in interest rates
on variable rate debt. Adelphia is exposed to credit loss in the event of
nonperformance by the banks and the affiliates. The Company does not expect any
such nonperformance. At March 31, 1997, Adelphia would have had to pay
approximately $7,632 to settle its interest rate swap and cap agreements,
representing the excess of carrying cost over fair market value of these
agreements. During fiscal 1996, the Company received $11,526 upon termination of
several interest rate swap agreements having a stated notional principal amount
of $270,000. The amount received will be amortized as a reduction of interest
expense through November 1998. Also during fiscal 1996, the Company received
$4,900 and assumed the obligations as a counterparty under certain interest rate
swap agreements with Olympus. These interest rate swap agreements have a
notional principal amount of $140,000 and expire through November 1998.
In May 1994, Adelphia purchased on the open market $10,000 of its 10
1/4% Senior Notes due 2000 at a price of 94.5% of face value plus accrued
interest.
On February 28, 1995, as a part of the Telesat Investment Agreement,
FPL Group Inc. ("FPL") purchased 1,000,000 shares of newly issued Class A Common
Stock for $15,000.
On April 12, 1996, certain subsidiaries of the Company (collectively,
the "Borrowers") entered into a $690,000 financing arrangement consisting of a
$540,000 revolving credit facility maturing December 31, 2003 and a $150,000
term loan facility maturing December 31, 2004. Initial borrowings during April
1996 of $483,000 were used primarily to repay existing indebtedness. Interest
rates charged are based upon one or more of the following rates at the option of
the
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Borrowers: Eurodollar rate or the greater of the prime rate and the Federal
funds rate plus 1/2 of 1% plus a margin of from 0% to 2% depending upon the
Borrower's senior funded debt ratio. Interest on outstanding borrowings is
generally payable on a quarterly basis. The maximum available under the
revolving credit facility is reduced, in increasing quarterly amounts, beginning
June 30, 1998 through December 31, 2003. The Borrowers pay a commitment fee of
either .375% or .250% per annum (depending upon the Borrower's senior funded
debt ratio) of the unused revolving credit facility commitments during the term
of the agreement. Borrowings under the term loan facility are payable in
installments, in increasing quarterly amounts, commencing June 30, 1998 and
ending on December 31, 2004.
On April 15, 1996, Hyperion realized proceeds, net of discounts,
commissions and other transaction costs, of $168,600 upon issuance of $329,000
aggregate principal amount of 13% Senior Discount Notes (the "Hyperion Senior
Notes") due April 15, 2003 and 329,000 warrants to purchase an aggregate of
613,427 shares of common stock of Hyperion expiring April 1, 2001. Proceeds of
$11,087 were allocated to the value of the warrants. If all warrants were
exercised, the warrants would represent approximately 5.71% of the common stock
of Hyperion on a fully diluted basis. Proceeds, net of discounts, commissions,
and other transaction costs, were used to repay certain indebtedness to
Adelphia, to make loans to certain key Hyperion officers and will be used to
fund Hyperion's expansion of its existing markets, to complete construction of
new networks and to enter additional markets, including related capital
expenditures, working capital requirements, operating losses and investments in
joint ventures.
On February 26, 1997, Adelphia issued $350,000 of 9 7/8% Senior Notes
(the "Senior Notes") in a private placement. Net proceeds, after payment of
transaction costs, of approximately $340,000 were used to reduce amounts
outstanding on Adelphia's subsidiaries' notes payable to banks and to purchase,
redeem or otherwise retire a portion of Adelphia's 12 1/2% Senior Notes due
2002. Interest is payable semi-annually commencing September 1, 1997. The Senior
Notes are unsecured and are due March 1, 2007. Holders of the Senior Notes have
the right to require Adelphia to redeem their Senior Notes at 100% upon a Change
of Control (as defined in the Indenture). The indenture also provides for
payment to the note holders of liquidated damages of up to 2% per annum of the
Senior Notes principal if Adelphia does not file a registration statement, or
cause such registration statement to become effective within a prescribed time
period, with respect to an offer to exchange the Senior Notes for a new issue of
debt securities registered under the Securities Act of 1933, with terms
substantially the same as those of the Senior Notes. The new issue of debt
securities is expected to be recorded at the same carrying value as the Senior
Notes and, accordingly, no gain or loss is expected to be recognized.
Acquisitions. On April 12, 1994, Adelphia purchased for $15,000 (i)
convertible preferred units in Niagara Frontier Hockey, L.P. (the "Sabres
Partnership"), which owns the Buffalo Sabres National Hockey League Franchise,
convertible to a 34% equity interest, and (ii) warrants allowing Adelphia to
increase its interest to 40%. Adelphia has also advanced $16,000 to the Sabres
Partnership in the form of 14% convertible capital funding notes. The Sabres
Partnership manages and receives allocations of profits, losses and
distributions from the Marine Midland Arena, a new sports and entertainment
facility. Adelphia believes this investment will be a competitive advantage in
the Buffalo cable television market.
On May 12, 1994, Adelphia invested $3,000 for a 20% interest in
SuperCable ALK International, a cable operator in Caracas, Venezuela. In April
1994, Adelphia invested $4,200 in Commonwealth in exchange for an 8.75%, $4,200
convertible note and warrants. Pursuant to a merger of Commonwealth with
Republic Industries, Inc. ("Republic") on January 23, 1997, the Company received
284,425 shares of Republic Common Stock in exchange for its interest in
Commonwealth resulting in a gain of $3,746.
On June 16, 1994, Adelphia invested $34,000 in TMC Holdings Corporation
("THC"), the parent of Tele-Media Company of Western Connecticut. THC owns cable
television systems which, at the acquisition date, served approximately 43,000
subscribers in western Connecticut. The investment in THC provides Adelphia with
a $30,000 preferred equity interest in THC and a 75% non-voting common equity
interest, with a liquidation preference to the remaining 25% common stock
ownership interest in THC. Adelphia has the right to convert such interest to a
75% voting common equity interest, with a liquidation preference to the
remaining shareholders' 25% common stock ownership interest, on demand subject
to certain regulatory approvals. The acquisition of THC was accounted for using
the purchase method of accounting. The consolidated statements of operations and
cash flows include the operations of the acquired system from June 16, 1994.
Debt assumed, included in notes payable of subsidiaries to banks and
institutions, was $52,000 at closing.
On June 30, 1994, Adelphia acquired from Olympus 85% of the common
stock of Northeast Cable, Inc. ("Northeast") for a purchase price of $31,875.
Northeast owns cable television systems which, at the acquisition date, served
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approximately 36,500 subscribers in eastern Pennsylvania. Of the purchase price,
$16,000 was paid in cash and the remainder resulted in a decrease in Adelphia's
receivable from Olympus. The acquisition of Northeast was accounted for using
the purchase method of accounting. The consolidated statements of operations and
cash flows include the operations of the acquired system since June 30, 1994.
Debt assumed, included in notes payable of subsidiaries to banks and
institutions, was $42,300 at closing.
On November 8, 1994, Page Call, a company 49.9% owned by Adelphia, was
a successful bidder for three regional narrowband PCS licenses, covering 62% of
the country's population. Page Call was recently established to develop a
nationwide paging service. Page Call's aggregate final bid for the three
licenses was $52,900, an amount reduced to $31,800 due to its "designated
entity" status. On June 11, 1997, Adelphia announced the sale of its interest in
Page Call for a total of $16,500 in cash and Series A Convertible Preferred
Stock of Arch Communications Group, Inc. This transaction is subject to normal
closing conditions and regulatory approval.
On December 27, 1994, Adelphia exchanged its existing investment in
Tele-Media Investment Partnership, L.P. ("TMIP") with a Managed System for a
note in the amount of $13,000. No gain or loss was recognized as a result of
this exchange.
On January 10, 1995, Adelphia issued 399,087 shares of Class A Common
Stock in connection with the merger of a wholly-owned subsidiary of Adelphia
into Oxford Cablevision, Inc. ("Oxford"), one of the Terry Family cable systems.
Oxford served approximately 4,200 subscribers at the acquisition date, located
in the North Carolina counties of Granville and Warren. The acquisition of
Oxford was accounted for using the purchase method of accounting. The
consolidated statements of operations and cash flows include the operations of
the acquired systems since January 10, 1995. Adelphia assigned the rights to
purchase the stock of the other Terry Family cable systems to a Managed System.
On January 31, 1995, Adelphia acquired Tele-Media Company of Martha's
Vineyard, L.P. ("Martha's Vineyard") for $11,775, a cable system which, at the
acquisition date, served approximately 7,000 subscribers located in Martha's
Vineyard, Massachusetts. The acquisition of Martha's Vineyard was accounted for
using the purchase method of accounting. The consolidated statements of
operations and cash flows include the operations of the acquired system since
January 31, 1995.
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 served approximately 10,700 subscribers
at the acquisition date. 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 January 9, 1996, Adelphia completed the acquisition of the cable
systems of Eastern Telecom Corporation and Robinson Cable TV, Inc. These systems
served approximately 24,000 subscribers at the acquisition date located in
western Pennsylvania and were purchased for an aggregate price of $43,000. 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 January 9, 1996.
On April 1, 1996, Adelphia purchased the cable television operations of
Cable TV Fund 11-B, Ltd. This CATV system was acquired for $84,267 and served
approximately 39,700 subscribers at the acquisition date in the New York
counties of Erie and Niagara. The acquisition was financed through a combination
of debt proceeds from a $200,000 credit facility in which an Adelphia subsidiary
is a co-borrower with an affiliated entity and funds received through the
repayment of amounts previously advanced to related entities. These amounts may
be reborrowed by the related entities in future periods.
On July 12, 1996, Adelphia acquired all of the cable systems of First
Carolina Cable TV, L.P. These systems served approximately 32,500 subscribers at
the date of acquisition primarily located in Vermont and were purchased for an
aggregate price of $48,500. 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
July 12, 1997.
On February 10, 1997, Adelphia acquired the assets of Small Cities
Cable Television, L.P. and Small Cities Cable Television, Inc. These cable
systems served approximately 6,000 subscribers at the date of acquisition
primarily located in Vermont and were purchased for an aggregate price of
$12,000 made up of Class A common stock and cash. The
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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 February 10, 1997.
On November 11, 1996 Adelphia entered into a definitive agreement for
the purchase of cable systems from Booth Communications Company. These systems
will be acquired for an aggregate of $54,500 comprised of approximately 3.5
million shares of Adelphia's Class A Common Stock and $29,500 cash and serve
approximately 25,800 subscribers in the Virginia cities of Blacksburg and Salem.
The acquisition, which will be accounted for under the purchase method of
accounting, is expected to close in fiscal 1998.
On May 20, 1997, Adelphia and its affiliates and Time Warner Cable
companies entered into agreements involving a trade of cable systems in seven
states covering approximately 250,000 subscribers, an exchange of interests in
four Competitive Local Exchange Carrier ("CLEC") networks in New York state, and
cash. Adelphia will exchange its systems serving 67,600 subscribers primarily in
the Mansfield, Ohio area for systems owned by Time Warner cable companies
serving 72,400 subscribers adjacent to systems owned or managed by Adelphia in
Virginia, New England and New York. Also, Hyperion has agreed with a Time Warner
company to an exchange of interests in four CLEC networks in New York. In this
transaction, Hyperion will increase its interests in its Buffalo and Syracuse
CLEC networks to 50% and 100%, respectively, and eliminate its interests in the
Albany and Binghamton networks. Certain affiliates managed by Adelphia will
exchange systems serving 49,700 subscribers in Syracuse, New York and Henderson,
North Carolina for Time Warner cable systems serving 57,900 subscribers adjacent
to systems owned or managed by Adelphia in western Pennsylvania and Virginia.
Consummation of this transaction is subject to certain closing conditions and
regulatory approval.
On June 6, 1997, Adelphia signed a letter of intent to establish a
partnership into which Tele-Communications, Inc., ("TCI") will contribute its
cable systems in Buffalo, New York; Erie, Pennsylvania; and Ashtabula and Lake
County, Ohio totaling 166,000 subscribers, and Adelphia will contribute its
Western New York and Lorain, Ohio systems, totaling 298,000 subscribers. Upon
closing of the transaction, TCI will hold a minority interest in the
partnership. Adelphia will manage the partnership and expects to consolidate the
partnership's results for financial reporting purposes. The venture will serve
approximately 464,000 customers.
Olympus. During the year ended March 31, 1995, the Company made net
investments in and advances to Olympus totaling $1,966. Such investments and
advances provided funds to Olympus for capital expenditures, for the repayment
of debt and for working capital. During the years ended March 31, 1996 and 1997,
the Company received net distributions and advances from Olympus totaling
$45,599 and $9,012, respectively. During the years ended March 31, 1995, 1996
and 1997, the Company received priority investment income from Olympus of
$22,300, $28,852 and $42,086, respectively.
On February 28, 1995, Olympus entered into a Liquidation Agreement with
the Gans Family ("Gans"), an Olympus limited partner. Under this Liquidation
Agreement, Gans agreed to exchange their redeemable limited partner interests in
Olympus for the remaining 15% of the common stock of Northeast held by Olympus.
Concurrently with the closing of the Liquidation Agreement, ACP Holdings, Inc.
("ACP," a wholly owned subsidiary of Adelphia and managing general partner of
Olympus), Olympus, Telesat and certain shareholders of Adelphia entered into an
investment agreement (the "Telesat Investment Agreement") whereby Telesat
contributed to Olympus substantially all of the assets associated with certain
cable television systems, serving approximately 50,000 subscribers in southern
Florida, in exchange for general and limited partner interests of $5, Senior
Limited Partner ("SLP") interests of $20,000 and $112,500 of newly issued 16.5%
preferred limited partner ("PLP") interests.
Prior to the Telesat Investment Agreement, Olympus had obligations to
Adelphia for intercompany advances, redeemable PLP interests and accrued
priority return on redeemable PLP interests. In conjunction with the Telesat
Investment Agreement, Adelphia contributed $49,974 of the intercompany advances,
$51,101 of the existing redeemable PLP interests and all of the then existing
accrued priority return on the redeemable PLP interests to general partners'
equity (deficiency). Adelphia then exchanged its remaining redeemable PLP
interests for $225,000 of new PLP interests. Also, Senior Debt (as defined in
the Telesat Investment Agreement) owed by Olympus to Adelphia of $40,000
remained outstanding after consummation of the Telesat Investment Agreement.
After this transaction Adelphia holds a 50% voting interest in Olympus with a
Telesat subsidiary as its only other voting partner in Olympus.
Managed Partnerships. On September 29, 1993, the Board of Directors of
the Company authorized the Company to make loans in the future to the Managed
Partnerships up to an amount of $50,000. During the years ended March 31, 1995
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and 1996, the Company made advances in the net amount of $10,028 and $14,859,
respectively, to these and other related parties, primarily for capital
expenditures and working capital purposes. During the year ended March 31, 1997,
the Managed Partnerships and other related parties repaid advances in the net
amount of $34,250.
During fiscal 1995, the Company sold its investment in TMIP to Syracuse
Hilton Head Holdings, L.P. ("SHHH"), an affiliate of the Company, for $13,000.
On January 31, 1995, a wholly owned subsidiary of Adelphia received a $20,000
preferred investment from SHHH to facilitate the acquisition of cable
properties.
Resources. 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, or its subsidiaries, 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 existing credit facilities, and future
financing sources will be sufficient to meet its short-term and long-term
liquidity and capital requirements. Although in the past the Company has been
able to refinance its indebtedness or obtain new financing, there can be no
assurance that the Company will be able to do so in the future or that the terms
of such financings would be favorable.
Management believes that the telecommunications industry, including the
cable television and telephone industries, continues to be 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, no assurances can be given as to whether any such transaction may be
consummated or, if so, when.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS No. 128"), has been issued and is effective for periods ending
after December 15, 1997, with early application not permitted. The general
requirements of SFAS No. 128 are designed to simplify the computation of
earnings per share. The new statement requires a calculation of basic and
diluted earnings per share. The adoption of this statement is not expected to
have any effect on the Company's calculation of earnings per share.
Inflation
In the three fiscal years in the period ended March 31, 1997, inflation
did not have a significant effect on the Company. Periods of high inflation
could have an adverse effect to the extent that increased borrowing costs for
floating-rate debt may not be offset by increases in subscriber rates. At March
31, 1997, after giving effect to interest rate hedging agreements, approximately
$631,775 of the Company's total debt was subject to floating interest rates.
Olympus
The Company serves as the managing general partner of Olympus and, as
of March 31, 1997, held $5 of voting general partnership interests representing,
in the aggregate, 50% of the voting interests of Olympus. The Company also held,
as of March 31, 1997, approximately $271,546 aggregate principal amount of
nonvoting PLP interests in Olympus, which entitle the Company to a 16.5% per
annum priority return. The remaining equity in Olympus consists of voting and
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non-voting partnership interests held by subsidiaries of FPL.
On February 28, 1995, Olympus entered into a Liquidation Agreement with
the Gans family. Under this Liquidation Agreement, Gans agreed to exchange their
redeemable limited partner interests in Olympus for the remaining 15% of the
common stock of Northeast held by Olympus. Concurrently with the closing of the
Liquidation Agreement, ACP, Olympus, Telesat and certain shareholders of
Adelphia entered into the Telesat Investment Agreement whereby Telesat
contributed to Olympus substantially all of the assets associated with certain
cable television systems, serving approximately 50,000 subscribers in southern
Florida, in exchange for general and limited partner interests of $5, Special
Limited Partner ("SLP") interests of $20,000 and $112,500 of newly issued 16.5%
PLP interests.
On March 28, 1996, ACP, Telesat, Olympus, Adelphia and certain
shareholders of Adelphia entered into an agreement which amended certain aspects
of the Olympus Partnership Agreement. The amendment provides for the repayment
of certain amounts owed to Telesat totaling $20,000, the release of certain
obligations of Telesat to Olympus and the reduction of Telesat's PLP and accrued
priority return balances by $20,000. The amendment further provides for a
$40,000 distribution to Adelphia as a reduction of its PLP interests and accrued
priority return. These repayments and distributions were made on March 29, 1996
and were funded through internally generated funds and advances from an
affiliate.
The Olympus limited partnership agreement requires approval by the
holders of 85% of the voting interests for, among other things, significant
acquisitions and dispositions of assets, and the issuance of certain partnership
interests, and also requires approval by the holders of 75% of the voting
interests for, among other things, material amendments to the Olympus
partnership agreement, certain financings and refinancings, certain issuances of
PLP interests, certain transactions with related parties and the adoption of
annual budgets.
On April 3, 1995, Olympus acquired all of the cable and security
systems of WB Cable Associates, Ltd. ("WB Cable") which, at the acquisition
date, served 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 was accounted for under the purchase method of
accounting, and was financed principally through borrowings under an Olympus
subsidiary's credit agreement.
On May 12, 1995, certain Olympus subsidiaries 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 March 31, 1997,
$181,000 of unused commitments were available under this credit facility.
On January 5, 1996, Olympus acquired all of the southeast Florida cable
systems of the Leadership Cable division of Fairbanks Communications, Inc.,
which, at the acquisition date, served 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 $70,000 non-interest bearing discount seller
note due December 30, 1997. This note was recorded at $55,800 at acquisition and
will accrete to the $70,000 face amount. The cash portion of the acquisition
price was financed through borrowings under an Olympus credit agreement.
On November 12, 1996, Olympus issued $200,000 of 10 5/8% Senior Notes
(the "Olympus Senior Notes") in a private placement. Net proceeds, after payment
of transaction costs, of approximately $195,000 were used to reduce amounts
outstanding on Olympus' subsidiaries' notes payable to banks. Interest is
payable semiannually commencing May 15, 1997. The Olympus Senior Notes are
unsecured and are due November 15, 2006. Olympus may redeem up to $70,000 of the
Olympus Senior Notes at 110.625% of principal through November 6, 1999.
Commencing November 15, 2001, Olympus may redeem the Olympus Senior Notes in
whole or in part at 105.3125% of principal declining annually to par on November
15, 2004. Holders of the Olympus Senior Notes have the right to require Olympus
to redeem the Olympus Senior Notes at 101% upon a Change of Control (as defined
in the Indenture).
The Selected Consolidated Financial and Operating Information and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for Olympus for each of the three years in the period ended December
31, 1996, which appear on pages 29 and 30 and 31 through 37, respectively, of
Amendment No. 2 to Registration Statement No. 333-19327 of Olympus
Communications, L.P. and Olympus Capital Corporation on Form S-4, are
incorporated by reference in this Annual Report on Form 10-K. The supplemental
financial data for Olympus for the three months ended March 31, 1996 and 1997,
which appears on pages 3 through 5 of the Olympus and Olympus Capital
Corporation Form 10-Q
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for the quarterly period ended March 31, 1997, is incorporated by reference in
this Annual Report on Form 10-K.
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. The 1992 Cable
Act significantly expanded 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 increased 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
Telecommunications Act of 1996 (the "1996 Act") ends FCC regulation of cable
programming service tier rates on March 31, 1999.
Rates for basic and cable programming services are set pursuant to a
benchmark formula. Alternatively, a cable operator may elect to use a
cost-of-service methodology to show that rates for basic and cable programming
services are reasonable. Refunds with interest will be required to be paid by
cable operators who are required to reduce regulated rates. The FCC has reserved
the right to reduce or increase the benchmarks it has established. The rate
regulations also limit 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 or completes a significant system
rebuild or upgrade. 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 has allowed cable operators to increase rates by as
much as $1.40 plus programming costs, over a three year period ending December
31, 1997 to reflect the addition of up to seven new channels of service on cable
programming service tiers. In addition, a new programming tier can be created,
the rate for which would not be regulated as long as certain conditions are met,
such as not moving services from existing tiers to the new one. Because of the
limitation on rate increases for regulated services, future revenue growth from
cable services will rely to a much greater extent than has been true in the past
on increased revenues from unregulated services and new subscribers than from
increases in previously unregulated rates.
The FCC has adopted regulations implementing all of the requirements of
the 1992 Cable Act. The FCC is also likely to continue to modify, clarify or
refine the rate regulations. Adelphia cannot predict the effect of the 1996 Act
on future rulemaking proceedings or changes to the rate regulations.
Effective September 1, 1993, as a result of the 1992 Cable Act,
Adelphia repackaged certain existing cable services by adjusting rates for basic
service and introducing a new method of offering certain cable services.
Adelphia 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. Adelphia also
implemented a program in all of its systems called "CableSelect" under which
most of Adelphia's satellite-delivered programming services were 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 elected to customize their channel lineup, Adelphia provided,
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 were also implemented in all systems managed by Adelphia.
Adelphia believes CableSelect provided increased programming choices to its
subscribers while providing flexibility to Adelphia to respond to future changes
in areas such as customer demand and programming. Adelphia no longer offers the
CableSelect program in any of its systems.
A letter of inquiry 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 letters 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
41
<PAGE>
the full Commission which affirmed the Cable Service Bureau's decision. Adelphia
has sought reconsideration of the decision. On November 18, 1994, the FCC
released amended rules under which, on a prospective basis, any a la carte
package will be treated as a regulated tier, except for packages involving
premium services. An appeal of this decision to the U.S. Court of Appeals for
the D.C. Circuit was unsuccessful.
On May 1, 1997, the FCC adopted an order approving a settlement
agreement between Adelphia and the FCC that resolves pending rate proceedings in
40 communities served by Adelphia in which a la carte packages were created.
Under the terms of the agreement, Adelphia is required to make refunds totaling
approximately $2,400 (including interest through December 31, 1996), plus
additional interest from January 1, 1997 through the date of payment. Adelphia
also will be required to reduce its rates in certain communities. Results of
operations for the fiscal year ended March 31, 1996 included a $5,300 charge
representing management's estimate of the total costs associated with the
resolution of this matter. Such costs included, (i) an estimate of credits to be
extended to customers in future periods of up to $2,700, (ii) legal and other
costs incurred during the fiscal year ended March 31, 1996, and (iii) an
estimate of legal and other costs to be incurred associated with the ultimate
resolution of this matter. At March 31, 1997, $3,382 of the charge to earnings
remained in accrued interest and other liabilities which management believes is
adequate to cover the settlement and related costs. While Adelphia cannot
predict the ultimate outcome or effect of this matter, management of Adelphia
does not expect the ultimate outcome of this matter to have a material adverse
effect on Adelphia's financial position and results of operations. 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. 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.
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 and the 1996 Act contain provisions
which encourage competition from such other sources. The Company cannot predict
the extent to which competition will materialize from other cable television
operators, local telephone companies, 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 heretofore permitted 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. New
Jersey Bell Telephone Company received authorization on July 18, 1994 to operate
a "video dialtone" service in portions of Dover County, New Jersey, in which the
Company serves approximately 20,000 subscribers.
The 1996 Act repealed the prohibition on LECs from providing video
programming directly to customers within their local exchange areas other than
in rural areas or by specific waiver of FCC rules. The 1996 Act also authorized
LECs to operate "open video systems" ("OVS") without obtaining a local cable
franchise, although LECs operating such a system can be required to make
payments to local governmental bodies in lieu of cable franchise fees. Where
demand exceeds capacity, up to two-thirds of the channels on an OVS must be
available to programmers unaffiliated with the LEC. The statute states that the
OVS scheme supplants the FCC's "video dialtone" rules. The FCC has promulgated
rules to implement the OVS concept, and New Jersey Bell has been granted
permission to convert its video dialtone authorization to an OVS authorization.
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.
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 nationwide
basis by several service providers. 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.
42
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Adelphia and related notes
thereto and independent auditors' report follow.
The consolidated financial statements of Olympus and related notes
thereto and independent auditors' report dated March 26, 1997, appearing on
pages F-2 through F-19 of Amendment No. 2 to Registration Statement No.
333-19327 of Olympus Communications, L.P. and Olympus Capital Corporation on
Form S-4, are incorporated by reference in this Annual Report on Form 10-K.
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report 45
Consolidated Balance Sheets, March 31, 1996 and 1997 46
Consolidated Statements of Operations, Years Ended March 31, 1995,
1996 and 1997 47
Consolidated Statements of Stockholders' Equity (Deficiency),
Years Ended March 31, 1995, 1996 and 1997 48
Consolidated Statements of Cash Flows, Years Ended March 31, 1995,
1996 and 1997 49
Notes to Consolidated Financial Statements 50
44
<PAGE>
INDEPENDENT AUDITORS' REPORT
Adelphia Communications Corporation:
We have audited the accompanying consolidated balance sheets of Adelphia
Communications Corporation and subsidiaries as of March 31, 1996 and 1997, and
the related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for each of the three years in the period ended
March 31, 1997. Our audits also included the financial statement schedules
listed in the Index at Item 14. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Adelphia Communications
Corporation and subsidiaries at March 31, 1996 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
June 11, 1997
45
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31,
ASSETS: 1996 1997
Cable television systems, at cost, net of accumulated depreciation and
amortization:
<S> <C> <C>
Property, plant and equipment $ 560,376 $ 659,575
Intangible assets 568,898 650,533
---------- ----------
Total 1,129,274 1,310,108
Cash and cash equivalents 10,809 61,539
Investments 68,147 117,996
Preferred equity investment in Managed Partnership 18,338 18,338
Subscriber receivables - net 23,803 24,692
Prepaid expenses and other assets - net 52,658 80,355
Related party receivables - net 64,550 30,798
---------- ----------
Total $ 1,367,579 $ 1,643,826
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY):
Notes payable of subsidiaries to banks and institutions $ 1,224,675 $ 1,159,500
12 1/2% Senior Notes due 2002 400,000 277,385
10 1/4% Senior Notes due 2000 99,158 99,322
9 7/8% Senior Notes due 2007 -- 347,274
11 7/8% Senior Debentures due 2004 124,502 124,539
9 7/8% Senior Debentures due 2005 128,118 128,255
9 1/2% Senior Pay-In-Kind Notes due 2004 180,357 197,897
13% Senior Discount Notes of Unrestricted Subsidiary due 2003 -- 187,173
Other debt 18,663 22,694
Accounts payable 66,668 56,961
Subscriber advance payments and deposits 14,706 16,004
Accrued interest and other liabilities 99,106 127,938
Deferred income taxes 106,209 110,097
---------- ----------
Total liabilities 2,462,162 2,855,039
---------- ----------
Cumulative equity in loss in excess of investment in and amounts due
from Olympus 33,656 42,668
Commitments and contingencies (Note 4)
Stockholders' equity (deficiency):
Class A Common Stock, $.01 par value, 200,000,000 shares authorized,
15,364,009 and 16,130,880 shares outstanding, respectively 154 161
Class B Common Stock, $.01 par value, 25,000,000 shares
authorized and 10,944,476 shares outstanding 109 109
Additional paid-in capital 214,415 219,408
Accumulated deficit (1,342,917) (1,473,559)
---------- ----------
Total stockholders' equity (deficiency) (1,128,239) (1,253,881)
---------- ----------
Total $ 1,367,579 $ 1,643,826
=========== ===========
</TABLE>
See notes to consolidated financial statements.
46
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended March 31,
1995 1996 1997
<S> <C> <C> <C>
Revenues $ 361,505 $ 403,597 $ 472,778
---------- ---------- ----------
Operating expenses:
Direct operating and programming 106,993 124,116 148,982
Selling, general and administrative 63,487 68,357 81,763
Depreciation and amortization 97,602 111,031 124,066
Rate regulation -- 5,300 --
---------- ---------- ----------
Total 268,082 308,804 354,811
---------- ---------- ----------
Operating income 93,423 94,793 117,967
---------- ---------- ----------
Other income (expense):
Interest income from affiliates 11,112 10,623 8,367
Other income 1,453 -- --
Priority investment income from Olympus 22,300 28,852 42,086
Interest expense (195,698) (210,691) (240,692)
Equity in loss of Olympus and other joint ventures (42,550) (41,965) (51,946)
Equity in loss of Hyperion nonconsolidated joint ventures (1,799) (4,292) (7,223)
Gain on sale of investments -- -- 12,151
---------- ---------- ----------
Total (205,182) (217,473) (237,257)
---------- ---------- ----------
Loss before income taxes and extraordinary loss (111,759) (122,680) (119,290)
Income tax benefit 5,475 2,786 358
---------- ---------- ----------
Loss before extraordinary loss (106,284) (119,894) (118,932)
Extraordinary loss on early retirement of debt -- -- (11,710)
---------- ---------- ----------
Net loss $ (106,284) $ (119,894) $ (130,642)
========== ========== ==========
Loss per weighted average share of common stock
before extraordinary loss $ (4.32) $ (4.56) $ (4.50)
Extraordinary loss per weighted average share on
early retirement of debt -- -- (.44)
---------- ---------- ----------
Net loss per weighted average share of common stock $ (4.32) $ (4.56) $ (4.94)
========== ========== ==========
Weighted average shares of common stock outstanding
(in thousands) 24,628 26,305 26,411
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
47
<PAGE>
<TABLE>
<CAPTION>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Dollars in thousands)
Class A Class B Additional Stockholders'
Common Common Paid-in Accumulated Equity
Stock Stock Capital Deficit (Deficiency)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1994 $ 135 $ 109 $ 198,431 $(1,116,739) $ (918,064)
Issuance of Class A Common
Stock on January 10, 1995 4 -- 3,588 -- 3,592
Issuance of Class A Common
Stock on February 28, 1995 10 -- 14,851 -- 14,861
Excess of purchase price of
acquired assets over
predecessor owners' book
value -- -- (5,680) -- (5,680)
Net loss -- -- -- (106,284) (106,284)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1995 149 109 211,190 (1,223,023) (1,011,575)
Issuance of Class A Common
Stock on April 3, 1995 5 -- 4,995 -- 5,000
Excess of purchase price of
acquired assets over
predecessor owners' book
value -- -- (1,770) -- (1,770)
Net loss -- -- -- (119,894) (119,894)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1996 154 109 214,415 (1,342,917) (1,128,239)
Issuance of Class A Common
Stock on February 10, 1997 7 -- 4,993 -- 5,000
Net loss -- -- -- (130,642) (130,642)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1997 $ 161 $ 109 $ 219,408 $(1,473,559) $(1,253,881)
=========== =========== =========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended March 31,
1995 1996 1997
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (106,284) $ (119,894) $ (130,642)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 66,064 70,890 78,328
Amortization 31,538 40,141 45,738
Noncash interest expense 14,756 16,288 41,360
Equity in loss of Olympus and other joint ventures 42,550 41,965 51,946
Equity in loss of Hyperion nonconsolidated joint ventures 1,799 4,292 7,223
Rate regulation -- 2,700 --
Gain on sale of investments -- -- (12,151)
Non-cash portion of extraordinary loss on early
retirement of debt -- -- 3,503
Decrease in deferred income taxes,
net of effects of acquisitions (5,975) (3,930) (500)
Changes in operating assets and liabilities, net of effects
of acquisitions and divestitures:
Subscriber receivables (478) (3,370) (813)
Prepaid expenses and other assets (21,152) (14,465) (27,858)
Accounts payable 14,789 23,796 (9,784)
Subscriber advance payments and deposits 699 (1,788) 1,298
Accrued interest and other liabilities 10,630 7,662 (12,854)
------------ ------------ ------------
Net cash provided by operating activities 48,936 64,287 34,794
------------ ------------ ------------
Cash flows from investing activities:
Cable television systems acquired (70,256) (60,804) (143,412)
Expenditures for property, plant and equipment (92,082) (100,089) (129,609)
Investments in Hyperion nonconsolidated joint ventures (7,526) (12,815) (34,769)
Investments in other joint ventures (31,365) (11,518) (16,646)
Amounts invested in and advanced to Olympus
and related parties (46,046) (4,236) (9,229)
Proceeds from sale of investment -- -- 11,618
------------ ------------ ------------
Net cash used for investing activities (247,275) (189,462) (322,047)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from debt 155,314 273,508 1,280,649
Repayments of debt (38,107) (138,694) (933,517)
Costs associated with debt financing (2,759) (3,875) (20,236)
Issuance of Class A Common Stock 14,861 -- --
Proceeds from Hyperion's issuance of warrants -- -- 11,087
------------ ------------ ------------
Net cash provided by financing activities 129,309 130,939 337,983
------------ ------------ ------------
(Decrease) increase in cash and cash equivalents (69,030) 5,764 50,730
Cash and cash equivalents, beginning of year 74,075 5,045 10,809
------------ ------------ ------------
Cash and cash equivalents, end of year $ 5,045 $ 10,809 $ 61,539
============ ============ ============
Supplemental disclosure of cash flow activity -
Cash payments for interest $ 193,206 $ 198,369 $ 203,939
====================================================
See notes to consolidated financial
statements.
</TABLE>
49
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. The Company and Summary of Significant Accounting Policies:
The Company and Basis for Consolidation
Adelphia Communications Corporation and subsidiaries ("Adelphia") owns,
operates and manages cable television systems and other related
telecommunications businesses. Adelphia's operations consist primarily of
selling video programming which is distributed to subscribers for a monthly fee
through a network of fiber optic and coaxial cables. These services are offered
in the respective franchise areas under the name Adelphia Cable Communications.
The consolidated financial statements include the accounts of Adelphia
and its more than 50% owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
During the years ended March 31, 1995, 1996 and 1997, Adelphia
consummated several acquisitions, each of which was accounted for using the
purchase method. Accordingly, the financial results of each acquisition have
been included in the consolidated results of Adelphia effective with the date
acquired. A description of the acquisitions is provided below.
On June 16, 1994, Adelphia invested $34,000 in TMC Holdings Corporation
("THC"), the parent of Tele-Media Company of Western Connecticut. THC owns cable
television systems which, at the acquisition date, served approximately 43,000
subscribers in western Connecticut. The investment in THC provides Adelphia with
a $30,000 preferred equity interest in THC and a 75% non-voting common equity
interest, with a liquidation preference to the remaining 25% common stock
ownership interest in THC. Adelphia has the right to convert such interest to a
75% voting common equity interest, with a liquidation preference to the
remaining shareholders' 25% common stock ownership interest, on demand subject
to certain regulatory approvals. Debt assumed, included in notes payable of
subsidiaries to banks and institutions, was $52,000 at closing.
On June 30, 1994, Adelphia acquired from Olympus Communications, L.P.
("Olympus") 85% of the common stock of Northeast Cable, Inc. ("Northeast") for a
purchase price of $31,875. Northeast owns cable television systems which, at the
acquisition date, served approximately 36,500 subscribers in eastern
Pennsylvania. Of the purchase price, $16,000 was paid in cash and the remainder
resulted in a decrease in Adelphia's receivable from Olympus. Debt assumed,
included in notes payable of subsidiaries to banks and institutions, was $42,300
at closing.
On January 10, 1995, Adelphia issued 399,087 shares of Class A Common
Stock in connection with the merger of a wholly-owned subsidiary of Adelphia
into Oxford Cablevision, Inc. ("Oxford"), one of the Terry Family cable systems.
At the acquisition date, Oxford served approximately 4,200 subscribers located
in the North Carolina counties of Granville and Warren.
On January 31, 1995, Adelphia acquired a majority equity position in
Tele-Media Company of Martha's Vineyard, L.P. ("TMV") for $11,775, a cable
system which, at the acquisition date, served approximately 7,000 subscribers
located in Martha's Vineyard, Massachusetts.
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 served approximately 10,700 subscribers
at the date of acquisition.
On January 9, 1996, Adelphia completed the acquisition of the cable
systems of Eastern Telecom Corporation and Robinson Cable TV, Inc. These systems
served approximately 24,000 subscribers at the acquisition date located in
western Pennsylvania and were purchased for an aggregate price of $43,000.
On April 1, 1996, Adelphia purchased the cable television operations of
Cable TV Fund 11-B, Ltd. This CATV system was acquired for $84,267 and served
approximately 39,700 subscribers at the acquisition date in the New York
counties of Erie and Niagara.
On July 12, 1996, Adelphia acquired all of the cable systems of First
Carolina Cable TV, L.P. These systems served approximately 32,500 subscribers at
the date of acquisition primarily located in Vermont and were purchased for an
50
<PAGE>
aggregate price of $48,500.
On February 10, 1997, Adelphia acquired the assets of Small Cities
Cable Television, L.P. and Small Cities Cable Television, Inc. (collectively,
"Small Cities"). These systems served approximately 6,000 subscribers at the
date of acquisition, primarily located in Vermont and were purchased for an
aggregate price of $12,000 in cash and Adelphia Class A Common Stock.
Investment in Olympus Joint Venture Partnership
The investment in the Olympus joint venture partnership comprises both
limited and general partner interests. The general partner interest represents a
50% voting interest in Olympus and is being accounted for using the equity
method. Under this method, Adelphia's investment, initially recorded at the
historical cost of contributed property, is adjusted for subsequent capital
contributions and its share of the losses of the partnership as well as its
share of the accretion requirements of the partnership's interests. The limited
partner interest represents a preferred interest ("PLP interests") entitled to a
16.5% annual return.
The PLP interests are nonvoting, are senior to claims of certain other
partner interests, and provide for an annual priority return of 16.5%. Olympus
is not required to pay the entire 16.5% return currently and priority return on
PLP interests is recognized as income by Adelphia when received.
Correspondingly, equity in net loss of Olympus excludes accumulated unpaid
priority return (see Note 2).
Subscriber Revenues
Subscriber revenues are recorded in the month the service is provided.
Property, Plant and Equipment
Property, plant and equipment are comprised of the following:
1996 1997
Operating plant and equipment $ 863,957 $ 969,900
Real estate and improvements 51,147 68,091
Support equipment 30,076 28,808
Construction in progress 105,158 134,403
----------- -----------
1,050,338 1,201,202
Accumulated depreciation (489,962) (541,627)
----------- -----------
$ 560,376 $ 659,575
=========== ===========
Depreciation is computed on the straight-line method using estimated
useful lives of 5 to 12 years for operating plant and equipment and 3 to 20
years for support equipment and buildings. Additions to property, plant and
equipment are recorded at cost which includes amounts for material, applicable
labor and overhead, and interest. Capitalized interest amounted to $1,736,
$1,766 and $1,727 for the years ended March 31, 1995, 1996 and 1997,
respectively.
51
<PAGE>
Intangible Assets
Intangible assets, net of accumulated amortization, are comprised of the
following:
March 31,
1996 1997
Purchased franchises $ 465,983 $ 486,887
Goodwill 58,377 71,263
Non-compete agreements 11,240 12,937
Purchased subscriber lists 33,298 79,446
---------- ----------
$ 568,898 $ 650,533
========== ==========
A portion of the aggregate purchase price of cable television systems
acquired has been allocated to purchased franchises, purchased subscriber lists,
goodwill and non-compete agreements. Purchased franchises and goodwill are
amortized on the straight-line method over 40 years. Purchased subscriber lists
are amortized on the straight-line method over periods which range from 5 to 10
years. Non-compete agreements are amortized on the straight-line method over
their contractual lives which range from 4 to 12 years. Accumulated amortization
of intangible assets amounted to $137,012 and $170,801 at March 31, 1996 and
1997, respectively.
Cash and Cash Equivalents
Adelphia considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Interest on liquid
investments was $1,230, $1,859 and $5,789 for the years ended March 31, 1995,
1996, and 1997, respectively. A book overdraft of $25,700 existed at March 31,
1997. This book overdraft was reclassified as accrued interest and other
liabilities.
Investments
The equity method of accounting is generally used to account for
investments in affiliates which are greater than 20% but not more than 50%
owned. Under this method, Adelphia's initial investment is recorded at cost and
subsequently adjusted for the amount of its equity in the net income or losses
of its affiliates. Dividends or other distributions are recorded as a reduction
of Adelphia's investment. Investments in affiliates accounted for using the
equity method generally reflect Adelphia's equity in their underlying assets.
Investments in entities in which Adelphia's ownership is less than 20%
and investments greater than 20% in which Adelphia does not influence the
operating or financial decisions of the entity are generally accounted for using
the cost method. Under the cost method, Adelphia's initial investment is
recorded at cost and subsequently adjusted for the amount of its equity in net
income or losses of the investee only to the extent distributed by the investee
as dividends or other distributions. Dividends received in excess of earnings
subsequent to the date the investment was made are recorded as reductions of the
cost of the investment.
52
<PAGE>
The balance of Adelphia's nonconsolidated investments is as follows:
March 31,
1996 1997
Investments accounted for using the equity method:
Gross investment:
Hyperion investment in joint ventures $ 28,754 $ 57,497
Page Call, Inc. 11,187 14,990
Other 800 1,751
--------- ---------
Total 40,741 74,238
--------- ---------
Investments accounted for using the cost method:
Niagara Frontier Hockey, L.P. 22,681 35,270
Commonwealth Security, Inc. 4,200 --
Republic Industries, Inc. -- 9,315
SuperCable ALK International 3,171 3,172
Programming ventures 2,806 2,945
Mobile communications 680 4,302
Other 682 763
--------- ---------
Total 34,220 55,767
--------- ---------
Total investments before cumulative equity in net losses 74,961 130,005
Cumulative equity in net losses (6,814) (12,009)
========= =========
Total investments $ 68,147 $ 117,996
========= =========
On May 16, 1996, Hyperion sold its interest in one of its joint
ventures for $11,618, resulting in a gain of $8,405. On January 23, 1997,
Adelphia received 284,425 shares of Republic Industries, Inc. Common Stock in
exchange for its interest in Commonwealth Security, Inc., resulting in a gain of
$3,746.
Subscriber Receivables
An allowance for doubtful accounts of $1,216 and $1,345 has been
deducted from subscriber receivables at March 31, 1996 and 1997, respectively.
Amortization of Other Assets and Debt Discounts
Deferred debt financing costs, included in prepaid expenses and other
assets, and debt discounts, a reduction of the carrying amount of the debt, are
amortized over the term of the related debt. The unamortized amounts of deferred
debt financing costs included in prepaid expenses and other assets were $25,274
and $35,786 at March 31, 1996 and 1997, respectively.
Franchise Expense
The typical term of Adelphia's franchise agreements upon renewal is 10
years. Franchise fees range from 3% to 5% of subscriber revenues and are
expensed currently.
Asset Impairments
Adelphia periodically reviews the carrying value of its long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying value of assets may not be recoverable. Measurement of any
impairment would include a comparison of estimated future operating cash flows
anticipated to be generated during the remaining life of the assets with their
net carrying value. An impairment loss would be recognized as the amount by
which the carrying value of
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the assets exceeds their fair value.
Noncash Financing and Investing Activities
There were no material capital leases entered into during the years
ended March 31, 1995 and 1996. Capital leases entered into during the year ended
March 31, 1997 totaled $3,307. Reference is made to Notes 1, 2 and 5 for
descriptions of additional noncash financing and investing activities.
Interest Rate Swaps
Net settlement amounts under interest rate swap agreements are recorded
as adjustments to interest expense during the period incurred.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Earnings Per Share
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS No. 128"), has been issued and is effective for periods ending
after December 15, 1997, with early application not permitted. The general
requirements of SFAS No. 128 are designed to simplify the computation of
earnings per share. The new statement requires a calculation of basic and
diluted earnings per share. The adoption of this statement is not expected to
have any effect on the Company's calculation of earnings per share.
Reclassifications
Certain 1995 and 1996 amounts have been reclassified to conform with
the 1997 presentation.
2. Related Party Investments and Receivables:
Related party receivables--net represent advances to managed
partnerships (see Note 9), the Rigas family (principal shareholders and officers
of Adelphia) and Rigas family controlled entities. No related party advances are
collateralized.
Cumulative equity in loss in excess of investment in and amounts due
from Olympus is comprised of the following:
March 31,
1996 1997
Cumulative equity in loss over investment in Olympus (93,563) (95,771)
Amounts due from Olympus 59,907 53,103
--------- ---------
$ (33,656) $ (42,668)
========= =========
On February 28, 1995, ACP Holdings, Inc., a wholly-owned subsidiary of
Adelphia, and the managing general partner of Olympus, certain shareholders of
Adelphia, Olympus and various Telesat Entities ("Telesat"), wholly-owned
subsidiaries of FPL Group, Inc., entered into an investment agreement whereby
Telesat contributed to Olympus substantially all of the assets associated with
certain cable television systems, serving approximately 50,000 subscribers in
southern Florida, in exchange for general and limited partner interests and
newly issued preferred limited partner interests in Olympus. Prior to the
Telesat Investment Agreement, Olympus had obligations to Adelphia for
intercompany advances, PLP interests, and priority return on PLP interests. In
conjunction with the Telesat Investment Agreement, Adelphia converted a portion
of the intercompany advances, a portion of the existing PLP interests and all of
the existing accrued priority return on the PLP
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interests, to capital contributions. At March 31, 1995, 1996 and 1997, Adelphia
owned $225,000, $222,860 and $271,546 in Olympus PLP Interests, respectively.
On March 28, 1996, ACP, Telesat, Olympus, Adelphia and certain
shareholders of Adelphia entered into an agreement which amended certain aspects
of the Olympus Partnership Agreement. The amendment provides for the repayment
of certain amounts owed to Telesat totaling $20,000, the release of certain
obligations of Telesat to Olympus and the reduction of Telesat's PLP and accrued
priority return balances by $20,000. The amendment further provides for a
$40,000 distribution to Adelphia as a reduction of its PLP interests and accrued
priority return. These repayments and distributions were made on March 29, 1996
and were funded through internally generated funds and advances from an
affiliate.
The major components of the financial position of Olympus as of March
31, 1996 and 1997, and December 31, 1995 and 1996, and the results of operations
for the three months ended March 31, 1996 and 1997, and the years ended December
31, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1997 1995 1996
(unaudited)
Balance Sheet Data:
<S> <C> <C> <C> <C>
Property, plant and equipment--net $ 221,381 $ 229,140 $ 203,129 $ 225,775
Total assets 625,243 627,392 533,909 640,221
Notes payable to banks 514,500 294,000 419,000 309,000
10 5/8% Senior Notes due 2006 -- 200,000 -- 200,000
Total liabilities 706,239 715,309 552,453 724,420
Limited partners' interests 334,290 427,325 396,630 407,669
General partners' equity (deficiency) (435,291) (515,242) (415,174) (491,868)
Statement of Operations Data:
Revenues $ 39,088 $ 41,411 $ 120,968 $ 159,870
Operating income 7,959 7,735 21,275 33,013
Loss before extraordinary loss (2,419) (5,318) (18,282) (10,950)
Net loss (2,419) (5,318) (19,391) (10,950)
Net loss of general and limited partners after priority
return and accretion requirements (19,641) (23,324) (82,749) (76,594)
</TABLE>
On October 6, 1993, Adelphia purchased the preferred Class B Limited
Partnership Interest in Syracuse Hilton Head Holdings, L.P. ("SHHH"), a managed
partnership, for a price of $18,338 from Robin Media Group, an unrelated party.
SHHH is a joint venture of the Rigas Family and Tele-Communications, Inc.
("TCI") and owns systems managed by Adelphia. The Class B Limited Partnership
Interest has a preferred return annually which is payable on a current basis at
the option of SHHH, and is senior in priority to the partnership interests of
the Rigas family and TCI. Preferred return on the Class B Limited Partner
Interest in SHHH totaled $2,654, $2,645 and $3,066 and is included in revenues
for the years ended March 31, 1995, 1996 and 1997, respectively.
In September 1993, the Board of Directors of Adelphia authorized
Adelphia to make loans in the future to the Managed Partnerships up to an amount
of $50,000. During the year ended March 31, 1994, Adelphia 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. During fiscal
year 1995, Adelphia sold its investment in Tele-Media Investment Partnership,
L.P. ("TMIP") to SHHH for $13,000. On January 31, 1995, a wholly owned
subsidiary of Adelphia received a $20,000 preferred investment from SHHH to
facilitate the acquisition of TMV cable properties.
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3. Debt:
Notes Payable of Subsidiaries to Banks and Institutions
Notes payable of subsidiaries to banks and institutions are comprised
of the following:
March 31,
1996 1997
Credit agreements with banks payable through 2004
(weighted average interest rate 7.51% and 7.94%
at March 31, 1996 and 1997, respectively) $ 758,975 $ 813,200
10.66% Senior Secured Notes due through 1999 245,000 165,000
9.95% Senior Secured Notes due in 1997 3,200 --
10.80% Senior Secured Notes due through 2000 36,000 27,000
10.50% Senior Secured Notes due through 2001 16,000 12,800
9.73% Senior Secured Notes due 1998 through 2001 37,500 37,500
10.25% Senior Subordinated Notes due through 1998 56,000 32,000
11.85% Senior Subordinated Notes due 1998 through 2000 60,000 60,000
11.13% Senior Subordinated Notes due 1999 through 2002 12,000 12,000
---------- ----------
$1,224,675 $1,159,500
========== ==========
The amount of borrowings available to Adelphia under its revolving
credit agreements is generally based upon the subsidiaries achieving certain
levels of operating performance. Adelphia had commitments from banks for
additional borrowings of up to $209,154, which included $24,500 also available
to Olympus and the managed partnerships, at March 31, 1997 which expire through
September 30, 2004. Adelphia pays commitment fees of up to .5% of unused
principal.
Borrowings under most of these credit arrangements of subsidiaries are
collateralized by a pledge of the stock in their respective subsidiaries, and,
in some cases, by assets. These agreements limit, among other things, additional
borrowings, investments, transactions with affiliates and other subsidiaries,
and the payment of dividends and fees by the subsidiaries. The agreements also
require maintenance of certain financial ratios by the subsidiaries. Several of
the subsidiaries' agreements, along with the notes of the parent company,
contain cross default provisions. At March 31, 1997, approximately $360,230 of
the net assets of subsidiaries would be permitted to be transferred to the
parent company in the form of dividends, priority return and loans without the
prior approval of the lenders based upon the results of operations of such
subsidiaries for the quarter ended March 31, 1997. The subsidiaries are
permitted to pay management fees to the parent company or other subsidiaries.
Such fees are limited to a percentage of the subsidiaries' revenues.
A subsidiary of Adelphia is a co-borrower with a managed partnership
under a $200,000 credit agreement. Each of the co-borrowers is liable for all
borrowings under this credit agreement, although the lenders have no recourse
against Adelphia other than against Adelphia's interest in such subsidiary.
Bank debt interest rates are based upon one or more of the following
rates at the option of Adelphia: prime rate plus 0% to 1.5%; certificate of
deposit rate plus 1.25% to 2.75%; or LIBOR plus 1% to 2.5%. At March 31, 1996
and 1997, the weighted average interest rate on notes payable to banks and
institutions was 8.36% and 8.83%, respectively. At March 31, 1997, the rates on
45.5% of Adelphia's notes payable to banks and institutions were fixed for at
least one year through the terms of the notes or interest rate swap agreements.
During fiscal 1997, as a result of a bank refinancing, Adelphia recognized an
extraordinary loss on early retirement of debt of $2,079 representing the
write-off of unamortized debt financing costs.
12 1/2% Senior Notes due 2002
On May 14, 1992, Adelphia issued at face value to the public $400,000
aggregate principal amount of unsecured 12 1/2% Senior Notes due May 15, 2002.
Interest is due on the notes semi-annually. The notes, which are effectively
56
<PAGE>
subordinated to all liabilities of the subsidiaries, contain restrictions on,
among other things, the incurrence of indebtedness, mergers and sale of assets,
certain restricted payments by Adelphia, investments in affiliates and certain
other affiliate transactions. The notes further require that Adelphia maintain a
debt to annualized operating cash flow ratio of not greater than 8.75 to 1.00,
based on the latest fiscal quarter, exclusive of the incurrence of $50,000 in
additional indebtedness which is not subject to the required ratio. Adelphia may
redeem the notes in whole or in part on or after May 15, 1997, at 106% of
principal, declining to 100% of principal on or after May 15, 1999. During
fiscal 1997, $122,615 of notes were reacquired through open market purchases. As
a result, Adelphia recognized an extraordinary loss on early retirement of debt
of $9,631, which represents the excess of reacquisition cost over the net
carrying value of the related debt.
10 1/4% Senior Notes due 2000
On July 28, 1993, Adelphia issued $110,000 aggregate principal amount
of unsecured 10 1/4% Senior Notes due July 2000. Interest is due on the notes
semi-annually. The notes which are effectively subordinated to all liabilities
of the subsidiaries, contain restrictions and covenants similar to the
restrictions on the 12 1/2% Senior Notes. The notes are not callable prior to
the maturity date of July 15, 2000. During fiscal 1995, $10,000 of notes were
reacquired through open market purchases.
9 7/8% Senior Notes due 2007
On February 26, 1997, Adelphia issued $350,000 of 9 7/8% Senior Notes
(the "Senior Notes") in a private placement. Net proceeds, after payment of
transaction costs, of approximately $340,000 were used to reduce amounts
outstanding on Adelphia's subsidiaries' notes payable to banks and to purchase,
redeem or otherwise retire a portion of Adelphia's 12 1/2% Senior Notes due
2002. Interest is payable semi-annually commencing September 1, 1997. The Senior
Notes are unsecured and are due March 1, 2007. The notes, which are effectively
subordinated to all liabilities of the subsidiaries, contain restrictions and
covenants similar to the restrictions on the 12 1/2% Senior Notes. The indenture
also provides for payment to the note holders of liquidated damages of up to 2%
per annum of the Senior Notes principal if Adelphia does not file a registration
statement, or cause such registration statement to become effective, within a
prescribed time period with respect to an offer to exchange the Senior Notes for
a new issue of debt securities registered under the Securities Act of 1933, with
terms substantially the same as those of the Senior Notes. The new issue of debt
securities is expected to be recorded at the same carrying value as the Senior
Notes and, accordingly, no gain or loss is expected to be recognized.
11 7/8% Senior Debentures due 2004
On September 10, 1992, Adelphia issued to the public $125,000 aggregate
principal amount of unsecured
11 7/8% Senior Debentures due September 2004. Interest is due on the debentures
semi-annually. The debentures, which are effectively subordinated to all
liabilities of the subsidiaries, contain restrictions and covenants similar to
the restrictions on the 12 1/2% Senior Notes. Adelphia may redeem the debentures
in whole or in part on or after September 15, 1999, at 104.5% of principal,
declining to 100% of principal on or after September 15, 2002.
9 7/8% Senior Debentures due 2005
On March 11, 1993, Adelphia issued 9 7/8% Senior Debentures due March
2005 in the aggregate principal amount of $130,000. Interest on the debentures
is payable semi-annually. The debentures, which are effectively subordinated to
all liabilities of the subsidiaries, contain restrictions and covenants similar
to the restrictions on the 12 1/2% Senior Notes. The debentures are not
redeemable prior to the maturity date of March 1, 2005.
9 1/2% Senior Pay-In-Kind Notes due 2004
On February 15, 1994, Adelphia issued $150,000 aggregate principal
amount of unsecured 9 1/2% Senior Pay-In-Kind Notes due February 2004. On or
prior to February 1999, all interest on the notes, which is due semi-annually,
may at the option of Adelphia be paid in cash or through the issuance of
additional notes valued at 100% of their principal amount. The notes will bear
cash interest from February 1999 through maturity. The notes, which are
effectively subordinated to all liabilities of the subsidiaries, contain
restrictions and covenants similar to the 12 1/2% Senior Notes. Adelphia may
redeem the notes in whole or in part on or after February 15, 1999, at 103.56%
of principal, declining to 100% of principal on or
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after February 15, 2002.
13% Senior Discount Notes of Unrestricted Subsidiary due 2003
On April 15, 1996, Hyperion Telecommunications, Inc. ("Hyperion"), an
88% owned subsidiary of Adelphia, realized proceeds, net of discounts,
commissions and other transaction costs, of $168,600 upon issuance of $329,000
aggregate principal amount of 13% Senior Discount Notes (the "Hyperion Senior
Notes") due April 15, 2003 and 329,000 warrants to purchase an aggregate of
613,427 shares of common stock of Hyperion expiring April 1, 2001. Proceeds of
$11,087 were allocated to the value of the warrants. If all warrants were
exercised, the warrants would represent approximately 5.71% of the common stock
of Hyperion on a fully diluted basis. Proceeds, net of discounts, commissions,
and other transaction costs were used to repay certain indebtedness to Adelphia,
to make loans to certain key Hyperion officers and will be used to fund
Hyperion's expansion of its existing markets, to complete construction of new
networks and to enter additional markets, including related capital
expenditures, working capital requirements, operating losses and investments in
joint ventures.
Maturities of Debt
The following table sets forth the mandatory reductions in principal
under all debt agreements for each of the next five years based on amounts
outstanding at March 31, 1997:
Year Ending March 31:
1998 $164,931
1999 139,791
2000 79,483
2001 221,781
2002 190,905
The Company intends to fund its requirements for maturities of debt
through borrowings under new and existing credit arrangements and internally
generated funds. Changing conditions in the financial markets may have an impact
on how Adelphia will refinance its debt in the future.
Interest Rate Swaps and Caps
Adelphia has entered into interest rate swap agreements and interest
rate cap agreements with banks, Olympus and managed entities to reduce the
impact of changes in interest rates on its debt. Several of Adelphia's credit
arrangements include provisions which require interest rate protection for a
portion of its debt. Adelphia enters into pay-fixed agreements to effectively
convert a portion of its variable-rate debt to fixed-rate debt to reduce the
risk of incurring higher interest costs due to rising interest rates. Adelphia
enters into receive-fixed agreements to effectively convert a portion of its
fixed-rate debt to a variable-rate debt which is indexed to LIBOR to reduce the
risk of incurring higher interest costs in periods of falling interest rates.
Interest rate cap agreements are used to reduce the impact of increases in
interest rates on variable rate debt. Adelphia is exposed to credit loss in the
event of nonperformance by the banks, by Olympus or by the managed entities.
Adelphia does not expect any such nonperformance. The following table summarizes
the notional amounts outstanding and weighted average interest rate data, based
on variable rates in effect at March 31, 1996 and 1997, for these swaps and
caps, all of which expire through 1998.
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March 31,
1996 1997
Pay Fixed Swaps:
Notional amount $ 416,000 $ 340,000
Average receive rate 5.68% 5.67%
Average pay rate 7.94% 7.64%
Receive Fixed Swaps:
Notional amount $ 108,500 $ 35,000
Average receive rate 6.66% 5.68%
Average pay rate 5.74% 5.50%
Interest Rate Caps:
Notional amount $ 50,000 $ 165,000
Average cap rate 9.00% 8.30%
During fiscal 1996, Adelphia received $11,526 upon termination of
several interest rate swap agreements having a stated notional principal amount
of $270,000. The amount received will be amortized as a reduction of interest
expense through November 1998. At March 31, 1997, the unamortized balance is
$5,645. Also during fiscal 1996, the Company received $4,900 and assumed the
obligations as a counterparty under certain interest rate swap agreements with
Olympus. These interest rate swap agreements have a notional principal amount of
$140,000 and expire through November 1998.
4. Commitments and Contingencies:
Adelphia rents office and studio space, tower sites, and space on
utility poles under leases with terms which are generally less than one year or
under agreements that are generally cancelable on short notice. Total rental
expense under all operating leases aggregated $4,356, $4,687 and $6,232 for the
years ended March 31, 1995, 1996 and 1997, respectively.
In connection with certain obligations under franchise agreements,
Adelphia obtains surety bonds guaranteeing performance to municipalities and
public utilities. Payment is required only in the event of nonperformance.
Management believes Adelphia has fulfilled all of its obligations such that no
payments under surety bonds have been required.
The cable television industry and Adelphia 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 certain subscriber
rates and a number of other matters in the cable industry 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, or, in the alternative, a cost of service showing, 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 added.
The FCC has adopted regulations implementing all of the requirements of
the 1992 Cable Act. 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. Adelphia
cannot predict the effect or outcome of the future rulemaking proceedings,
changes to the rate regulations, or litigation.
Effective September 1, 1993, as a result of the 1992 Cable Act,
Adelphia repackaged certain existing cable services by adjusting rates for basic
service and introducing a new method of offering certain cable services.
Adelphia adjusted the basic service rates and related equipment and installation
rates in all of their systems in order for such rates to be in compliance with
the applicable benchmark or equipment and installation cost levels. Adelphia
also implemented a program in all of their systems called "CableSelect" under
which most of Adelphia's satellite-delivered programming services were 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
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prices of all such services. Adelphia believed CableSelect provided increased
programming choices to its subscribers while providing flexibility to Adelphia
to respond to future changes in areas such as customer demand and programming.
Adelphia no longer offers the CableSelect Program in any of its systems.
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 letters 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 Service Bureau's decision. On November 18, 1994, the FCC released
amended rules under which, on a prospective basis, any a la carte package will
be treated as a regulated tier, except for packages involving premium services.
An appeal of this decision to the U.S. Court of Appeals for the D.C. Circuit was
unsuccessful.
In fiscal 1996, Adelphia recorded a $5,300 charge representing
management's estimate of the total costs to be incurred to resolve all of their
rate complaints with the FCC. On May 1, 1997, Adelphia reached a settlement of
all rate complaints before the FCC on terms and conditions consistent with
certain other cable television companies that utilized a la carte packages that
have reached settlement/resolution with the FCC on this issue. At March 31,
1997, $3,382 of the $5,300 charge remained in accrued interest and other
liabilities, which management believes is adequate to cover the settlement. 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 Adelphia.
Adelphia 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 their business and results of operations in future
periods.
5. Stockholders' Equity (Deficiency):
Adelphia has no convertible securities or other common stock equivalent
securities outstanding.
Stock Issued During Fiscal 1995
On January 10, 1995, Adelphia issued 399,087 shares of Class A Common
Stock in connection with the acquisition of Oxford (see Note 1). On February 28,
1995, 1,000,000 shares of Class A Common Stock were sold to FPL Group, Inc. for
$15.00 per share.
Stock Issued During Fiscal 1996
On April 3, 1995, Olympus purchased from Adelphia, through a charge to
its receivable balance with Adelphia, 457,300 shares of Adelphia Class A Common
Stock for $5,000. Olympus used the stock in the acquisition of the cable and
security systems of WB Cable Associates, Ltd.
Stock Issued During Fiscal 1997
On February 10, 1997, Adelphia issued 766,871 shares of Class A Common
Stock in connection with the acquisition of Small Cities (see Note 1).
Preferred Stock
The Certificate of Incorporation of Adelphia authorizes 5,000,000
shares of Preferred Stock, $.01 par value. None have been issued.
Common Stock
The Certificate of Incorporation of Adelphia authorizes two classes of
common stock, Class A and Class B. Holders of Class A Common Stock and Class B
Common Stock vote as a single class on all matters submitted to a vote of the
stockholders, with each share of Class A Common Stock entitled to one vote and
each share of Class B Common Stock entitled to ten votes, except (i) for the
election of directors and (ii) as otherwise provided by law. In the annual
election of
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directors, the holders of Class A Common Stock voting as a separate class, are
entitled to elect one of Adelphia's directors. In addition, each share of Class
B Common Stock is automatically convertible into a share of Class A Common Stock
upon transfer, subject to certain limited exceptions. In the event a cash
dividend is paid, the holders of Class A Common Stock will be paid 105% of the
amount payable per share for each share of Class B Common Stock.
Upon liquidation, dissolution or winding up of Adelphia, the holders of
Class A Common Stock are entitled to a preference of $1.00 per share. After such
amount is paid, holders of Class B Common Stock are entitled to receive $1.00
per share. Any remaining amount would then be shared ratably by both classes.
Restricted Stock Bonus Plan
Adelphia has reserved 500,000 shares of Class A Common Stock for
issuance to officers and other key employees at the discretion of the
Compensation Committee of the Board of Directors. The bonus shares will be
awarded without any cash payment by the recipient unless otherwise determined by
the Compensation Committee. Shares awarded under the plan vest over a five year
period.
No awards have been made under the plan.
Stock Option Plan
Adelphia has a stock option plan, which provides for the granting of
options to purchase up to 200,000 shares of Adelphia's Class A Common Stock to
officers and other key employees of the Company and its subsidiaries. Options
may be granted at an exercise price equal to the fair market value of the shares
on the date of grant. The plan permits the granting of tax-qualified incentive
stock options, in addition to non-qualified stock options. Options outstanding
under the plan may be exercised by paying the exercise price per share through
various alternative settlement methods. No stock options have been granted under
the plan.
6. Employee Benefit Plans:
Savings Plan
Adelphia has a savings plan (401(k)) which provides that eligible
full-time employees may contribute from 2% to 16% of their pre-tax compensation
subject to certain limitations. Adelphia makes matching contributions not
exceeding 1.5% of each participant's pre-tax compensation. Adelphia's matching
contributions amounted to $343, $350 and $638 for the years ended March 31,
1995, 1996 and 1997, respectively.
Hyperion Long-Term Incentive Compensation Plan
On October 3, 1996, Hyperion adopted its 1996 Long-Term Incentive
Compensation Plan (the "1996 Plan"). The 1996 Plan provides for the granting of
(i) options which qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, (ii) options which
do not so qualify, (iii) share awards (with or without restrictions on vesting),
(iv) stock appreciation rights and (v) stock equivalent or phantom units. The
number of shares of Hyperion Class A Common Stock available for issuance
initially will be 1,750,000. Such number is to increase each year by 1% of
outstanding shares of all classes of Hyperion Common Stock, up to a maximum of
2,500,000 shares. Options, awards and units may be granted under the 1996 Plan
to directors, officers, employees and consultants. The 1996 Plan provides that
incentive stock options must be granted with an exercise price of not less than
the fair market value of the underlying Hyperion Common Stock on the date of
grant. Options outstanding under the Plan may be exercised by paying the
exercise price per share through various alternative settlement methods. On
March 4, 1997 and April 1, 1997, Hyperion issued 104,000 shares and 18,000
shares, respectively, of its Class A Common Stock to Daniel R. Milliard pursuant
to his employment agreement with Hyperion. No other stock options, stock awards,
stock appreciation rights or phantom stock units have been granted under the
Plan.
7. Taxes on Income:
Adelphia and its corporate subsidiaries file a consolidated federal
income tax return, which includes its share of the
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subsidiary partnerships and
joint venture partnership results. At March 31, 1997, Adelphia had net operating
loss carryforwards for federal income tax purposes of approximately $1.1 billion
expiring through 2012. Depreciation and amortization expense differs for tax and
financial statement purposes due to the use of prescribed periods rather than
useful lives for tax purposes and also as a result of differences between tax
basis and book basis of certain acquisitions.
The tax effects of significant items comprising Adelphia's net deferred
tax liability are as follows:
1996 1997
Deferred tax liabilities:
Differences between book and
tax basis of property, plant
and equipment and
intangible assets $ 234,312 $ 233,998
----------- -----------
Deferred tax assets:
Reserves not currently deductible 14,467 55,786
Operating loss carryforwards 415,121 427,400
----------- -----------
429,588 483,186
Valuation allowance (301,485) (359,285)
----------- -----------
Subtotal 128,103 123,901
----------- -----------
Net deferred tax liability $ 106,209 $ 110,097
=========== ===========
The net change in the valuation allowance for the years ended March 31,
1996 and 1997 was an increase of $42,065 and $57,800, respectively.
Income tax benefit for the years ended March 31, 1995, 1996 and 1997 is
as follows:
Year Ended March 31,
1995 1996 1997
Current $ (500) $ (1,144) $ (142)
Deferred 5,975 3,930 500
---------- ---------- ----------
Total $ 5,475 $ 2,786 $ 358
========== ========== ==========
A reconciliation of the statutory federal income tax rate and Adelphia's
effective income tax rate is as follows:
Year Ended March 31,
1995 1996 1997
Statutory federal income tax rate 35% 35% 35%
Change in valuation allowance (31%) (37%) (41%)
State taxes, net of federal benefit 4% (1%) 6%
Other (3%) 5% -%
---- ---- ----
Effective income tax benefit rate 5% 2% -%
==== ==== ====
8. Disclosures about Fair Value of Financial Instruments:
Included in Adelphia's financial instrument portfolio are cash, notes
payable, debentures and interest rate swaps and caps. The carrying values of
notes payable approximate their fair values at March 31, 1996 and 1997. The
carrying cost of
62
<PAGE>
the publicly traded notes and debentures at March 31, 1996 and 1997 of $932,135
and $1,361,845, respectively, exceeded their fair value by $1,420 and $46,828,
respectively. At March 31, 1996 and 1997, Adelphia would have been required to
pay approximately $14,225 and $7,632, respectively, to settle its interest rate
swap and cap agreements, representing the excess of carrying cost over fair
value of these agreements. The fair values of the debt and interest rate swaps
and caps were based upon quoted market prices of similar instruments or on rates
available to Adelphia for instruments of the same remaining maturities.
9. Related Party Transactions:
Adelphia currently manages cable television systems which are
principally owned by Olympus and limited partnerships in which certain of
Adelphia's principal shareholders who are executive officers have equity
interests.
Adelphia has agreements with Olympus and the managed partnerships which
provide for the payment of fees to Adelphia. The aggregate fee revenues from
Olympus and the managed partnerships amounted to $7,293, $2,700 and $2,939 for
the years ended March 31, 1995, 1996 and 1997, respectively. In addition,
Adelphia was reimbursed by Olympus and managed partnerships for allocated
corporate costs of $4,521, $7,517 and $6,335 for the years ended March 31, 1995,
1996 and 1997, respectively, which have been recorded as a reduction of selling,
general and administrative expense.
Adelphia leases from a partnership and a corporation owned by principal
shareholders who are executive officers support equipment under agreements which
have been accounted for as capital leases. These obligations, which are included
in other debt, amounted to $451 and $0 at March 31, 1996 and 1997, respectively.
Adelphia also leases from this partnership certain buildings under operating
leases. Rent expense under these operating leases aggregated $97, $127 and $133
for the years ended March 31, 1995, 1996 and 1997, respectively.
Net settlement amounts under interest rate swap agreements with Olympus
and the managed partnerships, recorded as adjustments to interest expense during
the period incurred, decreased Adelphia's interest expense by $173 for the year
ended March 31, 1995 and increased interest expense by $826 and $50 for the
years ended March 31, 1996 and 1997, respectively.
During the year ended March 31, 1997, Adelphia paid $2,563 to entities
owned by certain shareholders of Adelphia primarily for property, plant and
equipment.
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<PAGE>
10. Quarterly Financial Data (Unaudited):
<TABLE>
<CAPTION>
The following tables summarize the financial results of Adelphia for
each of the quarters in the years ended March 31, 1996 and 1997:
Three Months Ended
June 30 September 30 December 31 March 31
Year ended March 31, 1996:
<S> <C> <C> <C> <C>
Revenues $ 96,921 $ 97,082 $ 102,457 $ 107,137
---------- ---------- ---------- ----------
Operating expenses:
Direct operating and programming 28,522 29,630 32,066 33,898
Selling, general and administrative 16,870 17,110 16,981 17,396
Depreciation and amortization 27,624 26,165 25,679 31,563
Rate regulation -- -- -- 5,300
---------- ---------- ---------- ----------
Total 73,016 72,905 74,726 88,157
---------- ---------- ---------- ----------
Operating income 23,905 24,177 27,731 18,980
---------- ---------- ---------- ----------
Other income (expense):
Interest income from affiliates 3,410 3,378 2,087 1,748
Priority investment income from
Olympus 5,575 6,575 6,575 10,127
Interest expense (53,124) (52,754) (53,281) (51,532)
Equity in loss of Olympus and other
joint ventures (10,257) (8,784) (9,127) (13,797)
Equity in loss of Hyperion
nonconsolidated joint ventures (797) (845) (1,509) (1,141)
---------- ---------- ---------- ----------
Total (55,193) (52,430) (55,255) (54,595)
---------- ---------- ---------- ----------
Loss before income taxes (31,288) (28,253) (27,524) (35,615)
Income tax benefit 1,044 195 1,127 420
---------- ---------- ---------- ----------
Net loss $ (30,244) $ (28,058) $ (26,397) $ (35,195)
========== ========== ========== ==========
Net loss per weighted average share
of common stock $ (1.15) $ (1.07) $ (1.00) $ (1.34)
========== ========== ========== ==========
Weighted average shares of common
stock outstanding (in thousands) 26,294 26,308 26,308 26,308
========== ========== ========== ==========
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
June 30 September 30 December 31 March 31
Year ended March 31, 1997:
<S> <C> <C> <C> <C>
Revenues $ 111,011 $ 117,437 $ 122,127 $ 122,203
--------- --------- --------- ---------
Operating expenses:
Direct operating and programming 33,597 35,864 39,005 40,516
Selling, general and administrative 18,638 20,175 22,319 20,631
Depreciation and amortization 28,477 30,262 30,813 34,514
--------- --------- --------- ---------
Total 80,712 86,301 92,137 95,661
--------- --------- --------- ---------
Operating income 30,299 31,136 29,990 26,542
--------- --------- --------- ---------
Other income (expense):
Interest income from affiliates 2,049 2,163 2,098 2,057
Priority investment income from
Olympus 9,817 10,273 10,542 11,454
Interest expense (60,496) (60,969) (59,299) (59,928)
Equity in loss of Olympus
and other joint ventures (13,011) (11,916) (14,061) (12,958)
Equity in loss of Hyperion
nonconsolidated joint ventures (1,636) (1,362) (2,145) (2,080)
Gain on sale of investments 8,405 -- -- 3,746
--------- --------- --------- ---------
Total (54,872) (61,811) (62,865) (57,709)
--------- --------- --------- ---------
Loss before income taxes and extraordinary loss. (24,573) (30,675) (32,875) (31,167)
Income tax (expense) benefit (166) 175 55 294
--------- --------- --------- ---------
Loss before extraordinary loss (24,739) (30,500) (32,820) (30,873)
Extraordinary loss on early retirement of debt (2,079) -- -- (9,631)
--------- --------- --------- ---------
Net loss $ (26,818) $ (30,500) $ (32,820) $ (40,504)
========= ========= ========= =========
Loss per weighted average share of common
stock before extraordinary loss (.94) (1.16) (1.25) (1.15)
Extraordinary loss per weighted average share
on early retirement of debt (.08) -- -- (.36)
--------- --------- --------- ---------
Net loss per weighted average share of
common stock $ (1.02) $ (1.16) $ (1.25) $ (1.51)
========= ========= ========= =========
Weighted average shares of common
stock outstanding (in thousands) 26,308 26,308 26,308 26,726
========= ========= ========= =========
</TABLE>
65
<PAGE>
11. Subsequent Events:
On May 20, 1997, Adelphia and its affiliates and Time Warner Cable
companies entered into agreements involving a trade of cable systems in seven
states covering approximately 250,000 subscribers, an exchange of interests in
four Competitive Local Exchange Carrier ("CLEC") networks in New York state.
Adelphia will exchange its systems serving 67,600 subscribers primarily in the
Mansfield, Ohio area and cash for systems owned by Time Warner Cable companies
serving 72,400 subscribers adjacent to systems owned or managed by Adelphia in
Virginia, New England and New York. Also, Hyperion has agreed with a Time Warner
company to an exchange of interests in four CLEC networks in New York. In this
transaction, Hyperion will increase its interests in its Buffalo and Syracuse
CLEC networks to 50% and 100%, respectively, and eliminate its interests in the
Albany and Binghamton networks. Certain affiliates managed by Adelphia will
exchange systems serving 49,700 subscribers in Syracuse, New York and Henderson,
North Carolina for Time Warner cable systems serving 57,900 subscribers adjacent
to systems owned or managed by Adelphia in western Pennsylvania and Virginia.
Consummation of this transaction is subject to certain closing conditions and
regulatory approval.
On June 6, 1997, Adelphia signed a letter of intent to establish a
partnership into which Tele-Communications, Inc., ("TCI") will contribute its
cable systems in Buffalo, New York; Erie, Pennsylvania; and Ashtabula and Lake
County, Ohio, totaling 166,000 subscribers, and Adelphia will contribute its
Western New York and Lorain, Ohio systems, totaling 298,000 subscribers. Upon
closing of the transaction, TCI will hold a minority interest in the
partnership. Adelphia will manage the partnership and expects to consolidate the
partnership's results for financial reporting purposes. The venture will serve
approximately 464,000 customers. Consummation of this transaction is subject to
certain closing conditions and regulatory approval.
On June 11, 1997, Adelphia announced the sale of its interest in
PageCall, Inc. to Benbow PCS Ventures, Inc. for a price of $16,500, payable in
Series A Convertible Preferred Stock of Arch Communications Group, Inc. and
cash. This transaction is subject to normal closing conditions and regulatory
approval.
66
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth above in Part I under the caption
"Executive Officers of the Registrant" is incorporated herein by reference. The
other information required by this item is incorporated herein by reference to
the information set forth under the caption "Election of Directors - Description
of Board of Directors"; the information set forth under the caption "Election of
Directors - Nominee for Election by Holders of Class A Common Stock"; the
information set forth under the caption "Election of Directors - Nominees for
Election by Holders of Class A Common Stock and Class B Common Stock"; and the
information, if any, under the caption "Section 16 "a" Beneficial Ownership
Reporting Compliance," in the Company's definitive proxy statement for the 1997
Annual Meeting of Stockholders filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended, or by reference to a filing
amending this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the information set forth under the caption "Executive
Compensation" in the Company's definitive proxy statement for the 1997 Annual
Meeting of Stockholders filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended, or by reference to a filing amending this
Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the information set forth under the caption "Principal
Stockholders" in the Company's definitive proxy statement for the 1997 Annual
Meeting of Stockholders filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended, or by reference to a filing amending this
Annual Report of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the information set forth under the caption "Certain Transactions"
in the Company's definitive proxy statement for the 1997 Annual Meeting of
Stockholders filed pursuant to Regulation 14A of the Securities Exchange Act of
1934, as amended, or by reference to a filing amending this Annual Report on
Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements, schedules and exhibits not listed have been
omitted where the required information is included in the consolidated financial
statements or notes thereto, or is not applicable or required.
(a)(1) A listing of the consolidated financial statements,
notes and independent auditors' report required by
Item 8 are listed on page 44 of this Annual Report on
Form 10-K.
67
<PAGE>
(2) Financial Statement Schedules:
The following are included in this Report:
Schedule I -- Condensed Financial
Information of the Registrant
Schedule II -- Valuation and
Qualifying Accounts
<TABLE>
<CAPTION>
(3) Exhibits
Exhibit No. Description
<S> <C>
3.01 Certificate of Incorporation of Adelphia Communications Corporation
(Incorporated herein by reference is Exhibit 3.01 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995.) (File Number
0-16014)
3.02 Bylaws of Adelphia Communications Corporation (Incorporated herein by
reference is Exhibit 3.02 to Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1994.) (File Number 0-16014)
4.01 Indenture, dated as of February 26, 1997, between the Registrant and Bank
of Montreal Trust Company with respect to the Registrant's 9-7/8% Senior
Notes Due 2007 (Incorporated herein by reference is Exhibit 4.01 to
Registrant's Current Report on Form 8-K dated May 1, 1997.) (File Number
0-16014)
4.02 Form of Note with respect to the Registrant's 9-7/8% Senior Notes Due 2007
(contained in Indenture filed as Exhibit 4.01.)
4.03 Registration Rights Agreement, dated as of February 26, 1997, between the
Registrant and the Initial Purchaser with respect to the Registrant's
9-7/8% Senior Notes Due 2007 (Incorporated herein by reference is Exhibit
10.01 to Registrant's Current Report on Form 8-K dated May 1, 1997.) (File
Number 0-16014)
4.04 First Supplemental Indenture, dated as of May 4, 1994, with respect to
Registrant's 9-1/2% Senior Pay-In-Kind Notes Due 2004 (Incorporated herein by
reference is Exhibit 4.01 to Registrant's Current Report on Form 8-K dated May
5, 1994.) (File Number 0-16014)
4.05 Indenture, dated as of February 22, 1994, with respect to Registrant's
9-1/2% Senior Pay-In-Kind Notes Due 2004 (Incorporated herein by reference
is Exhibit 4.05 to Registration Statement No. 33-52513 on Form S-4.)
4.06 Indenture, dated as of July 28, 1993, with respect to Registrant's 10-1/4%
Senior Notes Due 2000 (Incorporated herein by reference is Exhibit 4.01 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1993.)
(File Number 0-16014)
4.07 Amended and Restated Indenture, dated as of May 11, 1993, with respect to
Registrant's 9-7/8% Senior Debentures Due 2005 (Incorporated herein by reference
is Exhibit 4.01 to Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993.) (File Number 0-16014)
4.08 Indenture, dated as of September 2, 1992, with respect to the Registrant's
11-7/8% Senior Debentures Due 2004 (Incorporated herein by reference is
Exhibit 4.03 to Registration Statement No. 33-52630 on Form S-1.)
4.09 Indenture, dated as of May 7, 1992, with respect to the Registrant's
12-1/2% Senior Notes Due 2002 (Incorporated herein by reference is Exhibit 4.03
to Registrant's Annual Report on Form 10-K for the fiscal year ended March 31,
1992.) (File Number 0-16014)
68
<PAGE>
4.10 Indenture, dated as of April 15, 1996, between Hyperion Telecommunications,
Inc. and Bank of Montreal Trust Company (Incorporated by reference is Exhibit
4.1 to Registration Statement No. 333-06957 on Form S-4 filed for Hyperion
Telecommunications, Inc.)
4.11 Form of 13% Hyperion Telecommunications, Inc. Senior Discount Notes
(Incorporated herein by reference is Exhibit 4.3 to Hyperion
Telecommunications, Inc.'s Registration Statement No. 333-12619 on Form
S-1.)
4.12 First Supplemental Indenture, dated as of September 11, 1996, between
Hyperion Telecommunications, Inc. and Bank of Montreal Trust Company
(Incorporated herein be reference is Exhibit 4.2 of Hyperion Telecommunications,
Inc.'s Registration Statement No. 333-12619 on Form S-1.)
4.13 Indenture, dated as of November 12, 1996, between Olympus Communications,
L.P., Olympus Capital Corporation and Bank of Montreal Trust Company
(Incorporated herein by reference is Exhibit 10.02 to Registrant's Current
Report on Form 8-K dated December 16, 1996.) (File Number 0-16014)
10.01 Class B Common Stockholders Agreement (Incorporated herein by reference
is Exhibit 10.01 to Registration Statement No. 33-6974 on Form S-1.)
10.02 Joinder to Class B Common Stockholders Agreement (Incorporated herein by
reference is Exhibit 10.02 to Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1994.) (File Number 0-16014)
10.03 Registration Rights Agreement and Amendment to Registration Rights
Agreement (Incorporated herein by reference are Exhibit 10.02 to Registration
Statement No. 33-6974 on Form S-1 and Exhibit 10.35 to Registration Statement
No. 33-25121 on Form S-1.)
10.04 Form of Management Agreement for Managed Companies (Incorporated herein
by reference is Exhibit 10.04 to the Registrant's Annual Report on Form 10-K for
fiscal year ended March 31, 1996.) (File Number 0-16014)
10.05 Management Agreement--Montgomery Cablevision Associates, L.P.
(Incorporated herein by reference is Exhibit 10.08 to Registration
Statement No.
33-6974 on Form S-1.)
10.06 Management Agreement--Adelphia Cablevision Associates of Radnor, L.P.
(Incorporated herein by reference is Exhibit 10.09 to Registration
Statement No.
33-6974 on Form S-1.)
10.07*Stock Option Plan of 1986, as amended (Incorporated herein by reference
is Exhibit 10.07 to Registration Statement No. 33-46551 on Form S-1.)
10.08* Restricted Stock Bonus Plan, as amended (Incorporated herein by
reference is Exhibit 10.08 to Registration Statement No. 33-46551 on Form S-1.)
10.09 Business Opportunity Agreement (Incorporated herein by reference is
Exhibit 10.13 to Registration Statement No. 33-3674 on Form S-1.)
10.10*Employment Agreement between the Company and John J. Rigas (Incorporated
herein by reference is Exhibit 10.14 to Registration Statement No. 33-6974 on
Form S-1.)
10.11*Employment Agreement between the Company and Daniel R. Milliard
(Incorporated herein by reference is Exhibit 10.15 to Registration
Statement No. 33-6974 on Form S-1.)
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<PAGE>
10.12*Employment Agreement between the Company and Timothy J. Rigas
(Incorporated herein by reference is Exhibit 10.16 to Registration
Statement No.
33-6974 on Form S-1.)
10.13*Employment Agreement between the Company and Michael J. Rigas
(Incorporated herein by reference is Exhibit 10.17 to Registration
Statement No.
33-6974 on Form S-1.)
10.14*Employment Agreement between the Company and James P. Rigas (Incorporated
herein by reference is Exhibit 10.18 to Registration Statement No. 33-6974 on
Form S-1.)
10.15 Agreement Regarding Management Fees relating to the subsidiaries of
Chauncey Communications Corporation (Incorporated herein by reference is Exhibit
10.16 of Registrant's Annual Report on Form 10-K for the fiscal year ended March
31, 1991.) (File Number 0-16014)
10.16 Form of Note Agreement, dated as of August 1, 1990, relating to the 10.66%
Senior Secured Notes due August 1, 1998 of Chauncey Communications
Corporation (Incorporated herein by reference is Exhibit 10.01 of
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1990.) (File Number 0-16014)
10.17 Amendatory Agreement regarding Chauncey Communications Corporation 10.66%
Senior Secured Note Agreement, dated as of August 6, 1991 (Incorporated herein
by reference is Exhibit 10.02 of Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1991.) (File Number 0-16014)
10.18 $50,000 Term Note and Pledge Agreement between Adelphia Communications
Corporation as lender and Daniel R. Milliard, dated October 1, 1988
(Incorporated herein by reference is Exhibit 10.03 of Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1991.)
(File Number 0-16014)
10.19 $205,000 Revolving Term Note and Pledge Agreement among Adelphia
Communications Corporation as lender, Daniel R. Milliard and David Acker
(Incorporated herein by reference is Exhibit 10.04 of Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1991.) (File
Number 0-16014)
10.20 Olympus Communications, L.P. Second Amended and Restated Limited
Partnership Agreement, dated as of February 28, 1995 (Incorporated herein by
reference is Exhibit 10.32 of the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995.) (File Number 0-16014)
10.21 Credit, Security and Guaranty Agreement among UCA Corp. and certain of its
Affiliates and First Union National Bank of North Carolina as
Administrative Agent, dated as of March 15, 1995 (Incorporated herein by
reference is Exhibit 10.32 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended
March 31, 1995.) (File Number 0-16014)
10.22 Revolving Credit Facility among Adelphia Cable partners, L.P., Southwest
Florida Cable, Inc., West Boca Acquisition Limited Partnership and
Toronto-Dominion (Texas), Inc., as Administrative Agent, dated May 12,
1995 (Incorporated herein by reference is Exhibit 10.03 to Registrant's
Current Report on Form 8-K dated June 30, 1995.) (File Number 0-16014)
10.23 Credit Agreement, dated as of October 27, 1995, among Plato
Communications, Inc. Northeast Cable, Inc., Robinson/Plum Cablevision
L.P., the several other banks and other financial institutions from time
to time parties to this agreement and Chemical Bank, as Administrative
Agent (Incorporated herein by reference is Exhibit 10.35 to Registrant's
Current Report on Form 8-K dated December 7, 1995.) (File Number 0-16014)
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<PAGE>
10.24 Credit Agreement, dated as of April 12, 1996, among Chelsea
Communications, Inc., Kittanning Cablevision Inc., Robinson/Plum
Cablevision L.P., the several banks and financial institutions parties
thereto, and Toronto Dominion (Texas), Inc. as Administrative Agent
(Incorporated herein by reference is Exhibit 10.36 to Registrant's Current
Report on Form 8-K dated June 3, 1996.)
(File Number 0-16014)
10.25 Amended Credit Agreement, dated as of March 29, 1996, among Highland Video
Associates L.P., Telesat Acquisition Limited Partnership, Global
Acquisition Partners, L.P., the various financial institutions as parties
thereto, Bank of Montreal as syndication agent, Chemical Bank as
documentation agent, and the Bank of Nova Scotia as administrative agent
(Incorporated herein by reference is Exhibit 10.37 to Registrant's Current
Report on Form 8-K dated June 19, 1996.)
(File Number 0-16014)
10.26 Purchase Agreement dated as of April 10, 1996 between Hyperion
Telecommunications, Inc. and Bear Stearns & Co. Inc., Chase Securities Inc. and
NationsBanc Capital Markets, Inc. (Incorporated by reference is Exhibit 1.1 to
Registration Statement No. 333-06957 on Form S-4 filed for Hyperion
Telecommunications, Inc.)
10.27 Purchase Agreement dated as of February 21, 1997 between the Registrant
and Smith Barney Inc. (Incorporated herein by reference is Exhibit 10.02 to
Adelphia Communications Corporation's Current Report on Form 8-K dated May 1,
1997). (File Number 0-16014)
10.28 Registration Rights Agreement dated as of April 15, 1996, between Hyperion
Telecommunications, Inc. and the Initial Purchasers (Incorporated by
reference is Exhibit 4.3 to Registration Statement No. 333-06957 on Form
S-4 filed for Hyperion Telecommunications, Inc.)
10.29 Warrant Agreement dated as of April 15, 1996, by and among Hyperion
Telecommunications, Inc. and Bank of Montreal Trust Company (Incorporated by
reference is Exhibit 10.13 to Registration Statement No. 333-06957 on Form S-4
filed for Hyperion Telecommunications, Inc.)
10.30 Warrant Registration Rights Agreement dated as of April 15, 1996, by and
among Hyperion Telecommunications, Inc. and the Initial Purchasers (Incorporated
by reference is Exhibit 10.14 to Registration Statement No. 333-06957 on Form
S-4 filed for Hyperion Telecommunications, Inc.)
10.31*Hyperion Telecommunications, Inc. Long-Term Incentive Compensation Plan
(Incorporated herein by reference is Exhibit 10.17 to Hyperion
Telecommunications, Inc.'s Registration Statement No. 333-13663 on Form S-1.)
10.32 Purchase Agreement, dated as of November 6, 1996, between Olympus
Communications, L.P., Olympus Capital Corporation and Goldman, Sachs & Co.
(Incorporated herein by reference is Exhibit 10.01 to Registrant's Current
Report on Form 8-K dated December 16, 1996.) (File Number 0-16014)
10.33 Registration Rights Agreement among Charles R. Drenning, Paul D. Fajerski,
Randolph S. Fowler, Adelphia Communications Corporation and the Company
(Incorporated herein by reference is Exhibit 10.18 to Hyperion
Telecommunications, Inc.'s Registration Statement No. 333-13663 on Form S-1.)
10.34 Registration Rights Agreement between Adelphia Communications Corporation
and the Company (Incorporated herein by reference is Exhibit 10.19 to Hyperion
Telecommunications, Inc.'s Registration Statement No. 333-13663 on Form S-1.)
71
<PAGE>
10.35 First Amendment to the Olympus Communications, L.P. Second Amended and
Restated Limited Partnership Agreement, dated September 1, 1995
(Incorporated herein by reference is Exhibit 10.33 to the Registrant's
Annual Report on Form 10-K/A for the fiscal year ended March 31, 1996.)
(File Number 0-16014)
10.36 First Amendment to the Olympus Communications, L.P. Second Amended and
Restated Limited Partnership Agreement, dated March 29, 1996 (Incorporated
herein by reference is Exhibit 10.34 to the Registrant's Annual Report on Form
10-K/A for the fiscal year ended March 31, 1996.) (File Number 0-16014)
10.37 Second Amendment to the Olympus Communications, L.P. Second Amended and
Restated Limited Partnership Agreement, dated June 27, 1996 (Incorporated herein
by reference is Exhibit 10.35 to the Registrant's Annual Report on Form 10-K/A
for the fiscal year ended March 31, 1996.) (File Number 0-16014)
10.38 Employment Agreement between Hyperion Telecommunications, Inc. and Daniel
R. Milliard dated as of March 4, 1997 (Incorporated herein by reference is
Exhibit 10.03 to Adelphia Communications Corporation's Current Report on Form
8-K dated May 1, 1997) (File Number 0-16014)
10.39 Extension Agreement dated as of January 8, 1997, among Hyperion
Telecommunications, Inc., Adelphia Communications Corporation, Charles R.
Drenning, Paul D. Fajerski, Randolph S. Fowler, and six Trusts named therein
(Incorporated herein by reference is Exhibit 10.04 to Adelphia Communications
Corporation's Current Report on Form 8-K dated May 1, 1997) (File Number
0-16014)
21.01 Subsidiaries of the Registrant (Filed herewith)
23.01 Consent of Deloitte & Touche LLP (Filed herewith)
23.02 Consent of Deloitte & Touche LLP (Filed herewith)
27.01 Financial Data Schedule (Filed herewith)
99.01 Material incorporated by reference into this Form 10-K from pages 29
through 37, and F-2 to F-19 of Amendment No. 2 to Registration Statement No.
333-19327 on Form S-4 of Olympus Communications, L.P. and Olympus Capital
Corporation (Filed herewith)
99.02 Material incorporated by reference into this Form 10-K from pages 3 to 6
of Form 10-Q of Olympus Communications, L.P. and Olympus Capital
Corporation for the quarter ended March 31, 1997 (Filed herewith)
-----------------------
<FN>
* Denotes management contracts and compensatory plans and arrangements required to be
identified by Item 14(a)(3).
</FN>
</TABLE>
The Registrant will furnish to the Commission upon request copies of
instruments not filed herewith which authorize the issuance of long-term
obligations of Registrant not in excess of 10% of the Registrant's total assets
on a consolidated basis.
(b) The Registrant filed Form 8-K reports dated January 1, 1997,
February 19, 1997, May 1, 1997 and June 12, 1997, all of which reported
information under items 5 and 7 thereof. No financial statements were filed
with any of such Form 8-K reports.
72
<PAGE>
(c) The Company hereby files as exhibits to this Form 10-K the
exhibits set forth in Item 14(a)(3) hereof which are not incorporated by
reference.
(d) The Company hereby files as financial statement schedules to this
Form 10-K the financial statement schedules set forth in Item 14(a)(2) hereof.
73
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I (Page 1 of 4)
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Information as to the Financial Position of the Registrant
(Dollars in thousands)
March 31,
1996 1997
ASSETS:
<S> <C> <C>
Investment in and net advances to
cable television subsidiaries and related parties $ 318,345 $ 479,643
Property and equipment - net 27,808 26,258
Cash and cash equivalents 3,097 97
Other assets - net 76,574 81,712
----------- -----------
Total $ 425,824 $ 587,710
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY):
Losses and distributions in excess of investments in and net advances
to cable television subsidiaries $ 558,143 $ 601,549
12 1/2% Senior Notes due 2002 400,000 277,385
10 1/4% Senior Notes due 2000 99,158 99,322
9 7/8% Senior Notes due 2007 -- 347,274
11 7/8% Senior Debentures due 2004 124,502 124,539
9 7/8% Senior Debentures due 2005 128,118 128,255
9 1/2% Senior Pay-In-Kind Notes due 2004 180,357 197,897
Other debt 8,485 9,537
Accrued interest and other liabilities 55,300 55,833
----------- -----------
Total liabilities 1,554,063 1,841,591
Stockholders' equity (deficiency) - see consolidated financial
statements included herein for details (1,128,239) (1,253,881)
----------- -----------
Total $ 425,824 $ 587,710
=========== ===========
See notes to condensed financial information of the Registrant.
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I (Page 2 of 4)
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Information as to the Operations of the Registrant
(Dollars in thousands)
Year Ended March 31,
1995 1996 1997
INCOME:
<S> <C> <C> <C>
Income from subsidiaries and affiliates $ 72,413 $ 55,277 $ 57,479
---------- ---------- ----------
EXPENSES:
Operating expenses and fees to subsidiaries 1,044 2,156 2,044
Depreciation and amortization 5,179 5,942 5,882
Interest expense to subsidiaries and affiliates 4,371 14,645 18,591
Interest expense to others 103,367 107,829 103,735
---------- ---------- ----------
Total 113,961 130,572 130,252
---------- ---------- ----------
Loss before gain on investment and equity in
net loss of subsidiaries (41,548) (75,295) (72,773)
Gain on sale of investment -- -- 3,746
Equity in net loss of subsidiaries (64,736) (44,599) (49,905)
---------- ---------- ----------
Loss before extraordinary loss (106,284) (119,894) (118,932)
Extraordinary loss on early retirement of debt -- -- (11,710)
---------- ---------- ----------
Net loss $ (106,284) $ (119,894) $ (130,642)
========== ========== ==========
See notes to condensed financial information of the Registrant.
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I (Page 3 of 4)
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Information as to the Cash flows of the Registrant
(Dollars in thousands)
Year Ended March 31,
1995 1996 1997
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (106,284) $ (119,894) $ (130,642)
Adjustments to reconcile net loss to net cash used
for operating activities:
Equity in net loss of subsidiaries 64,736 44,599 49,905
Gain on sale of investment -- -- (3,746)
Non-cash portion of extraordinary loss on early
retirement of debt -- -- 3,503
Depreciation and amortization 5,179 5,942 5,882
Noncash interest expense 14,756 16,288 17,893
Change in operating assets and liabilities:
Other assets (52,096) (6,832) (711)
Accrued interest and other liabilities 12,523 22,107 (2,165)
----------- ----------- -----------
Net cash used for operating activities (61,186) (37,790) (60,081)
----------- ----------- -----------
Cash flows from investing activities:
Investments in and advances (to) from subsidiaries
and related parties - net 55,685 43,120 (162,812)
Expenditures for property, plant and equipment (447) (161) (669)
----------- ----------- -----------
Net cash provided by investing activities 55,238 42,959 (163,481)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from debt 3,300 1,100 348,312
Repayments of debt (12,213) (3,252) (122,615)
Issuance of Class A Common Stock 14,861 -- --
Debt financing costs -- -- (5,135)
----------- ----------- -----------
Net cash provided by (used for) financing activities 5,948 (2,152) 220,562
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents -- 3,017 (3,000)
Cash and cash equivalents, beginning of year 80 80 3,097
----------- ----------- -----------
Cash and cash equivalents, end of year $ 80 $ 3,097 $ 97
=========== =========== ===========
Supplemental disclosure of cash flow activity -
Cash payments for interest $ 103,454 $ 103,965 $ 106,746
=========== =========== ===========
See notes to condensed financial information of the
Registrant.
</TABLE>
76
<PAGE>
SCHEDULE I (Page 4 of 4)
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Information of the Registrant
(Dollars in thousands)
1. Amounts advanced between Adelphia and related parties:
Adelphia Communications Corporation ("Adelphia") has periodically
advanced to and borrowed funds from subsidiaries and affiliates. Adelphia, its
subsidiaries and affiliates charge interest on such amounts at rates ranging
from 2% to 11% with principal due upon demand five years after March 31, 1997.
2. Reclassifications:
Certain 1995 and 1996 amounts have been reclassified to conform with
the 1997 presentation.
77
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Balance Charged
at to Costs Balance
Beginning and Deductions- at End
of Period Expenses Write-Offs of Period
Year Ended March 31, 1995
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts $ 3,603 $ 3,846 $ 3,946 $ 3,503
========== ========== ========== ==========
Year Ended March 31, 1996
Allowance for Doubtful Accounts $ 3,503 $ 5,827 $ 8,114 $ 1,216
========== ========== ========== ==========
Year Ended March 31, 1997
Allowance for Doubtful Accounts $ 1,216 $ 8,398 $ 8,269 $ 1,345
========== ========== ========== ==========
</TABLE>
78
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
June 20, 1997 By: /s/ John J. Rigas
John J. Rigas,
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
June 20, 1997 /s/ John J. Rigas
-----------------
John J. Rigas,
Director
June 20, 1997 /s/ Timothy J. Rigas
--------------------
Timothy J. Rigas,
Executive Vice President,
Chief Financial Officer,
Chief Accounting Officer,
Treasurer and Director
June 20, 1997 /s/ Michael J. Rigas
--------------------
Michael J. Rigas,
Executive Vice President,
Operations and Director
June 20, 1997 /s/ James P. Rigas
------------------
James P. Rigas,
Executive Vice President,
Strategic Planning and
Director
June 20, 1997 /s/ Daniel R. Milliard
----------------------
Daniel R. Milliard,
Senior Vice President,
Secretary and Director
June 20, 1997 /s/ Dennis P. Coyle
-------------------
Dennis P. Coyle,
Director
June 20, 1997 /s/ Pete J. Metros
------------------
Pete J. Metros,
Director
June 20, 1997 /s/ Perry S. Patterson
----------------------
Perry S. Patterson,
Director
79
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
21.01 Subsidiaries of the Registrant (Filed herewith)
23.01 Consent of Deloitte & Touche LLP (Filed herewith)
23.02 Consent of Deloitte & Touche LLP (Filed herewith)
27.01 Financial Data Schedule (Filed herewith)
99.01 Material incorporated by reference into this Form 10-K from pages 29
through 37, and F-2 to F-19 of Amendment No. 2 to Registration
Statement No. 333-19327 on Form S-4 of Olympus Communications, L.P.
and Olympus Capital Corporation (Filed herewith)
99.02 Material incorporated by reference into this Form 10-K from pages 3 to
6 of Form 10-Q of Olympus Communications, L.P. and Olympus Capital
Corporation for the quarter ended March 31, 1997 (Filed herewith)
Exhibit 21.01
List of Subsidiaries of Adelphia Communications Corporation1
ADELPHIA COMMUNICATIONS CORPORATION (Delaware corporation)
ACP HOLDINGS, INC. (Delaware corporation)2
ADELPHIA CABLEVISION, INC. (Pennsylvania corporation)
Crestwood Holdings, Inc. (Delaware corporation)
Manchester Cablevision, Inc.
(New Jersey corporation)
Niagara Frontier Cable Television, Inc.
(New York corporation)
Punxsutawney TV Cable Co., Inc.
(Pennsylvania corporation)
Western Reserve TV Co. (Ohio Corporation)
ADELPHIA COMMUNICATIONS INTERNATIONAL, INC. (Delaware corporation)
ADELPHIA INTERNATIONAL II, L.L.C.
ADELPHIA INTERNATIONAL III, L.L.C.
ADELPHIA MOBILE PHONES, INC.
ADELPHIA TELECOMMUNICATIONS, INC.
BRAZAS COMMUNICATIONS, INC. (Delaware corporation)3
CENTRAL VIRGINIA CABLE, INC. (Delaware corporation)
CHAUNCEY COMMUNICATIONS CORPORATION (Delaware corporation)
Clear Cablevision, Inc. (Delaware corporation)
International Cablevision, Inc.
(New York corporation)4
CHELSEA COMMUNICATIONS, INC. (Delaware corporation)5
Aurora Cable Vision, Inc. (New York corporation)
Better TV, Inc. of Bennington (Vermont corporation)
Campbell Communications, Inc.
(Massachusetts corporation)
Chautauqua County Cablevision, Inc.
(New York corporation)
Harbor Vue Cable TV, Inc. (New York corporation)
Hoosick Cablevision, Inc. (New York corporation)
Kalamazoo County Cablevision, Inc.
(Michigan corporation)
Mass. Cablevision, Inc. (Massachusetts corporation)
Mt. Lebanon Cablevision, Inc.
(Pennsylvania corporation)6
Multi-Channel T.V. Cable Company (Ohio corporation)
Pericles Communications Corporation
(Delaware corporation)
Mountain Cable Communications Corporation
(Delaware corporation)
Mountain Cable Company
(Vermont limited partnership)
Rigpal Communications, Inc.
(Pennsylvania corporation)
South Shore Cablevision, Inc.
(Massachusetts corporation)
Upper St. Clair Cablevision, Inc.
(Pennsylvania corporation)
Vermilion Cable Communications, Inc.
(Ohio corporation)
80
<PAGE>
Adelphia Cablevision Associates, L.P.
(Pennsylvania limited partnership)
SD Cable Holdings, Inc.
Three Rivers Cable Associates, L.P.
Crownpoint Cable of New Hampshire
Young's Cable TV Corporation
EMPIRE SPORTS PARTNERS (51% ownership interests)
(Pennsylvania general partnership)
GLOBAL ACQUISITION PARTNERS, L.P.
GLOBAL CABLEVISION, INC.
GRAND ISLAND CABLE, INC. (Delaware corporation)
HYPERION TELECOMMUNICATIONS, INC. (88% owned) (Delaware corporation)
Hyperion Enhanced Networks of Virginia, Inc.
(Delaware corporation)
Hyperion Telecommunications of Florida, Inc.
(Florida corporation)
Continental Fiber Technologies (20% owned)
(Florida corporation)
Hyperion Telecommunications of New York, Inc.
(Delaware corporation)
NHT Partnership (40% owned)
(New York general partnership)
NewChannels Hyperion Telecommunications
(50% owned) (New York general
partnership)
Hyperion Telecommunications of Kansas, Inc.
(Delaware corporation)
Multimedia Hyperion Telecommunications
Partnership (49.9% owned) (Kansas general
partnership)
Hyperion Telecommunications of Kentucky, Inc.
(Delaware corporation)
Louisville Lightwave (50% owned)
(New Jersey partnership)
Hyperion Telecommunications of Massachusetts, Inc.
(Delaware corporation)
Hyperion Telecommunications of New Jersey, Inc.
(Delaware corporation)
New Jersey Fiber Technologies Partnership
(19.7% owned) (New Jersey general
partnership)
Hyperion Telecommunications of Pennsylvania, Inc.
(a Delaware corporation)
PECO Hyperion Telecommunications (50% owned)
(Pennsylvania general partnership)
Hyperion Telecommunications of Harrisburg
(50% owned) (Pennsylvania general
partnership)
Hyperion Telecommunications of Tennessee, Inc.
(Delaware corporation)
AVR of Tennessee, L.P. d/b/a Hyperion of
Tennessee, L.P. (95% owned) (California
limited partnership)
Hyperion Telecommunications of Vermont, Inc.
(Delaware corporation)
Hyperion Telecommunications of Virginia, Inc.
(Virginia corporation)
Alternet of Virginia (37% owned)
(Virginia general partnership)
Hyperion Telecommunications of Arkansas, Inc.
(Delaware corporation)
Entergy Hyperion Telecommunications of
Arkansas, L.L.C. (50% owned)
(an Arkansas limited liability company)
Hyperion Telecommunications of Louisiana, Inc.
(Delaware corporation)
Entergy Hyperion Telecommunications of
Louisiana, L.L.C. (50% owned)
(an Arkansas limited liability company)
Hyperion Telecommunications of Mississippi, Inc.
(Delaware corporation)
Entergy Hyperion Telecommunications of
Mississippi, L.L.C. (50% owned) (an
Arkansas limited liability company)
KALINAKI, INC.
81
<PAGE>
KITTANNING CABLEVISION, INC. (Delaware corporation)7
LOUISA CABLEVISION, INC. (Delaware corporation)
Greater Louisa County Cable
(Pennsylvania general partnership)
MARTHA'S VINEYARD CABLEVISION, L.P. (50.1% owned)
(Massachusetts limited partnership)
MERCURY COMMUNICATIONS, INC. (Delaware corporation)
NORTHEAST CABLE, INC. (85% owned) (Delaware corporation)7
ORCHARD PARK CABLEVISION, INC.
OXFORD CABLEVISION, INC.
PAGETIME, INC. (Delaware corporation)
ROBINSON/PLUM CABLEVISION, L.P.
SABRES, INC. (Delaware corporation)
SOUTHWEST VIRGINIA CABLE, INC. (Delaware corporation)
Southwest Virginia Holdings, Inc.
(Delaware corporation)
Richlands Cablevision, L.P.
(Delaware limited partnership)
ST. MARY'S CABLEVISION, INC. (50% owned) (Pennsylvania corporation)
TAURUS COMMUNICATIONS, INC. (North Carolina corporation)
TMC HOLDINGS CORPORATION
UCA CORP.
Valley Cablevision, Inc. (Delaware corporation)
UltraCom of Montgomery County, Inc.
(Delaware corporation)
VanBuren County Cablevision, Inc.
(Pennsylvania corporation)
Multi-Channel TV Cable Co. of
Virginia (Delaware corporation)
Lorain Cable Television, Inc.
(Ohio corporation)
U.S. TELE-MEDIA INVESTMENT COMPANY (Pennsylvania corporation)
_________________________
1 Adelphia Communications Corporation and its subsidiaries operate under the
name "Adelphia Cable Communications." Ownership of subsidiaries is indicated by
indentations. Ownership of each subsidiary is 100% unless otherwise indicated
parenthetically or by footnote.
2 ACP Holdings, Inc. is the managing general partner of, and holds partnership
interests in, Olympus Communications, L.P., a Delaware limited partnership which
is not consolidated with Adelphia Communications Corporation. Olympus
Communications, L.P. owns 99.98% of the partnership interests of Adelphia Cable
Partners, L.P. (a Delaware limited partnership) and 99.9% of the partnership
interests in West Boca Acquisition Limited Partnership (a Delaware limited
partnership), Telesat Acquisition Limited Partnership (a Delaware limited
partnership) and of Leadership Acquisition,
L.P. (a Delaware limited partnership). Adelphia Cable Partners, L.P. owns 100%
of the stock of Southeast Florida Cable, Inc. (a Florida corporation) and 50%
general partnership interest in Key Biscayne Cablevision (a Pennsylvania general
partnership). Southeast Florida Cable, Inc. owns 100% of the stock of Palm
Beach Group Cable, Inc. which owns a 50% general partnership interest in
Palm Beach Group Cable Joint Venture, both Florida entities. West Boca
Acquisition Limited Partnership owns 100% of the stock of West Boca Security,
Inc. (a Delaware corporation) and 50.36% limited partnership interest in
Starpoint Limited Partnership (a Pennsylvania limited partnership). Starpoint
82
<PAGE>
Limited Partnership owns 100% of the stock of Cable Sentry Corporation (a
Floridacorporation).
3 Brazas Communications, Inc. owns 100% of the non-voting common stock and
100% of the non-voting preferred stock of TeleMedia Company Holdings, Inc.
(a Delaware corporation), which owns 100% of the stock of TeleMedia Company of
Western Connecticut (a Connecticut corporation).
4 International Cablevision, Inc. owns a 50% general partnership interest in
Western New York Cable Advertising, L.P. (a Delaware limited partnership).
5 Chelsea Communications, Inc. holds a 27.43% interest as General Partner in
Adelphia Cablevision Associates, L.P.; in addition, the following entities hold
the following percentage interest as limited partners: Aurora Cable Vision, Inc.
(14.37%), Mass. Cablevision, Inc. (31.09%), Kalamazoo County Cablevision, Inc.
(10.78%), and Vermilion Cable Communications, Inc. (16.33%). Chelsea
Communications, Inc. also owns a 61% general partnership interest in Media
Partners of Massachusetts.
6 Mt. Lebanon Cablevision, Inc. owns a 75% partnership interest in Three
Rivers Cable Associates, L.P. (an Ohio limited partnership).
7 Northeast Cable, Inc. and Kittanning Cablevision, Inc. own general
partnership interests of 99% and 1%, respectively, in Robinson/Plum
Cablevision, L.P. (a Pennsylvania limited partnership).
83
Exhibit 23.01
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment No. 1 to Registration
Statement Nos. 333-23175 and 033-61139 of Adelphia Communications Corporation on
Form S-3 of our report dated June 11, 1997 for Adelphia Communications
Corporation and subsidiaries, appearing in this Annual Report on Form 10-K of
Adelphia Communications Corporation for the year ended March 31, 1997. We also
consent to the incorporation by reference in Amendment No. 1 to Registration
Statement Nos. 333-23175 and 033-61139 of Adelphia Communications Corporation on
Form S-3 of our report dated March 26, 1997 for Olympus Communications, L.P. and
subsidiaires, contained in Amendment No. 2 to Registration Statement No.
333-19327 of Olympus Communications, L.P. and Olympus Capital Corporation on
Form S-4.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
June 19, 1997
84
Exhibit 23.02
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Annual Report on Form 10-K
under the Securities Exchange Act of 1934 of Adelphia Communications Corporation
for the year ended March 31, 1997 of our report dated March 26, 1997 for Olympus
Communications, L.P. and subsidiaries and contained in Amendment No. 2 to
Registration Statement No. 333-19327 of Olympus Communications, L.P. and Olympus
Capital Corporation on Form S-4 under the Securities Act of 1933 insofar as such
report relates to the financial statements and schedules of Adelphia
Communications Corporation for the year ended March 31, 1997.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
June 19, 1997
85
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Statement for Adelphia Communications Corp.
for the Year ended March 31, 1997
</LEGEND>
<CIK> 0000796486
<NAME> ADELPHIA COMMUNICATIONS CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 61,539
<SECURITIES> 0
<RECEIVABLES> 24,692<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 659,575<F2>
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 1,643,826
<CURRENT-LIABILITIES> 0
<BONDS> 2,544,039
0
0
<COMMON> 270
<OTHER-SE> (1,254,151)
<TOTAL-LIABILITY-AND-EQUITY> 1,643,826
<SALES> 0
<TOTAL-REVENUES> 472,778
<CGS> 0
<TOTAL-COSTS> 354,811
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 240,692
<INCOME-PRETAX> (119,290)
<INCOME-TAX> (358)
<INCOME-CONTINUING> (118,932)
<DISCONTINUED> 0
<EXTRAORDINARY> (11,710)
<CHANGES> 0
<NET-INCOME> (130,642)
<EPS-PRIMARY> (4.94)
<EPS-DILUTED> (4.94)
<FN>
<F1>Receivables are recorded net of allowance
<F2>PP&E recorded net of depreciation
</FN>
</TABLE>
Exhibit 99.01
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
(DOLLARS IN THOUSANDS EXCEPT PER SUBSCRIBER AND GENERAL AND LIMITED PARTNERS'
DATA)
The selected consolidated financial data as of and for each of the five
years in the period ended December 31, 1996 (except for Average Monthly
Revenue per Average Basic Subscriber) have been derived from the audited
Consolidated Financial Statements of the Company. These data should be read in
conjunction with the Consolidated Financial Statements and related Notes
thereto, for each of the three years in the period ended December 31, 1996 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The statement of operations
data with respect to fiscal years ended December 31, 1992 and 1993, and the
balance sheet data at December 31, 1992, 1993, and 1994 have been derived from
audited consolidated financial statements of the Company not included herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 93,401 $ 98,646 $ 94,458 $120,968 $159,870
Direct operating and
programming expenses....... 22,473 22,078 22,369 37,494 48,598
Selling, general and
administrative expenses.... 18,817 16,692 18,708 23,912 28,974
Depreciation and
amortization............... 39,407 37,240 36,703 31,953 40,446
Management fees............. 4,831 4,681 6,302 6,334 8,839
-------- -------- -------- -------- --------
Operating income............ $ 7,873 $ 17,955 $ 10,376 $ 21,275 $ 33,013
Interest expense............ (25,775) (24,515) (22,889) (29,217) (40,748)
Interest expense--
affiliates................. (4,497) (4,955) (9,373) (7,501) (6,600)
Priority return to
affiliate.................. 5,247 -- -- -- --
Other income (expense)...... 535 271 585 (15) 401
-------- -------- -------- -------- --------
Loss before income taxes,
extraordinary loss and
cumulative effect of change
in accounting principle(a). $(16,617) $(11,244) $(21,301) $(15,458) $(13,934)
Income tax (expense)
benefit.................... -- -- 276 (2,824) 2,984
Extraordinary loss(a)....... -- -- -- (1,109) --
Cumulative effect of change
in accounting for income
taxes(a)................... -- (59,500) -- -- --
-------- -------- -------- -------- --------
Net loss.................... $(16,617) $(70,744) $(21,025) $(19,391) $(10,950)
======== ======== ======== ======== ========
Loss per general and limited
partners' unit before
extraordinary loss and
cumulative effect of change
in accounting principle.... $ (1,662) $ (1,124) $ (2,103) $ (1,828) $ (1,095)
Cash distributions declared
per general and limited
partners' unit............. -- -- -- -- 5,467
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $ 467,279 $ 458,663 $ 375,985 $533,909 $640,221
Total debt (b).......... 362,428 368,263 314,069 419,809 572,713
Redeemable Preferred
Limited Partner
Interests.............. 269,601 276,101 276,101 -- --
Partners' equity
(deficiency)........... (322,055) (452,115) (494,105) (18,544) (84,199)
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
FINANCIAL RATIOS AND
OTHER DATA:
EBITDA (c).............. $ 52,646 $ 60,147 $ 53,966 $ 59,547 $ 82,699
EBITDA Margin (d)....... 52.8%(e) 56.8%(e) 56.7%(e) 49.2% 51.7%
Cash provided by
operating activities... 18,657 16,652 20,285 8,161 33,411
Cash (used for) provided
by investing
activities............. (9,870) (32,959) 19,402 (107,351) (70,444)
Cash (used for) provided
by financing
activities............. (5,508) 20,628 (50,633) 131,442 30,822
Capital Expenditures.... $ 26,827 $ 23,164 $ 23,916 $ 21,498 $ 28,117
Ratio of Earnings to
Fixed Charges (f)...... -- -- -- -- --
Average Monthly Revenue
per average basis
subscriber (g)......... $ 28.67 $ 28.90 $ 30.25 $ 33.45 $ 33.78
</TABLE>
- - --------
(a) "Extraordinary loss" relates to loss on the early retirement of debt.
"Cumulative Effect of Change in Accounting Principle" refers to a change
in accounting principle. Effective January 1, 1993 the Company adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," which requires an asset and liability
approach for financial accounting and reporting for income taxes. SFAS No.
109 resulted in the cumulative recognition of an additional liability by
the Company of $59,500.
(b) Excludes affiliate debt.
(c) Earnings before interest expense, income taxes, depreciation and
amortization, management fees, other noncash charges, extraordinary loss
and cumulative effect of change in accounting principle ("EBITDA"). EBITDA
and similar measurements of cash flow are commonly used in the cable
television industry to analyze and compare cable television companies on
the basis of operating performance, leverage and liquidity. While EBITDA
is not an alternative indicator of operating performance to operating
income or an alternative to cash flows from operating activities as a
measure of liquidity as defined by generally accepted accounting
principles, and, while EBITDA may not be comparable to other similarly
titled measures of other companies, 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. See "Description of Other Financings."
(d) Percentage representing EBITDA divided by revenues.
(e) Excludes business interruption revenue allocated from insurance proceeds
related to Hurricane Andrew of $7,146, $9,547 and $1,037 for the years
ended December 31, 1992, 1993 and 1994, respectively.
(f) For purposes of calculating the ratio of earnings to fixed charges: (i)
earnings consist of loss before income taxes and extraordinary items plus
fixed charges excluding capitalized interest and (ii) fixed charges
consist of interest, whether expensed or capitalized plus amortization of
debt issuance costs plus the assumed interest component of rent expense.
For the years ended December 31, 1992, 1993, 1994, 1995, and 1996 the
Company's earnings were insufficient to cover its fixed charges by
$22,300, $11,680, $21,692 $15,804 and $14,681, respectively.
(g) Average for the last quarter of each period presented. The Company
believes that this presentation provides meaningful trend information over
the periods presented and is commonly used in the cable television
industry to present such data on a comparative basis.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's audited Consolidated Financial Statements and the Notes thereto
appearing elsewhere in this Prospectus.
INTRODUCTION
OVERVIEW
Adelphia serves as the managing general partner of the Company and holds
voting general partnership interests representing 50% of the voting interests
of the Company. FPL Group holds general and limited partnership interests
representing the remaining 50% of the voting interests. Adelphia and FPL Group
also held, as of December 31, 1996, $258.4 million and $129.2 million
respectively, aggregate principal amount of non-voting Preferred Limited
Partnership interests ("PLP") in the Company, which provide for a 16.5% per
annum priority return.
The Company earned substantially all of its revenues in each of the last
three fiscal years from monthly subscriber fees for basic, satellite, premium
and ancillary cable television services (such as installations and equipment
rentals), local and national advertising sales and pay-per-view programming
services. See "Business--Subscriber Rates" and "--Advertising Revenue."
ACQUISITIONS (INCLUDING CONTRIBUTION)/DISPOSITIONS
On June 30, 1994, the Company sold to Adelphia 85% of the common stock of
Northeast Cable, Inc. ("Northeast") for a purchase price of $31.9 million and
assumption of notes payable to banks of $42.3 million. Northeast owns cable
television systems serving approximately 36,500 subscribers in eastern
Pennsylvania. Of the purchase price, $16.0 million was paid in cash and the
remainder resulted in a decrease in the Company's then existing amount payable
to Adelphia. No gain or loss was recognized on this transaction. The
consolidated statements of operations and cash flows for the Company include
the operations of Northeast for the year ended December 31, 1993 and the six
months ended June 30, 1994.
On February 28, 1995, the Company entered into a Liquidation Agreement with
the Gans family ("Gans"), a limited partner of the Company. Under this
Liquidation Agreement, Gans agreed to exchange their redeemable limited
partner interests in the Company for the remaining 15% of the common stock of
Northeast held by the Company. Concurrently with the closing of the
Liquidation Agreement, Adelphia, the Company, FPL Group and certain
shareholders of Adelphia entered into the investment agreement whereby FPL
Group contributed to the Company substantially all of the assets associated
with certain cable television systems serving approximately 50,000 subscribers
in South Florida, in exchange for general and limited partner interests,
Special Limited Partner Interests ("SLP") of $20.0 million and $112.5 million
of newly issued 16.5% PLP.
On April 3, 1995, the Company acquired all of the cable and security systems
of WB Cable Associates, Ltd. ("WB Cable") which, at the acquisition date,
served approximately 44,000 cable and electronic security monitoring
subscribers for a purchase price of $82.0 million. WB Cable provides cable
services from one headend and electronic security monitoring services from one
location in West Boca Raton, Florida. Of the purchase price, $77.0 million was
paid in cash and $5.0 million 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 one of the Subsidiaries' credit
agreements.
On January 5, 1996, the Company acquired all of the southeast Florida cable
systems of the Leadership Cable division of Fairbanks Communications, Inc.,
which, at the acquisition date, served approximately 50,000 cable and
electronic security monitoring subscribers for a purchase price of
31
<PAGE>
$95.8 million. The purchase price consisted of $40.0 million in cash and a
seller note due December 30, 1997 totaling $55.8 million plus accrued
interest. The cash portion of the acquisition price was financed through
borrowings under one of the Subsidiaries' credit agreements.
On March 28, 1996, Adelphia, FPL Group, the Company and certain shareholders
of Adelphia entered into an agreement which amended certain aspects of the
Company's partnership agreement. The agreement provided for the repayment of
certain amounts owed to FPL Group totaling $20.0 million, the release of
certain obligations of FPL Group to the Company and the reduction of FPL
Group's PLP and accrued priority return balances by $20.0 million. The
agreement further provided for a $40.0 million distribution to Adelphia as a
reduction of its PLP interests and accrued priority return. These repayments
and distributions were made on March 29, 1996 and were funded through
internally generated funds and borrowings by the Subsidiaries.
RESULTS OF OPERATIONS
The changes in the Company's results of operations for the year ended
December 31, 1995 compared with the year ended December 31, 1994, were
primarily the result of acquisitions, rate increases, the expansion of
existing operations and increased advertising revenues. The changes for the
year ended December 31, 1996, compared with the prior year were primarily the
result of acquisitions, expanding existing cable television operations and the
impact of increased advertising sales and other service offerings as well as
an increase in cable rates implemented during October 1995 and June 1996. The
high level of depreciation and amortization associated with acquisitions and
the upgrading and expansion of the cable systems, and interest and placement
costs associated with financing activities will continue to have a negative
impact on the reported results of operations. The Company expects to report
net losses for the foreseeable future.
The following table is derived from the Company's Consolidated Financial
Statements that are included in this Prospectus and sets forth the historical
percentage relationship to revenues of the components of operating income
contained in such financial statements for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Revenues............................................. 100.0% 100.0% 100.0%
Operating expenses:
Direct operating and programming.................... 23.7 31.0 30.4
Selling, general and administrative................. 19.8 19.8 18.1
Depreciation and amortization....................... 38.9 26.4 25.4
Management fees to managing general partner......... 6.6 5.2 5.5
------- ------- -------
Operating income..................................... 11.0% 17.6% 20.6%
======= ======= =======
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
REVENUES. The primary revenue sources, reflected as a percentage of total
revenue, for the years ended December 31, 1994, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Regulated service and equipment fees............................. 78% 77% 76%
Premium programming fees......................................... 13% 13% 12%
Advertising sales and other services............................. 9% 10% 12%
</TABLE>
32
<PAGE>
Total revenues for the year ended December 31, 1995 increased 28.1% from the
prior year, primarily due to the impact of the cable systems contributed by
FPL Group and the cable systems acquired from WB Cable during 1995 together
with the positive impact of rate increases implemented in October 1995 and the
internal growth of subscribers. Revenues increased approximately 32.2% for the
year ended December 31, 1996 compared with the prior year, primarily due to
the impact of cable systems contributed by FPL Group and the cable systems
acquired from WB Cable during 1995 and Leadership during 1996, and the
positive impact of rate increases implemented during October 1995 and June
1996. Subscriber growth and advertising revenues also contributed to the
increase in revenues during the current period.
The increases were attributable to the following:
<TABLE>
<CAPTION>
PERCENTAGE
OF INCREASE
FOR THE
YEAR ENDED
DECEMBER 31,
----------------
1995 1996
------ ------
<S> <C> <C>
Acquisitions/dispositions.................................... 80% 66%
Basic subscriber growth...................................... 7% 5%
Rate increases............................................... 5% 18%
Advertising sales and other services......................... 12% 11%
Business interruption revenue................................ (4%) --
</TABLE>
DIRECT OPERATING AND PROGRAMMING EXPENSES. Direct operating and programming
expenses, which are mainly basic and premium programming costs and technical
expenses, increased 67.6% and 29.6% for the years ended December 31, 1995 and
1996, respectively, compared with the respective prior years. Such increases
were primarily due to increased programming costs and incremental costs
associated with increased subscribers as well as increased operating expenses
from acquired systems. Acquired systems accounted for approximately 65% and
41% of the increase for the years ended December 31, 1995 and 1996,
respectively. Because of regulatory limitations on the timing and extent to
which cost increases may be passed on to customers, operating and programming
expenses during the year ended December 31, 1995 increased at a greater
magnitude than corresponding revenue increases. During the year ended December
31, 1996, such expenses declined as a percentage of revenues which reflects
the favorable impact of rate increases. The Company increased rates in most of
its System, in accordance with FCC guidelines, during October 1995 and June
1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. These expenses, which are
mainly comprised of costs related to system offices, customer service
representatives, and sales and administrative employees, increased 27.8% and
21.1% for the years ended December 31, 1995 and 1996, respectively, compared
with the respective prior years. The increases were primarily due to
incremental costs associated with acquisitions and costs associated with
subscriber growth. Acquired systems accounted for approximately 98% and 41% of
the increase for the years ended December 31, 1995 and 1996, respectively.
Selling, general and administrative expenses declined as a percentage of
revenues for the year ended December 31, 1996 when compared with the prior
year which reflects the impact of rate increases and the successful
integration of acquired systems with existing operations.
EBITDA. For the year ended December 31, 1995, EBITDA increased 10.3% as
compared with the prior year. The increase was primarily due to the positive
impact of the October 1, 1995 rate increase, increased advertising and other
service revenues, and the increased operating income
33
<PAGE>
provided by the cable systems contributed by FPL Group and the cable systems
acquired from WB Cable, partially offset by increased programming costs and
incremental costs associated with increased subscribers. For the year ended
December 31, 1996, EBITDA increased 38.9% as compared with the prior year. The
increase was primarily due to the positive effects of the October 1995 and
June 1996 rate increases, increased advertising and other service revenues,
and the increased operating income provided by cable systems contributed by
the FPL Group, and acquired from WB Cable and Leadership, partially offset by
increased programming costs and incremental costs associated with increased
subscribers related to those systems.
MANAGEMENT FEES TO MANAGING GENERAL PARTNER. Pursuant to the terms of the
Company's Partnership Agreement, the Company pays to Adelphia, on a quarterly
basis, an amount representing an allocation of the corporate overhead of
Adelphia and its subsidiaries with respect to the Company for such period,
which allocation is based upon the ratio of the Company's cable subscribers to
the total cable subscribers owned or managed by Adelphia. Management fees
remained relatively constant during the year ended December 31, 1995 as
compared with the prior year, as a percent of revenues, such fees decreased
primarily due to revenues increasing at a faster rate than the associated
corporate costs which are allocated as a management fee. Such fees increased
as a percentage of revenues for the year ended December 31, 1996 as compared
to the prior year primarily due to allocated corporate costs included in
management fees increasing proportionately at a higher rate than revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization was lower for
the year ended December 31, 1995, compared with the prior year, primarily due
to decreased amortization related to certain intangible assets which became
fully-amortized. This decrease was partially offset by increased depreciation
and amortization related to acquisitions consummated during the year ended
December 31, 1995. Depreciation and amortization was higher for the year ended
December 31, 1996, compared with the prior year, primarily due to the recently
completed acquisitions.
INTEREST EXPENSE. For the year ended December 31, 1995, interest expense
increased 27.6% primarily due to the higher level of debt outstanding related
to the acquisition of WB Cable. For the year ended December 31, 1996, interest
expense increased 39.5% compared to the prior year primarily due to increased
levels of debt incurred as a result of acquisitions.
INTEREST EXPENSE-AFFILIATES. The Company is charged interest on advances due
to Adelphia and other affiliates. Such advances were used by the Company for
capital expenditures, for repayment of debt and for working capital. For the
years ended December 31, 1995 and 1996, interest expense--affiliates decreased
20.0% and 12.0% respectively, primarily due to a decline in the amount of
average advances outstanding.
NET LOSS. The Company reported net losses of $21.0 million, $19.4 million
and $11.0 million for the years ended December 31, 1994, 1995 and 1996,
respectively. The decline in net loss in 1995 compared to 1994 is primarily
due to the increased operating income of acquired systems, partially offset by
increased programming costs, interest expense and incremental costs associated
with increased subscribers. The decline in net loss in 1996 compared to 1995
is primarily due to the impact of rate increases and increased operating
income of acquired systems, partially offset by increased programming costs,
interest expense and other incremental costs associated with increased
subscribers.
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. During the
34
<PAGE>
three years in the period ended December 31, 1996, the Company committed
substantial capital resources for these purposes. These expenditures were
funded through long-term borrowings and, to a lesser extent, advances from
affiliates and internally generated funds. The Company's aggregate outstanding
borrowings as of December 31, 1996 were $572.7 million. 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.
CAPITAL EXPENDITURES
Management believes its past capital expenditures program has resulted in
higher levels of channel capacity and addressability in comparison to other
cable television operators. Capital expenditures for the years ended December
31, 1994, 1995 and 1996 were $23.9 million, $21.5 million and $28.1 million,
respectively. The capital expenditures for the year ended 1994 included
expenditures related to the South Dade rebuild from the effects of Hurricane
Andrew, which occurred in August 1992. The increase in capital expenditures
for the year ended December 31, 1996 compared to the prior year was primarily
due to the impact of acquired systems and the acceleration of the rebuilding
of the Company's cable plant. Management expects capital expenditures for 1997
to be approximately $30 million to $32 million due to the Company's current
estimates that it will make capital expenditures over the next five years of
approximately $117 million to upgrade its broadband network. These will be in
addition to capital expenditures for line extensions, converters and support
facilities.
FINANCING ACTIVITIES
The Company's ability to generate cash adequate to meet its future needs
will depend generally on its results of operations and the continued
availability of financing from both its owners and external sources. During
the three year period ended December 31, 1996, the Company funded its working
capital requirements, capital expenditures, and acquisitions through long-term
borrowings primarily from banks, issuance of the Senior Notes by Olympus,
advances from affiliates and internally generated funds. The Company generally
has funded the principal and interest obligations on its long-term borrowings
from banks by refinancing the principal with new loans, and by paying the
interest out of internally generated funds.
Most of Olympus' directly-owned subsidiaries have their own senior credit
agreements with banks. Typically, borrowings under these agreements are
collateralized by the assets of the borrowing subsidiary and its subsidiaries
and, in some cases, are guaranteed by such subsidiary's subsidiaries. At
December 31, 1995 and 1996, an aggregate of $419.0 million and $309.0 million,
respectively, in borrowings were outstanding under these agreements. These
agreements contain certain provisions which, among other things, provide for
limitations on borrowings of and investments by the borrowing subsidiaries,
transactions between the borrowing subsidiaries and Olympus and its other
subsidiaries and affiliates, and the payment of distributions and fees by the
borrowing subsidiaries. These agreements also require the maintenance of
certain financial ratios by the borrowing subsidiaries. The Company is in
compliance with the financial covenants and related financial ratio
requirements contained in its various credit agreements, based on operating
results for the years ended December 31, 1995 and 1996.
Based upon the results of operations of subsidiaries for the quarter ended
December 31, 1996 approximately $166.2 million of available assets could have
been transferred to Olympus, under the most restrictive covenants of the
subsidiaries' credit agreements. The subsidiaries also have the ability to
sell, dividend or distribute certain assets to other subsidiaries or Olympus,
which would have the net effect of increasing availability.
On May 12, 1995, certain Company subsidiaries entered into a $475.0 million
reducing revolving credit facility with several banks, with a final maturity
of December 31, 2003. The proceeds at closing
35
<PAGE>
were used to repay existing bank debt. In addition, another subsidiary of the
Company is a co-borrower with two entities not owned by the Company under a
$200 million revolving credit facility maturing September 30, 2004, the terms
of which permit such subsidiary to borrow up to $39.5 million. Although each
co-borrower is liable to the banks as a co-borrower for all borrowings under
the $200 million facility, the lenders in this facility have agreed that they
shall not have any recourse against the Company (other than the Company's
interests in that subsidiary). At December 31, 1996, the Subsidiaries had an
aggregate of $190.5 million available under their revolving credit facilities
with banks. The Company expects to repay the $70 million non-interest bearing
discount note due December 30, 1997 to Fairbanks Communications, Inc. from
existing credit facilities. The Company had $26.5 million in cash and cash
equivalents at December 31, 1996 which, combined with the Subsidiaries' unused
portion of their credit facilities with banks, aggregated $217.0 million.
At December 31, 1996, the Company had total outstanding bank debt of $309.0
million. Interest rates charged are based primarily upon one or more of the
following options: prime rate plus 0% to 1.0% or Eurodollar rate plus .625% to
2.0%. The weighted average interest rate on notes payable to the banks,
including the effect of interest rate hedging arrangements, was 6.5% at
December 31, 1996. Interest on outstanding borrowings is generally payable on
a quarterly basis. At December 31, 1996, approximately 47.5% 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.
On November 12, 1996, Olympus issued $200.0 million of 10 5/8% Senior Notes
(the "Senior Notes") in a private placement. Net proceeds, after payment of
transaction costs, of approximately $195.0 million were used to reduce amounts
outstanding on Olympus' subsidiaries' notes payable to banks. Interest is
payable semi-annually commencing May 15, 1997. The Senior Notes are unsecured
and are due November 15, 2006. Olympus may redeem up to $70.0 million of the
Senior Notes at 110.625% of principal through November 6, 1999. Commencing
November 15, 2001, Olympus may redeem the Senior Notes in whole or in part at
105.3125% of principal declining annually to par on November 15, 2004. Holders
of the Senior Notes have the right to require Olympus to redeem their Senior
Notes at 101% upon a Change of Control (as defined in the Indenture). The
Indenture stipulates, among other things, limitations on additional
borrowings, payment of dividends or distributions, repurchase of equity
interests, transactions with affiliates and the sale of assets. The Indenture
also provides for payment to the note holders of liquidated damages of up to
2% per annum of the Senior Notes principal if Olympus does not file a
registration statement or cause such registration statement to become
effective within a prescribed time period with respect to an offer to exchange
the Senior Notes for a new issue of debt securities registered under the
Securities Act of 1933, with terms substantially the same as those of the
Senior Notes.
The Company has entered into interest rate swap agreements and interest rate
cap agreements with banks and an affiliate to reduce the impact of changes in
interest rates on its bank debt and its PLP interests. The Company enters into
pay-fixed agreements to effectively convert a portion of its variable-rate
debt to fixed-rate debt. The Company enters into receive-fixed agreements to
effectively convert a portion of its fixed-rate debt to variable-rate debt
which is indexed to LIBOR. Interest rate cap agreements are used to reduce the
impact of increases in interest rates on variable rate debt. The Company is
exposed to credit loss in the event of nonperformance by the banks and the
affiliate. The Company does not expect any such nonperformance. At December
31, 1996, the Company would have received approximately $2.6 million to settle
its interest rate swap and cap agreements, representing the excess of fair
market value over carrying cost of these agreements.
The Company believes that cash and cash equivalents, internally generated
funds, borrowings under existing credit facilities, and future financing
sources will be sufficient to meet its short-term and long-term liquidity and
capital requirements. Although in the past the Company has been able to
refinance its indebtedness or obtain new financing, there can be no assurance
that the Company will be able to do so in the future or that the terms of such
financings would be favorable.
36
<PAGE>
RESOURCES
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 the Company, or its subsidiaries,
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 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.
Management believes that the telecommunications industry, including the
cable television and telephone industries, continues to be 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, no assurances can be given as to
whether any such transaction may be consummated or, if so, when.
Certain cable systems in which affiliates of the Company have interests
could become acquisition candidates in the future, although no binding or
definitive agreements have been reached in this regard. National Cable
Acquisition Associates, L.P. is owned by Syracuse Hilton Head Holdings, L.P.
("SHHH"), a partnership between the Rigas family and Tele-Communications,
Inc., and served 57,447 basic subscribers in Palm Beach County, Florida as of
December 31, 1996. Interests in Tele-Media Investment Partnership, L.P.
("TMIP") are held by SHHH and TMIP's cable systems served 67,102 basic
subscribers in Florida as of December 31, 1996. Although the Company has
certain rights of first refusal if the interests held by affiliates are
proposed to be transferred, there can be no assurances whether or when any
agreements regarding the acquisitions of part or all of such interests or such
cable television systems will be reached.
INFLATION
In the three years in the period ended December 31, 1996, the Company
believes that inflation did not have a significant effect on its results of
operations. Periods of high inflation could have an adverse effect to the
extent that increased borrowing costs for floating-rate debt may not be offset
by increases in subscriber rates. At December 31, 1996, after giving effect to
interest rate hedging agreements, approximately $195.7 million of the
Company's total debt was subject to floating interest rates.
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
Olympus Communications, L.P.:
We have audited the accompanying consolidated balance sheets of Olympus
Communications, L.P. and subsidiaries as of December 31, 1995 and 1996, and
the related consolidated statements of operations, partners' equity
(deficiency), and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Olympus Communications, L.P.
and subsidiaries at December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
March 26, 1997
F-2
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
ASSETS:
Cable systems, at cost, net of accumulated depreciation
and amortization:
Property, plant and equipment......................... $ 203,129 $ 225,775
Intangible assets..................................... 280,873 350,411
--------- ---------
Total............................................... 484,002 576,186
Cash and cash equivalents............................... 32,677 26,466
Subscriber receivables--net............................. 7,838 10,491
Prepaid expenses and other assets--net.................. 9,392 27,078
--------- ---------
Total............................................... $ 533,909 $ 640,221
========= =========
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY):
Notes payable to banks.................................. $ 419,000 $ 309,000
10 5/8% Senior Notes due 2006........................... -- 200,000
Other debt.............................................. 809 63,713
Accounts payable........................................ 14,261 15,122
Subscriber advance payments and deposits................ 3,957 5,426
Accrued interest and other liabilities.................. 12,992 30,429
Accrued priority return on preferred limited partner
interests.............................................. 19,269 20,476
Due to affiliates--net.................................. 38,613 39,667
Deferred income taxes................................... 43,552 40,587
--------- ---------
Total liabilities................................... 552,453 724,420
Commitments and contingencies (Note 5)
Partners' equity (deficiency):
Limited partners' interests........................... 396,630 407,669
General partners' equity (deficiency)................. (415,174) (491,868)
--------- ---------
Total partners' equity (deficiency)................. (18,544) (84,199)
--------- ---------
Total............................................... $ 533,909 $ 640,221
========= =========
</TABLE>
See notes to Consolidated Financial Statements.
F-3
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues........................................ $ 93,421 $120,968 $159,870
Business interruption revenue................... 1,037 -- --
-------- -------- --------
Total........................................ 94,458 120,968 159,870
-------- -------- --------
Operating expenses:
Direct operating and programming............... 22,369 37,494 48,598
Selling, general and administrative............ 18,708 23,912 28,974
Depreciation and amortization.................. 36,703 31,953 40,446
Management fees to Managing Affiliate.......... 6,302 6,334 8,839
-------- -------- --------
Total........................................ 84,082 99,693 126,857
-------- -------- --------
Operating income................................ 10,376 21,275 33,013
-------- -------- --------
Other income (expense):
Interest expense............................... (22,889) (29,217) (40,748)
Interest expense--affiliates................... (9,373) (7,501) (6,600)
Other income (expense)......................... 585 (15) 401
-------- -------- --------
Total........................................ (31,677) (36,733) (46,947)
-------- -------- --------
Loss before income taxes and extraordinary loss. (21,301) (15,458) (13,934)
Income tax benefit (expense).................... 276 (2,824) 2,984
-------- -------- --------
Loss before extraordinary loss.................. (21,025) (18,282) (10,950)
Extraordinary loss on early retirement of debt
(net of income tax benefit of $486)............ -- (1,109) --
-------- -------- --------
Net loss........................................ (21,025) (19,391) (10,950)
Priority return on preferred and senior limited
partner interests.............................. (61,923) (63,358) (65,644)
Net loss allocated to redeemable limited
partners....................................... 5,000 -- --
Accretion requirement of redeemable limited
partners....................................... (5,885) -- --
-------- -------- --------
Net loss of general and limited partners after
priority return and accretion requirements..... $(83,833) $(82,749) $(76,594)
======== ======== ========
Loss per general and limited partners' unit
before extraordinary loss and after priority
return and accretion requirements.............. $ (8,383) $ (8,164) $ (7,659)
Extraordinary loss per general and limited
partners' unit on early retirement of debt..... -- (111) --
-------- -------- --------
Net loss per general and limited partners' unit
after
priority return and accretion requirements..... $ (8,383) $ (8,275) $ (7,659)
======== ======== ========
</TABLE>
See notes to Consolidated Financial Statements.
F-4
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
LIMITED GENERAL PARTNERS' EQUITY
PARTNERS PARTNERS (DEFICIENCY)
-------- --------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1993............... $ -- $(452,115) $(452,115)
Excess of sale price over carrying
value of assets
sold to affiliates.................... -- 41,943 41,943
Net loss of general partner after
priority return and accretion
requirements.......................... -- (83,833) (83,833)
Capital distribution................... -- (100) (100)
-------- --------- ---------
Balance, December 31, 1994............... -- (494,105) (494,105)
Intercompany advances converted to
general
partners' equity (deficiency)......... -- 49,974 49,974
Redeemable preferred limited partner
interests
converted to general partners' equity
(deficiency).......................... -- 51,101 51,101
Accrued priority return converted to
general
partners' equity (deficiency)......... -- 142,300 142,300
Excess of obligation for redeemable
limited partner interest over carrying
value of investment exchanged to
satisfy such obligation............... -- 4,754 4,754
Excess of ascribed value over
historical cost
of assets contributed by Telesat...... -- (86,349) (86,349)
Issuance of preferred limited partner
interests............................. 376,625 -- 376,625
Issuance of limited and senior limited
partner interests..................... 20,005 -- 20,005
Net loss of general and limited
partners
after priority return................. -- (82,749) (82,749)
Capital distribution................... -- (100) (100)
-------- --------- ---------
Balance, December 31, 1995............... 396,630 (415,174) (18,544)
Net loss of general and limited
partners
after priority return................. -- (76,594) (76,594)
Issuance of preferred limited partner
interests ............................ 65,711 -- 65,711
Capital distributions.................. (54,672) (100) (54,772)
-------- --------- ---------
Balance, December 31, 1996............... $407,669 $(491,868) $ (84,199)
======== ========= =========
</TABLE>
See notes to Consolidated Financial Statements.
F-5
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................... $(21,025) $ (19,391) $ (10,950)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation................................ 19,132 22,593 25,507
Amortization................................ 17,571 9,360 14,939
Extraordinary loss on debt retirement
(net of income tax benefit)................ -- 1,109 --
Accretion of non-interest bearing note...... -- -- 6,207
Changes in operating assets and
liabilities, net of effects of
acquisitions and divestitures:
Subscriber receivables.................... 398 (1,026) (2,653)
Prepaid expenses and other assets......... (2,722) (2,505) (16,318)
Accounts payable.......................... 4,590 2,729 861
Subscriber advance payments and deposits.. 368 581 1,469
Accrued interest and other liabilities.... 3,333 (8,113) 17,314
Deferred business interruption proceeds..... (1,037) -- --
Deferred income taxes....................... (323) 2,824 (2,965)
-------- --------- ---------
Net cash provided by operating activities...... 20,285 8,161 33,411
-------- --------- ---------
Cash flows from investing activities:
Business acquisitions, net of cash acquired... -- (85,853) (42,327)
Expenditures for property, plant and
equipment.................................... (23,916) (21,498) (28,117)
Proceeds from sale of assets to affiliates.... 43,318 -- --
-------- --------- ---------
Net cash provided by (used for) investing
activities.................................... 19,402 (107,351) (70,444)
-------- --------- ---------
Cash flows from financing activities:
Proceeds from debt............................ -- 438,000 324,500
Repayments of debt............................ (11,871) (336,094) (235,018)
Costs associated with debt financing.......... -- (4,872) (6,215)
Payments of priority returns.................. (22,300) (37,341) (64,438)
Amounts advanced (to) from affiliates......... (16,362) 32,724 1,054
Issuance of preferred limited partner
interests.................................... -- 39,125 65,711
Capital distributions......................... (100) (100) (54,772)
-------- --------- ---------
Net cash (used for) provided by financing
activities.................................... (50,633) 131,442 30,822
-------- --------- ---------
(Decrease) increase in cash and cash
equivalents................................... (10,946) 32,252 (6,211)
Cash and cash equivalents, beginning of year... 11,371 425 32,677
-------- --------- ---------
Cash and cash equivalents, end of year......... $ 425 $ 32,677 $ 26,466
======== ========= =========
Supplemental disclosure of cash flow activity--
Cash payments for interest.................... $ 31,377 $ 38,057 $ 38,283
======== ========= =========
</TABLE>
See notes to Consolidated Financial Statements.
F-6
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. THE PARTNERSHIP AND BASIS OF PRESENTATION:
Olympus Communications, L.P. and subsidiaries ("Olympus") is a joint venture
limited partnership formed under the laws of Delaware with 50% of the
outstanding voting interests held by ACP Holdings, Inc., ("ACP Holdings"), a
wholly-owned subsidiary of Adelphia Communications Corporation ("Adelphia")
and managing general partner of Olympus. As described below, effective
February 28, 1995, the remaining 50% of the voting interest is held by various
Telesat entities ("Telesat") which are wholly-owned subsidiaries of FPL Group,
Inc. ("FPL"). Olympus' operations consist primarily of selling video
programming which is distributed to subscribers in Florida for a monthly fee
through a network of fiber optic and coaxial cables.
The consolidated financial statements include the accounts of Olympus and
its substantially wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
On June 30, 1994, Adelphia acquired from Olympus 85% of the common stock of
Northeast Cable, Inc. ("Northeast") for a purchase price of $31,875 and
assumption of notes payable to banks of $42,300. Northeast owns cable
television systems serving approximately 36,500 subscribers in eastern
Pennsylvania. Of the purchase price, $16,000 was paid in cash and the
remainder resulted in a decrease in Olympus' then existing amount payable to
Adelphia. No gain or loss was recognized on this transaction. The consolidated
statements of operations and cash flows for Olympus include the operations of
Northeast for the six months ended June 30, 1994.
On February 28, 1995, Olympus entered into a Liquidation Agreement with the
Gans Family ("Gans"), an Olympus limited partner. Under this Liquidation
Agreement, Gans agreed to exchange their redeemable limited partner interests
in Olympus for the remaining 15% of the common stock of Northeast held by
Olympus. Concurrently with the closing of the Liquidation Agreement, ACP
Holdings, Olympus, Telesat and certain shareholders of Adelphia entered into
an investment agreement (the "Telesat Investment Agreement") whereby Telesat
contributed to Olympus substantially all of the assets associated with certain
cable television systems, serving approximately 50,000 subscribers in southern
Florida, in exchange for general and limited partner interests of $5, Senior
Limited Partner ("SLP") interests of $20,000 and $112,500 of newly issued
16.5% preferred limited partner ("PLP") interests.
Prior to the Telesat Investment Agreement, Olympus had obligations to
Adelphia for intercompany advances, redeemable PLP interests, and accrued
priority return on redeemable PLP interests. In conjunction with the Telesat
Investment Agreement, Adelphia contributed $49,974 of the intercompany
advances, $51,101 of the existing redeemable PLP interests and all of the then
existing accrued priority return on the redeemable PLP interests to general
partners' equity (deficiency). Adelphia then exchanged its remaining
redeemable PLP interests for $225,000 of new PLP interests. Also, Senior Debt
(as defined in the Telesat Investment Agreement) owed by Olympus to Adelphia
of $40,000 remained outstanding after consummation of the Telesat Investment
Agreement.
On March 28, 1996, ACP Holdings, Telesat, Olympus, Adelphia and certain
shareholders of Adelphia entered into an agreement which amended certain
aspects of the Telesat Investment Agreement and the Olympus Partnership
Agreement. The amendment provided for the repayment of certain amounts owed to
Telesat totaling $20,000, the release of certain obligations of Telesat to
F-7
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Olympus and the reduction of Telesat's PLP and accrued priority return
balances by $20,000. The amendment further provided for a $40,000 distribution
to Adelphia as a reduction of its PLP interest and accrued priority return
balances. These repayments and distributions were made on March 29, 1996 and
were funded through internally generated funds and borrowings by a subsidiary
of Olympus
(see Note 3).
On April 3, 1995, Olympus purchased all of the cable and security systems of
WB Cable Associates, Ltd. ("WB Cable") serving approximately 44,000 cable and
security subscribers for a purchase price of $82,000. WB Cable provides cable
service from one headend and security 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, which was accounted
for under the purchase method of accounting, was financed principally through
additional borrowings under Olympus subsidiaries' credit agreement (see Note
3).
On January 5, 1996, Olympus acquired all of the southeast Florida cable
systems of the Leadership Cable division of Fairbanks Communications, Inc.
("Leadership Cable"), which at the acquisition date, served approximately
50,000 cable and security subscribers for a purchase price of $95,800.
Leadership Cable provides cable service and security services in and around
West Palm Beach, Florida. The purchase price consisted of $40,000 in cash and
a $70,000 non-interest bearing discount seller note due December 30, 1997.
This note was recorded at $55,800 at acquisition and will accrete to the
$70,000 face amount. The acquisition was accounted for under the purchase
method of accounting.
The following unaudited financial information assumes that all of the
aforementioned contribution/acquisition transactions had occurred at the
beginning of each of the years ended December 31, 1994 and 1995.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1994 1995
-------- --------
<S> <C> <C>
Revenues................................................... $145,177 $146,264
Loss before extraordinary loss and priority return on
preferred and senior limited partner interests............ (24,539) (27,534)
Net loss of general and limited partners after priority
return.................................................... (87,347) (92,882)
Net loss per general and limited partners' unit after
priority return........................................... (8,735) (9,288)
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Subscriber Revenues
Subscriber revenues are recorded in the month the service is provided.
Subscriber Receivables
An allowance for doubtful accounts of $411 and $612 is recorded as a
reduction of subscriber receivables at December 31, 1995 and 1996,
respectively.
Programming Expense
Adelphia allocates charges from programmers to affiliates (including
Olympus) based on the number of subscribers to each programming service. In
1994 Adelphia allocated charges from programmers to affiliates (including
Olympus) based on cost reductions under programming contracts from incremental
subscribers, as well as the number of subscribers to each programming service,
the effect of which was to reduce programming expense by $3,250.
F-8
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Property, Plant and Equipment
Property, plant and equipment are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
Operating plant and equipment............................... $272,968 $315,610
Real estate and improvements................................ 4,564 4,592
Support equipment........................................... 5,102 6,104
Construction in progress.................................... 12,026 16,057
-------- --------
294,660 342,363
Accumulated depreciation.................................... (91,531) (116,588)
-------- --------
$203,129 $225,775
======== ========
</TABLE>
Depreciation is computed on the straight-line method using estimated useful
lives of 5 to 12 years for operating plant and equipment and 3 to 20 years for
support equipment and buildings. Additions to property, plant and equipment
are recorded at cost which includes amounts for material, applicable labor,
and interest. Olympus capitalized interest amounting to $346 for each of the
years ended December 31, 1995 and 1996, respectively.
Intangible Assets
Intangible assets, net of accumulated amortization, are comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
<S> <C> <C>
1995 1996
-------- --------
Purchased franchises....................................... $254,186 $306,770
Goodwill................................................... 13,661 17,645
Purchased subscriber lists................................. 12,951 25,950
Non-compete agreements..................................... 75 46
-------- --------
$280,873 $350,411
======== ========
</TABLE>
A portion of the aggregate purchase price of cable television systems
acquired has been allocated to purchased franchises, purchased subscriber
lists, non-compete agreements and goodwill. Purchased franchises and goodwill
are amortized on the straight-line method over periods which range from 34 to
40 years. Purchased subscriber lists are amortized on the straight-line method
over the average periods that the listed subscribers are expected to receive
service from the date of acquisition, which range from 7 to 10 years. The non-
compete agreements are amortized over their contractual lives, which range
from 2 to 5 years. Accumulated amortization of intangible assets amounted to
$78,940 and $91,165 at December 31, 1995 and 1996, respectively.
Amortization of Other Assets
Deferred debt financing costs are amortized over the term of the related
debt. The unamortized amount included in prepaid expenses and other assets was
$4,964 and $10,403 at December 31, 1995 and 1996, respectively.
F-9
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Asset Impairments
Olympus periodically reviews the carrying value of its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of assets may not be recoverable. Measurement of any impairment
would include a comparison of estimated future operating cash flows
anticipated to be generated during the remaining life of the assets with their
net carrying value. An impairment loss would be recognized as the amount by
which the carrying value of the assets exceeds their fair value.
Noncash Financing and Investing Activities
Capital leases entered into during 1995 and 1996 totaled $341 and $1,147,
respectively. There were no material capital leases entered into during 1994.
Reference is made to Notes 1 and 4 for descriptions of additional noncash
financing and investing activities.
Net Loss Per General and Limited Partner Unit After Priority Return
Net loss per general and limited partner unit after priority return and
accretion requirements is based upon the weighted average number of general
and limited partner units outstanding of 10.0 for all periods presented.
Cash and Cash Equivalents
Olympus considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
Derivative Financial Instruments
Net settlement amounts under interest rate swap agreements are recorded as
adjustments to interest expense during the period incurred (see Note 3).
Franchise Expense
The typical term of the Company's franchise agreements upon renewal is 10
years. Franchise fees range from 3% to 5% of subscriber revenue and are
expensed currently.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. DEBT:
Notes Payable to Banks
Notes payable to banks of Olympus' subsidiaries is comprised of amounts
drawn under credit agreements with banks, which totaled $419,000 and $309,000
at December 31, 1995 and 1996, respectively.
On May 12, 1995, certain Olympus subsidiaries (the "Borrowers") entered into
a $475,000 revolving credit facility with several banks, maturing December 31,
2003. Interest rates charged are based upon one or more of the following
options: prime rate plus 0% to .75% or Eurodollar rate plus .625% to 1.75%.
The weighted average interest rate on notes payable to the banks, including
the effect
F-10
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
of interest rate hedging arrangements, was 7.11% and 6.51% at December 31,
1995 and 1996, respectively. Interest on outstanding borrowings is generally
payable on a quarterly basis.
Initial borrowings under the revolving credit facility were used to repay
the Borrowers' existing notes payable to banks and accrued interest. An
extraordinary loss on early retirement of debt of $1,109, net of income tax
benefit of $486, was recognized for the year ended December 31, 1995 which
represents the unamortized deferred financing costs related to such notes at
the date of refinancing.
Borrowings under this credit arrangement are collateralized by substantially
all of the assets of the Borrowers. The agreement limits, among other things,
additional borrowings, investments, transactions with affiliates, payment of
distributions and fees, and requires the maintenance of certain financial
ratios by the Borrowers. At December 31, 1996, Management believes that the
Borrowers were in compliance with the agreement's convenants. The agreement
also provides that advances and contributions from affiliates may be returned
to the affiliate to the extent contributed or advanced from the closing date
of the loan.
The amount of actual borrowings available under the facility is based upon
achieving certain levels of operating performance. The Borrowers will pay
commitment fees at the annual rate of .375% on unused principal. The credit
facility provides for mandatory reductions in the revolving loan commitment,
in increasing quarterly amounts, commencing June 30, 1997 through December 31,
2003. On the dates of such mandatory commitment reductions, the Borrowers are
obligated to repay outstanding loans in excess of the remaining total
commitment.
On March 29, 1996, an affiliate of Olympus (the "Affiliate") amended and
restated its $200 million credit agreement with several banks maturing
September 30, 2004 to include Global Acquisition Partners, L.P., ("Global") (a
subsidiary of Adelphia) and Telesat Acquisition, L.P. ("Telesat Acquisition")
(a subsidiary of Olympus) as co-borrowers (the Affiliate, Telesat Acquisition
and Global collectively, the "Borrowing Group"). Initial borrowings of $39,500
by Telesat Acquisition under the credit agreement were used to pay a portion
of the distributions to Adelphia and Telesat (see Note 1). The terms of the
agreement permit Telesat Acquisition to borrow up to $39,500. Borrowings under
this credit arrangement are collateralized by substantially all of the assets
of the Borrowing Group. Each of the co-borrowers is liable for all borrowings
under this credit agreement although the lenders in this credit agreement have
no recourse against Olympus other than Olympus' interest in Telesat
Acquisition. The agreement stipulates, among other things, limitations on
additional borrowings, investments, transactions with affiliates, payments of
dividends and fees, and requires the maintenance of certain financial ratios
by the Borrowing Group. At December 31, 1996, Management believes that the
Borrowing Group was in compliance with the agreement's convenants. The
agreement also provides that advances and contributions from affiliates may be
returned to the affiliates to the extent contributed or advanced from the
closing date of the loan. Interest rates charged are based upon one or more of
the following options: (1) prime rate plus 0% to 1%, (2) LIBOR plus .75% to
2%, or (3) the certificate of deposit rate plus .875% to 2.125%.
The amount of actual borrowings under the facility is based upon achieving
certain levels of operating performance. The Borrowing Group will pay
commitment fees at the annual rate of .375% on unused principal. The credit
agreement provides for mandatory reductions in the revolving loan commitment,
in increasing quarterly amounts, commencing December 31, 1998 through
September 30, 2004. On the dates of such mandatory commitment reductions, the
Borrowing Group is obligated to repay outstanding loans in excess of the
remaining total commitment.
F-11
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Approximately $166.2 million of the net assets of Olympus' subsidiaries
would be permitted to be transferred to Olympus in the form of dividends and
loans without the prior approval of the lenders based upon the results of
operations of such subsidiaries for the three months ended December 31, 1996.
The subsidiaries are permitted to pay management fees to Olympus or other
subsidiaries. Such fees are limited to a percentage of the subsidiaries'
revenues.
10 5/8% Senior Notes
On November 12, 1996, Olympus issued $200,000 of 10 5/8% Senior Notes (the
"Senior Notes") in a private placement. Net proceeds, after payment of
transaction costs, of approximately $195,000 were used to reduce amounts
outstanding on Olympus' subsidiaries' notes payable to banks. Interest is
payable semi-annually commencing May 15, 1997. The Senior Notes are unsecured
and are due November 15, 2006. Olympus may redeem up to $70,000 of the Senior
Notes at 110.625% of principal through November 6, 1999. Commencing November
15, 2001, Olympus may redeem the Senior Notes in whole or in part at 105.3125%
of principal declining annually to par on November 15, 2004. Holders of the
Senior Notes have the right to require Olympus to redeem their Senior Notes at
101% upon a Change of Control (as defined in the Indenture). The Indenture
stipulates, among other things, limitations on additional borrowings, payment
of dividends or distributions, repurchase of equity interests, transactions
with affiliates and the sale of assets. The Indenture also provides for
payment to the note holders of liquidated damages of up to 2% per annum of the
Senior Notes principal if Olympus does not file a registration statement or
cause such registration statement to become effective within a prescribed time
period with respect to an offer to exchange the Senior Notes for a new issue
of debt securities registered under the Securities Act of 1933, with terms
substantially the same as those of the Senior Notes. The new issue of debt
securities is expected to be recorded at the same carrying value as the Senior
Notes and, accordingly, no gain or loss is expected to be recognized.
Management intends to fund Olympus' debt maturities through borrowings under
new credit agreements and internally generated funds. Changing conditions in
the financial markets may have an impact on how Olympus will refinance its
debt in the future.
Other Debt
As of December 31, 1995 and 1996, other debt consists of purchase money
indebtedness and capital leases incurred in connection with the acquisition
of, and are collateralized by, certain equipment. The interest rate on such
debt is based on the Federal Funds rate plus 1.4% and is adjusted monthly
based on changes in the Federal Funds rate. As of December 31, 1996, other
debt also includes the seller note, due December 30, 1997, discussed in Note
1.
The following table sets forth the mandatory reductions in principal under
all agreements for indebtedness at December 31 for each of the next five years
based on amounts outstanding at December 31, 1996:
<TABLE>
<S> <C>
December 31, 1997................................................. $62,007
December 31, 1998................................................. --
December 31, 1999................................................. --
December 31, 2000................................................. 38,250
December 31, 2001................................................. 80,750
</TABLE>
F-12
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Interest Rate Swaps and Caps
Olympus has entered into interest rate swap agreements and interest rate cap
agreements with banks and an affiliate (see Note 9) to reduce the impact of
changes in interest rates on its bank debt and its Senior Notes. Olympus
enters into pay-fixed agreements to effectively convert a portion of its
variable-rate debt to fixed-rate debt. Olympus enters into receive-fixed
agreements to effectively convert a portion of its fixed-rate debt to
variable-rate debt which is indexed to LIBOR. Interest rate cap agreements are
used to reduce the impact of increases in interest rates on variable rate
debt. Olympus is exposed to credit loss in the event of nonperformance by the
banks and the affiliate. Olympus does not expect any such nonperformance. The
following table summarizes the notional amounts outstanding and weighted
average interest rate data for all swaps and caps which expire 1996 through
2000.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
PAY FIXED SWAPS
Notional amount............................................. $155,000 $115,000
Average receive rate........................................ 5.88% 5.57%
Average pay rate............................................ 6.76% 6.48%
RECEIVE FIXED SWAPS
Notional amount............................................. $140,000 $140,000
Average receive rate........................................ 7.58% 7.58%
Average pay rate............................................ 5.77% 5.55%
INTEREST RATE CAPS
Notional amount............................................. $75,000 $75,000
Average cap rate............................................ 7.50% 7.50%
</TABLE>
4. LIMITED PARTNERS' INTERESTS AND GENERAL PARTNERS' EQUITY (DEFICIENCY):
16.5% Redeemable PLP Interests
The redeemable PLP interests issued to Adelphia, totaling $276,101 at
December 31, 1994, were non-voting, senior to claims represented by other
partner interests and provided for a priority return of 16.5% per annum
(payable quarterly). In the event that any priority return was not paid when
due, such unpaid amounts accrued additional return at a rate of 18.5% per
annum. As a result of the February 28, 1995 Telesat Investment Agreement (see
Note 1), $225,000 of the redeemable PLP interests were converted to new PLP
interests as described below, and $51,101 of the redeemable PLP interests and
$142,300 of the unpaid priority return were converted to general partners'
equity (deficiency).
Redeemable Limited Partner Interests
As a result of the Liquidation Agreement entered into on February 28, 1995
between Gans and Olympus, Gans exchanged their redeemable limited partnership
interest in Olympus for 15% of the common stock of Northeast (see Note 1).
F-13
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The following summarizes activity related to the redeemable limited partners
for the three years ended December 31, 1996:
<TABLE>
<S> <C>
Balance, December 31, 1993.............................................. $ 5,000
Net loss allocated to redeemable limited partners..................... (5,000)
Accretion requirements to redeemable limited partners................. 5,885
-------
Balance, December 31, 1994.............................................. 5,885
Exchange of redeemable limited partner interests...................... (5,885)
-------
Balance, December 31, 1995 and 1996..................................... $ --
=======
</TABLE>
Preferred, Senior, Limited and General Partnership Interests
On February 28, 1995, as a result of the Telesat Investment Agreement (as
described in Note 1), $337,500 of new Preferred Limited Partner interests,
$20,000 of Senior Limited Partner interests and $5 of Limited Partner
interests were issued to Adelphia and Telesat as summarized in the table
below:
<TABLE>
<CAPTION>
Adelphia Telesat Total
-------- -------- --------
<S> <C> <C> <C>
16.5% Preferred Limited Partner Interests............ $225,000 $112,500 $337,500
16.5% Senior Limited Partner Interests............... -- 20,000 20,000
General and Limited Partner Interests................ -- 5 5
-------- -------- --------
Total.............................................. $225,000 $132,505 $357,505
======== ======== ========
</TABLE>
In addition, on various dates during the years ended December 31, 1995 and
1996, additional Preferred Limited Partner interests were issued for cash of
$39,125 and $65,711, respectively.
The Preferred Limited Partner interests are non-voting, do not participate
in the profits and losses of the partnership and provide for a priority return
of 16.5% per annum (payable quarterly). In the event that any priority return
is not paid when due, such unpaid amounts accrue additional return at a rate
of 16.5% per annum.
The Senior Limited Partner interests held by Telesat are non-voting, senior
to claims represented by all other partner interests and provide for a
priority return of 16.5% per annum (payable quarterly). In the event that any
priority return is not paid when due, such unpaid amounts accrue additional
return at a rate of 16.5% per annum.
On March 28, 1996, ACP Holdings, Telesat, Olympus, Adelphia and certain
shareholders of Adelphia entered into an agreement which amended certain
aspects of the Telesat Investment Agreement and the Olympus Partnership
Agreement. The amendment provides for the repayment of certain amounts owed to
Telesat totaling $20,000, the release of certain obligations of Telesat to
Olympus and the reduction of Telesat's PLP and accrued priority return
balances by $20,000. The amendment further provides for a $40,000 distribution
to Adelphia as a reduction of its PLP and accrued priority return balances.
These repayments and distributions were made on March 29, 1996 and were funded
through internally generated funds and borrowings by a subsidiary of Olympus.
F-14
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Allocation of Profits, Losses and Distributions
Prior to February 28, 1995, the general partner and limited partners of
Olympus generally shared in net income and losses of Olympus based upon their
respective percentage ownership of partnership voting units except for certain
special allocation provisions set forth in the Olympus partnership agreement
in effect at the time. As specified in the partnership agreement, after the
holders of the PLP interests received a return of their capital plus 16.5% per
annum priority return, distributions by Olympus were made in the following
order: (i) to partners holding voting units (other than Adelphia) until each
partner received an 18% compounded return on its investment; (ii) to Adelphia
until it received an 18% compounded return on its investment in the voting
units; (iii) to Adelphia as managing general partner, to the special limited
partners and to the partners holding voting units until each partner holding
voting units received a 24% compounded return on its investment; and (iv) to
Adelphia as managing general partner, to the special limited partners and to
the partners holding voting units.
On and after February 28, 1995, profits and losses of Olympus for income tax
purposes are allocated 99% to the limited partner of Olympus and 1% to the
managing general partner of Olympus until the aggregate profits allocated to
the limited partner equals the aggregate losses allocated to the limited
partner, at which time the managing general partner receives two-thirds, and
the limited partner of Olympus receives one-third of the net income and losses
of Olympus. As specified in the partnership agreement, allocations will be
made in the following order to the holders of the: (i) Senior Limited Partner
Interests; (ii) Special Limited Partner Interests, if any, and (iii) Preferred
Limited Partner Interests. Such allocations will equal a return of their
capital plus 16.5% per annum priority return less any priority return
previously paid. After such allocations, distributions by Olympus will be made
in the following order: (i) 99% of any remaining amount will be distributed
two-thirds to the managing general partner and any partner holding voting
units acquired directly or indirectly from the managing partner, pro rata, and
one-third to partners holding the remaining voting units and; (2) thereafter
pro rata to all partners holding voting units. At December 31, 1996, 10 voting
units were outstanding of which five were held by ACP Holdings, the managing
general partner; and five were held by Telesat, the general and limited
partners.
5. COMMITMENTS AND CONTINGENCIES:
Olympus rents office space, tower sites, and space on utility poles under
leases with terms which are generally less than one year or under agreements
that are generally cancelable on short notice. Total rental expense under all
operating leases aggregated $1,036, $1,379 and $1,495 for 1994, 1995 and 1996,
respectively.
In connection with certain obligations under existing franchise agreements,
Olympus obtains surety bonds guaranteeing performance to municipalities and
public utilities. Payment is required only in the event of nonperformance.
Olympus has fulfilled all of its obligations such that no payments under
surety bonds have been required.
During the period July 1, 1993 through July 26, 1996, Olympus had a program
to self insure for casualty and business interruption insurance. This program
was part of an aggregate agreement between Olympus and its subsidiaries in
which Olympus provided insurance for casualty and business interruption claims
of up to $10,000 and $20,000 per claim, respectively, for each subsidiary.
Effective July 26, 1996, Olympus was insured by an outside party for casualty
and business interruption.
F-15
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The cable television industry and Olympus 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 certain
subscriber rates and a number of other matters in the cable industry, 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 added.
The FCC has adopted regulations implementing virtually all of the
requirements of the 1992 Cable Act. 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. Olympus cannot predict the effect of the 1996 Act on future
rulemaking proceedings or changes to the rate regulations.
Effective September 1, 1993, as a result of the 1992 Cable Act, Olympus
repackaged certain existing cable services by adjusting rates for basic
service and introducing a new method of offering certain cable services.
Olympus 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. Olympus also implemented a program in all of its systems called
"CableSelect" under which most of Olympus's satellite-delivered programming
services were 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 elected to customize their channel
lineup, Olympus provided, 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 were also implemented in all
systems managed by Olympus. Olympus believes CableSelect provided increased
programming choices to its subscribers while providing flexibility to Olympus
to respond to future changes in areas such as customer demand and programming.
Olympus no longer offers the CableSelect program in any of its systems.
A letter of inquiry, one of at least 63 sent by the FCC to numerous cable
operators, was received by Olympus regarding the implementation of this new
method of offering services. Olympus responded in writing to the FCC's
inquiry. On November 18, 1994, the FCC released amended rules under which, on
a prospective basis, any a la carte package will be treated as a regulated
tier, except for packages involving premium services. Also, 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
letters of inquiry decisions, were principally decided on the number of
programming services moved from regulated tiers to "a la carte" packages.
Olympus has appealed this decision to the full Commission which affirmed the
Cable Service Bureau's decision. Olympus has sought reconsideration of the
decision.
Certain other cable television companies that utilized a la carte packages
have recently reached settlement/resolution with the FCC on this issue.
Olympus believes that in view of this experience with
F-16
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
other operators, resolution of these differences is possible, consistent with
the terms and conditions of those earlier resolutions. Adelphia has engaged in
discussions with the Cable Services Bureau of the FCC regarding a settlement
of all outstanding rate proceedings involving "a la carte" packages, including
those offered by the Olympus systems. A proposed settlement has been made
available for public comment by the FCC. Management currently estimates there
will not be any significant costs to Olympus associated with the resolution of
this matter. While Olympus cannot predict the ultimate outcome or effect of
this matter, management of Olympus does not expect the ultimate outcome of
this matter to have a material adverse effect on Olympus's financial position
and results of operations. 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 Olympus. Olympus 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.
6. EMPLOYEE BENEFIT PLANS:
Olympus participates in an Adelphia savings plan (401(k)) which provides
that eligible full-time employees may contribute from 2% to 20% of their pre-
tax compensation subject to certain limitations. Olympus matches contributions
not exceeding 1.5% of each participant's pre-tax compensation. During the
years ended 1994, 1995 and 1996, no significant matching contributions were
made by Olympus.
7. TAXES ON INCOME:
Certain wholly-owned subsidiaries of Olympus are corporations that file
separate federal and state income tax returns. At December 31, 1996, these
subsidiaries had net operating loss carryforwards for federal income tax
purposes of approximately $184,000 expiring through 2011.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) operating loss and tax credit carryforwards.
The tax effects of significant items comprising Olympus' net deferred tax
liability as of December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Differences between book and tax basis of property, plant
and equipment and intangible assets..................... $ 93,740 $ 91,703
-------- --------
DEFERRED TAX ASSETS:
Operating loss carryforwards............................. 66,395 71,145
Other.................................................... (51) 47
Valuation allowance...................................... (16,156) (20,076)
-------- --------
Subtotal............................................... 50,188 51,116
-------- --------
Net deferred tax liability................................. $ 43,552 $ 40,587
======== ========
</TABLE>
The net change in the valuation allowance for the year ended December 31,
1996 was an increase of $3,920.
F-17
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The income tax benefit (expense) for years ended December 31, 1994, 1995 and
1996 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1994 1995 1996
---- ------- ------
<S> <C> <C> <C>
Federal:
Current.................................................. $-- $ -- $ 19
Deferred................................................. 234 (2,184) 2,386
State:
Current.................................................. -- -- --
Deferred................................................. 42 (640) 579
---- ------- ------
$276 $(2,824) $2,984
==== ======= ======
</TABLE>
Reconciliations between the statutory federal income tax rate and Olympus'
effective income tax rate as a percentage of loss before income taxes and
extraordinary loss are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.......................... (35%) (35%) (35%)
Change in valuation allowance.............................. 25% (5%) 26%
Operating losses passed through to partners................ 9% 54% (9%)
State taxes, net of federal benefit........................ 0% 4% (3%)
--- --- ---
Effective income tax rate.................................. (1%) 18% (21%)
=== === ===
</TABLE>
8. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Included in Olympus' financial instrument portfolio are cash, notes payable
and interest rate swaps and caps. The carrying values of the notes payable
approximate their fair values at December 31, 1996. At December 31, 1995 and
1996, Olympus would have received approximately $3,034 and $2,571,
respectively, to settle its interest rate swap and cap agreements,
representing the excess of fair value over carrying cost of these agreements.
The fair values of the debt and interest rate swaps and caps were based upon
quoted market prices of similar instruments or on rates available to Olympus
for instruments of the same remaining maturities.
9. TRANSACTIONS WITH RELATED PARTIES:
Olympus has an agreement with a subsidiary of Adelphia which provides for
the payment of management fees by Olympus. The amount and payment of these
fees is subject to restrictions contained in the partnership agreements. Prior
to January 1, 1995, Olympus also reimbursed Adelphia for direct operating
costs, which amounted to $1,477 for 1994. During the year ended December 31,
1995, Olympus paid Adelphia a fee totaling $646 in connection with the
acquisition of Leadership Cable.
Olympus has periodically received funds from and advanced funds to Adelphia
and other affiliates. Olympus was charged $9,373, $7,501 and $6,600 of
interest on such net payables for 1994, 1995 and 1996, respectively.
F-18
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
At December 31, 1996, Olympus had interest rate swaps with an affiliate for
a notional amount of $140,000 for Receive Fixed Swaps. These swaps expire at
various dates through 1998. The net effect of these interest rate swaps was to
decrease interest expense by $0, $244 and $2,554 in 1994, 1995 and 1996,
respectively.
Olympus has agreements with affiliates to provide for the payment of
management fees to Olympus equal to a percentage of the affiliates' revenues.
Such fees, which are included in revenues, amounted to $1,356, $29 and $50 for
1994, 1995 and 1996, respectively.
On March 31, 1994, Olympus sold to Adelphia, rights to provide alternate
access in its franchised areas and an investment in an unaffiliated
partnership for a purchase price of $15,500. The sale resulted in the
reduction of a payable to Adelphia of $15,500. Due to the common control of
these entities, the excess of the sale price over Olympus' carrying value has
been credited directly in general partners' equity (deficiency).
On June 30, 1994, Olympus sold to Adelphia 85% of the common stock of
Northeast Cable, Inc., a wholly-owned subsidiary, for a selling price of
$31,875 and assumption of notes payable to banks of $42,300. Adelphia paid
$16,000 in cash and the remainder resulted in a decrease of Adelphia's then
existing receivable from Olympus.
F-19
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands)
December 31, March 31,
------------------------
1996 1997
------------------------
ASSETS:
Cable systems, at cost, net of accumulated depreciation and amortization:
<S> <C> <C>
Property, plant and equipment $ 225,775 $ 229,140
Intangible assets 350,411 348,588
--------- ---------
Total 576,186 577,728
Cash and cash equivalents 26,466 13,512
Subscriber receivables - net 10,491 9,528
Prepaid expenses and other assets - net 27,078 26,624
--------- ---------
Total $ 640,221 $ 627,392
========= =========
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY):
Notes payable to banks $ 309,000 $ 294,000
10 5/8% Senior Notes due 2006 200,000 200,000
Other debt 63,713 65,573
Accounts payable 15,122 15,240
Subscriber advance payments and deposits 5,426 6,119
Accrued interest and other liabilities 30,429 32,049
Accrued priority return on preferred limited
partner interests 20,476 20,476
Due to affiliates - net 39,667 41,324
Deferred income taxes 40,587 40,528
--------- ---------
Total liabilities 724,420 715,309
Commitments and contingencies (Note 4)
Partners' equity (deficiency):
Limited partners' interests 407,669 427,325
General partners' equity (deficiency) (491,868) (515,242)
--------- ---------
Total partners' equity (deficiency) (84,199) (87,917)
--------- ---------
Total $ 640,221 $ 627,392
========= =========
See notes to interim consolidated financial
statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Revenues $ 39,088 $ 41,411
-------- --------
Operating expenses:
Direct operating and programming 12,402 13,869
Selling, general and administrative 7,145 7,511
Depreciation and amortization 9,573 9,939
Management fees to Managing Affiliate 2,009 2,357
-------- --------
Total 31,129 33,676
-------- --------
Operating income 7,959 7,735
-------- --------
Other income (expense):
Interest expense (9,460) (11,434)
Interest expense - affiliates (1,650) (1,650)
Other 122 (44)
-------- --------
Total (10,988) (13,128)
-------- --------
Loss before income taxes (3,029) (5,393)
Income tax benefit 610 75
-------- --------
Net loss (2,419) (5,318)
Priority return on preferred and senior limited partner interests (17,222) (18,006)
-------- --------
Net loss of general and limited partners after priority return $(19,641) $(23,324)
======== ========
Net loss per general and limited partners'
unit after priority return $ (1,964) $ (2,332)
======== ========
See notes to interim consolidated financial
statements.
</TABLE>
4
<PAGE>
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three Months
Ended March 31,
---------------------
1996 1997
--------- ---------
Cash flows from operating activities:
Net loss $ (2,419) $ (5,318)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 6,390 6,024
Amortization 3,183 3,915
Accretion of non-interest bearing note 1,408 1,813
Deferred income taxes (610) (59)
Changes in operating assets and liabilities,
net of effects of acquisition:
Subscriber receivables 51 963
Prepaid expenses and other assets (1,507) (1,637)
Accounts payable 375 118
Subscriber advance payments and deposits 81 693
Accrued interest and other liabilities (1,141) 1,606
-------- --------
Net cash provided by operating activities 5,811 8,118
-------- --------
Cash flows from investing activities:
Business acquisition, net of cash acquired (38,775) --
Expenditures for property, plant and equipment (5,922) (9,205)
--------
Cash used for investing activities (44,697) (9,205)
-------- --------
Cash flows from financing activities:
Proceeds from debt 95,500 --
Repayments of debt (50) (15,124)
Payments of priority returns (16,016) (18,006)
Amounts advanced from affiliates 470 1,657
Issuance of preferred limited partner interests 12,338 19,656
Capital distributions (54,722) (50)
-------- --------
Net cash provided by (used for) financing activities 37,520 (11,867)
-------- --------
Decrease in cash and cash equivalents (1,366) (12,954)
Cash and cash equivalents, beginning of period 32,677 26,466
-------- --------
Cash and cash equivalents, end of period $ 31,311 $ 13,512
======== ========
See notes to interim consolidated financial statements.
5
<PAGE>
===============================================================================
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
===============================================================================
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
The accompanying unaudited interim financial statements of Olympus
Communications, L.P. and its substantially wholly-owned subsidiaries ("Olympus"
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 months ended March 31, 1996 and 1997, have been
included. These interim consolidated financial statements should be read in
conjunction with Olympus' audited consolidated financial statements for the year
ended December 31, 1996 included in its Registration Statement No. 333-19327 on
Form S-4 Amendment No. 2 filed April 30, 1997 ("Form S-4"). The results of
operations for the three months ended March 31, 1997 are not necessarily
indicative of the results to be expected for the year ending December 31, 1997.
1. The Registrants:
Olympus Communications, L.P. is a joint venture limited partnership
formed under the laws of Delaware with 50% of the outstanding voting interests
held by ACP Holdings, Inc., a wholly-owned subsidiary of Adelphia Communications
Corporation and the managing general partner of Olympus. The remaining 50% of
the voting interest is held by various wholly-owned subsidiaries of FPL Group,
Inc. Olympus' operations consist primarily of selling video programming which is
distributed to subscribers in Florida for a monthly fee through a network of
fiber optic and coaxial cables.
Olympus Capital Corporation, a wholly-owned subsidiary of the Company,
was formed solely for the purpose of serving as a co-issuer with Olympus
Communications, L.P. of the 10 5/8% Senior Notes due 2006 (the "Senior Notes").
Olympus Capital Corporation has no substantial assets or liabilities and no
operations of any kind and the Indenture, pursuant to which such Senior Notes
were issued, limits Olympus Capital Corporation's ability to acquire or hold any
significant assets or other properties or engage in any business activities
other than in connection with the issuance of the Senior Notes.
2. Income Taxes:
Income tax benefit for the three months ended March 31, 1997 was
$75 which is comprised of a current tax benefit of $16 and a deferred tax
benefit of $59.
3. Supplemental Cash Flow Information:
Cash payments for interest were $9,815 and $7,147 for the three
months ended March 31, 1996 and 1997, respectively.
4. Commitments and Contingencies:
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Form S-4 for a discussion of
material commitments and contingencies.
----------------------------------------------
6
