UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
X Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000
____ 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.)
One North Main Street
Coudersport, PA 16915-1141
(Address of principal executive offices) (Zip code)
814-274-9830
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
At May 15, 2000, 113,051,118 shares of Class A Common Stock, par value $.01 per
share, and 16,735,998 shares of Class B Common Stock, par value $.01 per share,
of the registrant were outstanding.
<PAGE>
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<CAPTION>
ADELPHIA COMMUNICATIONS CORPORATION
TABLE OF CONTENTS
Page Number
<S> <C>
Explanatory Note: Purpose of this Amendment on Form 10-Q/A............................................ 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (As restated, see Note 11 of the Condensed Consolidated
Financial Statements)
Condensed Consolidated Balance Sheets - December 31, 1999 and
March 31, 2000................................................................................. 4
Condensed Consolidated Statements of Operations and Comprehensive Loss - Three
Months Ended March 31, 1999 and 2000........................................................... 5
Condensed Consolidated Statements of Cash Flows - Three Months Ended
March 31, 1999 and 2000........................................................................ 6
Notes to Condensed Consolidated Financial Statements............................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................................ 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................... 25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. 27
Item 2. Changes in Securities and Use of Proceeds..................................................... 28
Item 3. Defaults Upon Senior Securities............................................................... 28
Item 4. Submission of Matters to a Vote of Security Holders........................................... 28
Item 5. Other Information............................................................................. 28
Item 6. Exhibits and Reports on Form 8-K.............................................................. 28
SIGNATURES............................................................................................. 29
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<PAGE>
Purpose of this Amendment on Form 10-Q/A
This amendment on Form 10-Q/A is being filed to give effect to the
restatement of the Company's financial statements included in Part I, Item 1, as
discussed in Note 11 thereto.
This Form 10-Q/A includes such restated financial statements and
related notes thereto for the three months ended March 31, 2000, and other
information related to such restated financial statements. Except for Items 1
and 2 of Part I and Item 2 and Exhibit 27.01 of Part II, no other information
included in the original report on Form 10-Q, is amended by this Form 10-Q/A.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except share amounts)
December 31, March 31,
1999* 2000*
---------------- -----------------
ASSETS:
<S> <C> <C>
Property, plant and equipment - net $ 3,961,704 $ 4,245,386
Intangible assets - net 12,127,613 12,069,893
Cash and cash equivalents 186,874 163,599
U.S. government securities - pledged 29,899 14,941
Investments 280,874 320,511
Subscriber receivables - net 194,399 199,340
Prepaid expenses and other assets - net 328,675 345,818
Related party receivables - net 178,577 254,116
---------------- -----------------
Total $ 17,288,615 $ 17,613,604
================ =================
LIABILITIES, PREFERRED STOCK, COMMON STOCK AND
OTHER STOCKHOLDERS' EQUITY:
Subsidiary debt $ 6,513,813 $ 6,606,251
Parent debt 2,777,919 2,778,257
Accounts payable 442,561 446,832
Subscriber advance payments and deposits 57,651 71,844
Accrued interest and other liabilities 495,564 501,193
Deferred income taxes 2,113,097 2,073,995
---------------- -----------------
Total liabilities 12,400,605 12,478,372
---------------- -----------------
Minority interests 736,497 721,029
---------------- -----------------
Adelphia Business Solutions redeemable exchangeable preferred stock 260,848 269,483
---------------- -----------------
13% Series B cumulative redeemable exchangeable preferred stock 148,363 148,406
---------------- -----------------
Commitments and contingencies (Note 8)
Convertible preferred stock, common stock and other stockholders' equity:
8 1/8% Series C convertible preferred stock ($100,000 liquidation preference) 1 1
5 1/2% Series D convertible preferred stock ($575,000 liquidation preference) 29 29
Class A common stock, $.01 par value, 1,200,000,000 shares authorized,
113,051,118 shares issued 1,131 1,131
Class B common stock, $.01 par value, 300,000,000 shares authorized,
10,834,476 and 16,735,998 shares issued and outstanding, respectively 108 167
Additional paid-in capital 5,863,633 6,226,022
Accumulated deficit (1,976,438) (2,079,775)
Accumulated other comprehensive income (loss) 3,239 (1,860)
Treasury stock, at cost, 1,091,524 shares of Class A common stock and
20,000 shares of 8 1/8% Series C convertible preferred stock, respectively (149,401) (149,401)
---------------- -----------------
Convertible preferred stock, common stock and
other stockholders' equity 3,742,302 3,996,314
---------------- -----------------
Total $ 17,288,615 $ 17,613,604
================ =================
<FN>
*As restated, see Note 11
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31,
-------------------------------------
1999* 2000*
----------------- -----------------
<S> <C> <C>
Revenues $ 201,604 $ 672,719
----------------- -----------------
Operating expenses:
Direct operating and programming 67,295 240,996
Selling, general and administrative 49,111 169,388
Depreciation and amortization 56,863 200,526
Merger and integration costs -- 1,218
----------------- -----------------
Total 173,269 612,128
----------------- -----------------
Operating income 28,335 60,591
----------------- -----------------
Other income (expense):
Interest expense - net (67,464) (198,392)
Equity in loss of Olympus and other joint ventures (14,861) (3,309)
Equity in loss of Adelphia Business Solutions joint ventures (3,803) (105)
Minority interest in net losses of subsidiaries 12,914 18,911
Adelphia Business Solutions preferred stock dividends (7,619) (8,635)
Priority investment income from Olympus 12,000 --
Other 2,354 (92)
----------------- -----------------
Total (66,479) (191,622)
----------------- -----------------
Loss before income taxes and extraordinary loss (38,144) (131,031)
Income tax benefit 2,897 29,489
----------------- -----------------
Loss before extraordinary loss (35,247) (101,542)
Extraordinary loss on early retirement of debt (8,589) --
----------------- -----------------
Net loss (43,836) (101,542)
Dividend requirements applicable to preferred stock (6,500) (14,406)
----------------- -----------------
Net loss applicable to common stockholders (50,336) (115,948)
Other comprehensive loss - unrealized loss on available-for-sale
securities (net of income tax benefit of $3,979) -- (5,099)
----------------- -----------------
Comprehensive loss $ (50,336) $ (121,047)
================= =================
Basic and diluted net loss per weighted average share of
common stock before extraordinary loss $ (0.80) $ (0.91)
Basic and diluted extraordinary loss on early retirement of debt per
weighted average share of common stock (0.17) --
----------------- -----------------
Basic and diluted net loss per weighted average share
of common stock $ (0.97) $ (0.91)
================= =================
Weighted average shares of common stock
outstanding (in thousands) 52,019 127,333
================= =================
<FN>
*As restated, see Note 11
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three Months Ended March 31,
------------------------------------
1999* 2000*
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (43,836) $ (101,542)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation and amortization 56,863 200,526
Noncash interest expense 7,952 38,288
Noncash dividends 7,619 8,635
Equity in loss of Olympus and other joint ventures 14,861 3,309
Equity in loss of Adelphia Business Solutions joint ventures 3,803 105
Gain on sale of investments (2,354) --
Minority interest in losses of subsidiaries (12,914) (18,911)
Extraordinary loss on early retirement of debt 8,589 --
Decrease in deferred income taxes (2,858) (35,123)
Changes in operating assets and liabilities, net of effect
of acquisitions:
Subscriber receivables (3,256) (4,745)
Prepaid expenses and other assets (30,711) (46,872)
Accounts payable (27,154) 3,492
Subscriber advance payments and deposits 4,617 14,187
Accrued interest and other liabilities (23,082) (23,505)
---------------- ----------------
Net cash (used for) provided by operating activities (41,861) 37,844
---------------- ----------------
Cash flows from investing activities:
Acquisitions (111,372) (10,037)
Expenditures for property, plant and equipment (81,552) (384,382)
Investments in Adelphia Business Solutions joint ventures (18,572) (1,375)
Investments in other joint ventures (2,836) (15,435)
Sale of U.S. government securities - pledged 15,322 15,312
Amounts invested in and advanced to related parties (179,372) (75,539)
Other 2,400 2,158
---------------- ----------------
Net cash used for investing activities (375,982) (469,298)
---------------- ----------------
Cash flows from financing activities:
Proceeds from debt 700,000 254,310
Repayments of debt (703,715) (200,803)
Costs associated with financings (11,239) (786)
Premium paid on early retirement of debt (7,413) --
Net proceeds from issuance of Class A common stock 371,806 --
Net proceeds from issuance of Class B common stock -- 374,739
Payments to acquire treasury stock (149,213) --
Preferred stock dividends paid (11,375) (19,281)
---------------- ----------------
Net cash provided by financing activities 188,851 408,179
---------------- ----------------
Decrease in cash and cash equivalents (228,992) (23,275)
Cash and cash equivalents, beginning of period 398,644 186,874
---------------- ----------------
Cash and cash equivalents, end of period $ 169,652 $ 163,599
================ ================
<FN>
*As restated, see Note 11
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands, except per share amounts)
The accompanying unaudited condensed consolidated financial statements
of Adelphia Communications Corporation and its majority owned subsidiaries
("Adelphia" or the "Company") have been prepared in accordance with the rules
and regulations of the Securities and Exchange Commission.
In the opinion of management, all adjustments, consisting of only
normal recurring accruals necessary for a fair presentation of the financial
position of Adelphia at March 31, 2000, and the results of operations for the
three months ended March 31, 1999 and 2000, have been included. These condensed
consolidated financial statements should be read in conjunction with Adelphia's
consolidated financial statements included in its Annual Report on Form 10-K/A-2
for the year ended December 31, 1999. The results of operations for the three
months ended March 31, 2000 are not necessarily indicative of the results to be
expected for the year ending December 31, 2000.
1. Significant Events and Items Subsequent to December 31, 1999:
The Company has entered into a definitive agreement under which
Prestige Communications of NC, Inc. will sell its cable systems in Virginia,
North Carolina and Maryland to Adelphia for approximately $700,000. These
systems serve approximately 120,000 basic subscribers. This transaction is
subject to customary closing conditions and regulatory approval and is expected
to close by mid-2000.
On January 10, 2000, Adelphia Business Solutions entered into an
agreement with Williams Communications, Inc. ("Williams") to purchase an
indefeasible right of use ("IRU") for a total of 4,543 route miles of fiber in
the western United States at a cost of approximately $23,000.
On January 21, 2000, Adelphia closed the previously announced direct
placement of 5,901,522 shares of Adelphia Class B common stock with Highland
2000, L.P., a limited partnership owned by the Rigas family. Adelphia used a
portion of the proceeds of approximately $375,000 from this direct placement to
repay borrowings under revolving credit facilities of its subsidiaries, which
may be reborrowed and used for general corporate purposes.
During January 2000, Adelphia Business Solutions entered into an IRU
agreement with Level 3 Communications ("Level 3") for approximately 3,100
long-haul route miles throughout much of the western United States. In addition,
Adelphia Business Solutions entered into an agreement with Level 3 to acquire
access to approximately 750 miles of metro duct in the following central
business districts: Chicago, Cincinnati, Dallas, Denver, Detroit, Los Angeles,
Orlando, Phoenix, San Diego, San Francisco, San Jose and Seattle. The total cost
of the agreement is approximately $54,600.
On March 21, 2000, Adelphia Business Solutions entered into a purchase
agreement to acquire Allegheny Communications Connect, Inc's ("Allegheny's") 50%
interest in the jointly owned network in State College, Pennsylvania, and to
make certain changes to the fiber lease agreement with Allegheny for this
network. The consideration to be paid to Allegheny under the purchase agreement
is 330,000 shares of Adelphia Business Solutions' Class A common stock. The
consummation of this transaction is subject to certain regulatory approvals and
customary closing conditions.
Subsequent to March 31, 2000, Adelphia Business Solutions was the
successful bidder, in the Federal Communications Commission ("FCC") auction, for
177 licenses in the 39 Ghz spectrum covering approximately 164,000,000 Points of
Presence ("POPS"). Adelphia Business Solutions has made a deposit of $15,000 of
the total $77,605 purchase price with the remaining balance due at the time the
licenses are granted, which Adelphia Business Solutions believes will be during
the second or third quarter of 2000.
<PAGE>
Subsequent to March 31, 2000 Adelphia Business Solutions and Bell
Atlantic reached a proposed settlement for outstanding amounts due to Adelphia
Business Solutions from Bell Atlantic. As a result of the proposed settlement,
Adelphia Business Solutions increased its bad debt reserve $6,981 during the
quarter ended March 31, 2000.
On April 14, 2000, certain subsidiaries and affiliates of Adelphia
closed on a $2,250,000 bank credit facility. The credit facility consists of a
$1,500,000 8 3/4 year reducing revolving credit loan and a $750,000 9 year term
loan. Proceeds from initial borrowings were used to repay existing indebtedness
which may be reborrowed and used for capital expenditures, acquisitions,
investments and other general corporate purposes.
Adelphia completed several significant acquisitions during the quarter
ended December 31, 1999. Reference is made to Note 1 to the consolidated
financial statements contained in the Annual Report on Form 10-K/A-2 for the
year ended December 31, 1999 for additional information regarding these
acquisitions. The following unaudited financial information assumes that the
acquisitions that were consummated after September 30, 1999 had occurred on
January 1, 1999.
Three Months
Ended
March 31,
1999
-------------------
Revenues $ 586,148
Loss before extraordinary loss (70,442)
Net loss (85,531)
Basic and diluted net loss per weighted average
share of common stock (.79)
The above financial information excludes the gain on the sale of
discontinued operations of Centennial Cellular and the Australian operations of
Arahova Communications, Inc., of approximately $314,000, during the three months
ended March 31, 1999.
<PAGE>
2. Debt:
Debt is summarized as follows:
<TABLE>
<CAPTION>
Subsidiary Debt:
December 31, March 31,
1999 2000
---------------- ----------------
<S> <C> <C>
Notes to banks and institutions $ 3,088,477 $ 3,145,897
13% Senior Discount Notes of Adelphia Business
Solutions due 2003 253,860 262,767
12 1/4% Senior Secured Notes of Adelphia Business
Solutions due 2004 250,000 250,000
12% Senior Subordinated Notes of Adelphia Business
Solutions due 2007 300,000 300,000
10 5/8% Senior Notes of Olympus due 2006 203,537 203,408
11% Senior Subordinated Notes of FrontierVision
Due 2006 212,541 212,082
11 7/8% Senior Discount Notes Series A of
FrontierVision due 2007 205,979 211,239
11 7/8% Senior Discount Notes Series B of
FrontierVision due 2007 78,522 79,997
9 1/2% Senior Notes of Arahova due 2000 148,773 150,614
9 3/4% Senior Notes of Arahova due 2002 201,172 201,881
Zero Coupon Senior Discount Notes of Arahova due 2003 318,234 327,982
9 1/2% Senior Notes of Arahova due 2005 250,852 251,299
8 7/8% Senior Notes of Arahova due 2007 242,542 243,131
8 3/4% Senior Notes of Arahova due 2007 216,105 216,668
8 3/8% Senior Notes of Arahova due 2017 94,048 94,186
8 3/8% Senior Notes of Arahova due 2007 94,106 94,412
Senior Discount Notes of Arahova due 2008 267,105 275,343
Other subsidiary debt 87,960 85,345
---------------- ----------------
Total subsidiary debt $ 6,513,813 $ 6,606,251
================ ================
</TABLE>
The following information updates to March 31, 2000, unless otherwise
noted, certain disclosures included in Note 3 to Adelphia's consolidated
financial statements contained in the Annual Report on Form 10-K/A-2 for the
year ended December 31, 1999.
Weighted average interest rate payable by subsidiaries
under credit agreements with banks and institutions 7.69%
Percentage of total indebtedness that bears interest at
fixed rates for at least one year 73.9%
<PAGE>
<TABLE>
<CAPTION>
Parent Debt:
December 31, March 31,
1999 2000
----------------- -----------------
<S> <C> <C>
10 1/4% Senior Notes due 2000 $ 99,872 $ 99,928
9 1/4% Senior Notes due 2002 325,000 325,000
8 1/8% Senior Notes due 2003 149,419 149,453
10 1/2% Senior Notes due 2004 150,000 150,000
7 1/2% Senior Notes due 2004 100,000 100,000
9 7/8% Senior Notes due 2007 347,791 347,843
8 3/8% Senior Notes due 2008 299,259 299,275
7 3/4% Senior Notes due 2009 300,000 300,000
7 7/8% Senior Notes due 2009 350,000 350,000
9 3/8 Senior Notes due 2009 496,020 496,153
9 7/8% Senior Debentures due 2005 128,711 128,758
9 1/2% Pay-In-Kind Notes due 2004 31,847 31,847
----------------- -----------------
Total parent debt $ 2,777,919 $ 2,778,257
================= =================
</TABLE>
<TABLE>
<CAPTION>
3. Investments:
Adelphia's nonconsolidated investments are as follows:
December 31, March 31,
1999 2000
----------------- ------------------
Investments accounted for using the equity method:
Gross investment:
<S> <C> <C>
Adelphia Business Solutions' joint ventures $ 61,400 $ 62,775
Mobile communications 19,865 20,441
Programming ventures 10,627 19,028
Other 1,430 2,050
----------------- ------------------
Total 93,322 104,294
----------------- ------------------
Investments accounted for using the cost method:
Niagara Frontier Hockey, L.P. 47,533 47,533
Benbow PCS Ventures, Inc. 17,192 17,192
Convertible preferred stock 87,433 87,433
Programming ventures -- 5,000
Other 12,972 13,203
----------------- ------------------
Total 165,130 170,361
----------------- ------------------
Investments accounted for as available-for-sale securities:
Common stock warrants 49,890 76,129
----------------- ------------------
Total investments before cumulative equity in net losses 308,342 350,784
Cumulative equity in net losses (27,468) (30,273)
----------------- ------------------
Total investments $ 280,874 $ 320,511
================= ==================
</TABLE>
<PAGE>
4. Related Party Receivables - Net:
Related party receivables - net represent advances to and management
fees and other fees from managed partnerships, the Rigas family and Rigas family
controlled entities. No related party advances are collateralized.
5. Net Loss Per Weighted Average Share of Common Stock:
Basic net loss per weighted average share of common stock is computed
based on the weighted average number of common shares outstanding after giving
effect to dividend requirements on the Company's preferred stock. Diluted net
loss per common share is equal to basic net loss per common share because the
Company's convertible preferred stock and outstanding stock options had an
antidilutive effect for the periods presented; however, the convertible
preferred stock and outstanding stock options could have a dilutive effect on
earnings per share in future periods.
6. Supplemental Financial Information:
Cash payments for interest were $97,200 and $182,237 for the three
months ended March 31, 1999 and 2000, respectively. Accumulated depreciation of
property, plant and equipment amounted to $1,137,284 and $1,251,960 at December
31, 1999 and March 31, 2000, respectively. Accumulated amortization of
intangible assets amounted to $617,235 and $698,887 at December 31, 1999 and
March 31, 2000, respectively. Interest expense - net includes interest income of
$14,425 and $4,214 for the three months ended March 31, 1999 and 2000,
respectively. Interest income includes interest income from affiliates on
long-term loans and for reimbursement of interest expense on revolving credit
agreements related to short-term borrowings by such affiliates.
7. Income Taxes:
Income tax benefit for the three months ended March 31, 1999 and 2000
was substantially comprised of deferred tax.
8. Commitments and Contingencies:
Reference is made to Note 1 and to Management's Discussion and Analysis
of Financial Condition and Results of Operations and Legal Proceedings for a
discussion of material commitments and contingencies.
9. Recent Accounting Pronouncements:
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. Management of the Company has not completed its
evaluation of the impact of SFAS No. 133 on the Company's consolidated financial
statements. In July 1999, SFAS No. 137 was issued to delay the effective date of
SFAS No. 133 to fiscal quarters of fiscal years beginning after June 15, 2000.
<PAGE>
10. Business Segment Information:
Refer to Item 2, Business Segment Information, of this Quarterly
Report on Form 10-Q/A for information regarding business segments as of December
31, 1999 and March 31, 2000 and for the three months ended March 31, 1999 and
2000.
11. Restatement:
Subsequent to the issuance of the Company's condensed consolidated
financial statements as of and for the three months ended March 31, 2000,
management determined that the cable systems swap consummated on April, 1 1998
between Time Warner Entertainment and the Company, originally accounted for as
an exchange of similar productive assets in accordance with Accounting
Principles Board Opinion No. 29 "Accounting for Non-Monetary Transactions,"
should have been recorded as a business combination in accordance with
Accounting Principles Board Opinion No. 16 "Business Combinations." As a result,
the condensed consolidated financial statements as of December 31, 1999 and
March 31, 2000 and for the three months ended March 31, 1999 and 2000 have been
restated from amounts previously reported to recognize a gain of $21,455 and to
adjust property, plant and equipment and intangible assets in the net amount of
$21,455 as of April 1, 1998.
A summary of the significant effects of the restatement is as follows:
<TABLE>
<CAPTION>
December 31, 1999 March 31, 2000
------------------------------- -------------------------------
As Previously As Previously
Reported As Restated Reported As Restated
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Property, plant and equipment - net $ 3,972,329 $ 3,961,704 $ 4,255,851 $ 4,245,386
Intangible assets - net 12,095,873 12,127,613 12,038,360 12,069,893
Accumulated deficit (1,997,553) (1,976,438) (2,100,843) (2,079,775)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 2000
------------------------------- -------------------------------
As Previously As Previously
Reported As Restated Reported As Restated
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Depreciation and amortization $ 56,815 $ 56,863 $ 200,479 $ 200,526
Loss before extraordinary loss (35,199) (35,247) (101,495) (101,542)
Net loss (43,788) (43,836) (101,495) (101,542)
Net loss applicable to common stockholders (50,288) (50,336) (115,901) (115,948)
Basic and diluted net loss per weighted
average share of common stock (0.97) (0.97) (0.91) (0.91)
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Dollars in thousands)
As discussed in Note 11 to the condensed consolidated financial
statements, subsequent to the issuance of the Company's financial statements as
of and for the three months ended March 31, 2000, management determined that the
cable systems swap consummated on April 1, 1998 between Time Warner
Entertainment and the Company, originally accounted for as an exchange of
similar productive assets in accordance with Accounting Principles Board Opinion
No. 29 "Accounting for Non-Monetary Transactions," should have been recorded as
a business combination in accordance with Accounting Principles Board Opinion
No. 16 "Business Combinations". The accompanying MD&A has been revised to
reflect the effects of the restatement of the condensed consolidated financial
statements as of December 31, 1999 and March 31, 2000 and for the three months
ended March 31, 1999 and 2000.
Results of Operations
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Quarterly Report on Form 10-Q/A, 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, the availability and cost of
capital, government and regulatory policies, the pricing and availability of
equipment, materials, inventories and programming, product acceptance,
technological developments and changes in the competitive environment in which
the Company operates. Persons reading this Quarterly Report on Form 10-Q/A are
cautioned that forward-looking statements herein 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. For further information regarding these risks
and uncertainties and their potential impact on the Company, see the prospectus
and most recent prospectus supplement filed under Registration Statement No.
333-78027, under the caption "Risk Factors."
Adelphia Communications Corporation and its subsidiaries ("Adelphia" or
the "Company") operate primarily in two lines of business within the
telecommunications industry: cable television and related investments
("Adelphia, excluding Adelphia Business Solutions" or "Cable and Other Segment")
and competitive local exchange carrier ("CLEC") telephony ("Adelphia Business
Solutions" or "CLEC Segment"). The balance sheet data as of December 31, 1999
and March 31, 2000, and the other data for the three months ended March 31, 1999
and 2000, of Adelphia Business Solutions presented below have been derived from
the consolidated financial statements of Adelphia Business Solutions not
included herein.
A majority owned subsidiary of the Company, Adelphia Business
Solutions, together with its subsidiaries owns CLEC networks and investments in
CLEC joint ventures and manages those networks and joint ventures. Adelphia
Business Solutions is an unrestricted subsidiary for purposes of the Company's
indentures. For further information regarding Adelphia Business Solutions, which
also files reports pursuant to the Securities Exchange Act of 1934, see Adelphia
Business Solutions' Form 10-Q for the quarterly period ended March 31, 2000.
<PAGE>
Business Segment Information
Summarized unaudited financial information of Adelphia Consolidated,
Adelphia Business Solutions and Adelphia, excluding Adelphia Business Solutions
is as follows:
<TABLE>
<CAPTION>
Balance Sheet Data: December 31, March 31,
1999* 2000*
---------------- ----------------
<S> <C> <C>
Adelphia Consolidated
Total assets $ 17,288,615 $ 17,613,604
Total debt 9,291,732 9,384,508
Cash and cash equivalents 186,874 163,599
Investments (a) 308,342 350,784
Redeemable preferred stock 409,211 417,889
Convertible preferred stock (liquidation preference) 675,000 675,000
Adelphia Business Solutions
Total assets (b) $ 1,171,074 $ 1,349,232
Total debt 845,178 852,597
Cash and cash equivalents 2,133 4,283
Investments (a) 61,400 62,775
Redeemable preferred stock 260,848 269,483
Adelphia, excluding Adelphia Business Solutions
Total assets $ 16,117,541 $ 16,264,372
Total debt 8,446,554 8,531,911
Cash and cash equivalents 184,741 159,316
Investments (a) 246,942 288,009
Redeemable preferred stock 148,363 148,406
Convertible preferred stock (liquidation preference) 675,000 675,000
<FN>
*As restated, see Note 11 of the Condensed Consolidated Financial Statements presented at Item 1.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Other Data: Three Months Ended
March 31,
------------------------------
1999* 2000*
-------------- --------------
<S> <C> <C>
Adelphia Consolidated
Revenues $ 201,604 $ 672,719
Priority investment income from Olympus 12,000 --
Operating expenses (c) 116,406 410,384
Depreciation and amortization expense 56,863 200,526
Operating income 28,335 60,591
Interest expense - net (67,464) (198,392)
Preferred stock dividends (14,119) (23,041)
Capital expenditures 81,552 384,382
Cash paid for acquisitions 111,372 10,037
Cash used for investments 21,408 16,810
Adelphia Business Solutions
Revenues $ 21,438 $ 69,301
Operating expenses (c) 29,513 92,578
Depreciation and amortization expense 13,535 19,438
Operating loss (21,610) (42,715)
Interest expense - net (d) (10,707) (7,503)
Preferred stock dividends (7,619) (8,635)
Capital expenditures 39,684 167,709
Cash paid for acquisitions 89,750 --
Cash used for investments 18,572 1,375
Adelphia, excluding Adelphia Business Solutions
Revenues $ 180,166 $ 603,418
Priority investment income from Olympus 12,000 --
Operating expenses (c) 86,893 317,806
Depreciation and amortization expense 43,328 181,088
Operating income 49,945 103,306
Interest expense - net (e) (56,757) (190,889)
Preferred stock dividends (6,500) (14,406)
Capital expenditures 41,868 216,673
Cash paid for acquisitions 21,622 10,037
Cash used for investments 2,836 15,435
<FN>
*As restated, see Note 11 of the Condensed Consolidated Financial Statements presented at Item 1.
(a) Represents total investments before cumulative equity in net losses.
(b) Amounts exclude receivables from Adelphia of $392,629 and $163,201 as of December 31, 1999 and March 31, 2000, respectively.
(c) Amounts exclude depreciation, amortization and merger and integration costs.
(d) Amounts include interest income from Adelphia of $2,828 and $5,023 for the respective periods.
(e) Amounts include interest expense to Adelphia Business Solutions of $2,828 and $5,023 for the respective periods.
</FN>
</TABLE>
<PAGE>
Adelphia earned substantially all of its revenues in the three months
ended March 31, 1999 and 2000 from monthly subscriber fees for basic, satellite,
premium and ancillary services (such as installations and equipment rentals),
CLEC telecommunications services, local and national advertising sales, high
speed data services and pay-per-view programming.
The changes in Adelphia's operating results for the three months ended
March 31, 2000 compared to the same period of the prior year, were primarily the
result of acquisitions, rate increases and expansion of existing operations.
The high level of depreciation and amortization associated with the
significant number of acquisitions in recent years, the continued upgrade and
expansion of systems and interest costs associated with financing activities
will continue to have a negative impact on the reported results of operations.
Adelphia expects to report net losses for the next several years.
Adelphia completed numerous acquisitions during the year ended December
31, 1999. The Company completed the acquisition of Olympus Communications, L.P.
("Olympus") partnerships interests held by FPL Group, Inc. and the acquisitions
of FrontierVision Partners, L.P. ("FrontierVision"), Harron Communication Corp.,
and Arahova Communications, Inc. ("Arahova") (formerly Century Communications
Corp.). These acquisitions occurred on October 1, 1999 and are collectively
referred to as the Acquisitions. Reference is made to Note 1 of the consolidated
financial statements contained in Adelphia's Annual Report on Form 10-K/A-2 for
the year ended December 31, 1999 for additional information regarding these
acquisitions.
The following tables set forth certain cable television system data at
the dates indicated for Company Owned and Managed Systems. The "Managed Systems"
are affiliated systems managed by Adelphia.
<TABLE>
<CAPTION>
March 31,
-------------------------------- Percent
1999 2000 Increase
-------------- --------------- ----------------
<S> <C> <C> <C>
Homes Passed by Cable
Company Owned Systems 3,179,379 7,784,700 144.8%
Managed Systems 178,021 180,408 1.3%
-------------- ---------------
Total Systems 3,357,400 7,965,108 137.2%
============== ===============
Basic Subscribers
Company Owned Systems 2,246,394 5,003,517 122.7%
Managed Systems 134,015 134,426 0.3%
-------------- ---------------
Total Systems 2,380,409 5,137,943 115.8%
============== ===============
</TABLE>
Data for the Olympus systems (which became wholly owned and
consolidated on October 1, 1999) is included under Company Owned Systems for all
periods presented.
<PAGE>
The following table is derived from Adelphia's Condensed Consolidated
Statements of Operations that are included in this Form 10-Q/A 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>
Three Months Ended
March 31,
----------------------
1999 2000
---------- ----------
<S> <C> <C>
Revenues 100.0% 100.0%
Operating expenses:
Direct operating and programming 33.4% 35.8%
Selling, general and administrative 24.4% 25.2%
Depreciation and amortization 28.2% 29.8%
Merger and integration costs -- 0.2%
---------- ----------
Operating income 14.0% 9.0%
========== ==========
</TABLE>
Cable and Other Segment
<TABLE>
<CAPTION>
Revenues.
The primary revenue sources reflected as a percentage of total revenues were as follows:
Three Months Ended
March 31,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
Cable service and equipment 78% 78%
Premium programming 10% 9%
Advertising sales and other services 12% 13%
</TABLE>
Revenues increased approximately 234.9% for the three months ended
March 31, 2000 compared with the same period of the prior year. The increases
are attributable to the following:
<TABLE>
<S> <C>
Acquisitions 93%
Basic subscriber growth 1%
Cable rate increases 11%
Premium programming (10%)
Advertising sales and other services 5%
</TABLE>
Effective August 1, 1999, certain rate increases related to cable
services were implemented in substantially all of the Company's systems.
Advertising revenues and revenues derived from other strategic service offerings
such as paging, high-speed data services and long distance services also had a
positive impact on revenues for the quarter ended March 31, 2000. The Company
expects to implement rate increases related to certain cable services in
substantially all of the Company's systems during 2000.
Direct Operating and Programming Expenses.
Direct operating and programming expenses, which are mainly basic and
premium programming costs and technical expenses, increased 252.5% to $207,264
for the three months ended March 31, 2000 from $58,791 for the same period of
1999. Acquisitions accounted for substantially all of the increase for the
quarter ended March 31, 2000, while being partially offset by operational
efficiencies recognized in connection with the acquisitions.
<PAGE>
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 293.4% to $110,542 for the three months ended March 31,
2000 from $28,102 for the same period of 1999. Acquisitions accounted for 89.9%
of the increase for the quarter ended March 31, 2000. The remaining increase was
due primarily to subscriber growth, new services, and an increase in
administrative employees due to the recently completed acquisitions.
Depreciation and Amortization.
Depreciation and amortization for the cable and other segment increased
317.9% to $181,088 for the three months ended March 31, 2000, from $43,328 for
the same period of 1999. Acquisitions accounted for 90.1% of the increase for
the quarter ended March 31, 2000. The remaining increase was due primarily to
increased capital expenditures made during the past several years.
Priority Investment Income.
Priority investment income is comprised of payments received from
Olympus of accrued priority return on the Company's investment in 16.5%
preferred limited partner ("PLP") interests in Olympus prior to the
consolidation of Olympus effective October 1, 1999.
Interest Expense - Net.
Interest expense - net increased 236.3% to $190,889 for the three
months ended March 31, 2000, from $56,757 for the same period of 1999.
Acquisitions accounted for 83.7% of the increase for the quarter ended March 31,
2000. The remaining increase was due to an increase in average debt outstanding.
Equity in Loss of Olympus and Other Joint Ventures.
The equity in loss of Olympus and other joint ventures represents
primarily (i) the Company's pro-rata share of Olympus' losses and the accretion
requirements of Olympus' PLP interests, and (ii) Adelphia's pro-rata share of
its less than majority owned partnerships' operating losses. Equity in loss of
joint ventures decreased in the three months ended March 31, 2000, compared to
the same period in 1999, primarily due to the consolidation of Olympus effective
October 1, 1999.
Preferred Stock Dividends.
Preferred stock dividends increased 121.6% to $14,406 for the three
months ended March 31, 2000, from $6,500 for the same period of 1999. The
increase is primarily due to the dividends on the Series D convertible preferred
stock issued in April 1999.
Minority Interest in Net Losses of Subsidiaries.
Minority interest in net losses of subsidiaries increased 46.4% to
$18,911 for the three months ended March 31, 2000, from $12,914 for the same
period for 1999. The increase was primarily due to increased net losses of less
than wholly-owned subsidiaries attributable to minority interests, offset
partially by net income of less than wholly-owned subsidiaries of the
Acquisitions.
CLEC Segment
Revenues.
Revenues increased 223% to $69,301 for the three months ended March 31,
2000, from $21,438 for the same quarter in the prior year.
The change is attributable to the following:
Growth in original markets $ 25,168
Acquisition of local partner interests 13,055
New markets 10,118
Management fees (478)
<PAGE>
The primary sources of revenues, reflected as a percentage of total
revenues were as follows:
Three Months
Ended
March 31,
1999 2000
---------- ----------
Local service 64.1% 73.8%
Dedicated access 23.5% 12.7%
Management fees 7.4% 1.6%
Enhanced services -- 5.1%
Long distance 0.3% 1.6%
Other 4.7% 5.2%
Direct Operating and Programming.
Direct operating and programming increased 297% to $33,732 for the
three months ended March 31, 2000 from $8,504 for the same quarter in the prior
year.
The increase is attributable to the following:
Growth in original markets $ 5,473
Acquisition of local partner interests 4,948
New markets 13,193
Network Operations Control Center ("NOCC") 1,614
The increase in direct operating and programming expense was due to
start up costs in Adelphia Business Solutions' new markets as regional switches
and network rings are activated, combined with higher start up costs in Adelphia
Business Solutions' original markets associated with Adelphia Business
Solutions' data and internet access products. The increased number and size of
the operations of the networks resulted in increased employee related costs,
equipment maintenance costs and expansion costs.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses increased 179% to $58,846
for the three months ended March 31, 2000 from $21,009 for the same quarter in
the prior year.
The increase is attributable to the following:
Growth in original markets $ 3,673
Acquisition of local partner interests 6,071
New markets 11,601
Sales and marketing activities 3,762
Corporate overhead charges 4,950
Proposed Bell Atlantic settlement charges 6,981
Non-cash stock compensation 799
Depreciation and Amortization.
Depreciation and amortization expense increased 44% to $19,438 during
the three months ended March 31, 2000 from $13,535 for the same quarter in the
prior year primarily as a result of increased depreciation resulting from the
higher depreciable asset base at the NOCC and the networks, amortization of
deferred financing costs and the acquisition of local partner interests.
<PAGE>
Interest Expense - Net.
Interest expense - net decreased 30% to $7,503 during the three months
ended March 31, 2000 from $10,707 for the same period in the prior year. The
decrease was primarily attributable to an increase in the amount of interest
capitalized as a result of Adelphia Business Solutions' network expansion.
Equity in Net Loss of Joint Ventures.
Equity in net loss of joint ventures decreased by 97% to $105 during
the three months ended March 31, 2000 from $3,803 for the same quarter in the
prior year as a result of the consolidation of several joint ventures resulting
from the purchase of the local partners' interests, and the maturing of the
remaining joint venture networks.
The number of joint ventures paying management fees to Adelphia
Business Solutions decreased from seven at March 31, 1999 to four at March 31,
2000 due to Adelphia Business Solutions' increased ownership in several joint
ventures as a result of the previously mentioned purchases of local partners'
interests. These non-consolidated joint ventures and networks under construction
paid management and monitoring fees to Adelphia Business Solutions, which are
included in revenues, aggregating approximately $1,099 for the three months
ended March 31, 2000, as compared with $1,578 for the same quarter in the prior
fiscal year. The nonconsolidated joint ventures' net losses, including networks
under construction, for the three months ended March 31, 1999 and 2000,
aggregated approximately $2,222 and $636, respectively.
Adelphia Business Solutions' Preferred Stock Dividends.
Preferred stock dividends increased by 13% to $8,635 for the three
months ended March 31, 2000 from $7,619 for the same period in the prior year.
The increase was due to a higher outstanding preferred stock base resulting from
the payments of dividends in additional shares of preferred stock.
Liquidity and Capital Resources
The cable television and other telecommunication businesses are capital
intensive and typically require continual financing for the construction,
modernization, maintenance, expansion and acquisition of cable and other
telecommunication systems. The Company historically has committed significant
capital resources for these purposes and for investments in affiliates and other
entities. These expenditures were funded through long-term borrowings, the sale
of common and preferred stock and, to a lesser extent, internally generated
funds. The Company's ability to generate cash to meet its future needs will
depend generally on its results of operations and the continued availability of
external financing.
For the three months ended March 31, 1999, cash used for operating
activities totaled $41,861 and for the three months ended March 31, 2000, cash
provided by operating activities totaled $37,844; for the three months ended
March 31, 1999 and 2000, cash used for investing activities totaled $375,982 and
$469,298, respectively and cash provided by financing activities totaled
$188,851 and $408,179, respectively.
Capital Expenditures
Cable and Other Segment
Capital expenditures for the three months ended March 31, 1999 and 2000
were $41,868 and $216,673, respectively. This increase was primarily due to
acquisitions and cable plant rebuilds and upgrades to expand services. The
Company expects that capital expenditures for the Cable and Other Segment for
the year ending December 31, 2000 will be in a range of approximately $700,000
to $800,000.
<PAGE>
CLEC Segment
Capital expenditures for the three months ended March 31, 1999 and 2000
were $39,684 and $167,709, respectively. This increase was primarily due to
expenditures necessary to develop its markets, as well as the fiber purchases to
interconnect the networks. Adelphia Business Solutions estimates that a total of
approximately $500,000 will be required to fund Adelphia Business Solutions
capital expenditures, working capital requirements, operating losses and pro
rata investments in the joint ventures for the year ending December 31, 2000.
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 or, for Adelphia Business
Solutions, Olympus, FrontierVision and Arahova, their own public debt and/or
equity. The Company generally has funded its acquisitions, working capital
requirements, capital expenditures and investments in affiliates and other
entities through long-term borrowings, primarily from banks and insurance
companies, short-term borrowings, internally generated funds and the issuance of
public debt or equity. The Company generally has funded the principal and
interest obligations on its long-term borrowings from banks and insurance
companies by refinancing the principal with new loans or through the issuance of
parent and subsidiary company debt or equity securities, and by paying the
interest out of internally generated funds. Adelphia has funded the interest
obligations on its public borrowings from internally generated funds.
The Company's public indentures and subsidiary credit agreements
contain covenants that, among other things, require the maintenance of certain
financial ratios (including compliance with certain debt to cash flow ratios in
order to incur additional indebtedness); place limitations on borrowings,
investments, affiliate transactions, dividends and distributions; and contain
certain cross default provisions relating to Adelphia or its subsidiaries.
At March 31, 2000, the Company's total outstanding debt aggregated
$9,384,508, which included $2,778,257 of parent debt, $852,597 of Adelphia
Business Solutions debt, $203,408 of Olympus public debt, $503,318 of
FrontierVision public debt, $1,855,516 of Arahova public debt and $3,191,412 of
other subsidiary debt. The Company also had total redeemable preferred stock of
$417,889 outstanding as of March 31, 2000. As of March 31, 2000, Adelphia's
subsidiaries had an aggregate of $1,148,849 in unused credit lines and cash and
cash equivalents, which includes $177,000 also available to affiliates, part of
which is subject to achieving certain levels of operating performance. On April
14, 2000, certain subsidiaries and affiliates of Adelphia closed on a $2,250,000
bank credit facility. The credit facility consists of a $1,500,000 8 3/4 year
reducing revolving credit loan and a $750,000 9 year term loan. Proceeds from
initial borrowings were used to repay existing indebtedness which may be
reborrowed and used for capital expenditures, acquisitions, investments and
other general corporate purposes. The impact of this new credit facility is
wholly additive to current subsidiary and affiliate available credit lines.
The Company's weighted average interest rate on notes payable to banks
and institutions was approximately 8.46% at March 31, 1999 compared to 7.69% at
March 31, 2000. At March 31, 2000, approximately 24.3% of such debt was subject
to fixed interest rates for at least one year under the terms of such debt or
applicable interest rate swap, cap and collar agreements. Approximately 74% of
the Company's total indebtedness was at fixed interest rates as of March 31,
2000, after giving effect to certain interest rate swaps, caps and collars.
<PAGE>
The following table sets forth the mandatory reductions in principal
under all debt agreements for each of the next four years and nine months based
on amounts outstanding at March 31, 2000:
Nine months ending December 31, 2000 $ 435,141
Year ending December 31, 2001 292,959
Year ending December 31, 2002 886,309
Year ending December 31, 2003 1,390,308
Year ending December 31, 2004 978,647
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 the 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 or telephone 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, or that additional competition from this industry
consolidation will not have an adverse effect on the Company.
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 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") ended FCC regulation of cable programming service
tier rates on March 31, 1999.
<PAGE>
Rates for basic and certain 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. 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
or future legislative or rulemaking proceedings or changes to the rate
regulations.
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.
The 1996 Act repealed the prohibition on CLECs 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
CLECs to operate "open video systems" ("OVS") without obtaining a local cable
franchise, although CLECs 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 CLEC. 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 Telephone Company has
been granted permission to convert its video dialtone authorization in Dover
Township, New Jersey to an OVS authorization. New Jersey Bell Telephone Company
terminated its OVS operation in Dover Township, New Jersey at the end of 1998.
Recently, RCN Telecom Services, Inc. has been granted permission to convert its
video dialtone authorization in the Philadelphia Region to an OVS authorization.
The Company believes that the provision of video programming or other
services by telephone companies in competition with the Company's existing
operations could have an adverse effect on the Company's financial condition and
results of operations. At this time, the impact of any such effect is not known
or estimable.
<PAGE>
The Company also competes with direct broadcast satellite ("DBS")
service providers. DBS has been available to consumers since 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. Congress passed the Satellite Home Viewer
Act in 1999 which allows DBS providers to begin offering local broadcast
channels. DBS companies have since added a limited number of local channels in
some regions, a trend that will continue, thus lessening the distinction between
cable television and DBS service. Although the impact to date has not been
material, any future impact of DBS competition on the Company's future results
is not known or estimable.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company uses fixed and variable rate debt to fund its working
capital requirements, capital expenditures and acquisitions. These debt
arrangements expose the Company to market risk related to changes in interest
rates. The Company 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. As of March 31,
2000, the Company had interest rate swap agreements covering notional principal
of $90,000 that expire through 2008 and that fix the interest rate at an average
of 6.12%. The Company also 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. As of March 31, 2000, the Company had
interest rate swap agreements covering notional principal of $80,000 that expire
through 2003 and that have a variable rate at an average of 6.26%. The Company
enters into interest rate cap agreements to reduce the risk of incurring higher
interest costs due to rising interest rates. As of March 31, 2000, the Company
had interest rate cap agreements covering a notional amount of $400,000, which
expire in 2002 and cap rates at an average rate of 7.25%. As of March 31, 2000,
the Company had interest rate collar agreements covering a notional amount of
$200,000, with $100,000 expiring in each of 2001 and 2002. The interest rate
collar agreements have average floor rates of 5.95% and 6.30% and average cap
rates of 5.95% and 6.30%, respectively. These agreements also have maximum cap
rates of 6.64% and minimum floor rates of 4.65% and 4.95%, respectively. The
Company does not enter into any interest rate swap, cap or collar agreements for
trading purposes. The Company is exposed to market risk in the event of
non-performance by the banks. No such non-performance is expected. The table
below summarizes the fair values and contract terms of the Company's financial
instruments subject to interest rate risk as of March 31, 2000.
<TABLE>
<CAPTION>
Expected Maturity
-------------------------------------------------------- Fair
2000 2001 2002 2003 2004 Thereafter Total Value
-------------------------------------------------------- ------------ ----------------------
Debt and Redeemable
Preferred Stock:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate $ 282,375 $ 23,000 $ 545,000 $ 897,840 $ 531,847 $ 4,908,142 $7,188,204 $6,379,229
Average Interest Rate 9.87% 9.87% 9.88% 9.87% 9.87% 9.79% - -
Variable Rate 152,766 269,959 341,309 492,468 446,800 1,448,505 3,151,807 3,151,807
Average Interest Rate 8.41% 8.83% 8.85% 8.96% 8.66% 8.62% - -
Interest Rate Swaps,
Caps and Collars:
Variable to Fixed $ 15,000 $ - $ - $ - $ - $ 75,000 $ 90,000 $ 5,654
Average Pay Rate 6.12% - - - - 6.12% - -
Average Receive Rate 6.29% - - - - 7.28% - -
Fixed to Variable - - 35,000 45,000 - - 80,000 (2,480)
Average Pay Rate - - 6.26% 6.26% - - - -
Average Receive Rate - - 7.31% 7.42% - - - -
Interest Rate Caps - - 400,000 - - - 400,000 3,236
Average Cap Rate - - 7.25% - - - - -
Interest Rate Collars - 100,000 100,000 - - - 200,000 181
Maximum Cap Rates - 6.64% 6.64% - - - - -
Average Cap and Floor Rate - 5.95% 6.30% - - - - -
Minimum Floor Rate - 4.65% 4.95% - - - - -
</TABLE>
<PAGE>
Interest rates on variable debt are estimated by us using the average
implied forward London Interbank Offer Rate ("LIBOR") rates for the year of
maturity based on the yield curve in effect at March 31, 2000, plus the
borrowing margin in effect at March 31, 2000. Average receive rates on the
variable to fixed swaps are estimated by us using the average implied forward
LIBOR rates for the year of maturity based on the yield curve in effect at March
31, 2000.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In February 2000, the Company settled all disputes and claims arising
out of a summons and complaint filed in the United States District Court for the
Northern District of New York, Case Number 99-CV-268, against the Company by
Hyperion Solutions Corporation ("Solutions"), which is described in the
complaint as a company in the business of developing, marketing and supporting
comprehensive computer software tools, executive information systems and
applications that companies use to improve their business performance. The
complaint alleged, among other matters, that the Company's use of the name
"Hyperion" in its business infringed upon various trademarks and service marks
of Solutions in violation of federal trademark laws and violated various New
York business practices, advertising and business reputation laws. Management of
the Company believes that the Company had meritorious defenses to the complaint
and has vigorously defended this lawsuit including filing a counterclaim against
Solutions. As part of the settlement, Solutions' complaint and the Company's
counterclaim were dismissed with prejudice and both the Company and Solutions
entered into mutual releases regarding the complaint and counterclaim.
Management believes that this matter will not have a material adverse effect
upon the Company.
On or about March 10, 1999, a lawsuit was commenced by the filing of a
class action complaint (the "Complaint") by one of Century's Class A common
stockholders on behalf of himself and all others similarly situated naming
Century's Class B common stockholders and all of Century's directors as
defendants for alleged breaches of fiduciary duty in connection with approval of
the Merger consideration. Century and Adelphia were also named as defendants for
allegedly aiding and abetting in the foregoing alleged breaches of fiduciary
duty. The Complaint seeks damages in an unspecified amount and such other relief
as may be appropriate. On July 21, 1999, the court granted Century's and the
other defendants' motion for extension of time to answer or otherwise respond to
the complaint to the earlier of November 15, 1999 or twenty days after the
effective date of the Merger. On October 21, 1999, Adelphia and Century filed
motions to strike the Complaint, and several of the individual defendants moved
to dismiss all counts in the Complaint against them for lack of personal
jurisdiction over each of them. On January 3, 2000, the court dismissed all
counts in the Complaint as to two of the individual defendants. On January 13,
2000, the court granted defendants' motions to strike and dismissed Plaintiff's
complaint in its entirety for failure to state a claim upon which relief can be
granted. The court entered judgment on February 16, 2000. The plaintiff has not
filed an appeal in this action within the time provided by local court rules for
the filing of an appeal.
In late March, ML Media Partners, L.P. ("ML Media") commenced an
action by filing a Verified Complaint (the "Complaint") in the Supreme Court of
the State of New York, New York County, against Arahova Communications, Inc.
("Arahova"), Century Communications Corp., a Texas subsidiary of Arahova
("Century"), and Adelphia. In the nine count Complaint, ML Media alleges that it
entered into a joint venture agreement (the "Agreement") with Century which, as
subsequently modified, governed the ownership, operation and disposition of
cable television systems in Puerto Rico (the "Joint Venture"). The Complaint
alleges that Adelphia and its affiliates took over Century's interest in the
Joint Venture on or around October 1, 1999, and have, according to the
Complaint, breached their fiduciary obligations to the Joint Venture and
violated certain provisions of the Agreement. The Complaint further alleges that
ML Media gave Century notice that ML Media was exercising its rights under the
Agreement to require that Century elect to (A) purchase ML Media's interest in
the Joint Venture at an appraised fair value, or (B) seek to sell the cable
systems to one or more third parties. Century, according to the Complaint,
elected to pursue the sale of the cable systems to a third party but indicated
that it was evaluating whether it would also make its own offer for the cable
systems. The Complaint alleges that Century or its affiliates' potential
participation in the sale process is improper. The Complaint asks for, among
other things, the dissolution of the Joint Venture and the appointment of a
receiver to effect a prompt sale of the Joint Venture. The parties have until
May 31, 2000 to take discovery, including depositions, in the action. Management
believes the law suit is without merit and will vigorously defend it, and
believes in any event that this matter will not have a material adverse effect
on the Company.
<PAGE>
Adelphia and certain subsidiaries are defendants in several putative
subscriber class action suits in state courts in Vermont, Pennsylvania and
Mississippi initiated during 1999. The suits all challenge the propriety of late
fees charged by the subsidiaries to customers who fail to pay for services in a
timely manner. The suits seek injunctive relief and various formulations of
damages under various claimed causes of action under various bodies of state
law. These actions are in various stages of defense and, in one case, the
Company was required to refund the late fees, however, Adelphia has appealed
this decision. All of these actions are being defended vigorously. The outcome
of these matters cannot be predicted at this time.
There are no other material pending legal proceedings, other than
routine litigation incidental to the business, to which the Company is a part of
or which any of its property is subject.
Item 2. Changes in Securities and Use of Proceeds
On January 21, 2000, Adelphia issued 5,901,000 shares of its Class B
common stock to Highland 2000, L.P., a Rigas family partnership, for
approximately $375 million pursuant to a previously announced direct placement
agreement. The Class B common stock was issued pursuant to the exemption from
registration for a private placement under Section 4(2) of the Securities Act of
1933, as amended.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
10.01 Credit Agreement dated as of April 14, 2000, among Century Cable
Holdings, LLC, Ft. Myers Cablevision, LLC, and Highland Prestige
Georgia, Inc., Bank of America, N.A. and the Chase Manhattan Bank,
Co-Administrative Agents and Toronto Dominion (Texas), Inc.,
Syndication Agent. (Previously filed with the original Form 10-Q filed
on May 15, 2000). (File No. 0-16014).
27.01 Financial Data Schedule (supplied for the information of the Commission).
(b) Reports on Form 8-K:
A Form 8-K was filed for the events dated January 21, 2000, which
reported information under item 5.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADELPHIA COMMUNICATIONS CORPORATION
(Registrant)
Date: December 18, 2000 By: /s/ Timothy J. Rigas
---------------------------------
Timothy J. Rigas
Executive Vice President (authorized
officer), Chief Financial Officer, Chief Accounting
Officer and Treasurer
