UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended September 30, 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 November 14, 2000, 132,693,656 shares of Class A Common Stock, par value $.01
per share, and 19,235,998 shares of Class B Common Stock, par value $.01 per
share, of the registrant were outstanding.
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ADELPHIA COMMUNICATIONS CORPORATION
TABLE OF CONTENTS
Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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Condensed Consolidated Balance Sheets - December 31, 1999 and
September 30, 2000............................................................................. 3
Condensed Consolidated Statements of Operations - Three and Nine Months Ended
September 30, 1999 and 2000.................................................................... 4
Condensed Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1999 and 2000.................................................................... 5
Notes to Condensed Consolidated Financial Statements............................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................................ 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................... 26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. 27
Item 4. Submission of Matters to a Vote of Security Holders........................................... 28
Item 6. Exhibits and Reports on Form 8-K.............................................................. 29
SIGNATURES............................................................................................. 30
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SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Statements included in this Form 10-Q,
including Management's Discussion and Analysis of Financial Condition and
Results of Operations, which are not historical facts are forward-looking
statements, such as information relating to the effect 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 and the variations thereon or comparable
terminology, or by discussions of strategy that involves risks or 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, the Company's ability to construct, expand and upgrade its networks,
reliance on vendors, technological developments, and changes in the competitive
environment in which the Company operates. Readers are cautioned that such
forward-looking statements are only predictions, that no assurance can be given
that any particular future results will be achieved, and that actual events or
results may differ materially. 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." In evaluating such statements,
readers should specifically consider the various factors which could cause
actual events or results to differ materially from those indicated by such
forward-looking statements.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except share amounts)
December 31, September 30,
1999 2000
---------------- ---------------
ASSETS
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Property, plant and equipment - net $ 3,972,329 $ 5,193,094
Intangible assets - net 12,095,873 12,548,939
Cash and cash equivalents 186,874 146,286
Restricted cash -- 66,652
U.S. government securities - pledged 29,899 --
Investments 280,874 279,197
Subscriber receivables - net 194,399 250,023
Prepaid expenses and other assets - net 328,675 532,943
Related party receivables - net 178,577 19,783
---------------- ---------------
Total $ 17,267,500 $ 19,036,917
================ ===============
LIABILITIES, PREFERRED STOCK, COMMON STOCK AND
OTHER STOCKHOLDERS' EQUITY
Subsidiary debt $ 6,513,813 $ 7,582,178
Parent debt 2,777,919 3,423,233
Accounts payable 442,561 408,462
Subscriber advance payments and deposits 57,651 54,556
Accrued interest and other liabilities 495,564 602,724
Deferred income taxes 2,113,097 2,012,273
---------------- ---------------
Total liabilities 12,400,605 14,083,426
---------------- ---------------
Minority interests 736,497 666,301
---------------- ---------------
Adelphia Business Solutions redeemable exchangeable preferred stock 260,848 287,584
---------------- ---------------
13% Series B cumulative redeemable exchangeable preferred stock 148,363 148,492
---------------- ---------------
Commitments and contingencies (Note 9)
Convertible preferred stock, common stock and other stockholders' equity:
8 1/8% Series C convertible preferred stock ($100,000 liquidation preference) 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 and 122,875,159 shares issued, respectively 1,131 1,228
Class B common stock, $.01 par value, 300,000,000 shares authorized,
10,834,476 and 19,235,998 shares issued and outstanding, respectively 108 192
Additional paid-in capital 5,863,633 6,343,607
Accumulated deficit (1,997,553) (2,300,598)
Accumulated other comprehensive income (loss) 3,239 (43,943)
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 3,721,187 3,851,114
---------------- ---------------
Total $ 17,267,500 $ 19,036,917
================ ===============
See the accompanying notes to condensed consolidated financial statements.
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ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1999 2000 1999 2000
--------------- --------------- --------------- ---------------
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Revenues $ 232,305 $ 727,858 $ 652,695 $ 2,104,702
Operating expenses:
Direct operating and programming 79,623 269,605 219,553 770,972
Selling, general and administrative 75,303 177,907 186,030 518,298
Depreciation and amortization 65,639 214,006 186,190 624,812
Merger and integration costs -- -- -- 1,913
--------------- --------------- ------------- --------------
Total 220,565 661,518 591,773 1,915,995
--------------- --------------- --------------- ---------------
Operating income 11,740 66,340 60,922 188,707
--------------- --------------- --------------- ---------------
Other income (expense):
Interest expense - net (51,961) (228,720) (171,640) (634,090)
Equity in loss of Olympus and other joint ventures (22,305) (4,096) (60,240) (11,210)
Equity in loss of Adelphia Business Solutions
joint ventures (246) 381 (7,340) (70)
Minority interest in net losses of subsidiaries 12,755 26,065 38,815 79,021
Adelphia Business Solutions preferred stock dividends (8,108) (9,192) (23,587) (26,737)
Priority investment income from Olympus 12,000 -- 36,000 --
Gain on asset swap -- -- -- 37,552
Other -- (96) 2,354 (283)
--------------- --------------- --------------- ---------------
Total (57,865) (215,658) (185,638) (555,817)
--------------- --------------- --------------- ---------------
Loss before income taxes and extraordinary loss (46,125) (149,318) (124,716) (367,110)
Income tax benefit 3,580 18,415 7,626 63,803
--------------- --------------- --------------- ---------------
Loss before extraordinary loss (42,545) (130,903) (117,090) (303,307)
Extraordinary loss on early retirement of debt -- -- (10,027) --
--------------- --------------- --------------- ---------------
Net loss (42,545) (130,903) (127,117) (303,307)
Dividend requirements applicable to preferred stock (14,332) (14,406) (27,332) (43,218)
--------------- --------------- --------------- ---------------
Net loss applicable to common stockholders (56,877) (145,309) (154,449) (346,525)
Other comprehensive loss - unrealized loss on
available-for-sale securities (net of income tax
benefit of $10,163 and $26,242) -- (19,607) -- (47,182)
--------------- --------------- --------------- ---------------
Comprehensive loss $ (56,877) $ (164,916) $ (154,449) $ (393,707)
=============== =============== =============== ===============
Basic and diluted net loss per weighted average share of
common stock before extraordinary loss $ (0.95) $ (1.06) $ (2.56) $ (2.64)
Basic and diluted extraordinary loss on early retirement of
debt per weighted average share of common stock -- -- (0.18) --
--------------- --------------- --------------- ---------------
Basic and diluted net loss per weighted average share
of common stock $ (0.95) $ (1.06) $ (2.74) $ (2.64)
=============== =============== =============== ===============
Weighted average shares of common stock
outstanding (in thousands) 60,163 137,510 56,329 131,220
=============== =============== =============== ===============
See the accompanying notes to condensed consolidated financial statements.
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ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Nine Months Ended
September 30,
-----------------------------------
1999 2000
---------------- ---------------
Cash flows from operating activities:
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Net loss $ (127,117) $ (303,307)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 186,190 624,812
Noncash interest expense 24,898 102,031
Noncash dividends 23,587 26,737
Equity in loss of Olympus and other joint ventures 60,240 11,210
Equity in loss of Adelphia Business Solutions joint ventures 7,340 70
Gain on asset swap and other (2,354) (37,552)
Minority interest in losses of subsidiaries (38,815) (79,021)
Extraordinary loss on early retirement of debt 10,027 --
Decrease in deferred income taxes (6,895) (74,275)
Changes in operating assets and liabilities, net of effect
of acquisitions:
Subscriber receivables (38,365) (53,435)
Prepaid expenses and other assets (74,758) (172,724)
Accounts payable (2,814) (38,744)
Subscriber advance payments and deposits 756 (2,295)
Accrued interest and other liabilities 5,279 11,321
---------------- ---------------
Net cash provided by operating activities 27,199 14,828
---------------- ---------------
Cash flows from investing activities:
Acquisitions (189,788) (786,243)
Expenditures for property, plant and equipment (404,009) (1,333,039)
Adelphia Business Solutions' investments in joint ventures and other (27,421) (10,375)
Investments in other joint ventures (14,602) (38,788)
Sale of U.S. government securities - pledged 30,626 30,624
Investments in restricted cash -- (66,652)
Amounts invested in (advanced to) related parties (459,816) 108,701
Other (22,100) 3,053
---------------- ---------------
Net cash used for investing activities (1,087,110) (2,092,719)
---------------- ---------------
Cash flows from financing activities:
Proceeds from debt 1,224,625 5,324,965
Repayments of debt (874,966) (3,747,562)
Costs associated with financings (20,416) (30,344)
Premium paid on early retirement of debt (7,413) --
Net proceeds from issuance of convertible preferred stock 557,649 --
Net proceeds from issuance of Class A common stock 856,559 --
Net proceeds from issuance of Class B common stock -- 519,275
Payments to acquire treasury stock (149,213) --
Preferred stock dividends paid (32,367) (29,031)
---------------- ---------------
Net cash provided by financing activities 1,554,458 2,037,303
---------------- ---------------
Increase (decrease) in cash and cash equivalents 494,547 (40,588)
Cash and cash equivalents, beginning of period 398,644 186,874
---------------- ---------------
Cash and cash equivalents, end of period $ 893,191 $ 146,286
================ ===============
See the accompanying notes to condensed consolidated financial statements.
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ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands, except per share amounts)
1. Company and Basis of Presentation
Adelphia Communications Corporation and subsidiaries ("Adelphia" or the
"Company") is a leader in the telecommunications industry with cable television
and local telephone operations. Adelphia's operations consist of providing
telecommunications services primarily over networks, which are commonly referred
to as broadband networks because they can transmit large quantities of voice,
video and data by way of digital or analog signals.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions of Form 10-Q and Rule
10-01 of Regulation S-X. Such principles are applied on a basis consistent with
those reflected in the December 31, 1999 Form 10-K Report of the Company filed
with the Securities and Exchange Commission. The condensed consolidated
financial statements contained herein should be read in conjunction with the
consolidated financial statements and related notes contained in the Company's
1999 Annual Report on Form 10-K. In the opinion of management, the unaudited
condensed consolidated financial statements contained herein include all
adjustments (consisting of only recurring adjustments) necessary for a fair
presentation of the results of operations for the interim periods presented.
These interim results of operations are not necessarily indicative of results
for future periods.
Certain reclassifications have been made to prior period balances to conform
to the current period's presentation.
2. Significant Events and Items Subsequent to December 31, 1999
On January 10, 2000, Adelphia Business Solutions, a majority-owned
subsidiary of Adelphia, 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.
During April 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 deposited $15,000 of the total $77,605 purchase
<PAGE>
price with the remaining balance paid during October 2000, when Adelphia
Business Solutions was granted the licenses.
On April 14, 2000, Adelphia closed on a $2,250,000 bank credit facility
through certain subsidiaries and affiliates of Adelphia. 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.
On May 1, 2000, Adelphia and AT&T completed a swap of cable systems serving
approximately 13,000 basic subscribers. As a result of this transaction, the
Company recorded a gain of approximately $37,600.
On May 3, 2000, Adelphia Business Solutions entered into a contract to build
an advanced information technology infrastructure and to provide communications
services to the Commonwealth of Pennsylvania state government. As part of the
contract, Adelphia Business Solutions was required to place approximately
$75,800 into a restricted account to be used for the completion of the
technology infrastructure. As of September 30, 2000, Adelphia Business Solutions
had used approximately $9,100 towards the completion of the infrastructure.
In June 2000, Adelphia announced that it had entered into agreements
regarding the acquisition of cable systems, including GS Communications, Inc.,
which will add approximately 155,000 basic subscribers to its Virginia cluster
for an aggregate purchase price of $836,000. It is currently anticipated that
these transactions, which are subject to customary closing conditions and the
receipt of regulatory approvals, will close in the first quarter of 2001.
On July 3, 2000, Adelphia closed the previously announced direct placement
of 2,500,000 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 $145,000 from this direct placement to repay
borrowings under revolving credit facilities of its subsidiaries, which may be
reborrowed and used for general corporate purposes.
In July 2000, Adelphia acquired Prestige Communications of NC, Inc. These
systems served approximately 118,250 subscribers in North Carolina, Virginia and
Maryland at the date of acquisition and were purchased for $700,000. The
acquisition was accounted for under the purchase method of accounting.
Accordingly, the financial results of the acquired systems have been included in
the consolidated results of Adelphia effective from the date acquired.
During July 2000, Adelphia Business Solutions consummated a purchase
agreement with a subsidiary of Allegheny Energy, Inc. ("Allegheny") to acquire
interests in a jointly owned network located in State College, Pennsylvania.
Consideration paid to Allegheny was 330,000 shares of Adelphia Business
Solutions' Class A common stock. The purchase increased Adelphia Business
Solutions' ownership in this network to 100%. The acquisition was accounted for
under the purchase method of accounting. Accordingly, the financial results of
the acquired network have been included in the consolidated results of Adelphia
Business Solutions effective from the date acquired.
On August 2, 2000, 80,000 shares of Series C convertible preferred stock
held by Highland Holdings, a general partnership owned by the Rigas family, were
converted into 9,433,962 shares of Adelphia Class A common stock.
<PAGE>
On September 20, 2000, Adelphia completed an offering of $750,000 of 10 7/8%
senior notes due 2010. Net proceeds from this offering, after deducting offering
expenses, were approximately $733,100. Adelphia used the proceeds to repay
borrowings under revolving credit facilities of its subsidiaries, which may be
reborrowed and used for general corporate purposes, including acquisitions,
capital expenditures and investments. The terms of these notes are similar to
those of Adelphia's existing publicly held senior debt.
On September 28, 2000, Adelphia closed on a $500,000 9 1/4 year term loan
through certain subsidiaries and affiliates of Adelphia. This term loan is an
additional part of the credit facility closed on April 14, 2000. This brings the
total amount of that bank facility to $2,750,000.
In November 2000, Adelphia acquired cable systems in the Cleveland, Ohio
area from Cablevision Systems Corp. These systems served approximately 310,000
subscribers at the date of acquisition. In connection with the acquisition,
Adelphia issued 10,800,000 shares of its Class A common stock and paid cash of
approximately $990,000. The acquisition was accounted for under the purchase
method of accounting. Accordingly, the financial results of the acquired systems
will be included in the consolidated results of Adelphia effective from the date
acquired.
In addition to the acquisitions mentioned above, prior to November 14, 2000,
Adelphia completed certain other cable system acquisitions. These acquisitions
served approximately 54,250 basic subscribers at the date of acquisitions
primarily in California, Colorado, New York and Maine and were purchased for an
aggregate price of approximately $172,347, comprised of Adelphia Class A common
stock and cash. These acquisitions will be accounted for under the purchase
method of accounting. Accordingly, the financial results of the acquired systems
will be included in the consolidated results of Adelphia effective from the date
acquired.
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 for the year ended
December 31, 1999 for additional information regarding these acquisitions.
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The following unaudited pro forma financial information assumes that the
acquisitions that were consummated during the quarter ended December 31, 1999
had occurred on January 1, 1999.
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Three Months Nine Months
Ended Ended
September 30, September 30,
1999 1999
------------------- -----------------
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Revenues $ 633,016 $ 1,833,874
Loss before extraordinary loss (128,167) (308,927)
Net loss (142,499) (346,232)
Basic and diluted net loss per weighted average
share of common stock (1.22) (3.06)
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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 recognized by the
acquired business and merger costs associated with the acquisitions of
approximately $184,000 during the nine months ended September 30, 1999.
3. Debt
Debt is summarized as follows:
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Subsidiary Debt:
December 31, September 30,
1999 2000
--------------- -----------------
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Notes to banks and institutions $ 3,088,477 $ 4,181,253
13% Senior Discount Notes of Adelphia Business
Solutions due 2003 253,860 281,764
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 203,537 203,149
11% Senior Subordinated Notes of FrontierVision Due 2006 212,541 211,165
11 7/8% Senior Discount Notes Series A of
FrontierVision due 2007 205,979 222,498
11 7/8% Senior Discount Notes Series B of
FrontierVision due 2007 78,522 83,105
9 1/2% Senior Notes of Arahova due 2000 148,773 --
9 3/4% Senior Notes of Arahova due 2002 201,172 201,218
Zero Coupon Senior Discount Notes of Arahova due 2003 318,234 345,334
9 1/2% Senior Notes of Arahova due 2005 250,852 251,010
8 7/8% Senior Notes of Arahova due 2007 242,542 243,544
8 3/4% Senior Notes of Arahova due 2007 216,105 217,152
8 3/8% Senior Notes of Arahova due 2007 94,106 94,744
8 3/8% Senior Notes of Arahova due 2017 94,048 94,336
Senior Discount Notes of Arahova due 2008 267,105 288,405
Other subsidiary debt 87,960 113,501
-----------------------------------
Total subsidiary debt $ 6,513,813 $ 7,582,178
===================================
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The following information updates to September 30, 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 for the year
ended December 31, 1999.
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Weighted average interest rate payable by subsidiaries
under credit agreements with banks and institutions 8.45%
Percentage of total indebtedness that bears interest at
fixed rates for at least one year 68.9%
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Parent Debt:
December 31, September 30,
1999 2000
----------------- -----------------
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10 1/4% Senior Notes due 2000 $ 99,872 $ --
9 1/4% Senior Notes due 2002 325,000 325,000
8 1/8% Senior Notes due 2003 149,419 149,537
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 347,791 347,975
8 3/8% Senior Notes due 2008 299,259 299,308
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 496,020 496,352
10 7/8% Senior Notes due 2010 -- 744,323
9 7/8% Senior Debentures due 2005 128,711 128,891
9 1/2% Pay-In-Kind Notes due 2004 31,847 31,847
----------------- -----------------
Total parent debt $ 2,777,919 $ 3,423,233
================= =================
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4. Investments
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Adelphia's nonconsolidated investments are as follows:
December 31, September 30,
1999 2000
----------------- ------------------
Investments accounted for using the equity method:
Gross investment:
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Adelphia Business Solutions' joint ventures $ 61,400 $ 64,300
Mobile communications 19,865 21,868
Media venture 8,408 16,508
Other 3,649 3,157
----------------- ------------------
Total 93,322 105,833
----------------- ------------------
Investments accounted for using the cost method:
Niagara Frontier Hockey, L.P. 47,533 --
Benbow PCS Ventures, Inc. 17,192 --
Convertible preferred stock 87,433 94,200
Interactive ventures -- 16,350
Other 12,972 15,508
----------------- ------------------
Total 165,130 126,058
----------------- ------------------
Investments accounted for as available-for-sale securities:
Common stock warrants 49,890 69,510
Common stock -- 14,133
----------------- ------------------
Total 49,890 83,643
----------------- ------------------
Total investments before cumulative equity in net losses 308,342 315,534
Cumulative equity in net losses (27,468) (36,337)
----------------- ------------------
Total investments $ 280,874 $ 279,197
================= ==================
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In July 2000, certain members of the Rigas family closed on their agreement
to acquire all the voting interests of Niagara Frontier Hockey, L.P. ("NFHLP").
In conjunction with the closing of this agreement Adelphia's Capital Funding
Notes of NFHLP were converted to a $46,500, 10% partially subordinated note due
in July 2010. Concurrently with the recapitalization of NFHLP, Adelphia also
purchased a $30,000, 10% fully subordinated note due July 2010. Both notes pay
interest quarterly with principal due at maturity.
5. 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.
6. 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
<PAGE>
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.
7. Supplemental Financial Information
Cash payments for interest were $231,403 and $575,937 for the nine months
ended September 30, 1999 and 2000, respectively. Accumulated depreciation of
property, plant and equipment amounted to $1,138,407 and $1,474,814 at December
31, 1999 and September 30, 2000, respectively. Accumulated amortization of
intangible assets amounted to $615,772 and $809,749 at December 31, 1999 and
September 30, 2000, respectively. Interest expense - net includes interest
income of $30,725 and $4,379 for the three months ended September 30, 1999 and
2000 and $78,842 and $15,171 for the nine months ended September 30, 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.
8. Income Taxes
Income tax benefit for the three and nine months ended September 30, 1999
and 2000 was substantially comprised of deferred tax.
9. 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.
10. Recent Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended by SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133", and SFAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" is effective for the
Company as of January 1, 2001. SFAS No. 133, as amended, establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair value
with changes in fair value reflected in the statement of operations. In
conjunction with preparing for the implementation of this standard, the Company
has determined that its derivative instruments are primarily in the form of
interest rate protection instruments such as interest rate swaps, caps and
collars and common stock purchase warrants. The Company does not expect adoption
of this statement to have a significant effect on its consolidated results of
operations or financial position.
11. Business Segment Information
Refer to Part I, Item 2 of this Quarterly Report on Form 10-Q for
information regarding business segments as of December 31, 1999 and September
30, 2000 and for the three and nine months ended September 30, 1999 and 2000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Dollars in thousands)
See Safe Harbor Statement following the table of contents, which section is
incorporated by reference herein.
Results of Operations
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 September 30, 2000, and the other data for the three and nine months ended
September 30, 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 September 30, 2000.
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, September 30,
1999 2000
----------------- ------------------
Adelphia Consolidated
<S> <C> <C>
Total assets $ 17,267,500 $ 19,036,917
Total debt 9,291,732 11,005,411
Cash and cash equivalents 186,874 146,286
Restricted cash -- 66,652
Investments (a) 308,342 315,534
Redeemable preferred stock 409,211 436,076
Convertible preferred stock (liquidation preference) 675,000 575,000
Adelphia Business Solutions
Total assets (b) $ 1,171,074 $ 1,726,368
Total debt 845,178 1,236,365
Cash and cash equivalents 2,133 2,466
Restricted cash -- 66,652
Investments (a) 61,400 66,800
Redeemable preferred stock 260,848 287,584
Adelphia, excluding Adelphia Business Solutions
Total assets $ 16,096,426 $ 17,310,549
Total debt 8,446,554 9,769,046
Cash and cash equivalents 184,741 143,820
Investments (a) 246,942 248,734
Redeemable preferred stock 148,363 148,492
Convertible preferred stock (liquidation preference) 675,000 575,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Other Data: Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
1999 2000 1999 2000
------------- ------------ ------------- -------------
Adelphia Consolidated
<S> <C> <C> <C> <C>
Revenues $ 232,305 $ 727,858 $ 652,695 $ 2,104,702
Priority investment income from Olympus 12,000 -- 36,000 --
Operating expenses (c) 154,926 447,512 405,583 1,289,270
Depreciation and amortization expense 65,639 214,006 186,190 624,812
Operating income 11,740 66,340 60,922 188,707
Interest expense - net (51,961) (228,720) (171,640) (634,090)
Preferred stock dividends (22,440) (23,598) (50,919) (69,955)
Capital expenditures 177,223 587,571 404,009 1,333,039
Cash paid for acquisitions 7,523 766,071 189,788 786,243
Cash used for investments 9,596 21,630 42,023 49,163
Adelphia Business Solutions
Revenues $ 43,347 $ 93,551 $ 99,000 $ 243,066
Operating expenses (c) 55,834 118,098 129,655 315,685
Depreciation and amortization expense 18,168 27,103 45,289 73,230
Operating loss (30,655) (51,650) (75,944) (145,849)
Interest expense - net (d) (14,842) (15,501) (29,795) (35,989)
Preferred stock dividends (8,108) (9,192) (23,587) (26,737)
Capital expenditures 100,587 188,101 232,418 479,001
Cash paid for acquisitions 2,850 -- 129,118 --
Cash used for investments 2,749 3,250 27,421 10,375
Adelphia, excluding Adelphia Business Solutions
Revenues $ 188,958 $ 634,307 $ 553,695 $ 1,861,636
Priority investment income from Olympus 12,000 -- 36,000 --
Operating expenses (c) 99,092 329,414 275,928 973,585
Depreciation and amortization expense 47,471 186,903 140,901 551,582
Operating income 42,395 117,990 136,866 334,556
Interest expense - net (e) (37,119) (213,219) (141,845) (598,101)
Preferred stock dividends (14,332) (14,406) (27,332) (43,218)
Capital expenditures 76,636 399,470 171,591 854,038
Cash paid for acquisitions 4,673 766,071 60,670 786,243
Cash used for investments 6,847 18,380 14,602 38,788
<FN>
(a) Represents total investments before cumulative equity in net losses.
(b) Amounts exclude receivables from Adelphia of $392,629 as of December 31, 1999.
(c) Amounts exclude depreciation, amortization and merger and integration costs.
(d) Amounts include interest income from Adelphia of $1,336, $0, $6,943 and $6,282 for the respective periods.
(e) Amounts include interest expense to Adelphia Business Solutions of $1,336, $0, $6,943 and $6,282 for the respective
periods.
</FN>
</TABLE>
<PAGE>
Three and Nine Months Ended September 30, 2000
Adelphia earned substantially all of its revenues in the three and nine
months ended September 30, 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 and nine months
ended September 30, 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.
Reference is made to Note 1 of the consolidated financial statements contained
in Adelphia's Annual Report on Form 10-K 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>
September 30, Percent
-------------------------------- Increase/
1999 2000 Decrease
-------------- --------------- ----------------
Homes Passed by Cable
<S> <C> <C> <C>
Company Owned Systems 3,242,062 8,035,617 147.9%
Managed Systems 179,210 261,254 45.8%
-------------- ---------------
Total Systems 3,421,272 8,296,871 142.5%
============== ===============
Basic Subscribers
Company Owned Systems 2,283,806 5,190,507 127.3%
Managed Systems 134,697 193,316 43.5%
-------------- ---------------
Total Systems 2,418,503 5,383,823 122.6%
============== ===============
</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 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 Nine Months Ended
September 30, September 30,
--------------------- ----------------------
1999 2000 1999 2000
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Direct operating and programming 34.3% 37.0% 33.6% 36.6%
Selling, general and administrative 32.4% 24.4% 28.5% 24.6%
Depreciation and amortization 28.3% 29.4% 28.5% 29.7%
Merger and integration costs -- -- -- .1%
--------- --------- ---------- ----------
Operating income 5.0% 9.2% 9.4% 9.0%
========= ========= ========== ==========
</TABLE>
Cable and Other Segment
Revenues
The primary revenue sources reflected as a percentage of total revenues were
as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------------
1999 2000
------------ ----------
<S> <C> <C>
Cable service and equipment 80% 77%
Premium programming 10% 9%
Advertising sales and other services 10% 14%
</TABLE>
Revenues increased approximately 235.7% and 236.2% for the three and nine
months ended September 30, 2000, respectively, compared with the same periods of
the prior year. The increases are attributable to the following:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
2000 2000
----------------- ------------------
<S> <C> <C>
Acquisitions 96% 94%
Basic subscriber growth 1% 1%
Cable rate increases -- 6%
Premium programming (1%) (6%)
Advertising sales and other services 4% 5%
</TABLE>
<PAGE>
During the previous twelve months, rate increases related to cable services
were implemented in the majority of the Company's systems. Advertising revenues
and revenues derived from other strategic service offerings such as high-speed
data services, long distance services and paging also had a positive impact on
revenues for the three and nine months ended September 30, 2000.
Direct Operating and Programming Expenses
Direct operating and programming expenses, which are mainly basic and
premium programming costs and technical expenses, increased 243.0% and 251.3% to
$218,712 and $644,686 for the three and nine months ended September 30, 2000,
respectively, from $63,761 and $183,516 for the same periods of 1999.
Acquisitions accounted for substantially all of the increase for the three
months ended September 30, 2000, while being partially offset by operational
efficiencies recognized in connection with the acquisitions.
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 213.3% and 255.9% to $110,702 and $328,899 for the three
and nine months ended September 30, 2000, respectively, from $35,331 and $92,412
for the same periods of 1999. Acquisitions, subscriber growth and new services
accounted for substantially all of the increase for the three and nine months
ended September 30, 2000, respectively.
Depreciation and Amortization
Depreciation and amortization increased 293.7% and 291.5% to $186,903 and
$551,582 for the three and nine months ended September 30, 2000, respectively,
from $47,471 and $140,901 for the same periods of 1999. Acquisitions accounted
for substantially all of the increase for the three and nine months ended
September 30, 2000.
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 474.4% and 321.7% to $213,219 and $598,101
for the three and nine months ended September 30, 2000, respectively, from
$37,119 and $141,845 for the same periods of 1999. Acquisitions accounted for
72.0% and 84.5% of the increase for the three and nine months ended September
30, 2000, respectively. The remaining increase was primarily due to an increase
in average debt outstanding and higher interest rates.
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 September 30, 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 0.5% and 58.1% to $14,406 and $43,218
for the three and nine months ended September 30, 2000, respectively, from
$14,332 and $27,332 for the same periods of 1999. The increase for the nine
months ended September 30, 2000 is due to the dividends on the Series D
convertible preferred stock issued in April 1999.
<PAGE>
Minority Interest in Net Losses of Subsidiaries
Minority interest in net losses of subsidiaries increased 104.4% and 103.6%
to $26,065 and $79,021 for the three and nine months ended September 30, 2000,
respectively, from $12,755 and $38,815 for the same periods 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 certain less than wholly-owned subsidiaries of the Acquisitions.
Gain on Asset Swap
On May 1, 2000, Adelphia swapped certain cable systems for certain cable
systems owned by AT&T. The result of this transaction was a gain of $37,552 for
the nine months ended September 30, 2000.
CLEC Segment
Revenues
Revenues increased 115.8% and 145.5% to $93,551 and $243,066 for the three
and nine months ended September 30, 2000, respectively, from $43,347 and $99,000
for the same periods in the prior year.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
2000 2000
------------------- -------------------
The change is attributable to the following:
<S> <C> <C>
Growth in original markets $ 34,089 $ 86,377
Acquisition of local partner interests 1,604 18,885
Expansion markets 14,833 39,421
Management fees (322) (617)
</TABLE>
The primary sources of revenues, reflected as a percentage of total
revenues were as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------------------- -----------------------
1999 2000 1999 2000
------------ ------------- -----------------------
<S> <C> <C> <C> <C>
Voice services 69.6% 71.4% 68.0% 73.3%
Data and dedicated access services 24.7% 18.4% 25.8% 18.7%
Management fees 2.8% 1.0% 3.9% 1.3%
Other 2.9% 9.2% 2.3% 6.7%
</TABLE>
<PAGE>
Direct Operating and Programming
Direct operating and programming increased 220.8% and 250.4% to $50,893 and
$126,286 for the three and nine months ended September 30, 2000, respectively,
from $15,862 and $36,037 for the same periods in the prior year.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
2000 2000
----------------- -----------------
The change is attributable to the following:
<S> <C> <C>
Growth in original markets $ 12,933 $ 28,207
Acquisition of local partner interests 411 7,909
Expansion markets 21,262 52,003
Network Operations Control Center ("NOCC") 425 2,130
</TABLE>
The increase in direct operating and programming expense was due to start up
costs in Adelphia Business Solutions' expansion markets as regional switches and
network rings were activated, combined with 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 68.1% and 102.3% to
$67,205 and $189,399 for the three and nine months ended September 30, 2000,
respectively, from $39,972 and $93,618 for the same periods in the prior year,
primarily reflecting expansion of the original and expansion markets and the
acquisition of local partner interests.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
2000 2000
----------------- -----------------
The change is attributable to the following:
<S> <C> <C>
Growth in original markets $ 9,110 $ 26,003
Acquisition of local partner interests 374 8,264
Expansion markets 13,178 34,349
Sales and marketing activities (974) 3,268
Corporate overhead charges 6,887 17,034
Bell Atlantic settlement charges -- 6,981
Non-cash stock compensation (1,342) (118)
</TABLE>
<PAGE>
Depreciation and Amortization
Depreciation and amortization expense increased 49.2% and 61.7% to $27,103
and $73,230 during the three and nine months ended September 30, 2000,
respectively, from $18,168 and $45,289 for the same periods 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.
Interest Expense - Net
Interest expense - net increased 4.4% and 20.8% to $15,501 and $35,989
during the three and nine months ended September 30, 2000, respectively, from
$14,842 and $29,795 for the same period in the prior year. The increase was
primarily attributable to a decrease in interest income.
Equity in Net (Loss) Income of Joint Ventures
Equity in net (loss) income of joint ventures was equity in net income of
$381 and equity in net loss of $70 during the three and nine months ended
September 30, 2000, respectively, compared to equity in net loss of $246 and
$7,340 for the same periods 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 four at September 30, 1999 to three at September 30,
2000 due to Adelphia Business Solutions' increased ownership in the State
College Network. These non-consolidated joint ventures paid management and
monitoring fees to Adelphia Business Solutions, which are included in revenues,
aggregating approximately $893 and $3,129 for the three and nine months ended
September 30, 2000, as compared with $1,215 and $3,824 for the same periods in
the prior fiscal year. The nonconsolidated joint ventures for the three months
ended September 30, 1999 and 2000 had net losses of approximately $831 and a net
income of $551, respectively, and for the nine months ended September 30, 1999
and 2000 aggregated a net loss of approximately $4,660 and a net income of $313,
respectively.
Adelphia Business Solutions' Preferred Stock Dividends
Preferred stock dividends increased by 13% to $9,192 and $26,737 for the
three and nine months ended September 30, 2000 from $8,108 and $23,587 for the
same periods 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 nine months ended September 30, 1999 and September 30, 2000, cash
provided by operating activities totaled $27,199 and $14,828, respectively; cash
used for investing activities totaled $1,087,110 and $2,092,719, respectively;
and cash provided by financing activities totaled $1,554,458 and $2,037,303,
<PAGE>
respectively. See Note 1 to the condensed consolidated financial statements, in
Part I, Item 1, for a summary of significant transactions affecting liquidity
and capital resources subsequent to December 31, 1999, which is incorporated by
reference herein.
Capital Expenditures
Cable and Other Segment
Capital expenditures for the nine months ended September 30, 1999 and 2000
were $171,591 and $854,038, 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 $1,150,000
to $1,300,000.
CLEC Segment
Capital expenditures for the nine months ended September 30, 1999 and 2000
were $232,418 and $479,001, 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 $175,000 will be required to fund Adelphia Business Solutions
capital expenditures, working capital requirements, operating losses and pro
rata investments in the joint ventures during the fourth quarter of the year
ending December 31, 2000.
Acquisitions
In July 2000, Adelphia acquired Prestige Communications of NC, Inc. These
systems served approximately 118,250 subscribers in North Carolina, Virginia and
Maryland at the date of acquisition and were purchased for approximately
$700,000. The acquisition was accounted for under the purchase method of
accounting. Accordingly, the financial results of the acquired systems have been
included in the consolidated results of Adelphia effective from the date
acquired.
During July 2000, Adelphia Business Solutions consummated a purchase
agreement with a subsidiary for Allegheny Energy, Inc. ("Allegheny") to acquire
interests in a jointly owned network located in State College, Pennsylvania.
Consideration paid to Allegheny was 330,000 shares of Adelphia Business
Solutions' Class A common stock. The purchase increased Adelphia Business
Solutions' ownership in this network to 100%. The acquisition will be accounted
for under the purchase method of accounting. Accordingly, the financial results
of the acquired network have been included in the consolidated results of
Adelphia Business Solutions effective from the date acquired.
In November 2000, Adelphia acquired cable systems in the Cleveland, Ohio
area from Cablevision Systems Corp. These systems served approximately 310,000
subscribers at the date of acquisition. In connection with the acquisition,
Adelphia issued 10,800,000 shares of its Class A common stock and paid cash of
approximately $990,000. The acquisition was accounted for under the purchase
method of accounting. Accordingly, the financial results of the acquired systems
will be included in the consolidated results of Adelphia effective from the date
acquired.
In addition to the acquisitions mentioned above, prior to November 14, 2000,
Adelphia completed certain other cable system acquisitions. These acquisitions
served approximately 54,250 basic subscribers at the date of acquisitions
primarily in California, Colorado, New York and Maine and were purchased for an
aggregate price of approximately $172,347, comprised for Adelphia Class A common
stock and cash. These acquisitions will be accounted for under the purchase
method of accounting. Accordingly, the financial results of the acquired systems
<PAGE>
will be included in the consolidated results of Adelphia effective from the date
acquired.
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 September 30, 2000, the Company's total outstanding debt aggregated
$11,005,411, which included $3,423,233 of parent debt, $1,236,365 of Adelphia
Business Solutions debt, $203,149 of Olympus public debt, $516,768 of
FrontierVision public debt, $1,735,743 of Arahova public debt and $3,890,153 of
other subsidiary debt. The Company also had total redeemable preferred stock of
$436,076 outstanding as of September 30, 2000. As of September 30, 2000,
Adelphia's subsidiaries had an aggregate of $1,951,430 in unused credit lines
and cash and cash equivalents, which includes $1,440,000 also available to
affiliates, part of which is subject to achieving certain levels of operating
performance.
On April 14, 2000, Adelphia closed on a $2,250,000 bank credit facility
through certain subsidiaries and affiliates of Adelphia. 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.
On September 20, 2000, Adelphia completed an offering of $750,000 of 10 7/8%
senior notes due 2010. Net proceeds from this offering, after deducting offering
expenses, were approximately $733,100. Adelphia used the proceeds to repay
borrowings under revolving credit facilities of its subsidiaries, which may be
reborrowed and used for general corporate purposes, including acquisitions,
capital expenditures and investments. The terms of these notes are similar to
those of Adelphia's existing publicly held senior debt.
On September 28, 2000, Adelphia closed on a $500,000 9 1/4 year term loan
through certain subsidiaries and affiliates of Adelphia. This term loan is an
additional part of the credit facility closed on April 14, 2000. This brings the
total amount of the bank facility to $2,750,000.
The Company's weighted average interest rate on notes payable to banks and
institutions was approximately 6.74% at September 30, 1999 compared to 8.45% at
September 30, 2000. Approximately 68.9% of the Company's total indebtedness was
at fixed interest rates as of September 30, 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 three months based on
amounts outstanding at September 30, 2000:
<TABLE>
<S> <C>
Three months ending December 31, 2000 $ 100,438
Year ending December 31, 2001 295,775
Year ending December 31, 2002 889,125
Year ending December 31, 2003 1,382,323
Year ending December 31, 2004 1,043,137
</TABLE>
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
<PAGE>
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.
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
<PAGE>
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.
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 September 30, 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 a weighted 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 September 30, 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 a weighted average of 6.86%. The
Company enters into interest rate cap agreements to reduce the risk of incurring
higher interest costs due to rising interest rates. As of September 30, 2000,
the Company had interest rate cap agreements covering a notional amount of
$400,000, which expire through 2002 and cap rates at an average rate of 7.25%.
As of September 30, 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 September
30, 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 $ 20,000 $ 23,000 $ 545,000 $ 897,840 $ 531,847 $ 5,676,242 $7,693,929 $6,527,518
Average Interest Rate 9.97% 9.98% 9.99% 10.00% 10.00% 9.95%
Variable Rate 80,438 272,775 344,125 484,483 511,290 2,535,418 4,228,529 4,228,529
Average Interest Rate 8.20% 8.00% 8.08% 8.21% 8.26% 8.27%
Interest Rate Swaps,
Caps and Collars:
Variable to Fixed $ 15,000 $ -- $ -- $ -- $ -- $ 75,000 $ 90,000 $ 3,766
Average Pay Rate 5.96% -- -- -- -- 6.05%
Average Receive Rate 6.73% -- -- -- -- 6.77%
Fixed to Variable -- -- 35,000 45,000 -- -- 80,000 (1,686)
Average Pay Rate -- -- 6.76% 6.77% -- --
Average Receive Rate -- -- 6.70% 5.90% -- --
Interest Rate Caps -- -- 400,000 -- -- -- 400,000 738
Average Cap Rate -- -- 7.25% -- -- --
Interest Rate Collars -- 100,000 100,000 -- -- -- 200,000 176
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 using the average implied
forward London Interbank Offer Rate ("LIBOR") rates for the year of maturity
based on the yield curve in effect at September 30, 2000, plus the borrowing
margin in effect at September 30, 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 September 30,
2000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On or about March 24, 2000, 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 and indicated that it was
evaluating whether it or an affiliate thereof would make an 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 completed
discovery in the action and each filed motions for partial summary judgment. On
July 10, 2000, Justice Gammerman granted ML Media's motion for partial summary
judgment on the fourth cause of action and declared that neither Century nor any
of its affiliates may bid on or attempt to purchase the assets and business of
the Joint Venture. Justice Gammerman also dismissed the fourth count of the
counterclaim and required Century to proceed diligently with ML Media in
locating one or more third parties to complete the sale and prohibited any
defendant from interfering with the sale. On July 26, 2000, the Justice also
ordered that the sale may be a sale of either the assets of the Joint Venture or
the partnership interests in the Joint Venture. The Justice did not address
other issues concerning the motion for summary judgment and did not schedule a
full hearing on the merits. On August 7, 2000, Arahova and the other defendants
filed a notice of appeal with respect to the above described orders and judgment
of the Court. We expect the appeal to be considered by the appellate court in
December 2000 or January 2001. The management of Adelphia and Arahova intend to
vigorously defend this action. Management believes that this matter will not
have a material adverse effect on the Company.
In November, 1999, Arahova, a subsidiary of Adelphia, has been sued in a
class-action case, Galley vs. American Telephone & Telegraph Corp. et al., where
the plaintiffs allege, that by requiring customers to purchase the @Home
service, rather than offering the option of access alone, Arahova and the other
defendant MSO's are illegally "tying" internet content to internet access,
thereby violating both the federal antitrust laws and California unfair trade
practice statutes. The plaintiffs also allege that the defendants have entered
into an illegal conspiracy to require all MSO's providing, or desiring to
provide, the @Home service to enter into contracts precluding them from offering
any competing internet service. The plaintiffs have recently filed an amended
complaint alleging that the violations are national in scope (rather than merely
<PAGE>
local). Arahova is vigorously defending this case. Due to the preliminary nature
of the litigation, the outcome cannot be predicted.
Adelphia and certain subsidiaries are defendants in several putative
subscriber class action suits in state courts in 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 are being defended
vigorously. The outcome of these matters cannot be predicted at this time. In
May 2000, Adelphia settled similar litigation in the state courts of Vermont.
The settlement of this matter did not have a material adverse effect.
There are no other material pending legal proceedings, other than routine
litigation incidental to the business, to which the Company is a party or any of
its property is subject.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was held on July 31,
2000. At such meeting (a) one (1) director was elected by a vote of the holders
of Class A Common Stock, and (b) eight (8) directors were elected by a vote of
the holders of Class A Common Stock and Class B Common Stock, voting together.
The results of voting at that meeting are as follows:
<TABLE>
<CAPTION>
(a)
Director Elected Class of Stock Vote For Withheld Broker
Non-Votes
<S> <C> <C> <C> <C>
Pete J. Metros Class A Common 106,593,003 1,374,545 0
(b)
Director Elected Class of Stock Vote For Withheld Broker
Non-Votes
John J. Rigas Class A Common 105,955,040 2,012,508 0
Class B Common 167,359,980 0 0
Michael J. Rigas Class A Common 105,998,795 1,968,753 0
Class B Common 167,359,980 0 0
Timothy J. Rigas Class A Common 105,027,247 2,940,301 0
Class B Common 167,359,980 0 0
James P. Rigas Class A Common 106,016,595 1,950,953 0
Class B Common 167,359,980 0 0
Dennis P. Coyle Class A Common 107,230,453 737,095 0
Class B Common 167,359,980 0 0
Leslie J. Gelber Class A Common 107,231,953 736,595 0
Class B Common 167,359,980 0 0
Peter L. Venetis Class A Common 107,229,686 737,862 0
Class B Common 167,359,980 0 0
Erland E. Kailbourne Class A Common 107,230,953 737,095 0
Class B Common 167,359,980 0 0
</TABLE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
4.01 Third Supplemental Indenture, dated as of September 20, 2000, with
respect to the Registrant's 10-7/8% Senior Notes due 2010, between
the Registrant and The Bank of New York, successor entity by
acquisition to Harris Trust Company of New York, as trustee
(Incorporated herein by reference is exhibit 1.01 to the Registrant's
Form 8-K filed on September 29, 2000) (File No. 0-16014).
10.01 10-7/8% Senior Notes Due 2010 Underwriting Agreement among Adelphia
Communications Corporation and Salomon Smith Barney Inc., as
representative of the Underwriters, dated September 15, 2000
(Incorporated herein by reference is exhibit 1.01 to the Registrant's
Form 8-K filed on September 29, 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 September 13, 2000, September 15,
2000 and September 20, 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: November 14, 2000 By: /s/ Timothy J. Rigas
Timothy J. Rigas
Executive Vice President
(authorized officer), Chief
Financial Officer, Chief
Accounting Officer and Treasurer
<PAGE>
INDEX TO EXHIBITS
Exhibit List:
Please refer to Part II, Item 6 for an exhibit list.
