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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
for the fiscal year ended March 31, 1994
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transaction period from ____________ to
_________
Commission File Number: 0-16014
ADELPHIA COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 23-2417713
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 West Third Street
P.O. Box 472
Coudersport, Pennsylvania 16915
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 814-274-9830
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was
required to file such reports), and 2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
Aggregate market value of outstanding Class A Common Stock $.01 par value, held
by non-affiliates of the Registrant at June 27, 1994 was $84,874,087.50, based
on the closing sale price as computed by the NASDAQ National Market System as
of that date. For purposes of this calculation only, affiliates are deemed to
be directors and executive officers of the Registrant.
Number of outstanding shares of Class A Common Stock, $.01 par value, at June
27, 1994 was 13,507,604.
Number of outstanding shares of Class B Common Stock, $.01 par value, at June
27, 1994 was 10,944,476.
Documents Incorporated by Reference
Portions of the Proxy Statement for the 1994 Annual Meeting of Stockholders are
incorporated by reference into Part III hereof.
PART I
ITEM 1. BUSINESS
Introduction
Adelphia Communications Corporation ("Adelphia" and, collectively with
its subsidiaries, the "Company") is one of the largest cable television
operators in the United States. As of March 31, 1994, cable systems owned or
managed by the Company (the "Systems") in the aggregate passed 1,880,006 homes
and served 1,322,206 basic subscribers who subscribed for 657,343 premium
service units.
The Company's wholly-owned cable systems (the "Company Systems") are
located in eight states and are organized into seven regional clusters: Western
New York, Virginia, Western Pennsylvania, New England, Eastern Pennsylvania,
Ohio and Coastal New Jersey. The Company Systems are located primarily in
suburban areas of large and medium-sized cities within the 50 largest
television markets ("areas of dominant influence" or "ADIs," as measured by The
Arbitron Company). At March 31, 1994, the Company Systems passed 1,158,281
homes and served 851,742 basic subscribers.
The Company owns a 50% voting interest and non-voting preferred limited
partnership interests entitling the Company to a 16.5% priority return in
Olympus Communications, L.P. ("Olympus"). Olympus is a joint venture which owns
cable systems (the "Olympus Systems") primarily located in some of the fastest
growing areas of Florida. The Olympus Systems in Florida form a substantial
part of an eighth regional cluster, Southeastern Florida. The Company is the
managing general partner of Olympus and receives a fee for providing management
services. As of March 31, 1994, the Olympus Systems passed 455,897 homes and
served 275,782 basic subscribers. See "Business - Development of the Systems"
and "Management's Discussion and Analysis - Olympus".
The Company also provides, for a fee, management and consulting services
to certain partnerships (the "Managed Partnerships"). John J. Rigas and certain
members of his immediate family, including entities they own or control
(collectively, the "Rigas Family"), control or have substantial ownership
interests in the Managed Partnerships. As of March 31, 1994, cable systems
("Managed Systems") owned by the Managed Partnerships passed 265,828 homes and
served 194,682 basic subscribers.
Unless otherwise stated, the information contained in this Annual Report
on Form 10-K is as of March 31, 1994.
Cable Television
Cable television systems receive a variety of television, radio and
data signals transmitted to receiving sites ("headends") by way of off-air
antennas, microwave relay systems and satellite earth stations. Signals are
then modulated, amplified and distributed primarily through coaxial and, in
some cases, fiber optic cable to subscribers, who pay fees for the service.
Cable television systems are generally constructed and operated pursuant to
non-exclusive franchises awarded by state or local government authorities
for specified periods of time.
Cable television systems typically offer subscribers a package of basic
video services consisting of local and distant television broadcast signals,
satellite-delivered non-broadcast channels (which offer programming such as
news, sports, family entertainment, music, weather, shopping, etc.) and public,
governmental and educational access channels. Cable television systems may also
offer certain non-video services, such as digital radio, data transmission and
telephony.
In addition, premium service channels, which provide movies, live and
taped concerts, sports events and other programming, are offered for an extra
monthly charge. At March 31, 1994, over 95% of the Company Systems also offered
pay-per-view programming, which allows the subscriber to order special events
or movies and to pay on a per event basis. At March 31, 1994, approximately 51%
of the subscribers to the Company Systems and 64% of the subscribers to the
Olympus Systems had addressable converters in their homes, which permit such
subscribers to access pay-per-view programming. Local, regional and national
advertising time is sold in the majority of the Systems, with commercial
advertisements inserted on certain satellite-delivered non-broadcast channels.
John J. Rigas, the Chairman, President, Chief Executive Officer and
majority stockholder of Adelphia, is a pioneer in the cable television
industry, having built his first system in 1952 in Coudersport, Pennsylvania.
Adelphia was incorporated in Delaware on July 1, 1986 for the purpose of
reorganizing five cable television companies, then principally owned by the
Rigas Family, into a holding company structure in connection with the initial
public offering of its Class A Common Stock, $.01 par value, and 13% Senior
Subordinated Notes due 1996. Prior to 1982, the Company grew principally by
obtaining municipal cable television franchises to construct new cable
television systems. Since 1982, the Company has grown principally by acquiring
and developing existing cable systems. The Company's business comprises one
segment, the ownership, operation and management of cable television systems.
The Company did not have any foreign operations or foreign sales in the period
ended March 31, 1994.
Operating Strategy
The Company's strategy has been to provide superior customer service
while maximizing operating efficiencies. By acquiring and developing systems
in geographic proximity, the Company has been able to realize significant
operating efficiencies through the consolidation of many managerial,
administrative and technical functions. The Systems have consolidated, into
regional offices, virtually all of their administrative operations, including
customer service, service call dispatching, marketing, human resources,
advertising sales and government relations. Each regional office has a related
technical center which contains the facilities necessary for the Systems'
technical functions, including construction, installations and system
maintenance and monitoring. Consolidating customer service functions into
regional offices allows the Company to provide customer service through
better training and staffing of customer service representatives and by
providing more advanced telecommunications and computer equipment and software
to its customer service representatives than would otherwise be economically
feasible in smaller systems.
In addition to the consolidation of its administrative and technical
operations, the Company has substantially consolidated the Systems' headends.
At March 31, 1994, approximately 426,000, or 50%, of the Company Systems' basic
subscribers were served from only ten headends, and 681,000, or 80%, of such
subscribers were served from only 27 headends. Approximately 65% of the Company
Systems' basic subscribers were served by systems serving more than 50,000
subscribers while, nationwide, only 41% of basic subscribers were served by
systems as large. Furthermore, 36% of nationwide basic cable subscribers were
served by systems with fewer than 20,000 subscribers, while less than 14% of
the Systems' basic subscribers were served by such systems at March 31, 1994.
The Company has used telecommunications advances to develop centralized
customer service facilities. During 1991, the Company consolidated 22 separate
customer service and administrative offices serving approximately 330,000 basic
subscribers in Pennsylvania and Virginia into one central facility. This
facility allows the Company to provide superior customer service. The Company
staffs the facility to respond promptly to customer inquiries on a 24-hour
basis. The Company also uses the facility to provide continuous training to its
customer service representatives. By investing in state-of-the-art computer
hardware and software, the Company also has centralized certain financial,
telemarketing and technical functions, thereby eliminating duplicate field
personnel and permitting the Company to maintain a more efficient "middle"
management layer at corporate headquarters.
The Company considers technological innovation to be an important
component of cost-effective improvement of its product and customer
satisfaction. Since April 1, 1988, the Company has invested more than
$402,000,000 to modernize and expand its cable systems. Through the use of
fiber optic cable and other technological improvements, the Company has
increased system reliability, channel capacity and its ability to deliver
advanced cable television services. These improvements have enhanced customer
service, reduced operating expenses and allowed the Company to introduce
additional services, such as impulse-ordered pay-per-view programming, which
expand customer choices and increase Company revenues. The Company has
developed new cable construction architecture which allows it to readily deploy
fiber optic cable in its systems. The Company has replaced approximately 18%
of the total installed trunk cable for the Systems with fiber optic cable and
has used fiber optic cable in all of its rebuilding projects and principally
all of the Systems' line extensions. In addition, the Company has installed
over 400 miles of fiber optic plant for point-to-point applications such as
connecting or eliminating headends or microwave link sites. Management believes
that the Company is among the leaders of the cable industry in the deployment
of fiber optic cable.
Development of the Systems
The Company has focused on acquiring and developing systems in markets
which have favorable historical growth trends. The Company believes that the
strong household growth trends in its Systems' market areas are a key factor
in positioning itself for future growth in basic subscribers.
The following table indicates the growth of the Company Systems and
Olympus Systems by summarizing the number of homes passed by cable and the
number of basic subscribers for each of the five years in the period ended
March 31, 1994. The table also indicates the numerical growth in subscribers
attributable to acquisitions and the numerical and percentage growth
attributable to internal growth. For the period April 1, 1989 through March
31, 1994, 73% of aggregate internal basic subscriber growth for both the
Company Systems and the Olympus Systems was derived from internal growth in
homes passed, while the remaining 27% of such aggregate growth was derived
from penetration increases.
Year Ended March 31,
1990 1991 1992 1993 1994
Company Systems
Homes Passed (b)
Beginning of Period....... 920,703 1,032,081 1,072,950 1,099,462 1,124,238
Internal Growth (c)....... 36,461 40,869 26,512 17,836 9,996
% Internal Growth......... 4.0% 4.0% 2.5% 1.6% 0.9%
Acquired Homes Passed..... 74,917 -- -- 6,940 24,047
End of Period............. 1,032,081 1,072,950 1,099,462 1,124,238 1,158,281
Basic Subscribers (d)
Beginning of Period....... 639,311 732,538 767,817 792,198 816,983
Internal Growth (c)....... 35,398 35,279 24,381 19,219 16,282
% Internal Growth......... 5.5% 4.8% 3.2% 2.4% 2.0%
Acquired Subscribers...... 57,829 -- -- 5,566 18,477
End of Period............. 732,538 767,817 792,198 816,983 851,742
Basic Penetration (e)..... 71.0% 71.6% 72.1% 72.7% 73.5%
Year Ended March 31,
1990 1991 1992 1993 1994
Olympus Systems (a):
Homes Passed (b)
Beginning of Period.......... 139,374 399,837 435,793 454,462 435,488
Internal Growth (c).......... 4,831 35,956 18,669 (18,974) 20,409
% Internal Growth............ 3.5% 9.0% 4.3% (4.2)% 4.7%
Acquired Homes Passed........ 255,632 -- -- -- --
End of Period................ 399,837 435,793 454,462 435,488 455,897
Basic Subscribers (d)
Beginning of Period.......... 53,018 234,195 257,222 271,121 246,377
Internal Growth (c).......... 4,025 23,027 13,899 (24,744) 29,405
% Internal Growth............ 7.6% 9.8% 5.4% (9.1)% 11.9%
Acquired Subscribers......... 177,152 -- -- -- --
End of Period................ 234,195 257,222 271,121 246,377 275,782
Basic Penetration (e)........ 58.6% 59.0% 59.7% 56.6% 60.5%
(a) Data for the South Dade System is included under the Olympus Systems
and excluded from the Company Systems for all periods presented. Data
included for the South Dade System at March 31, 1993 and March 31, 1994
reflects actual homes passed and basic subscribers. At July 31, 1992, prior
to Hurricane Andrew, the South Dade system had 157,992 homes passed by cable
and 71,193 basic subscribers, respectively. At March 31, 1994 and 1993, the
South Dade system served 65,398 and 40,999 basic subscribers, respectively,
and at June 20, 1994, served 69,061 basic subscribers. See "Management's
Discussion and Analysis - Olympus."
(b) A home is deemed to be "passed" by cable if it can be connected to the
distribution system without any further extension of the cable distribution
plant.
(c) The number of additional homes passed or additional basic subscribers
not attributable to acquisitions of new cable systems.
(d) A home with one or more television sets connected to a cable system is
counted as one basic subscriber. Bulk accounts (such as motels or apartments)
are included on a "subscriber equivalent" basis in which the total monthly bill
for the account is divided by the basic monthly charge for a single outlet in
the area.
(e)Basic subscribers as a percentage of homes passed by cable.
Market Areas
The Systems are "clustered" in eight market areas in the eastern
portion of the United States as follows:
MARKET AREA LOCATION OF SYSTEMS
Southeastern Florida Portions of southern Dade, Palm Beach, Martin and
St.
Lucie Counties and Hilton Head, South Carolina
Western New York Suburbs of Buffalo and the adjacent Niagara Falls
area,
and Syracuse and adjacent communities
Virginia Winchester, Charlottesville, Staunton, Richland,
Martinsville and surrounding communities in Virginia,
and
South Boston and Elizabeth City, North Carolina
Western Pennsylvania Suburbs of Pittsburgh and several small communities
in
western Pennsylvania
MARKET AREA LOCATION OF SYSTEMS
New England Cape Cod communities, South Shore communities (the
area between Boston and Cape Cod, Massachusetts)
and
Bennington, Burlington, Rutland and Montpelier,
Vermont
and surrounding communities in Vermont and New York
Eastern Pennsylvania Suburbs of Philadelphia and suburbs of Scranton
Ohio Suburbs of Cleveland and the city of Mansfield and
surrounding communities, Mt Vernon and portions of
Kalamazoo County, Michigan
Coastal New Jersey Ocean County, New Jersey
The following table summarizes by market area the homes passed by cable,
basic subscribers and premium service units for the Systems as of March 31,
1994.
HOMES BASIC BASIC PREMIUM PREMIUM
PASSED SUBSCRIBERS PENETRATION SUBSCRIBERS PENETRATION
COMPANY SYSTEMS:
Western New York........ 286,493 207,128 72.30% 112,008 54.08%
Virginia................ 203,372 155,335 76.38% 66,771 42.99%
Western Pennsylvania.... 153,754 114,289 74.33% 46,937 41.07%
New England............. 162,065 120,201 74.17% 63,816 53.09%
Eastern Pennsylvania.... 70,321 47,833 68.02% 41,499 86.76%
Ohio.................... 161,014 113,719 70.63% 58,328 51.29%
Coastal New Jersey...... 121,262 93,237 76.89% 47,974 51.45%
TOTAL................. 1,158,281 851,742 73.54% 437,333 51.35%
OLYMPUS SYSTEMS:
Eastern Pennsylvania.... 49,144 36,425 74.12% 14,659 40.24%
Southeastern Florida.... 406,753 239,357 58.85% 110,602 46.21%
TOTAL................. 455,897 275,782 60.49% 125,261 45.42%
MANAGED SYSTEMS:
Western New York........ 67,275 42,010 62.45% 26,939 64.13%
Virginia................ 43,288 31,408 72.56% 15,511 49.39%
Western Pennsylvania.... 31,976 24,074 75.29% 7,317 30.39%
Eastern Pennsylvania.... 33,459 22,026 65.83% 22,390 101.65%
Southeastern Florida... 89,830 75,164 83.67% 22,592 30.06%
TOTAL................. 265,828 194,682 73.24% 94,749 48.67%
TOTAL SYSTEMS:
Western New York........ 353,768 249,138 70.42% 138,947 55.77%
Virginia................ 246,660 186,743 75.71% 82,282 44.06%
Western Pennsylvania.... 185,730 138,363 74.50% 54,254 39.21%
New England............. 162,065 120,201 74.17% 63,816 53.09%
Eastern Pennsylvania.... 152,924 106,284 69.50% 78,548 73.90%
Ohio.................... 161,014 113,719 70.63% 58,328 51.29%
Coastal New Jersey...... 121,262 93,237 76.89% 47,974 51.45%
Southeastern Florida... 496,583 314,521 63.34% 133,194 42.35%
TOTAL................. 1,880,006 1,322,206 70.33% 657,343 49.72%
Financial Information
The financial data regarding the Company's revenues, results of operations
and identifiable assets for the Company's last three fiscal years is set forth
in, and incorporated herein by reference to, Item 8, Financial Statements and
Supplementary Data of this Form 10-K.
Technological Developments
The Company has made a substantial commitment to the technological
development of the Company Systems and has actively sought to upgrade the
technical capabilities of its cable plant in order to increase channel
capacity for the delivery of additional programming and new services. All of
the Company Systems have a minimum of 35-channel capacity, and 63.6% of the
subscribers to the Company Systems are served by systems having capacity of
54 or more channels, which exceeds the national average for cable systems.
By expanding channel capacity, the Company expects that it will be able to
provide subscribers with a wider range of programming choices and improved
picture quality.
Over 97% of the subscribers to the Company Systems are served by
systems with "addressable capable" technology, which permits the cable
operator to remotely activate the cable television services to be delivered
to subscribers who are equipped with addressable converters. In recent
years, the Company has deployed addressable converters throughout most of the
Company Systems and, as of March 31, 1994, approximately 51% of the subscribers
to the Company Systems had addressable converters. With addressable converters,
the Company can immediately add to or reduce the services provided to a
subscriber from the Company's headend site, without the need to dispatch a
service technician to the subscriber's home. Addressable technology has allowed
the Company to offer pay-per-view programming. Addressable technology also has
assisted the Company in reducing pay service theft and, by allowing the Company
to automatically cut off a subscriber's service, has been effective in
collecting delinquent subscriber payments.
The following table indicates channel capacities and addressable
converter
deployment for the Systems as of March 31, 1994.
% of
Subscribers Addressable
in Converters As
Basic Addressable a % of Basic
Subscribers Systems Subscribers
COMPANY SYSTEMS:
Western New York.......... 207,128 100.00% 32.9%
Virginia.................. 155,335 98.90% 50.6%
Western Pennsylvania...... 114,289 97.41% 52.3%
New England............... 120,201 97.30% 89.6%
Eastern Pennsylvania...... 47,833 100.00% 23.3%
Ohio...................... 113,719 85.98% 61.8%
Coastal New Jersey........ 93,237 100.00% 40.0%
TOTAL................... 851,742 97.20% 50.8%
OLYMPUS SYSTEMS:
Eastern Pennsylvania...... 36,425 100.00% 11.4%
Southeastern Florida...... 239,357 99.23% 72.5%
TOTAL................... 275,782 99.34% 64.4%
% of
Subscribers Addressable
in Converters As
Basic Addressable a % of Basic
Subscribers Systems Subscribers
MANAGED SYSTEMS:
Western New York......... 42,010 100.00% 62.9%
Virginia................. 31,408 66.33% 33.9%
Western Pennsylvania..... 24,074 100.00% 39.5%
Eastern Pennsylvania..... 22,026 100.00% 69.8%
Southeastern Florida..... 75,164 99.20% 39.5%
TOTAL.................. 194,682 94.26% 47.1%
TOTAL SYSTEMS:
Western New York......... 249,138 100.00% 37.9%
Virginia................. 186,743 93.43% 47.8%
Western Pennsylvania..... 138,363 97.86% 50.0%
New England.............. 120,201 97.30% 89.6%
Eastern Pennsylvania..... 106,284 100.00% 28.9%
Ohio..................... 113,719 85.98% 61.8%
Coastal New Jersey....... 93,237 100.00% 40.0%
Southeastern Florida..... 314,521 99.23% 64.6%
TOTAL.................. 1,322,206 97.21% 53.1%
In a number of its system upgrades, the Company has utilized fiber
optic cable as an alternative to the coaxial cable that historically has
been used to distribute cable signals to the subscriber's home. Fiber optic
cable is capable of carrying hundreds of video, data and voice channels. The
Company has developed an innovative "fiber-to-feeder" network design,
consisting of a combination of fiber optic trunk and certain other distribution
plant, which has proven to be economical for the construction, rebuilding,
extension and upgrading of the Systems.
The Company expects that the continued use of the fiber-to-feeder
network design strategy will give the Company the flexibility to exploit the
expanded delivery capacity of fiber optic cable in a cost-effective manner.
The construction of fiber-to-feeder networks will also position the Company
to take advantage of alternative communications delivery systems made possible
by fiber optic technology (such as mobile personal communications service
("PCS") and "alternate access" voice and data communications that bypass local
exchange telephone carriers), to utilize the expanded bandwidth potential of
digital compression technology and to meet the anticipated transmission
requirements for high-definition television and digital television. The Company
has one PCS system in operation on an experimental basis.
The Company is currently offering alternate access telecommunications
services through a subsidiary, Hyperion Telecommunications, Inc. ("Hyperion").
Competitive access carriers can provide businesses and other large
telecommunications consumers with local telecommunications services and access
to long-distance service carriers via competitive networks that bypass the
local telephone company. Hyperion's networks will be constructed exclusively
with fiber optics plant designed to provide increased quality service and data
integrity compared to the existing local telephone company's network. These
competitive access networks also can complement existing networks by providing
redundant telecommunications service backup and route diversity for their
customers.
In addition to the activities described above, the Company has made a
substantial commitment to technological development as a member of Cable
Television Laboratories, Inc., a not-for-profit research and development
company serving the cable industry. The Company has also joined other industry
members in a partnership venture in Digital Cable Radio, a satellite-delivered,
multichannel music service featuring "compact disc" quality sound, marketed
like a premium service.
Subscriber Services and Rates
The Company's revenues are derived principally from monthly subscription
fees
for basic, satellite and premium services. Rates to subscribers vary from
market to market and in accordance with the type of service selected. Although
services vary from system to system because of differences in channel capacity
and viewer interests, each of the Systems typically offers a basic service
package ranging from $8.00 to $12.00 per month. As described herein, the
Systems currently offer certain satellite services through CableSelect, at
monthly per channel rates ranging from $.10 to $1.25 per channel, and in
discounted packages. The Systems' monthly rates for premium services range from
$7.00 to $13.00 per service. An installation fee, which the Company may wholly
or partially waive during a promotional period, is usually charged to new
subscribers. Subscribers are free to terminate cable service at any time
without charge, but often are charged a fee for reconnection or change of
service.
The Cable Communications Policy Act of 1984 (the "1984 Cable Act," as
amended by the 1992 Cable Act), deregulated basic service rates for systems in
communities meeting the FCC's definition of effective competition. Pursuant to
the FCC's definition of effective competition adopted following enactment of
the 1984 Cable Act, substantially all of the Company's franchises were rate
deregulated. However, in June 1991, the FCC amended its effective competition
standard, which increased the number of cable systems which could be subject
to local rate regulation. The 1992 Cable Act contains a new definition of
effective competition under which nearly all cable systems in the United States
are subject to regulation of basic service rates. Additionally, the legislation
(i) eliminated the 5% annual basic rate increase allowed by the 1984 Cable Act
without local approval; (ii) allows the FCC to adjudicate the reasonableness
of rates for non-basic service tiers other than premium services for cable
systems not subject to effective competition in response to complaints filed
by franchising authorities and/or cable subscribers; (iii) prohibits cable
systems from requiring subscribers to purchase service tiers above basic
service in order to purchase premium services if the system is technically
capable of doing so; (iv) allows the FCC to impose restrictions on the
retiering and rearrangement of cable services under certain circumstances; and
(v) permits the FCC and franchising authorities more latitude in controlling
rates and rejecting rate increase requests. See "Legislation and Regulation".
For a discussion of the changes in the Company's method of offering
services to its subscribers implemented in September 1993 and recent FCC rate
regulation and related developments, see "Legislation and Regulation" and
"Management's Discussion and Analysis - Regulatory and Competitive Matters."
Franchises
The 1984 Cable Act provides that cable operators may not offer cable
service to a particular community without a franchise unless such operator was
lawfully providing service to the community on July 1, 1984 and the franchising
authority does not require a franchise. The Company Systems and the Olympus
Systems operate pursuant to franchises or other authorizations issued by
governmental authorities, substantially all of which are nonexclusive. Such
franchises or authorizations awarded by a governmental authority generally are
not transferable without the consent of the authority. Additionally, the 1992
Cable Act prohibits cable operators from selling or otherwise transferring the
ownership of any cable system within 36 months after acquisition or initial
construction, subject to certain limited exceptions. As of March 31, 1994, the
Company held 389 franchises and Olympus held 115 franchises. Most of these
franchises can be terminated prior to their stated expiration by the relevant
governmental authority, after due process, for breach of material provisions
of the franchise.
Under the terms of most of the Company's franchises, a franchise fee
(ranging up to 5% of the gross revenues of the cable system) is payable to the
governmental authority. For the past three years, franchise fee payments made
by the Company have averaged approximately 2.5% of gross system revenues.
The franchises issued by the governmental authorities are subject to
periodic renewal. In renewal hearings, the authorities generally consider,
among other things, whether the franchise holder has provided adequate service
and complied with the franchise terms. In connection with a renewal, the
authority may impose different and more stringent terms, the impact of which
cannot be predicted. To date, all of the Company's material franchises have
been renewed or extended, at or effective upon their stated expiration,
generally on modified terms. Such modified terms have not been materially
adverse to the Company.
The Company believes that all of its material franchises are in good
standing. From time to time, the Company notifies the franchising authorities
of the Company's intent to seek renewal of the franchise in accordance with the
procedures set forth in the 1984 Cable Act. The 1984 Cable Act process requires
that the governmental authority consider the franchise holder's renewal
proposal on its own merits in light of the franchise holder's past performance
and the community's needs and interests, without regard to the presence of
competing applications. See "Legislation and Regulation." The 1992 Cable Act
alters the administrative process by which operators utilize their 1984 Cable
Act franchise renewal rights. Such changes could make it easier in some
instances for a franchising authority to deny renewal of a franchise.
Competition
Cable television systems compete with other communications and
entertainment media, including off-air television broadcast signals which a
viewer is able to receive directly using the viewer's own television set and
antenna. The extent to which a cable system competes with over-the-air
broadcasting depends upon the quality and quantity of the broadcast signals
available by direct antenna reception compared to the quality and quantity of
such signals and alternative services offered by a cable system. In many
areas, television signals which constitute a substantial part of basic
service can be received by viewers who use their own antennas. Local television
reception for residents of apartment buildings or other multi-unit dwelling
complexes may be aided by use of private master antenna services. Cable systems
also face competition from alternative methods of distributing and receiving
television signals and from other sources of entertainment such as live
sporting events, movie theaters and home video products, including videotape
recorders and cassette players. In recent years, the FCC has adopted policies
providing for authorization of new technologies and a more favorable operating
environment for certain existing technologies that provide, or may provide,
substantial additional competition for cable television systems. The extent to
which cable television service is competitive depends in significant part upon
the cable television system's ability to provide an even greater variety of
programming than that available off-air or through competitive alternative
delivery sources. In addition, certain provisions of the 1992 Cable Act are
expected to increase competition significantly in the cable industry. See
"Legislation and Regulation."
Because the Systems are operated under non-exclusive franchises, other
applicants may obtain franchises in areas where the Company presently has
franchises. The 1992 Cable Act prohibits franchising authorities from
unreasonably refusing to award additional franchises and permits them to
operate cable systems themselves without franchises. The Company believes
that, except for insignificant situations, no other operators currently
operate cable television systems that pass any of the homes passed by the
Systems. The Company is unable to predict whether any of the Systems will be
subject to an overbuild by franchising authorities or other cable operators.
However, several federal court decisions have found unconstitutional various
aspects of franchising schemes that seek to limit the number of cable operators
allowed to serve a particular area. Additionally, the 1992 Cable Act removes
some of the legal and regulatory impediments that currently discourage
overbuilding. See "Legislation and Regulation--Competing Franchises".
Homeowners have the option to purchase earth stations, which allow the
direct reception of satellite-delivered program services formerly available
only to cable television subscribers. The Company is unable to estimate the
extent to which earth stations represent competition in its franchised
service areas. The attractiveness of cable service compared to private earth
stations may be enhanced now that most satellite-distributed program signals
are being electronically scrambled to permit reception only with authorized
decoding equipment, generally at a cost to the viewer, making the unauthorized
reception of such scrambled signals by earth station viewers more difficult.
From time to time, legislation has been introduced in Congress which, if
enacted into law, would prohibit the scrambling of certain
satellite-distributed programs or would make satellite services available to
private earth stations on terms comparable to those offered to cable systems.
Broadcast television signals are being made available to owners of earth
stations under the Satellite Home Viewer Copyright Act of 1988, which became
effective January 1, 1989 for a six-year period. This Act establishes a
statutory compulsory license for certain transmissions made by satellite owners
to home satellite dishes, for which carriers are required to pay a royalty fee
to the Copyright Office. This Act will expire automatically at the end of 1994,
unless extended by Congress. A bill to extend this Act is actively being
considered by Congress. The Company cannot predict at the present time whether
the Act will be modified or extended beyond 1994. The 1992 Cable Act enhances
the right of cable competitors to purchase nonbroadcast satellite-delivered
programming. See "Legislation and Regulation--Federal Regulation." The Company
cannot predict at this time the impact such legislation will have upon its
cable television operations.
In the future, it is expected that such programming will be delivered by
high-powered direct broadcast satellites ("DBS") on a wide-scale basis
and several companies have announced plans to provide DBS programming services
by as early as 1994. Those companies propose to use recently developed video
compression technology to increase the channel capacity of their systems. Video
compression technology reportedly has the capability of providing more than 100
channels of programming over a single high-powered DBS, and this capacity could
increase in the future. Video compression technology may also be used by cable
operators to similarly increase their current channel capacity. DBS service
will be able to be received virtually anywhere in the United States through the
installation of a rooftop or side-mounted antenna, and it will be more
accessible than cable television service where cable plant has not been
constructed or where it is not cost effective to construct cable television
facilities. The extent to which DBS systems will be competitive with cable
television systems will also depend upon, among other things, the ability of
DBS operators to obtain access to programming,
the availability of reception equipment, and whether such equipment can be
made available to consumers at reasonable prices.
Although multi-point distribution systems ("MDS") traditionally have been
a single channel service, the FCC has changed its allocation policies to make
more frequencies available and multichannel MDS ("MMDS") service possible. MMDS
systems deliver programming services over microwave channels licensed by the
FCC received by subscribers with special antennas. MMDS systems are less
capital intensive, are not required to obtain local franchises or to pay
franchise fees, and are subject to lower regulatory requirements than cable
television systems. To date, the ability of these so-called "wireless" cable
services to compete with cable television systems has been limited by channel
capacity and the need for unobstructed line-of-sight over-the-air transmission.
Although relatively few MMDS systems in the United States are currently in
operation or under construction, virtually all markets have been licensed or
tentatively licensed. The FCC has taken a series of actions intended to
facilitate the development of MMDS and other wireless cable systems as
alternative means of distributing video programming, including reallocating
certain frequencies to these services and expanding the permissible use and
eligibility requirements for certain channels reserved for educational
purposes. The FCC's actions enable a single entity to develop an MMDS system
with a potential of up to 35 channels that could compete effectively with cable
television. FCC rules and the 1992 Cable Act prohibit the common ownership of
cable systems and MMDS facilities serving the same area.
The U.S. Copyright Office has recently adopted regulations, declaring
that wireless distribution systems, such as direct satellite transmission to
home satellite antennae, MDS and MMDS, do not qualify for purposes of the
statutory compulsory copyright license for the retransmission of off-air
television and radio broadcast stations by cable systems. These Copyright
Office regulations may make it more difficult for wireless cable systems to
offer television and radio retransmissions as part of their service offerings.
Congress is actively considering legislation which would reverse these
regulations. The Company is unable to predict to what extent additional
competition from these services will materialize in the future or what impact
such competition would have on the operation of the Systems.
Additional competition may come from private cable television systems
known as satellite master antenna television ("SMATV") systems, servicing
condominiums, apartment complexes and certain other multiple unit residential
developments. The Cable Act gives franchised cable operators the right to use
existing compatible easements within their franchise areas upon
nondiscriminatory terms and conditions. There have been conflicting judicial
decisions interpreting the scope of the access right granted by the Cable
Act, particularly with respect to easements located entirely on private
property. A SMATV system is subject to the 1984 Cable Act's franchise
requirement only if it uses physically closed transmission paths, such as wires
or cables to interconnect separately owned and managed buildings or if its
lines use or cross any public right-of-way. In some cases, SMATV operators may
be able to charge a lower price than could a cable system providing comparable
services and the FCC's new regulations implementing the 1992 Cable Act limit
a cable operator's ability to reduce its rates to meet this competition.
Furthermore, the U.S. Copyright Office has tentatively concluded that SMATV
systems are "cable systems" for purposes of qualifying for the compulsory
copyright license established for cable systems by federal law. The 1992 Cable
Act prohibits the common ownership of cable systems and SMATV facilities
serving the same area. As a result of all of the foregoing, the ability of the
Company to compete for subscribers in communities with extensive SMATV or
private cable television operations is uncertain.
The FCC has initiated an interactive television service which will
permit non-video transmission of information between an individual's home
and entertainment and information service providers. This service, commonly
known as IVDS, will provide an alternative means for DBS systems and other
video programming distributors, including television stations, to initiate new
interactive television services. IVDS may also be utilized by cable television
systems.
The FCC has initiated a new rulemaking proceeding looking toward the
allocation of frequencies in the 28 GHz range for a new multichannel wireless
video service which could make 98 compressed video channels available in a
single market. The Company is unable to predict whether competitors will emerge
utilizing such frequencies or whether such competition would have a material
impact on the operations of the Company.
In the past, federal cross-ownership restrictions have limited entry into
the cable television business by potentially strong competitors such as
telephone companies. Proposals recently adopted by the FCC, pending litigation
and legislation could make it possible for companies with considerable
resources and consequently a potentially greater willingness or ability to
overbuild, to enter the business. The FCC recently amended its rules to permit
local telephone companies to offer "video dialtone" service for video
programmers, including channel capacity for the carriage of video programming
and certain non-common carrier activities such as video processing, billing and
collection and joint marketing agreements. Furthermore, on August 24, 1993 a
federal district court struck down as unconstitutional a provision in the 1984
Cable Act which prevents local telephone companies from offering video
programming on a non-common carrier basis directly to subscribers in their
local telephone service areas. This decision is being appealed. Several similar
suits have been instituted in other district courts. Even in the absence of
further changes in the cross-ownership restrictions, the expansion of telephone
companies' fiber optic systems may facilitate entry by other video service
providers in competition with cable systems. See "Legislation and
Regulation--Federal Regulation."
The Company holds a franchise to provide cable service in Dover Township,
New Jersey. On December 15, 1992, New Jersey Bell Telephone Company ("New
Jersey Bell") filed an application with the FCC requesting authority to
construct new fiber optic facilities for the purpose of operating a "video
dialtone" system in a portion of that community in which the Company serves
approximately 20,000 subscribers. Initial programming service over those
facilities would be provided by FutureVision of America Corporation. On January
22, 1993, the Company formally opposed New Jersey Bell's application on various
grounds by filing a Petition to Deny the application at the FCC. Several other
parties also opposed the New Jersey Bell application. On February 4, 1993, New
Jersey Bell filed an opposition to the Company's Petition to Deny and the other
filings. On February 17, 1993, the Company filed its reply in that matter,
concluding the formal pleading cycle. On July 28, 1993, the FCC sent a letter
to New Jersey Bell stating that the application appeared to be inconsistent
with the FCC's video dialtone requirements in that insufficient capacity to
serve multiple programmers was to be made available. New Jersey Bell was given
an opportunity to amend its application, which it subsequently did. The Company
filed a further opposition to the application. The matter has not yet been
decided by the FCC.
Advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, are constantly
occurring. Thus, it is not possible to predict the effect that ongoing or
future developments might have on the cable industry. The ability of cable
systems to compete with present, emerging and future distribution media will
depend to a great extent on obtaining attractive programming. The availability
and exclusive use of a sufficient amount of quality programming may in turn be
effected by developments in regulation or copyright law. See "Legislation and
Regulation."
The cable television industry competes with radio, television and
print media for advertising revenues. As the cable television industry
continues to develop programming designed specifically for distribution by
cable, advertising revenues may increase. Premium programming provided by
the Company's cable communications systems is subject to the same competitive
factors which exist for other programming discussed above. The continued
profitability of the Company's premium services may depend largely upon the
continued availability of attractive programming at competitive prices.
Employees
At June 25, 1994, there were 2,486 full-time employees of the Company,
of which 103 employees were covered by collective bargaining agreements at
three locations. The Company considers its relations with its employees to be
good.
LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state
governments and most local governments. In addition, various legislative and
regulatory proposals under consideration from time to time by Congress and
various federal agencies may materially affect the cable television industry.
The following is a
summary of federal laws and regulations affecting the growth and operation
of the cable television industry and a description of certain state and local
laws.
Cable Communications Policy Act of 1984
The 1984 Cable Act became effective on December 29, 1984. This federal
statute, which amended the Communications Act of 1934 (the "Communications
Act"), created uniform national standards and guidelines for the regulation of
cable television systems. Violations by a cable television system operator of
provisions of the Communications Act, as well as of FCC regulations, can
subject the operator to substantial monetary penalties and other sanctions.
Among other things, the 1984 Cable Act affirmed the right of franchising
authorities (state or local, depending on the practice in individual states)
to award one or more franchises within their jurisdictions. It also prohibited
non-grandfathered cable television systems from operating without a franchise
in such jurisdictions. In connection with new franchises, the 1984 Cable Act
provides that in granting or renewing franchises, franchising authorities may
establish requirements for cable-related facilities and equipment, but may not
establish or enforce requirements for video programming or information services
other than in broad categories. The 1984 Cable Act grandfathered, for the
remaining term of existing franchises, many but not all of the provisions in
existing franchises which would not be permitted in franchises entered into or
renewed after the effective date of the 1984 Cable Act.
Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act")
On October 5, 1992, Congress enacted the 1992 Cable Act. This legislation
will effect significant changes to the legislative and regulatory environment
in which the cable industry operates. It amends the 1984 Cable Act in many
respects. The 1992 Cable Act became effective on December 4, 1992, although
certain provisions, most notably those dealing with rate regulation and
retransmission consent, became effective at later dates. The legislation also
required the FCC to initiate a number of rulemaking proceedings to implement
various provisions of the statute. The 1992 Cable Act allows for a greater
degree of regulation on the cable industry with respect to, among other things:
(i) cable system rates for both basic and certain nonbasic services; (ii)
programming access and exclusivity arrangements; (iii) access to cable channels
by unaffiliated programming services; (iv) leased access terms and conditions;
(v) horizontal and vertical ownership of cable systems; (vi) customer service
requirements; (vii) franchise renewals; (viii) television broadcast signal
carriage and retransmission consent; (ix) technical standards; (x) subscriber
privacy; (xi) consumer protection issues; (xii) cable equipment compatibility;
(xiii) obscene or indecent programming; and (xiv) requiring subscribers to
subscribe to tiers of service other than basic service as a condition of
purchasing premium services. Additionally, the legislation encourages
competition with existing cable systems by: allowing municipalities to own and
operate their own cable systems without having to obtain a franchise;
preventing franchising authorities from granting exclusive franchises or
unreasonably refusing to award additional franchises covering an existing cable
system's service area; and prohibiting the common ownership of cable systems
and co-located MMDS or SMATV systems. The 1992 Cable Act also precludes video
programmers affiliated with cable television companies from favoring cable
operators over competitors and requires such programmers to sell their
programming to other multichannel video distributors. This provision may limit
the ability of cable program suppliers to offer exclusive programming
arrangements to cable television companies. While the Company is currently
unable to predict the ultimate effect of the 1992 Cable Act, the Company
believes that a number of provisions in this legislation relating to, among
other things, rate regulation, are likely to have a negative impact,
potentially material, on the cable industry and the Company's business.
Various cable operators have filed actions in the United States District
Court in the District of Columbia challenging the constitutionality of several
sections of the 1992 Cable Act. Pursuant to special jurisdictional provisions
in the 1992 Cable Act, a challenge to the must-carry provisions of the Act was
heard by a three-judge panel of the District Court. On April 8, 1993, the
three-judge court granted a summary judgment for the government upholding the
constitutional validity of the must-carry provisions of the 1992 Cable Act.
That decision has been appealed directly to the U.S. Supreme Court. The
plaintiffs in that case unsuccessfully sought an injunction pending appeal of
the District Court's decision. On June 27, 1994, the Supreme Court vacated the
District Court decision and remanded the case for further proceedings. Thus,
the constitutionality of the must carry provision has yet to be finally
decided.
The cable operators' constitutional challenge to the balance of the 1992
Cable Act provisions was heard by a single judge of the District Court. On
September 16, 1993, the court rendered its decision upholding the
constitutionality of all but three provisions of the statute (multiple
ownership limits for cable operators, advance notice of free previews for
certain programming services, and channel set-asides for DBS operators).
This decision has been appealed to the U.S. Court of Appeals for the District
of Columbia Circuit.
Appeals have also been filed in the U.S. Court of Appeals for the
District of Columbia Circuit from the FCC's rate regulation rulemaking
decisions.
Federal Regulation
The FCC, the principal federal regulatory agency with jurisdiction
over cable television, has promulgated regulations covering such areas as the
registration of cable systems, cross-ownership between cable systems and other
communications businesses, carriage of television broadcast programming,
consumer education and lockbox enforcement, origination cablecasting and
sponsorship identification, children's programming, the regulation of basic
cable service rates in areas where cable systems are not subject to effective
competition, signal leakage and frequency use, technical performance,
maintenance of various records, equal employment opportunity, and antenna
structure notification, marking and lighting. The FCC has the authority to
enforce these regulations through the imposition of substantial fines, the
issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations. Furthermore, the 1992 Cable Act requires the FCC to adopt
implementing regulations covering, among other things, cable rates, signal
carriage, consumer protection and customer service, leased access, indecent
programming, programmer access to cable television systems, programming
agreements, technical standards, consumer electronics equipment compatibility,
ownership of home wiring, program exclusivity, equal employment opportunity,
and various aspects of direct broadcast satellite system ownership and
operation. A brief summary of the most material federal regulations as adopted
to date follows.
Rate Regulation. The 1984 Cable Act codified existing FCC preemption of
rate regulation for premium channels and optional nonbasic program tiers.
The 1984 Cable Act also deregulated basic cable rates for cable television
systems determined by the FCC to be subject to effective competition. The
1992 Cable Act substantially changed the current statutory and FCC rate
regulation standards. The 1992 Cable Act replaced the FCC's old standard for
determining effective competition, under which most cable systems were not
subject to local rate regulation, with a statutory provision that has resulted
in nearly all cable television systems becoming subject to local rate
regulation of basic service. Additionally, the legislation eliminated the 5%
annual rate increase for basic service previously allowed by the 1984 Cable Act
without local approval; required the FCC to adopt a formula, for franchising
authorities to enforce, to assure that basic cable rates are reasonable; allows
the FCC to review rates for nonbasic service tiers (other than per-channel or
per-program services) in response to complaints filed by franchising
authorities and/or cable customers; prohibits cable television systems from
requiring customers to purchase service tiers above basic service in order to
purchase premium services if the system is technically capable of doing so;
required the FCC to adopt regulations to establish, on the basis of actual
costs, the price for installation of cable service, remote controls, converter
boxes and additional outlets; and allows the FCC to impose restrictions on the
retiering and rearrangement of cable services under certain limited
circumstances. The FCC adopted rules designed to implement these rate
regulation provisions on April 1, 1993, and then significantly amended them on
February 22, 1994.
The FCC's regulations set standards for the regulation of basic and
nonbasic cable service rates (other than per-channel or per-program services).
The FCC initially ordered an interim 120-day freeze on these rates effective
April 5, 1993, a freeze which was extended several times and finally expired
on May 15, 1994. The FCC's original rules became effective on September 1,
1993. The amendments thereto became effective on May 15, 1994. The rate
regulations adopt a benchmark price cap system for measuring the reasonableness
of existing basic and nonbasic service rates, and a formula for evaluating
future rate increases. Alternatively, cable operators have the opportunity to
make cost-of-service showings which, in some cases, may justify rates above the
applicable benchmarks. The FCC has adopted interim rules to be utilized in such
cost-of-service showings. The rules also require that charges for cable-related
equipment (e.g., converter boxes and remote control devices) and installation
services be unbundled from the provision of cable service and based upon actual
costs plus a reasonable profit. Local franchising authorities and/or the FCC
are empowered to order a reduction of existing rates which exceed the benchmark
level for either basic and/or nonbasic cable services and associated equipment,
and refunds could be required, measured from the date of a complaint to the FCC
challenging an existing nonbasic cable service rate or from September 1, 1993,
for existing basic cable service rates under the original rate regulations and
from May 15, 1994, under the amended rate regulations. The retroactive refund
period for basic cable service rates is limited to one year. In general, the
reductions for basic and nonbasic cable service rates under the original rate
regulations were to be to the greater of the applicable benchmark level or the
rates in force as of September 30, 1992, minus 10 percent, adjusted forward for
inflation. The amended regulations require an aggregate reduction of up to 17
percent, adjusted forward for inflation and certain other factors, from the
rates in force as of September 30, 1992. The regulations also provide that
future rate increases may not exceed an inflation-indexed amount, plus
increases in certain costs beyond the cable operator's control, such as taxes,
franchise fees and increased programming costs. Certain adjustments to these
capped rates can also be made in the event a cable operator adds or deletes
programming channels. A significant number of franchising authorities have
become certified by the FCC to regulate the rates charged by the Company for
basic cable service and for associated equipment. Subscribers in some of the
Company's cable systems have sought FCC review regarding the rates charged for
non-basic cable service. The Company's ability to implement rate increases
consistent with its past practices will likely be limited by the regulations
that the FCC has adopted.
Commencing in August 1993, in accordance with the 1992 Cable Act, the
Company repackaged certain existing cable services and introduced a new method
of offering certain cable services. The Company adjusted the basic service
rates and related equipment and installation charges in substantially all of
its Systems so as to bring these rates and charges into compliance with the
then applicable benchmark or equipment and installation cost levels. The
amended rules may require further adjustments to the Company's rates for
regulated services and equipment.
Effective September 1, 1993, the Company also implemented a program in
substantially all of its Systems under which a number of the Company's
satellite-delivered and premium services are now offered individually on a per
channel (i.e., a la carte) basis, or as a group at a discounted price. The
FCC, in its reconsideration of the original rate regulations, stated that it
was going to review the regulatory treatment of such a la carte packages on an
ad hoc basis. A la carte packages which are determined to be evasions of rate
regulation rather than true enhancements of subscriber choice will be treated
as regulated tiers, and cable operators engaging in such practices may be
subject to fines and/or further rate adjustments. One of Olympus' Systems,
along with numerous other cable operators, received a specific inquiry from the
FCC regarding its implementation of this new method of offering cable services.
The Company has responded to the FCC's inquiry in writing. Because of these
developments and other factors, including the decisions of subscribers, the
Company is currently unable to determine the effect that this a la carte method
of offering cable services will have on its business and results of operations
in future periods. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Regulatory and Competitive Matters".
The FCC has adopted regulations pursuant to the 1992 Cable Act which
require cable systems to permit customers to purchase video programming on a
per channel or a per program basis without the necessity of subscribing to any
tier of service, other than the basic service tier, unless the cable system is
technically incapable of doing so. Generally, this exemption from compliance
with the statute for cable systems that do not have such technical capability
is available until a cable system obtains the capability, but not later than
December, 2002.
Carriage of Broadcast Television Signals. The 1992 Cable Act contains
new mandatory carriage requirements. These new rules allow commercial
television
broadcast stations which are "local" to a cable system, i.e., the system is
located in the station's Area of Dominant Influence, to elect every three
years, whether to require the cable system to carry the station, subject to
certain exceptions, or whether the cable system will have to negotiate for
"retransmission consent" to carry the station. The first such election was made
on June 17, 1993. Local, non-commercial television stations are also given
mandatory carriage rights, subject to certain exceptions, within the larger of
(i) a 50 mile radius from the station's city of license or (ii) the station's
Grade B contour (a measure of signal strength). Unlike commercial stations,
noncommercial stations are not given the option to negotiate retransmission
consent for the carriage of their signal. In addition, cable systems will have
to obtain retransmission consent for the carriage of all "distant" commercial
broadcast stations, except for certain "superstations," i.e., commercial
satellite-delivered independent stations such as WTBS. The 1992 Cable Act also
eliminated, effective December 4, 1992, the FCC's regulations requiring the
provision of input selector switches. The statutory must-carry provisions for
non-commercial stations became effective on December 4, 1992. Must-carry rules
for both commercial and non-commercial stations and retransmission consent
rules for commercial stations were adopted by the FCC on March 11, 1993. The
must-carry requirement for commercial stations went into effect on June 2,
1993, and any stations for which retransmission consent had not been obtained
(other than must-carry stations, non-commercial stations and superstations) had
to be dropped as of October 6, 1993. A number of stations previously carried
by the Company's cable television systems elected retransmission consent. The
Company has thus far been able to reach agreements with broadcasters who
elected retransmission consent or to negotiate extensions to the October 6,
1993 deadline and has therefore not been required to pay cash compensation to
broadcasters for retransmission consent or been required by broadcasters to
remove broadcast stations from the cable television channel line-ups. The
Company has, however, agreed to carry some services (e.g., ESPN2 and a new
service by FOX) in specified markets pursuant to retransmission consent
arrangements which it believes are comparable to those entered into by most
other large cable operators.
Nonduplication of Network Programming. Cable systems that have 1,000 or
more subscribers must, upon the appropriate request of a local television
station, delete the simultaneous or nonsimultaneous network programming of a
distant station when such programming has also been contracted for by the local
station on an exclusive basis.
Deletion of Syndicated Programming. FCC regulations enable television
broadcast stations that have obtained exclusive distribution rights for
syndicated programming in their market to require a cable system to delete or
"black out" such programming from other television stations which are carried
by the cable system. The extent of such deletions will vary from market to
market and cannot be predicted with certainty. However, it is possible that
such deletions could be substantial and could lead the cable operator to drop
a distant signal in its entirety. The FCC also has commenced a proceeding to
determine whether to relax or abolish the geographic limitations on program
exclusivity contained in its rules, which would allow parties to set the
geographic scope of exclusive distribution rights entirely by contract, and to
determine whether such exclusivity rights should be extended to noncommercial
educational stations. It is possible that the outcome of these proceedings will
increase the amount of programming that cable operators are requested to black
out. Finally, the FCC has declined to impose equivalent syndicated exclusivity
rules on satellite carriers who provide services to the owners of home
satellite dishes similar to those provided by cable systems.
Franchise Fees. Although franchising authorities may impose franchise
fees under the 1984 Cable Act, such payments cannot exceed 5% of a cable
system's annual gross revenues. In those communities in which franchise fees
are required, the Company currently pays franchise fees ranging up to 5% of
gross revenues. Franchising authorities are also empowered in awarding new
franchises or renewing existing franchises to require cable operators to
provide cable-related facilities and equipment and to enforce compliance with
voluntary commitments. In the case of franchises in effect prior to the
effective date of the 1984 Cable Act, franchising authorities may enforce
requirements contained in the franchise relating to facilities, equipment and
services, whether or not cable-related. The 1984 Cable Act, under certain
limited circumstances, permits a cable operator to obtain modifications of
franchise obligations.
Renewal of Franchises. The 1984 Cable Act established renewal procedures
and criteria designed to protect incumbent franchises against arbitrary denials
of renewal. While these formal procedures are not mandatory unless timely
invoked by either the cable operator or the franchising authority, they can
provide substantial protection to incumbent franchisees. Even after the formal
renewal procedures are invoked, franchising authorities and cable operators
remain free to negotiate a renewal outside the formal process. Nevertheless,
renewal is by no means assured, as the franchisee must meet certain statutory
standards. Even if a franchise is renewed, a franchising authority may impose
new and more onerous requirements such as upgrading facilities and equipment,
although the municipality must take into account the cost of meeting such
requirements.
The 1992 Cable Act makes several changes to the process under which a
cable operator seeks to enforce its renewal rights which could make it easier
in some cases for a franchising authority to deny renewal. While a cable
operator must still submit its request to commence renewal proceedings within
thirty to thirty-six months prior to franchise expiration to invoke the formal
renewal process, the request must be in writing and the franchising authority
must commence renewal proceedings not later than six months after receipt of
such notice. The four-month period for the franchising authority to grant or
deny the renewal now runs from the submission of the renewal proposal, not the
completion of the public proceeding. Franchising authorities may consider the
"level" of programming service provided by a cable operator in deciding whether
to renew. For alleged franchise violations occurring after December 29, 1984,
franchising authorities are no longer precluded from denying renewal based on
failure to comply substantially with the material terms of the franchise where
the franchising authority has "effectively acquiesced" to such past violations.
Rather, the franchising authority is estopped if, after giving the cable
operator notice and opportunity to cure, it fails to respond to a written
notice from the cable operator of its failure or inability to cure. Courts may
not reverse a renewal denial based on procedural regulations found to be
"harmless error."
Channel Set-Asides. The 1984 Cable Act permits local franchising
authorities to require cable operators to set aside certain channels for
public, educational and governmental access programming. The Company believes
that none of the Systems' franchises contain unusually onerous access
requirements. The 1984 Cable Act further requires cable systems with thirty-six
or more activated channels to designate a portion of their channel capacity for
commercial leased access by unaffiliated third parties. While the 1984 Cable
Act presently allows cable operators substantial latitude in setting leased
access rates, the 1992 Cable Act requires leased access rates to be set
according to a formula determined by the FCC. It is possible that such leased
access will result in competition to services offered by the Company on the
other channels of its cable systems.
Competing Franchises. Questions concerning the ability of municipalities
to award a single cable television franchise and to impose certain franchise
restrictions upon cable television companies have been considered in several
recent federal appellate and district court decisions. These decisions have
been somewhat inconsistent and, until the U.S. Supreme Court rules definitively
on the scope of cable television's First Amendment protections, the legality
of the franchising process and of various specific franchise requirements is
likely to be in a state of flux. It is not possible at the present time to
predict the constitutionally permissible bounds of cable franchising and
particular franchise requirements. However, the 1992 Cable Act, among other
things, prohibits franchising authorities from unreasonably refusing to grant
franchises to competing cable systems and permits franchising authorities to
operate their own cable systems without franchises.
Ownership. The 1984 Cable Act codified existing FCC crossownership
regulations, which, in part, prohibit local exchange telephone companies
("LECs"), including the Bell Operating Companies ("BOCs"), from providing video
programming directly to subscribers within their local exchange telephone
service areas, except in rural areas or by specific waiver of FCC rules. On
August 24, 1993 the United States District Court for the Eastern District of
Virginia struck down the 1984 Cable Act's cable/telco cross-ownership
prohibition as facially invalid and inconsistent with the First Amendment. This
decision has been appealed to the U.S. Court of Appeals for the Fourth Circuit.
Similar litigation has been commenced in several other district courts. On June
15, 1994, the United States District Court for the Western District of
Washington also struck down the ownership prohibition on First Amendment
grounds. The Company cannot predict the outcome of this litigation, but
believes that the provision of video programming by telephone companies with
considerable financial resources in competition with the Company's existing
operations could have an adverse effect on the Company's financial condition
and results of operation; the magnitude of any such effect is not known or
estimable. Separately, as part of a comprehensive proceeding examining whether
and under what circumstances telephone companies should be allowed to provide
cable television services, including video programming to their customers, the
FCC has concluded that neither the 1984 Cable Act nor its rules apply to
prohibit the interexchange carriers (i.e., long distance telephone companies
such as AT&T) from providing such services to their customers. Additionally,
the FCC has also concluded, as part of its "video dialtone" decision, that
where a LEC makes its facilities available on a common carrier basis for the
provision of video programming to the public, the 1984 Cable Act does not
require either the LEC or its programmer customers to obtain a franchise to
provide such service. Because cable operators are required to bear the costs
of complying with local franchise requirements, the FCC's decision could place
cable operators at a competitive disadvantage vis-a-vis local telephone
companies seeking to offer competing services on a common carrier basis.
Various parties have sought judicial review of the FCC's conclusion that
neither a LEC or its programmer customers would be required to obtain a local
franchise. This appeal is currently pending.
As part of the same proceeding, the FCC recommended that Congress amend
the 1984 Cable Act to allow LECs to provide their own video programming
services over their facilities in competition with their customers' services.
The FCC also decided to loosen ownership and affiliation restrictions currently
applicable to telephone companies, and has proposed to increase the numerical
limit on the population of areas qualifying as "rural" and in which LECs can
provide cable service without FCC waiver.
The BOCs have recently been released by the United States District Court
for the District of Columbia from restrictions on their ability to provide
information services, including broadband video programming, which had been
imposed as part of the 1984 AT&T divestiture decree. They are, of course, still
subject to the 1984 Cable Act cross ownership restriction discussed above.
The telephone industry has continued to lobby Congress for legislation
that will permit LECs to provide video programming directly to consumers within
their service areas. There is currently a bill pending in Congress that would
permit the LECs to provide cable television service over their own facilities
conditioned on establishing a video programming affiliate that will maintain
separate records to prevent cross-subsidization. The bill, among other
provisions, would also prohibit telephone companies from purchasing existing
cable television systems within their telephone service areas. On the other
hand, different legislation has been introduced in Congress that would reimpose
the ban on the provision of information services, including broadband video
programming, by LECs similar to that formerly contained in the 1984 AT&T
divestiture decree. The outcome of these FCC, legislative or court proceedings
and proposals or the effect of such outcome on cable system operations cannot
be predicted; however, adoption of such proposals could intensify the
competition which the Systems might face from LECs in the areas in which the
Systems operate.
The 1984 Cable Act and the FCC's rules also prohibit the common
ownership, operation, control or interest in a cable system and a local
television broadcast station whose predicted grade B contour (a measure of
significant signal strength as defined by the FCC's rules) covers any portion
of the community served by the cable system. As part of a wide ranging inquiry
on competition in the video marketplace, the FCC has solicited comments to
determine whether the policy prohibiting the common ownership or control of
co-located broadcast and cable facilities continues to service the public
interest. Common ownership or control has historically also been prohibited by
the FCC (but not by the 1984 Cable Act) between a cable system and a national
television network, although the FCC has recently adopted an order which
substantially relaxes the network/cable cross-ownership prohibitions subject
to certain national and local ownership caps. As a part of the same action, the
FCC also voted to recommend to Congress that the broadcast/cable
cross-ownership restrictions contained in the 1984 Cable Act be repealed. In
addition, the FCC's rules prohibit common ownership, affiliation, control or
interest in cable systems and MDS facilities having overlapping service areas,
except in very limited circumstances. The 1992 Cable Act codified this
restriction and also extended it to co-located SMATV systems. Permitted
arrangements in effect as of October 5, 1992, are grandfathered. Thus, the
FCC's cross-ownership rules could preclude the Company, its general partners,
the officers, directors of its general partners or holders of a cognizable
equity interest in the Company (as defined by the FCC) from serving
simultaneously as general partners, the officers or directors of, or from
holding a substantial ownership interest in, these other businesses. The 1992
Cable Act permits states or local franchising authorities to adopt certain
additional restrictions on the ownership of cable systems.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number
of cable systems which a single cable operator can own. In general, no cable
operator can have an attributable interest in cable systems which pass more
than 30 percent of all homes nationwide. Attributable interests for these
purposes include voting interests of 5% or more (unless there is another single
holder of more than 50% of the voting stock), officerships, directorships and
general partnership interests.
The FCC has stayed the effectiveness of these rules pending the outcome of the
appeal from the U.S. District Court decision holding the multiple ownership
limit provision of the 1992 Cable Act unconstitutional.
The FCC has also adopted rules which limit the number of channels on a
cable system which can be occupied by programming in which the cable system's
owner has an attributable interest. The limit is 40% of all activated channels.
EEO. The 1984 Cable Act includes provisions to ensure that minorities and
women are provided equal employment opportunities within the cable television
industry. The statute requires the FCC to adopt reporting and certification
rules that apply to all cable system operators with more than five full-time
employees. Pursuant to the requirements of the 1992 Cable Act, the FCC has
imposed more detailed annual EEO reporting requirements on cable operators and
has expanded those requirements to all multichannel video service distributors.
Failure to comply with the EEO requirements can result in the imposition of
fines and/or other administrative sanctions, or may, in certain circumstances,
be cited by a franchising authority as a reason for denying a franchisee's
renewal request.
Privacy. The 1984 Cable Act imposes a number of restrictions on the
manner in which cable system operators can collect and disclose data about
individual system subscribers. The statute also requires that the system
operator periodically provide all subscribers with written information about
its policies regarding the collection and handling of data about subscribers,
their privacy rights under federal law and their enforcement rights. In the
event that a cable operator is found to have violated the subscriber privacy
provisions of the 1984 Cable Act, it could be required to pay damages,
attorney's fees and other costs. Under the 1992 Cable Act, the privacy
requirements are strengthened to require that cable operators take such actions
as are necessary to prevent unauthorized access to personally identifiable
information.
Anti-Trafficking. The 1992 Cable Act precludes cable operators from
selling or otherwise transferring ownership of a cable system within 36
months after acquisition or initial construction, except for: resales required
by the terms of a contract covering the acquisition of multiple systems; tax
free sales; governmentally required divestitures; or internal transfers to a
commonly controlled entity. The anti-trafficking restriction applies to systems
acquired prior to the effective date of the new law (i.e., December 4, 1992)
as well as subsequent acquisitions. The FCC may waive the foregoing
restrictions where generally consistent with the public interest, unless the
franchising authority has refused to grant any required approval. The 1992
Cable Act also requires franchising authorities to act on any franchise
transfer request submitted after December 4, 1992 within 120 days after receipt
of all information required by FCC regulations and by the franchising
authority. Approval is deemed to be granted if the franchising authority fails
to act within such period.
Registration Procedure and Reporting Requirements. Prior to commencing
operation in a particular community, all cable television systems must file a
registration statement with the FCC listing the broadcast signals they
will carry and certain other information. Additionally, cable operators
periodically are required to file various informational reports with the FCC.
Cable operators who operate in certain frequency bands are required on an
annual basis to file the results of their periodic cumulative leakage testing
measurements. Operators who fail to make this filing or who exceed the FCC's
allowable cumulative leakage index risk being prohibited from operating in
those frequency bands in addition to other sanctions.
Technical Requirements. Historically, the FCC has imposed technical
standards applicable to the cable channels on which broadcast stations are
carried, and has prohibited franchising authorities from adopting standards
which were in conflict with or more restrictive than those established by the
FCC. The FCC has recently revised such standards and made them applicable to
all classes of channels which carry downstream NTSC video programming. Local
franchising authorities are permitted to enforce the FCC's new technical
standards. The FCC also has adopted additional standards applicable to cable
television systems using frequencies in the 108-137 Mhz and 225-400 Mhz bands
in order to prevent harmful interference with aeronautical navigation and
safety radio services and has also established limits on cable system signal
leakage; the FCC's power in this respect has not been questioned. Although
these requirements could force some cable operators to make significant capital
and additional operating expenditures to meet these new technical standards and
more stringent leakage criteria, the Company believes that the Systems are in
compliance with these standards in all material respects. The 1992 Cable Act
requires the FCC to update periodically its technical standards to take into
account changes in technology and to entertain waiver requests from franchising
authorities who would seek to impose more stringent technical standards upon
their franchised cable systems. Although the 1992 Cable Act requires the FCC
to establish "minimum technical standards relating to cable systems' technical
operation and signal quality," the FCC has announced that its recently
completed cable television technical standards rulemaking satisfies the new
statutory mandate.
Pole Attachments. The FCC currently regulates the rates and conditions
imposed by certain public utilities for use of their poles, unless under the
Federal Pole Attachments Act state public service commissions are able to
demonstrate that they regulate rates, terms and conditions of the cable
television pole attachments. A number of states (including Massachusetts,
Michigan, New Jersey, New York, Ohio and Vermont) and the District of Columbia
have certified to the FCC that they regulate the rates, terms and conditions
for pole attachments. In the absence of state regulation, the FCC administers
such pole attachment rates through use of a formula which it has devised and
from time to time revises.
Other Matters. FCC regulation also includes matters regarding a cable
system's carriage of local sports programming; restrictions on origination and
cablecasting by cable system operators; application of the fairness doctrine
and rules governing political broadcasts; customer service; home wiring; and
limitations on advertising contained in nonbroadcast children's programming.
Copyright. Cable television systems are subject to federal copyright
licensing covering carriage of broadcast signals. In exchange for making
semi-annual payments to a federal copyright royalty pool and meeting certain
other obligations, cable operators obtain a statutory license to retransmit
broadcast signals. The amount of this royalty payment varies, depending on
the amount of system revenues from certain sources, the number of distant
signals carried, and the location of the cable system with respect to
over-the-air television stations. Originally, the Federal Copyright Royalty
Tribunal was empowered to make and, in fact, did make several adjustments in
copyright royalty rates. This tribunal was eliminated by Congress in 1993.
Any future adjustment to the copyright royalty rates will be done through an
arbitration process to be supervised by the U.S. Copyright office. Present
rates remain in place until 1995 barring any changes in the FCC's signal
carriage, syndicated exclusitivity or sports blackout rules. Cable operators
are liable for interest on underpaid and late paid royalty fees, but are not
entitled to receive interest on refunds due to overpayment of royalty fees.
The Copyright Office has commenced a proceeding aimed at examining its
policies governing the consolidated reporting of commonly owned and contiguous
cable systems. The present policies governing the consolidated reporting of
certain cable systems have often led to substantial increases in the amount of
copyright fees owed by the systems affected. These situations have most
frequently arisen in the context of cable system mergers and acquisitions.
While it is not possible to predict the outcome of this proceeding, any changes
adopted by the Copyright Office in its current policies may have the effect of
reducing the copyright impact of certain transactions involving cable company
mergers and cable system acquisitions.
Various bills have been introduced into Congress over the past several
years that would eliminate or modify the cable television compulsory license.
The FCC has recommended to Congress that it repeal the cable industry's
compulsory copyright license. The FCC determined that the statutory compulsory
copyright license for local and distant broadcast signals no longer serves the
public interest and that private negotiations between the applicable parties
would better serve the public. Without the compulsory license, cable operators
might need to negotiate rights from the copyright owners for each program
carried on each broadcast station in the channel lineup. Such negotiated
agreements could increase the cost to cable operators of carrying broadcast
signals. The 1992 Cable Act's retransmission consent provisions expressly
provide that retransmission consent agreements between television broadcast
stations and cable operators do not obviate the need for cable operators to
obtain a copyright license for the programming carried on each broadcaster's
signal.
Copyrighted music performed in programming supplied to cable television
systems by pay cable networks (such as HBO) and basic cable networks (such as
USA Network) has generally been licensed by the networks through private
agreements with the American Society of Composers and Publishers ("ASCAP") and
BMI, Inc. ("BMI"), the two major performing rights organizations in the United
States. These two organizations have asserted that cable television systems
must separately obtain licenses and pay fees to them for the performance of
such music. Litigation was initiated in two federal courts which, among other
things, raised the question of whether cable television systems can be required
to obtain separate music performance licenses for cable network programming.
Both federal district courts ruled against ASCAP and BMI and held that they are
required to offer "through to the viewer" licenses to the cable networks which
would cover the retransmission of the cable networks' programming by cable
systems to their subscribers. Both decisions were appealed, although the BMI
litigation was subsequently settled. The decision of the federal district court
in the ASCAP case was recently upheld by an appellate court and the U.S.
Supreme Court has declined to review this decision.
State and Local Regulation
Because a cable television system uses local streets and rights-of-way,
cable television systems are subject to state and local regulation, typically
imposed through the franchising process. State and/or local officials are
usually involved in franchise selection, system design and construction,
safety, service rates, consumer relations, billing practices and community
related programming and services.
Cable television systems generally are operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. Franchises generally are granted for fixed terms and
in many cases are terminable if the franchise operator fails to comply with
material provisions. Although the 1984 Cable Act provides for certain
procedural protections, there can be no assurance that renewals will be granted
or that renewals will be made on similar terms and conditions. Franchises
usually call for the payment of fees, often based on a percentage of the
system's gross subscriber revenues, to the granting authority. Upon receipt of
a franchise, the cable system owner usually is subject to a broad range of
obligations to the issuing authority directly affecting the business of the
system. The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction, and even from city to city within the same state,
historically ranging from reasonable to highly restrictive or burdensome. The
1984 Cable Act places certain limitations on a franchising authority's ability
to control the operation of a cable system operator and the courts have from
time to time reviewed the constitutionality of several general franchise
requirements, including franchise fees and access channel requirements, often
with inconsistent results. On the other hand, the 1992 Cable Act prohibits
exclusive franchises, and allows franchising authorities to exercise greater
control over the operation of franchised cable systems, especially in the area
of customer service and rate regulation. The 1992 Cable Act also allows
franchising authorities to operate their own multichannel video distribution
system without having to obtain a franchise and permits states or local
franchising authorities to adopt certain restrictions on the ownership of
cable systems. Moreover, franchising authorities are immunized from monetary
damage awards arising from regulation of cable systems or decisions made on
franchise grants, renewals, transfers and amendments.
The specific terms and conditions of a franchise and the laws and
regulations under which it was granted directly affect the profitability of the
cable television system. Cable franchises generally contain provisions
governing charges for basic cable television services, fees to be paid to
the franchising authority, length of the franchise term, renewal, sale or
transfer of the franchise, territory of the franchise, design and technical
performance of the system, use and occupancy of public streets and number and
types of cable services provided.
Various proposals have been introduced at the state and local levels with
regard to the regulation of cable television systems, and a number of states
have adopted legislation subjecting cable television systems to the
jurisdiction of centralized state governmental agencies, some of which
impose regulation of a character similar to that of a public utility. Attempts
in other states to regulate cable television systems are continuing and can be
expected to increase. Such proposals and legislation may be preempted by
federal statute and/or FCC regulation. To date, the states in which the Company
operates that have enacted such state level regulation are New York, New
Jersey, Massachusetts and Vermont. The Company cannot predict whether other
states in which it currently operates, or in which it may acquire systems, will
engage in such regulation in the future.
The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation relating to the cable
television industry. Other existing federal regulations, copyright licensing
and, in many jurisdictions, state and local franchise requirements currently
are the subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals which could change, in varying
degrees, the manner in which cable television systems operate. Neither the
outcome of these proceedings nor their impact upon the cable television
industry or the Systems can be predicted at this time.
ITEM 2 PROPERTIES
The Company's principal physical assets consist of cable television
operating plant and equipment, including signal receiving, encoding and
decoding devices, headends and distribution systems and subscriber house drop
equipment for each of its cable television systems. The signal receiving
apparatus typically includes a tower, antenna, ancillary electronic equipment
and earth stations for reception of satellite signals. Headends, consisting of
associated electronic equipment necessary for the reception, amplification and
modulation of signals, are located near the receiving devices. The Company's
distribution system consists primarily of coaxial and fiber optic cables and
related electronic equipment. Subscriber devices consist of decoding
converters. The physical components of cable television systems require
maintenance and periodic upgrading to keep pace with technological advances.
The Company's cables and related equipment are generally attached to
utility poles under pole rental agreements with local public utilities,
although in some areas the distribution cable is buried in underground ducts
or trenches. See "Legislation and Regulation--Federal Regulation."
The Company owns or leases parcels of real property for signal reception
sites (antenna towers and headends), microwave facilities and business offices
in each of its market areas and owns most of its service vehicles. The Company
also leases certain cable, operating and support equipment from a corporation
owned by members of the Rigas Family. All leasing transactions between the
Company and its officers, directors or principal stockholders, or any of their
affiliates, are, in the opinion of management, on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
Substantially all of the assets of Adelphia's subsidiaries are subject
to encumbrances as collateral in connection with the Company's credit
arrangements, either directly with a security interest or indirectly through
a pledge of the stock in the respective subsidiaries. See Note 3 to the
Adelphia Communications Corporation Consolidated Financial Statements. The
Company believes that its properties, both owned and leased, are in good
operating condition and are suitable and adequate for the Company's business
operations.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than routine
litigation incidental to the business, to which the Company or any of its
subsidiaries is a part of or to which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year 1994.
Executive Officers of the Registrant
The executive officers of the Company, first elected to hold their
respective positions on July 1, 1986 following the reorganization of the
Company as a holding company, serve at the discretion of the Board of
Directors. The executive officers of the Company are:
NAME AGE POSITION
John J. Rigas 69 Chairman, Chief Executive Officer,
President and Director
Michael J. Rigas 40 Senior Vice President, Operations
and Director
Timothy J. Rigas 38 Senior Vice President, Chief
Financial Officer, Chief Accounting
Officer,
Treasurer and Director
James P. Rigas 36 Vice President, Strategic Planning
and Director
Daniel R. Milliard 46 Vice President, Secretary and
Director
John J. Rigas is the founder, Chairman, President and Chief Executive
Officer of Adelphia and is President of its subsidiaries. Mr. Rigas has
served as President or general partner of most of the constituent entities
which became wholly-owned subsidiaries of Adelphia upon its formation in
1986, as well as the cable television operating companies acquired by the
Company which were wholly or partially owned by members of the Rigas Family.
Mr. Rigas has owned and operated cable television systems since 1952. Among
his business and community service activities, Mr. Rigas is Chairman of the
Board of Directors of Citizens Bancorp., Inc., Coudersport, Pennsylvania, and
a member of the Board of Directors of Charles Cole Memorial Hospital. He is a
director of the National Cable Television Association and a past President of
the Pennsylvania Cable Television Association. He is also a member of the board
of directors of C-SPAN and the Cable Advertising Bureau, and is a Trustee of
St. Bonaventure University. He graduated from Rensselaer Polytechnic Institute
with a B.S. in Management Engineering in 1950.
John J. Rigas is the father of Michael J. Rigas, Timothy J. Rigas and
James P. Rigas, each of whom currently serves as a director and executive
officer of
the Company.
Michael J. Rigas is Senior Vice President, Operations of Adelphia and
is a Vice President of its subsidiaries. Since 1981, Mr. Rigas has served as
a Vice President, general partner or other officer of the constituent entities
which became wholly-owned subsidiaries of Adelphia upon its formation in 1986,
as well as the cable television operating companies acquired by the Company
which were wholly or partially owned by members of the Rigas Family. From 1979
to 1981, he worked for Webster, Chamberlain & Bean, a Washington, D.C. law
firm. Mr. Rigas graduated from Harvard University (magna cum laude) in 1976 and
received his Juris Doctor degree from Harvard Law School in 1979.
Timothy J. Rigas is Senior Vice President, Chief Financial Officer, Chief
Accounting Officer and Treasurer of Adelphia and its subsidiaries. Since 1979,
Mr. Rigas has served as Vice President, general partner or other officer of the
constituent entities which became wholly-owned subsidiaries of Adelphia upon
its formation in 1986, as well as the cable television operating companies
acquired by the Company which were wholly or partially owned by members of the
Rigas Family. Mr. Rigas graduated from the University of Pennsylvania, Wharton
School, with a B.S. degree in Economics (cum laude) in 1978.
James P. Rigas is Vice President, Strategic Planning of Adelphia and
is a Vice President of its subsidiaries. Since February 1986, Mr. Rigas has
served as a Vice President or other officer of the constituent entities
which became wholly-owned subsidiaries of Adelphia upon its formation in 1986,
as well as the cable television operating companies acquired by the Company
which were wholly or partially owned by members of the Rigas Family. Mr. Rigas
graduated from Harvard University (magna cum laude) in 1980 and received a
Juris Doctor degree and an M.A. degree in Economics from Stanford University
in 1984. From June 1984 to February 1986, he was a consultant with Bain & Co.,
a management consulting firm.
Daniel R. Milliard is Vice President and Secretary of Adelphia and its
subsidiaries, and also serves as President of a subsidiary, Hyperion
Telecommunications, Inc. From 1986 to 1992, Mr. Milliard served as Vice
President, Secretary and/or General Counsel of Adelphia and the constituent
entities which became wholly-owned subsidiaries of Adelphia as well as the
cable television operating companies acquired by the Company which were wholly
or partially owned by members of the Rigas Family. He served as outside
general counsel to the Company's predecessors from 1979 to 1982. Mr. Milliard
graduated from American University in 1970 with a Bachelor of Science degree
in Business Administration. He received an M.A. degree in Business from Central
Missouri State University in 1971, where he was an Instructor in the Department
of Finance, School of Business and Economics, from 1971-1973, and received a
Juris Doctor degree from the
University of Tulsa School of Law in 1976. He is a director of Citizens
Bancorp., Inc. in Coudersport, Pennsylvania and President of the Board of
Directors of Charles Cole Memorial Hospital.
Other Principal Employees
Orby G. Kelley, 62, joined the Company in 1986 as Vice President of Human
Resources. Since 1981, Mr. Kelley served as Vice President Human Resources--
Columbus Operations for Warner Amex Cable Communications, Inc. Prior to that
time he served in a similar capacity for Colony Communications, Inc. and
Landmark Communications, Inc. Mr. Kelley received his B.A. degree from Old
Dominion University in 1958 and his M.B.A. from California Western University
in 1980.
Daniel Liberatore, 43, has been Vice President of Engineering since 1986.
He is responsible for technical operations, engineering and related supervisory
and management functions for the Company Systems. Mr. Liberatore received a
B.S. degree in Electrical Engineering from West Virginia University and served
as director of engineering for Warner Amex Cable Communications, Inc. from June
1982 until joining the Company. From December 1980 to June 1982, Mr. Liberatore
served as a Project Administrator for Warner Amex Cable Communications, Inc.
James R. Brown, 31, joined the Company in 1984 and currently holds the
position of Vice President of Finance. Mr. Brown graduated with a B.S.
degree in Industrial and Management Engineering from Rensselaer Polytechnic
Institute in 1984.
Randall D. Fisher, 42, joined the Company in 1991 and is Vice President,
General Counsel and Assistant Corporate Secretary. Previously Mr. Fisher was
in private practice with the Washington, D.C. law firm of Baraff, Koerner,
Olender & Hochberg, P.C. Mr. Fisher earned his J.D. from Texas Tech University.
He received a Masters Degree in Public Administration from Midwestern
University in Wichita Falls, Texas, and a B.A. degree in Journalism from the
University of Texas at Austin.
Colin H. Higgin, 33, joined the Company in November 1992 as Deputy
General Counsel and Assistant Secretary. Mr. Higgin was an associate at
Proskauer Rose Goetz & Mendelsohn from 1991 to 1992 and Latham & Watkins from
1987 to 1991. Mr. Higgin graduated from the University of Pennsylvania, Wharton
School, with a B.S. degree in Economics (cum laude) in 1983 and received his
J.D. from Indiana University in 1987.
Kathleen S. Mitchell, 46, joined the Company in 1989 and has held senior
accounting and financial management positions. From 1979 to 1988, Ms. Mitchell
was employed by American Television and Communications, Inc. Ms. Mitchell
received her B.A. degree from Mount Holyoke College in 1969 and her M.B.A.
degree from the University of Colorado in 1976.
Michael C. Mulcahey, CPA, 36, has been the Director of Investor Relations
since joining the Company in 1991. From 1987 to 1991, Mr. Mulcahey held
accounting and tax positions with the Syracuse office of Coopers & Lybrand. Mr.
Mulcahey received his B.A. in Political Science from State University of New
York at Buffalo in 1980 and his M.B.A. from Eastern Washington University in
1985.
James M. Kane, CPA, 31, joined the Company in April 1992 and currently
holds the position of Director of Finance. From 1989 to 1992, Mr. Kane
served in accounting and consulting positions with Price Waterhouse in
Pittsburgh. From 1984 to 1987, Mr. Kane served in accounting positions with
Coopers & Lybrand in Pittsburgh. Mr. Kane received his B.S. degree in
Accounting from Pennsylvania State University in 1984 and his M.B.A. from
Carnegie Mellon's Graduate School of Industrial Administration in 1989.
LeMoyne T. Zacherl, 41, joined the Company in November 1993 as Vice
President Financial Operations and Administration. Since 1987 Mr. Zacherl was
a Corporate Controller and member of senior management for Irvin Feld and
Kenneth Feld Productions, Inc., a worldwide entertainment conglomerate. From
1975 to 1987, Mr. Zacherl was with Coopers & Lybrand and served in both the
Pittsburgh, PA and Washington, D.C. offices.
James H. Boso, 46, joined the Company in February 1993 as Vice President
of Operations. Formerly, Mr. Boso was Chief Executive Officer and President of
Spectradyne, Inc., a provider of entertainment services to the lodging
industry. From 1981 to 1989, Mr. Boso was Senior Vice President of Storer
Communications in South Florida.
PART II
Item 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock is listed for trading on the National
Association of Securities Dealers Automated Quotations System National Market
System (NASDAQ-NMS). Adelphia's NASDAQ-NMS symbol is "ADLAC."
The following table sets forth the range of high and low closing bid
prices
of the Class A Common Stock from April 1, 1992 to October 1, 1992, as regularly
quoted in the NASDAQ Small Cap Market, and the range of high and low closing
sale prices of the Class A Common Stock from October 2, 1992 to March 31, 1994,
on NASDAQ/NMS, as applicable. Such bid prices represent inter-dealer
quotations, without retail mark-up, mark-down or commission, and may not
necessarily represent actual transactions.
CLASS A COMMON STOCK
HIGH LOW
QUARTER ENDED:
June 30, 1992.................................. $ 19 $ 14 3/4
September 30, 1992............................. $ 20 $ 15 3/4
December 31, 1992.............................. $ 17 $ 13 1/2
March 31, 1993................................. $ 20 $ 17
June 30, 1993.................................. $ 18 $ 11 1/2
September 30, 1993............................. $ 20 5/8 $ 14
December 31, 1993.............................. $ 26 1/2 $ 16 3/4
March 31, 1994................................. $ 23 1/2 $ 12 3/4
As of June 22, 1994, there were approximately 125 holders of record of
Adelphia's Class A Common Stock. As of June 22, 1994, three record holders were
registered clearing agencies holding Class A Common Stock on behalf of
participants in such clearing agencies.
No established public trading market exists for Adelphia's Class B
Common Stock. As of the date hereof, the Class B Common Stock was held of
record by seven persons, principally members of the Rigas Family, including
a Pennsylvania general partnership all of whose partners are members of the
Rigas Family. The Class B Common Stock is convertible into shares of Class A
Common Stock on a one-to-one basis. As of June 23, 1994 the Rigas Family owned
99.1% of the outstanding Class B Common Stock.
Adelphia has never paid a cash dividend on its common stock and
anticipates that for the foreseeable future any earnings will be retained
for use in its business. The ability of Adelphia to pay cash dividends on
its common stock is limited by the provisions of its indentures. See
"Management's Discussion and Analysis--Liquidity and Capital Resources".
ITEM 6 SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data as of and for each of the five
years in the period ended March 31, 1994 have been derived from the audited
consolidated financial statements of the Company. Results of operations for
the South Dade System are reflected on a consolidated basis up to the date of
transfer (December 19, 1989) of such systems to Olympus.
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED MARCH 31,
1990 1991 1992 1993 1994
STATEMENT OF OPERATIONS DATA:
Revenues................ $ 228,643 $ 248,586 $ 273,630 $ 305,222 $ 319,045
Direct Operating and
Programming............ 63,381 66,007 74,787 82,377 90,547
Selling, General and
Administrative......... 35,326 41,421 44,427 49,468 52,801
Operating Income before
Depreciation
and Amortization....... 129,936 141,158 154,416 173,377 175,697
Depreciation and
Amortization (a)....... 122,107 79,427 84,817 90,406 89,402
Operating Income....... 7,829 61,731 69,599 82,971 86,295
Interest Income from
Affiliates............. 933 1,596 3,085 5,216 9,188
Other Income (Expense).. 122 1,750 968 1,447 (299)
Priority Investment In-
come (b)............... 9,797 19,175 22,300 22,300 22,300
Interest Expense........ (150,263) (163,637) (164,839) (164,859) (182,136)
Equity in Net Loss of
joint ventures......... (25,357) (61,975) (52,718) (46,841) (30,054)
Loss before Income
Taxes, Extraordinary
Loss and Cumulative
Effect of Change in
Accounting Principle(c) (156,939) (141,360) (121,605) (99,766) (94,706)
Income Tax Expense...... -- -- -- (3,143) (2,742)
Extraordinary Loss (c).. -- -- -- (14,386) (752)
Cumulative Effect of
Change in
Accounting Principle(c) -- -- -- (59,500) (89,660)
Net Loss.............. $(156,939) $(141,360) $(121,605) $(176,795) $(187,860)
Loss per Share of Common
Stock before Income
Taxes, Extraordinary
Loss and Cumulative
Effect of Change in
Accounting Principle... $ (11.36) $ (10.03) $ (8.80) $ (6.80) $ (5.66)
Net Loss per Share of
Common Stock........... $ (11.36) $ (10.23) $ (8.80) $ (11.68) (10.91)
Cash Dividends Declared
per Common Share....... -- -- -- -- --
EBITDA (d).............. $ 140,788 $ 163,679 $180,769 $ 202,340 $ 207,936
YEAR ENDED MARCH 31,
1990 1991 1992 1993 1994
BALANCE SHEET DATA:
Cash and Cash
Equivalents........ $ 15,287 $ 18,592 $ 11,173 $ 38,671 $ 74,075
Investment in and
Amounts Due from
Olympus (e)........ 87,337 79,030 64,972 7,692 9,977
Total Assets........ 971,792 981,960 925,791 949,593 1,073,846
Total Debt.......... 1,355,330 1,495,025 1,554,270 1,731,099 1,793,711
Debt Net of Cash (f) 1,340,043 1,476,433 1,543,097 1,692,428 1,719,636
Stockholders' Equity
(Deficiency)....... (450,579) (591,939) (713,544) (868,614)(1,918,064)
(a) Reflects an increase in the estimated useful lives of certain intangible
assets effective January 1990. See Note 1 to the Adelphia Communications
Corporation Consolidated Financial Statements.
(b) The Company's return on its priority investment in Olympus is based on a
16.5% return on its nonvoting PLP Interests, although the Company recognizes
priority investment income only to the extent received. At March 31, 1994
$105,212,000 accumulated priority return remained unpaid.
(c) "Extraordinary loss" relates to loss on the early retirement of debt.
"Cumulative Effect of Change in Accounting Principle" refers to a change in
accounting principle for Olympus and the Company. Effective January 1, 1993 and
April 1, 1993, respectively, Olympus and the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109), which requires an asset and liability approach for financial
accounting and reporting for income taxes. SFAS 109 resulted in the cumulative
recognition of an additional liability by Olympus and the Company of
$59,500,000 and $89,660,000, respectively.
(d) Earnings before interest, income taxes, depreciation and amortization,
equity in net loss of Olympus, other noncash charges, extraordinary loss and
cumulative effect of change in accounting principle. The use of the term
"EBITDA" is consistent with the use of the same term in the indentures for the
Company's parent company public debt. EBITDA and similar measurements of
cash flow are commonly used in the cable television industry to analyze and
compare cable television companies on the basis of operating performance,
leverage and liquidity.
(e) Investment in and amounts due from Olympus at March 31, 1994 is comprised
of the following:
Gross Investment in PLP Interests and General Partner's
Equity................................................. $298,402,000
Excess of Ascribed Value of Contributed Property over
Historical Cost....................................... (98,303,000)
Cumulative Equity in Net Loss of Olympus............... (276,060,000)
Investments in Olympus................................. (75,961,000)
Amounts due from Olympus................................ 85,938,000
Total................................................ 9,977,000
(f) Total debt less cash and cash equivalents.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Regulatory and Competitive Matters
The cable television operations of the Company may be adversely affected
by changes and developments in governmental regulation, competitive forces and
technology. The cable television industry and the Company are subject to
extensive regulation at the federal, state and local levels. Many aspects of
such regulation are currently the subject of judicial proceedings and
administrative or legislative proceedings or proposals. On October 5, 1992,
Congress passed the 1992 Cable Act, which significantly expands the scope of
regulation of certain subscriber rates and a number of other matters in the
cable industry, such as mandatory carriage of local broadcast stations and
retransmission consent, and which will increase the administrative costs of
complying with such regulations. The FCC has adopted rate regulations that
establish, on a system-by-system basis, maximum allowable rates for (i) basic
and cable programming services (other than programming offered on a per-channel
or per-program basis), based upon a benchmark methodology, and (ii) associated
equipment and installation services based upon cost plus a reasonable profit.
Under the FCC rules, franchising authorities are authorized to regulate rates
for basic services and associated equipment and installation services, and the
FCC will regulate rates for regulated cable programming services in response
to complaints filed with the agency. The original rate regulations became
effective on September 1, 1993. Amendments to the rate regulations became
effective May 15, 1994. The FCC ordered an interim rate freeze effective April
5, 1993 which was extended through May 15, 1994.
The original rate regulations required a reduction of existing rates
charged for basic services and regulated cable programming services to the
greater of (i) the applicable benchmark level or (ii) the rates in force as of
September 30, 1992, reduced by 10%, adjusted forward for inflation. The
amended regulations will generally require a reduction of up to 17 percent from
the rates for regulated services in force as of September 30, 1992, adjusted
forward for inflation and certain other factors. Rate reductions are not
required to the extent that a cable operator at its option elects to use an
alternative cost-of-service methodology and shows that rates for basic and
cable programming services are reasonable. The FCC has adopted interim rules
to govern cost-of-service showings by cable operators. Refunds with interest
will be required to be paid by cable operators who are required to reduce
regulated rates after September 1, 1993, calculated retroactively from the date
of a local franchising authority's decision with regard to basic rates, and
from the date a complaint is filed with the FCC with regard to the rates
charged for regulated programming services. The FCC has reserved the right to
reduce or increase the benchmarks it has established. The rate regulations
will also limit future increases in regulated rates to an inflation indexed
amount plus increases above the inflation index 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. 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 most of the requirements of
the 1992 Cable Act and is in the process of completing certain additional
rulemaking proceedings before the 1992 Cable Act can be fully implemented. As
noted above, amendments to the rate regulations were recently announced and the
FCC is also likely to continue to modify, clarify or refine the rate
regulations and benchmark methodology. In addition, litigation has been
instituted challenging various portions of the 1992 Cable Act and the
rulemaking proceedings including the rate regulations. The Company cannot
predict the effect or outcome of the future rulemaking proceedings, changes to
the rate regulations, or litigation. Further, because the FCC has only
recently issued its interim rules and has not adopted final cost-of-service
rules, the Company has not determined to what extent it will be able to utilize
cost-of-service showings to justify rates.
Effective as of September 1, 1993, in accordance with the 1992 Cable Act,
the Company repackaged certain existing cable services by adjusting rates for
basic service and introduced a new method of offering certain cable services.
The Company adjusted the basic service rates and related equipment and
installation rates in all of its systems in order for such rates to be in
compliance with the applicable benchmark or equipment and installation cost
levels. The amended rules may require further adjustments to the Company's
rates. The Company also implemented a program in all of its systems called
"CableSelect" under which most of the Company's satellite-delivered programming
services are now offered individually on a per channel basis, or as a group at
a price of approximately 15% to 20% below the sum of the per channel prices of
all such services. For subscribers who elect to customize their channel
lineup, the Company will provide, for a monthly rental fee, an electronic
device located on the cable line outside the home, enabling a subscriber's
television to receive only those channels selected by the subscriber. These
basic service rate adjustments and the CableSelect program have also been
implemented in all systems managed by the Company. The Company believes
CableSelect provides increased programming choices to the Company's subscribers
while providing flexibility to the Company to respond to future changes in
areas such as customer demand and programming. Certain programmers have taken
the position that the Company's new method of offering services is inconsistent
with their programming agreements. The Company disagrees and is in discussions
with these programmers. Revenues from regulated programming services and
equipment, and revenues from CableSelect services per subscriber for the
quarter ended December 31, 1993 (the first full quarter reflecting the impact
of the implementation of rate regulations on September 1, 1993) declined 3.0%
compared to the quarter ended June 30, 1993 (the last quarter not impacted by
the implementation of rate regulations on September 1, 1993). The decline in
revenue was partially offset by increases in prices for HBO, Cinemax, TMC,
Disney, Showtime, and Prism; and by increases in the average number of basic
subscribers. A letter of inquiry, one of at least 63 sent by the FCC to
numerous cable operators, was received by an Olympus System regarding the
implementation of this new method of offering services. The Company has
responded in writing to the FCC's inquiry.
As part of its reconsideration of the original rate regulations, the FCC
has established guidelines for evaluating such "a la carte" packages on a case-
by-case basis based on a number of factors. The FCC has indicated that "a la
carte" packages which are determined to be evasions of rate regulations rather
than true enhancements of subscriber choice will be treated as regulated tiers,
and cable operators engaging in such practices may be subject to fines and/or
further rate adjustments. The Company is examining its a la carte packages and
may modify certain packages in light of these guidelines.
The Company is currently unable to predict the effect that the amended
regulations, future FCC treatment of "a la carte" packages or other future FCC
rulemaking proceedings will have on its business and results of operations in
future periods. No assurance can be given at this time that such matters will
not have a material negative financial impact on the Company's business and
results of operations in the future. Also, no assurance can be given as to
what other future actions Congress, the FCC or other regulatory authorities may
take or the effects thereof on the Company.
Cable television companies operate under franchises granted by local
authorities which are subject to renewal and renegotiation from time to time.
Because such franchises are generally non-exclusive, there is a potential for
competition with the Systems from other operators of cable television systems,
including public systems operated by municipal franchising authorities
themselves, and from other distribution systems capable of delivering
television programming to homes. The 1992 Cable Act contains provisions which
encourage competition from such other sources. Additionally, recent court and
administrative decisions have removed certain of the restrictions that have
limited entry into the cable television business by potential competitors such
as telephone companies, and proposals now under consideration by the FCC, and
which are being and from time to time have been considered by Congress, could
result in the elimination of other such restrictions. The Company cannot
predict the extent to which competition will materialize from other cable
television operators, other distribution systems for delivering television
programming to the home, or other potential competitors, or, if such
competition materializes, the extent of its effect on the Company.
FCC rules permit local telephone companies to offer "video dialtone"
service for video programmers, including channel capacity for the carriage of
video programming and certain non-common carrier activities such as video
processing, billing and collection and joint marketing agreements. On December
15, 1992, New Jersey Bell Telephone Company filed an application with the FCC
to operate a "video dialtone" service in portions of Dover County, New Jersey,
in which the Company serves approximately 20,000 subscribers. The Company
opposed the application. On July 28, 1993, the FCC sent a letter to New Jersey
Bell stating that the application appeared to be inconsistent with the FCC's
video dialtone requirements in that insufficient capacity to serve multiple
programmers was to be made available. New Jersey Bell was given the
opportunity to amend its application, which it subsequently did. The Company
then filed a further opposition to the application. The matter has not yet
been decided by the FCC.
On December 17, 1992, the Chesapeake and Potomac Telephone Company of
Virginia and Bell Atlantic Video Service Company ("Bell Atlantic Video") filed
suit in U.S. District Court in Alexandria, Virginia seeking to declare
unconstitutional the provisions in the 1984 Cable Act that prohibit telephone
companies from owning cable television systems in their telephone service
areas. On August 24, 1993, the court held that the 1984 Cable Act cross-
ownership provision is unconstitutional, and it issued an order enjoining the
FCC from enforcing the cross-ownership ban. The U.S. Justice Department has
appealed this decision to the U.S. Court of Appeals for the Fourth Circuit.
Similar suits have been filed in other federal district courts. On June 15,
1994, the United States District Court for the Western District Court of
Washington also struck down the cross-ownership ban on first amendment grounds.
In addition, legislation which would alter or eliminate the cross-ownership ban
is under active consideration in Congress.
The Company cannot predict the outcome of the New Jersey Bell video
dialtone proceeding or the cross-ownership ban litigation. However, the
Company believes that the provision of video programming by telephone companies
with considerable financial resources 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 magnitude of any such
effect is not known or estimable. For further discussion of regulatory and
competitive matters see "Business - Competition" and "Legislation and
Regulation".
Results of Operations
General
The Company earned substantially all of its revenues in each of the past
three fiscal years from monthly subscriber fees for basic, satellite, premium
and ancillary services (such as installations and equipment rentals), local and
national advertising sales, pay-per-view programming and home shopping
networks.
The Company has achieved average annual growth in revenues of 8.3% during
the past two fiscal years and average annual growth in operating income before
depreciation and amortization of 6.9% during the same period. Revenues
increased 4.5% in fiscal 1994 and 11.5% in fiscal 1993. These increases
resulted primarily from internal subscriber growth and rate increases. The
Company has not completed any material acquisitions since August 1989.
Operating expenses increased significantly during the past two years; however,
operating margins (the percentage representing operating income before
depreciation and amortization divided by revenues) remained relatively
unchanged at 55.1% for the year ended March 31, 1994, 56.8% for the year ended
March 31, 1993 and 56.4% for the year ended March 31, 1992.
The high level of (i) depreciation and amortization associated with prior
acquisitions and the upgrading and expansion of systems and (ii) interest costs
associated with financing activities will continue to have a negative impact
on the reported results of operations. Significant charges for depreciation,
amortization and interest are expected to be incurred in the future by the
Olympus joint venture, which will also impact the Company's future results of
operations. The Company expects to report net losses for the next several
years.
The Company currently offers competitive access telecommunications
services through a subsidiary, Hyperion Telecommunications, Inc. ("Hyperion").
Since Hyperion's formation in October 1992, it has formed operating companies
or entered into joint venture partnerships to develop and operate competitive
access networks in eight metropolitan areas. Hyperion's revenues since
inception are insignificant and correspondingly the investment in Hyperion
resulted in a reduction in the Company's operating income before depreciation
and amortization for fiscal year 1994 and 1993 of approximately $1,459,000 and
$900,000, respectively. The equity in net loss of Hyperion's joint venture
partnerships amounted to $386,870 for the period from inception through March
31, 1994.
The following table is derived from the Adelphia Communications
Corporation Consolidated Financial Statements for the periods presented that
are included in this Form 10-K and sets forth the historical percentage
relationship of the components of operating income contained in such financial
statements for the periods indicated.
PERCENTAGE OF REVENUES
FOR YEAR ENDED MARCH 31,
1994 1993 1992
Revenues....................... 100.0% 100.0% 100.0%
Operating expenses:
Direct operating and pro-
gramming...................... 28.4 27.0 27.3
Selling, general and ad-
ministrative.................. 16.5 16.2 16.2
Operating income before
depreciation and amortization. 55.1 56.8 56.4
Depreciation and amortization.. 28.0 29.6 31.0
Operating income............... 27.1% 27.2% 25.4%
Comparison of Years Ended March 31, 1994, 1993, and 1992
Revenues. Revenues increased 4.5%, and 11.5% for the years ended March
31, 1994 and 1993, respectively. Approximately 93% of such increase for fiscal
1994 and 90% of such increase for fiscal 1993 were attributable to basic
subscriber growth and rate increases, with the remainder primarily attributable
to the expansion of advertising sales and other services. Revenues for fiscal
1994 reflect the repackaging and adjustment of equipment and installation
charges in July 1993 and rates for basic services and certain other satellite
programming services under CableSelect effective September 1, 1993. In
addition fiscal 1994 revenues were subject to the FCC rate freeze. Increases
in total revenues were partially offset by a lower premium penetration rate,
which caused premium service revenues to remain relatively constant compared
to the respective prior year.
Direct Operating and Programming Expenses. Direct operating and
programming expenses, which are mainly basic and premium programming costs and
technical expenses, increased in each of the years ended March 31, 1994 and
1993, primarily due to increased costs of providing programming to subscribers
and incremental costs associated with increased subscribers and revenues.
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 in each of
the years ended March 31, 1994 and 1993. The increases were primarily due to
incremental costs associated with increased subscribers and revenues and, for
fiscal 1994, increased costs related to the implementation of the 1992 Cable
Act and regulations thereunder. As a percentage of revenues, such expenses
remained relatively constant for the years ended March 31, 1994 and 1993,
compared to the prior years.
Operating Income Before Depreciation and Amortization. Operating income
before depreciation and amortization was $175,697,000, $173,377,000 and
$154,416,000 for the years ended March 31, 1994, 1993 and 1992, respectively,
representing operating margins of 55.1%, 56.8% and 56.4%, respectively. The
increases in operating income before depreciation and amortization for the
years ended March 31, 1994 and 1993 were primarily attributable to increased
revenues partially offset by increased operating expenses. This increase was
also offset by the Company's investment, through Hyperion, in the competitive
access business, which resulted in an approximately $1,459,000 and $900,000
reduction in operating income before depreciation and amortization for fiscal
1994 and 1993, respectively.
Depreciation and Amortization. Depreciation and amortization expense was
higher for the years ended March 31, 1994 and 1993, compared to fiscal 1992,
primarily due to capital expenditures made during fiscal 1994 and 1993. As a
percentage of revenues, such expenses decreased for the years ended March 31,
1994 and 1993, compared to each respective prior year, primarily due to
increased revenues.
Priority Investment Income. Priority investment income is comprised of
payments received from Olympus of accrued priority return on the Company's
investment in PLP Interests in Olympus. The Company recognizes priority
investment income only to the extent received. Priority investment income
remained constant for the years ended March 31, 1994 and 1993 compared to the
prior years.
EBITDA. EBITDA amounted to $207,936,000, $202,340,000 and $180,769,000
for the years ended March 31, 1994, 1993 and 1992, respectively. The increases
in EBITDA for the years ended March 31, 1994 and 1993 were primarily
attributable to increased revenues, partially offset by increased operating
expenses. EBITDA and similar measures of cash flow are commonly used in the
cable television industry to analyze and compare cable television companies on
the basis of operating performance, leverage and liquidity.
Interest Expense. Interest expense increased during fiscal 1994 compared
to the prior year due primarily to higher levels of debt outstanding and the
refinancing of short-term floating rate debt with long-term fixed rate debt
during fiscal 1993 and 1994. Interest expense remained relatively constant for
the year ended March 31, 1993 primarily as a result of a reduction in the
weighted average interest rate paid to banks since March 31, 1992, offset by
increased interest expense on incremental borrowings. Interest expense includes
$1,680,000, $164,000 and $35,602,000 for the years ended March 31, 1994, 1993
and 1992, respectively, of non-cash accretion of original issue discount and
noncash interest expense.
Equity in Net Loss of Olympus. The equity in net loss of Olympus
represents the Company's pro rata share of Olympus' net losses and the
accretion requirements of Olympus' redeemable limited partner interests. The
decrease in equity in net loss of Olympus prior to the cumulative effect of its
change in accounting principle for the years ended March 31, 1994 and 1993,
compared to the prior years, is primarily attributable to a decrease in the net
loss of Olympus during such period.
Net Loss. The Company reported net losses of $187,860,000, $176,795,000
and $121,605,000 for the years ended March 31, 1994, 1993 and 1992,
respectively. The Company reported loss before income tax, extraordinary loss
and cumulative effect of change in accounting principle of $94,706,000,
$99,766,000 and $121,605,000 for the years ended March 31, 1994, 1993 and 1992,
respectively. This reduction for the years ended March 31, 1994 and 1993 was
primarily due to an increase in revenues. In 1993 the increase in net loss was
primarily due to the cumulative effect of change in accounting principle by
Olympus and to the extraordinary loss recorded in 1993 for the early
extinguishment of debt. The increase in net loss for fiscal 1994 was primarily
due to the cumulative effect of the change in accounting principle for the
Company. (See "Recent Accounting Pronouncements" below.) Effective January 1,
1993 and April 1, 1993, Olympus and the Company, respectively, adopted the
provisions of SFAS 109 which requires an asset and liability approach for
financial accounting and reporting for income taxes. SFAS 109 resulted in the
cumulative recognition of an additional liability of $59,500,000 and
$89,660,000 by Olympus and the Company, respectively.
Liquidity and Capital Resources
The cable television business is capital intensive and typically requires
continual financing for the construction, modernization, maintenance, expansion
and acquisition of cable systems. During the three fiscal years in the period
ended March 31, 1994, the Company committed substantial capital resources for
these purposes and for investments in Olympus and other affiliates and
entities. These expenditures were funded through long-term borrowings and, to
a lesser extent, internally generated funds. The Company's ability to generate
cash to meet its future needs will depend generally on its results of
operations and the continued availability of external financing.
Capital Expenditures. The Company has developed an innovative
fiber-to-feeder network architecture which is designed to increase channel
capacity and minimize future capital expenditures, while positioning the
Company to take advantage of future opportunities. Management believes its
capital expenditures program has resulted in higher levels of channel capacity
and addressability in comparison to other cable television operators.
Capital expenditures for the years ended March 31, 1994, 1993 and 1992,
were $75,894,000, $70,975,000 and $52,808,000, respectively. An additional
$7,186,000 and $8,742,000 in support equipment was acquired and financed
through capitalized lease obligations during the years ended March 31, 1994 and
1993, respectively. The increase in capital expenditures for fiscal 1994 and
1993, compared to each prior year, was primarily due to the acceleration of the
rebuilding of plant using fiber-to-feeder technology, the upgrading of the
corporate computer system for better management information services, the
purchase of support equipment, renovation costs related to the corporate office
building, and expenditures related to faster than expected growth of the
Company's competitive access tele- communications subsidiary, Hyperion
Telecommunications, Inc. Management expects capital expenditures for fiscal
1995 to approximate those in fiscal 1994.
Olympus. During the fiscal year ended March 31, 1992, the Company made
an equity investment of $32,100,000 in Olympus, and during the fiscal years
ended March 31, 1994 and 1993, the Company made advances of $16,554,000 and
$49,061,000, respectively, to Olympus. Such investments provided funds for
capital expenditures, the repayment of debt and working capital. In addition,
the Company's investment in Olympus increased by $15,400,000 in connection with
the purchase by the Company from Olympus of rights to provide alternate access
services in Olympus' franchise areas and an investment in an unaffiliated
partnership. During the fiscal years ended March 31, 1994, 1993 and 1992, the
Company received priority investment income from Olympus of $22,300,000,
$22,300,000 and $22,300,000, respectively. Future investments by the Company
in Olympus are subject to certain limitations under the indentures for the
Company's parent company public debt.
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. The Company's ability
to generate cash adequate to meet its future needs will depend generally on its
results of operations and the continued availability of external financing.
During the three-year period ended March 31, 1994, the Company funded its
working capital requirements, capital expenditures, investments in Olympus and
other affiliates and entities and the redemption of the 16.5% Senior Discount
Notes and 13% Senior Subordinated Notes through long-term borrowings primarily
from banks and insurance companies, short-term borrowings, internally generated
funds and the issuance of parent company public debt and equity. The Company
generally has funded the principal and interest obligations on its long-term
borrowings from banks and insurance companies by refinancing the principal with
new loans or through the issuance of parent company debt securities, and by
paying the interest out of internally generated funds. Adelphia has funded the
interest obligations on its public borrowings from internally generated funds.
Most of Adelphia's directly-owned subsidiaries have their own senior
credit agreements with banks and/or insurance companies. Typically, borrowings
under these agreements are collateralized by the stock in and, in some cases,
by the assets of the borrowing subsidiary and its subsidiaries and, in some
cases, are guaranteed by such subsidiary's subsidiaries. At March 31, 1994, an
aggregate of $718,875,000 in borrowings was outstanding under these agreements.
These agreements contain certain provisions which, among other things, provide
for limitations on borrowings of and investments by the borrowing subsidiaries,
transactions between the borrowing subsidiaries and Adelphia and its other
subsidiaries and affiliates, and the payment of dividends and fees by the
borrowing subsidiaries. Several of these agreements also contain certain
cross-default provisions relating to Adelphia or other subsidiaries. These
agreements also require the maintenance of certain financial ratios by the
borrowing subsidiaries. In addition, at March 31, 1994, an aggregate of
$152,000,000 in subordinated and unsecured borrowings by Adelphia's
subsidiaries was outstanding under credit agreements containing limitations and
restrictions similar to those mentioned above. See Note 3 to the Adelphia
Communications Corporation Consolidated Financial Statements. The Company is
in compliance with the financial covenants and related financial ratio
requirements contained in its various credit agreements, based on operating
results for the period ended March 31, 1994.
At March 31, 1994, Adelphia's subsidiaries had an aggregate of
$143,000,000 in unused credit lines with banks, part of which is subject to
achieving certain levels of operating performance. In addition, the Company had
an aggregate $74,075,000 in cash and cash equivalents at March 31, 1994 which
combined with the Company's unused credit lines with banks aggregated to
$217,075,000. Based upon the results of operations of subsidiaries for the
quarter ended March 31, 1994, approximately $239,000,000 of available assets
could have been transferred to Adelphia at March 31, 1994, under the most
restrictive covenants of the subsidiaries' credit agreements. The subsidiaries
also have the ability to sell, dividend or distribute certain assets to other
subsidiaries or Adelphia, which would have the net effect of increasing
availability. At March 31, 1994, the Company's unused credit lines were
provided by reducing revolving credit facilities whose revolver periods expire
on April 1, 1994 through March 31, 1999. The Company's scheduled maturities of
debt are currently expected to total $17,790,000 for the fiscal year 1995.
At March 31, 1994, the interest rates on floating rate notes issued by
the Company's subsidiaries to banks ranged from LIBOR plus 1.0% to LIBOR plus
1.5%. The Company's subsidiaries' weighted average interest rate on notes to
banks and institutions was 8.91% at March 31, 1994, with approximately 70.8%
of such debt subject to fixed rates for over one year under the terms of such
notes or interest swap agreements at March 31, 1994.
On May 14, 1992, Adelphia completed offerings of $400,000,000 aggregate
principal amount of unsecured 12 1/2% Senior Notes Due 2002 and of 1,500,000
shares of its Class A Common Stock. The 12 1/2% Notes, which are effectively
subordinated to all liabilities of Adelphia's subsidiaries, were issued
pursuant to an indenture containing certain restrictions on, among other
things, the incurrence of indebtedness, mergers and sales of assets, the
payment of dividends on or the repurchase of capital stock and subordinated
debt of Adelphia, certain other restricted payments by Adelphia and certain
transactions with and investments in affiliates and unrestricted subsidiaries.
The shares of Class A Common Stock were sold at a public offering price of
$15.00 per share, including 750,000 of such shares which were purchased at the
public offering price by certain members of the Rigas Family. The net proceeds
from these offerings were approximately $389,000,000 for the offering of the
12 1/2% Notes and $21,700,000 for the offering of the Class A Common Stock. On
July 1, 1992, $260,000,000 of such net proceeds was used for the redemption of
all outstanding 16 1/2% Senior Discount Notes, at 104% of par.
On September 10, 1992, Adelphia completed an offering of $125,000,000
aggregate principal amount of 11 7/8% Senior Debentures Due 2004. The 11 7/8%
Debentures, which are effectively subordinated to all liabilities of Adelphia's
subsidiaries, were issued pursuant to an indenture containing certain
restrictions substantially the same as the Indenture for 12 1/2% Notes. The net
proceeds from this offering were approximately $120,600,000.
On March 11, 1993, Adelphia completed the placement of $130,000,000
aggregate principal amount of 9 7/8% Senior Debentures Due 2005. The 9 7/8%
Debentures, which are effectively subordinated to all liabilities of Adelphia's
subsidiaries, were issued pursuant to an indenture containing certain
restrictions substantially the same as the indenture for the 11 7/8%
Debentures. The net proceeds from this placement were approximately
$125,307,000. The 9 7/8% Debentures were the subject of an exchange offer,
completed in July 1993, of substantially identical 9 7/8% Senior Debentures,
Series B that were registered under the Securities Act of 1933.
On July 28, 1993, Adelphia completed the placement of $110,000,000
aggregate principal amount of 10 1/4% Senior Notes Due 2000, Series A. The 10
1/4% Notes, which are effectively subordinated to all liabilities of Adelphia's
subsidiaries, were issued pursuant to an indenture containing certain
restrictions substantially the same as the 9 7/8% Debentures. The net proceeds
from this placement were approximately $106,961,000. The 10 1/4% Notes were the
subject of an exchange offer, completed in February 1994, of substantially
identical 10 1/4% Notes, Series B, that were registered under the Securities
Act of 1933.
On January 14, 1994, Adelphia completed a public offering of 9,132,604
shares of Class A Common Stock (the "Stock Offering"), which included 300,000
shares of Class A Common Stock sold to the underwriter in the Stock Offering
pursuant to an over-allotment option. Upon completion of the Stock Offering,
there were 13,507,604 shares of Class A Common Stock outstanding and a total
of 24,452,080 shares of Class A Common Stock and Class B Common Stock
outstanding. The net proceeds from the Stock Offering of $156,579,000 or
$17.145 per share were used to redeem all of the Company's outstanding Senior
Subordinated Notes and to reduce bank debt of Adelphia's subsidiaries. Of the
9,132,604 shares of Class A Common Stock sold in the Stock Offering, 3,300,000
shares were sold to the public at $18.00 per share and 5,832,604 shares were
sold directly by Adelphia to partnerships controlled by members of the Rigas
Family, at the public offering price less the underwriting discount. Highland
Holdings and Syracuse Hilton Head
Holdings, L.P., which purchased 4,374,453 and 1,458,151 of such 5,832,604
shares, respectively, hold and control the Managed Systems.
On February 22, 1994, the Company issued, in a private placement,
$150,000,000 aggregate principal amount of 9 1/2% Senior Pay-In-Kind Notes Due
2004, Series A. The net proceeds from the 9 1/2% Notes of approximately
$147,000,000 were used to repay outstanding bank debt of subsidiaries in order
to extend the scheduled maturities of the Company's long-term debt. The 9 1/2%
Notes were issued pursuant to an indenture containing certain restrictions
substantially the same as the Indenture for the 10 1/4% Notes. On May 4, 1994,
pursuant to an exchange offer the Company completed the exchange of
$127,385,000 aggregate principal amount of 9 1/2% Notes, Series B, registered
under the Securities Act of 1933, for an equal principal amount of 9 1/2%
Notes, Series A, tendered by the holders thereof. Also, on May 4, 1994, the
Company completed the private exchange of $22,615,000 aggregate principal
amount of 9 1/2% Notes, Series B for 9 1/2% Notes, Series A held by the initial
purchaser thereof.
During the year ended March 31, 1994, the Company made loans in the net
amount of $20,000,000 to Managed Partnerships, to facilitate the acquisition
of cable television systems serving Palm Beach County, Florida from unrelated
parties. As of March 31, 1994, $15,000,000 was outstanding. In addition,
during the year ended March 31, 1994, the Company made advances in the net
amount of $7,828,000 to other related parties primarily for capital
expenditures and working capital purposes. On September 29, 1993, the Board of
Directors of the Company authorized the Company to make loans in the future to
Highland Video Associates, L.P. ("Highland") and Syracuse Hilton Head Holdings,
L.P. ("SHHH") up to an amount of $25,000,000 for each. On October 6, 1993,
Adelphia purchased the 14% preferred Class B Limited Partnership Interest in
SHHH for $18,338,000 from Robin Media Group, an unrelated party. SHHH is a
joint venture of the Rigas Family and Tele-Communications, Inc., whose
interests in SHHH are junior to Adelphia's. SHHH and Highland comprise the
Managed Partnerships and own the cable systems managed by the Company for fees.
During the year ended March 31, 1993, concurrent with Olympus's
redemption of $6,500,000 in limited partner interests, Adelphia converted 6.5
general partner units to PLP interests, thereby maintaining 50% of the
outstanding general partner and limited partner voting units of Olympus. At
March 31, 1994, 1993 and 1992, Adelphia owned $276,101,000, $276,101,000 and
$269,601,000 in Olympus PLP Interests, respectively.
On March 10, 1994, the Company purchased a 75% equity interest in Three
Rivers Cable Associates, L.P. ("TR") for $6,000,000. TR serves approximately
15,000 subscribers in Ohio and 3,000 subscribers in Pennsylvania, which are
contiguous with existing Company owned systems. Adelphia has also committed
to provide a fully collateralized $18,000,000 line of credit, similar to that
which would be available to TR had it borrowed such monies from a commercial
bank. At March 21, 1994, there were outstanding borrowings of $14,859,246
under this agreement.
On March 31, 1994, Adelphia acquired from Olympus the rights to provide
alternative access in its respective franchise areas and an investment in the
Sunshine Network, L.P. for a purchase price of $15,500,000. The purchase price
of the assets resulted in a reduction of amounts due Adelphia of $15,500,000.
Also, on March 31, 1994, Adelphia acquired from certain Managed Partnerships
the rights to provide alternative access in their respective franchise areas
for a purchase price of $14,000,000. Additionally, on March 31, 1994, Adelphia
purchased real property from Dorellenic and Island Partners, L.P., partnerships
owned by certain executive officers of the Company, for a total of $14,312,000.
On April 12, 1994, Adelphia acquired a 34% equity interest in Niagara
Frontier Hockey, L.P., which owns the Buffalo Sabres National Hockey League
franchise, for a purchase price of $15,000,000; $7,500,000 of which was paid
on April 12, 1994 and the remainder to be paid in four installments over the
next year. On May 12, 1994, the Company invested $3,000,000 in SuperCable ALK
International, a cable operator in Caracas, Venezuela.
On May 27, 1994, Adelphia signed a letter of intent to increase the
overall investment of it and the companies it manages (the "Adelphia Group")
in cable systems held by Tele-Media Investment Partnership, L.P. ("TMIP"). The
letter of intent provides that, subject to various conditions, including the
availability of bank financing, the Adelphia Group invest between $63,000,000
and $75,000,000 in TMIP. Adelphia and TMIP will hold interests in or provide
management services to cable systems serving approximately 330,000 subscribers.
See Note 11 to the Adelphia Communications Corporation Consolidated Financial
Statements.
The Company plans to continue to explore and consider new commitments,
arrangements or transactions to refinance existing debt, increase the Company's
liquidity or decrease the Company's leverage. These could include, among other
things, the future issuance by Adelphia of public or private equity or debt and
the negotiation of new or amended credit facilities. These could also include
entering into acquisitions, joint ventures or other investment or financing
activities, although no assurance can be given that any such transactions will
be consummated. The Company's ability to borrow under current credit facilities
and to enter into refinancings and new financings is limited by covenants
contained in Adelphia's indentures and its subsidiaries' credit agreements,
including covenants under which the ability to incur indebtedness is in part
a function of applicable ratios of total debt to cash flow.
The Company believes that cash and cash equivalents, internally generated
funds, borrowings under 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, is in a period of consolidation
characterized by mergers, joint ventures, acquisitions, sales of all or part
of cable companies or their assets, and other partnering and investment
transactions of various structures and sizes involving cable or other
telecommunications companies. The Company continues to evaluate new
opportunities that allow for the expansion of its business through the
acquisition of additional cable television systems in geographic proximity to
its existing regional markets or in locations that can serve as a basis for new
market areas. Management also believes that the Company is well positioned to
participate in this consolidation trend due to its well-clustered cable
systems, the quality of its cable plant, its management strengths and its
relationships within the cable industry. The Company, like other cable
television companies, has participated from time to time and is participating
in preliminary discussions with third parties regarding a variety of potential
transactions, and the Company has considered and expects to continue to
consider and explore potential transactions of various types with other cable
and telecommunications companies. However, except as otherwise stated herein,
the Company has not reached any agreements, in principal or otherwise, with
respect to any material transaction and no assurances can be given as to
whether any such transaction may be consummated or, if so, when.
Recent Accounting Pronouncements. SFAS 109, "Accounting for Income
Taxes," requires an asset and liability approach for financial accounting and
reporting for income taxes. Effective January 1, 1993 and April 1, 1993,
respectively, Olympus and the Company adopted the provisions of SFAS 109. The
adoption of SFAS 109 resulted in the cumulative recognition of an additional
liability by Olympus and the Company of $59,500,000 and $89,660,000,
respectively.
Inflation
In the three fiscal years ended March 31, 1994, inflation did not have
a significant effect on the Company. Periods of high inflation could have an
adverse effect to the extent that increased borrowing costs for floating-rate
debt may not be offset by increases in subscriber rates. At March 31, 1994,
approximately $254,375,000 of the Company's total long-term debt was subject
to floating interest rates.
Olympus
The Company serves as the managing general partner of Olympus and, as of
December 31, 1992, held $16,500,000 of voting general partnership interests
representing, in the aggregate, 50% of the voting equity of Olympus. The
Company also held, as of December 31, 1992, $269,601,000 aggregate principal
amount of nonvoting PLP Interests in Olympus, which entitle the Company to a
16.5% per annum priority return, and nonvoting special limited partnership
interests. Unpaid priority return on the PLP Interests accrues additional
return at the rate of 18.5% per annum. At March 31, 1994, $105,212,000 of
priority return remained unpaid and the Company had outstanding advances to
Olympus of $85,938,000.
The remaining equity in Olympus consists of voting limited partnership
interests held by unaffiliated third parties who sold cable television system
assets to Olympus in partial consideration for such limited partnership
interests. At December 31, 1992, these interests included (i) $10,000,000 of
redeemable limited partnership interests held by certain members of the Joseph
Gans family ("Gans") and (ii) $6,500,000 of redeemable limited partnership
interests held by an affiliate of Telesat Cablevision, Inc. ("Telesat"). The
Olympus limited partnership agreement requires approval by the holders of 85%
of the voting interests for, among other things, significant acquisitions and
dispositions of assets, certain transactions with related parties and the
issuance of voting interests beyond a stated maximum, and also requires
approval by the holders of 75% of the voting interests for, among other things,
material amendments to the Olympus partnership agreement, certain financings
and refinancings, and certain issuances of PLP Interests.
On January 3, 1993, Olympus redeemed Telesat's interests for $9,794,706
and the Company converted $6,500,000 of its voting general partnership
interests to nonvoting PLP Interests, thereby maintaining 50% of the
outstanding general partner and limited partner voting units of Olympus. At
various dates from January 1993 through January 1996, Gans can require Olympus
to redeem its limited partnership interest at its fair market value on the
exercise date. If Olympus does not effect such redemption, or if such
redemption would cause Olympus, Adelphia or any of Adelphia's affiliates to be
in default under their respective loan agreements, then Olympus is to sell its
assets and be liquidated. At various dates beginning in January 1994 through
January 1996, Adelphia may purchase the Gans interests at its fair market value
at the exercise date.
In the event that any such redemption or purchase of limited partnership
interests in Olympus results in the Company owning more than 50% of the voting
equity in Olympus, the Company may at its option convert its voting partnership
interests in Olympus into PLP Interests or senior debt in order to maintain its
voting interest at 50%.
On August 24, 1992 service in Olympus' South Dade system in the southern
portion of Florida's Dade County was interrupted by Hurricane Andrew. Other
Olympus subscribers were unaffected by the storm. Prior to the hurricane, as
of July 31, 1992, the South Dade system passed 157,922 homes and served 71,193
basic subscribers. The rebuilding of the cable plant has been completed with
state-of-the-art fiber to feeder technology which has an 80 channel capacity.
At March 31, 1994 the South Dade System served 65,398 basic subscribers, and
at June 20, 1994 served 69,061 basic subscribers.
The following table is derived from the Olympus Communications, L.P.
Consolidated Financial Statements included in this Prospectus.
SUPPLEMENTAL FINANCIAL DATA FOR OLYMPUS
(DOLLARS IN THOUSANDS)
YEAR ENDED
DECEMBER 31,
1993 1992 1991
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 89,099 $ 86,255 $ 90,597
Business Interruption Revenue.............. 9,547 7,146 --
Total...................................... 98,646 93,401 90,597
Operating Income Before De-
preciation and
Amortization.............................. 55,195 47,280 44,906
Depreciation and Amortiza-
tion...................................... 37,240 39,407 38,427
Operating Income........................... 17,955 7,873 6,479
Interest Expense........................... (29,470) (30,272) (39,413)
Net Loss................................... (70,744) (16,617) (36,577)
BALANCE SHEET DATA:
Total Assets............................... 458,663 467,279 482,316
Total Long-Term Debt....................... 368,263 362,428 392,786
PLP Interests.............................. 276,101 269,601 269,601
OTHER FINANCIAL DATA:
Capital Expenditures....................... 23,164 26,827 21,859
Operating Margin (a)....................... 56.0% 50.6% 49.6%
(a) Percentage representing operating income before depreciation and
amortization divided by total revenues.
Comparison of Years Ended December 31, 1993, 1992 and 1991.
Revenues. Total revenues for the year ended December 31, 1993 increased
5.6% over the prior year. Total revenues for the year ended December 31, 1992
increased 3.1% over the prior year. The 1993 increase and the 1992 increase
were primarily attributable to basic subscriber growth and rate increases,
which were partially offset by the effects of Hurricane Andrew on the South
Dade System, net of business interruption insurance proceeds. See Note 3 to the
Olympus Communications, L.P. Consolidated Financial Statements.
Operating Income Before Depreciation and Amortization. For the years
ended December 31, 1993 and 1992, respectively, operating income before
depreciation and amortization increased 16.7% and 5.3% and the operating margin
increased to 56% and 50.6%. These increases were primarily attributable to
higher levels of total revenues, including business interruption revenue
related to the effects of Hurricane Andrew, that were not offset by
corresponding increases in operating expenses.
Operating Income. For the year ended December 31, 1993, operating income
increased to $17,955,000 from $7,873,000. Operating income for the year ended
December 31, 1992, increased from $6,479,000 to $7,873,000. These increases
were primarily due to the increase in total revenues, including business
interruption revenue, and relatively constant depreciation and amortization and
operating expenses.
Interest Expense. For the year ended December 31, 1993, interest expense
decreased 2.7% primarily due to reduced interest rates. For the year ended
December 31, 1992, interest expense decreased 23.2%, primarily due to reduced
interest rates and lower average amounts of outstanding debt.
Net Loss. Olympus reported net losses of $70,744,000, $16,617,000, and
$36,577,000 for the years ended December 31, 1993, 1992 and 1991, respectively.
The increase in 1993 was mainly due to the cumulative effect of a change in
accounting principle of $59,500,000 resulting from the adoption of SFAS 109 by
Olympus, partially offset by increased operating income. The decrease in net
loss in 1992 was attributable to increased revenues and reduced interest
expense, partially offset by increased operating expenses and to the effects
of the termination of an affiliate guarantee arrangement. See Note 4 to the
Olympus Communications, L.P. Consolidated Financial Statements.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and related notes thereto and
independent auditors report follow.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Independent Auditors' Report.............................................. 44
Consolidated Balance Sheets, March 31, 1994 and 1993...................... 45
Consolidated Statements of Operations,
Years Ended March 31, 1994, 1993 and 1992............................... 46
Consolidated Statements of Stockholders' Equity (Deficiency),
Years Ended March 31, 1994, 1993 and 1992............................... 47
Consolidated Statements of Cash Flows,
Years Ended March 31, 1994, 1993 and 1992............................... 48
Notes to Consolidated Financial Statements................................ 49
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
Independent Auditors' Report.............................................. 63
Consolidated Balance Sheets, December 31, 1993 and 1992................... 64
Consolidated Statements of Operations,
Years Ended December 31, 1993, 1992, and 1991........................... 65
Consolidated Statements of General Partner's Equity (Deficiency),
Years Ended December 31, 1993, 1992 and 1991............................ 66
Consolidated Statements of Cash Flows,
Years Ended December 31, 1993, 1992 and 1991............................ 67
Notes to Consolidated Financial Statements................................ 68
INDEPENDENT AUDITORS' REPORT
Adelphia Communications Corporation
We have audited the accompanying consolidated balance sheets of Adelphia
Communications Corporation and subsidiaries as of March 31, 1994 and 1993, and
the related consolidated statements of operations, stockholders' equity
(deficiency) and cash flows for each of the three years in the period ended
March 31, 1994. Our audits also included the financial statement schedules
listed in the index at Item 14. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Adelphia Communications
Corporation and subsidiaries at March 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1994 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
As discussed in Note 7 to the financial statements, effective April 1, 1993,
the Company changed its method of accounting for income taxes. Also, as
discussed in Note 2, as of January 1, 1993, an unconsolidated subsidiary
accounted for on the equity method changed its method of accounting for income
taxes.
DELOITTE & TOUCHE
Pittsburgh, Pennsylvania
June 27, 1994
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
March 31,
1994 1993
ASSETS:
Cable television systems, at cost, net of
accumulated depreciation and amortization:
Property, plant and equipment.......................... $ 446,290 $ 398,859
Intangible assets...................................... 417,788 439,599
Total.......................................... 864,078 838,458
Cash and cash equivalents................................ 74,075 38,671
Investments.............................................. 23,922 15,467
Preferred equity investments in Managed Partnerships..... 18,338 --
Note receivable from Managed Partnership................. 15,000 --
Subscriber receivables - net............................. 18,021 17,541
Prepaid expenses and other assets - net.................. 38,772 27,929
Related party investments and receivables - net.......... 21,640 11,527
Total.......................................... $1,073,846 $ 949,593
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY):
Notes payable of subsidiaries to banks and institutions.. $ 870,875 $ 962,900
12 1/2% Senior Notes due 2002............................ 400,000 400,000
10 1/4% Senior Notes due 2000 (face amount $110,000)..... 108,765 --
11 7/8% Senior Debentures due 2004 (face amount $125,000) 124,442 124,416
9 7/8% Senior Debentures due 2005 (face amount $130,000). 127,882 127,781
13% Senior Subordinated Notes due 1996 (face amount
$100,000)............................................... -- 99,329
9 1/2% Pay-In-Kind Notes due 2004........................ 150,000 --
Other debt............................................... 11,747 16,673
Accounts payable......................................... 27,016 21,105
Subscriber advance payments and deposits................. 13,385 14,140
Accrued interest and other liabilities................... 66,077 51,863
Deferred income taxes.................................... 91,721 --
Total liabilities.............................. 1,991,910 1,818,207
Commitments and Contingencies (Note 4)
Stockholders' equity (deficiency):
Class A Common Stock, $.01 par value, 50,000,000 shares
authorized, 13,507,604 and 4,375,000 shares
outstanding, respectively.............................. 135 44
Class B Common Stock, $.01 par value, 25,000,000 shares
authorized, 10,944,476 shares outstanding.............. 109 109
Additional paid-in capital.............................. 198,431 60,112
Accumulated deficit..................................... (1,116,739) (928,879)
Total stockholders' equity (deficiency)........ (918,064) (868,614)
Total.......................................... $1,073,846 $ 949,593
See notes to consolidated financial statements.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Year Ended March 31,
1994 1993 1992
Revenues.................................. $ 319,045 $ 305,222 $ 273,630
Operating expenses:
Direct operating and programming......... 90,547 82,377 74,787
Selling, general and administrative...... 52,801 49,468 44,427
Depreciation and amortization............ 89,402 90,406 84,817
Total........................... 232,750 222,251 204,031
Operating income.......................... 86,295 82,971 69,599
Other income (expense):
Interest income from affiliates.......... 9,188 5,216 3,085
Other income (expense)................... (299) 1,447 968
Priority investment income from Olympus.. 22,300 22,300 22,300
Interest expense......................... (182,136) (164,859) (164,839)
Equity in loss of joint
ventures before cumulative effect of
change in accounting principle.......... (30,054) (46,841) (52,718)
Total........................... (181,001) (182,737) (191,204)
Loss before income taxes, extraordinary
loss and cumulative effect of change
in accounting principle.................. (94,706) (99,766) (121,605)
Income tax expense........................ (2,742) (3,143) --
Loss before extraordinary loss and
cumulative effect of change in
accounting principle..................... (97,448) (102,909) (121,605)
Extraordinary loss on early retirement of
debt..................................... (752) (14,386) --
Cumulative effect of change in accounting
for income taxes......................... (89,660) -- --
Cumulative effect of Olympus change in
accounting for income taxes.............. -- (59,500) --
Net loss.................................. $ (187,860) $ (176,795) $ (121,605)
Loss per weighted average share of common
stock before extraordinary loss and
cumulative effect of change in
accounting principle..................... $ (5.66) $ (6.80) $ (8.80)
Extraordinary loss on early retirement of
debt..................................... (.04) (.95) --
Cumulative effect of change in accounting
for income taxes......................... (5.21) -- --
Cumulative effect of Olympus change in
accounting for income taxes.............. -- (3.93) --
Net loss per weighted average share of
common stock............................. $ (10.91) $ (11.68) $ (8.80)
Weighted average shares of common stock
outstanding.............................. 17,221,059 15,138,654 13,819,476
See notes to consolidated financial statements.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Dollars in thousands)
Class A Class B Additional Stockholders'
Common Common Paid-in Accumulated Equity
Stock Stock Capital Deficit (Deficiency)
Balance, March 31, 1991... $ 29 $ 109 $ 38,402 $(630,479) $ (591,939)
Net loss.................. -- -- -- (121,605) (121,605)
Balance, March 31, 1992... 29 109 38,402 (752,084) (713,544)
Issuance of Class A Common
Stock on May 14, 1992.... 15 -- 21,710 -- 21,725
Net loss.................. -- -- -- (176,795) (176,795)
Balance, March 31, 1993... 44 109 60,112 (928,879) (868,614)
Issuance of Class A Common
Stock on January 14,
1994..................... 91 -- 155,872 -- 155,963
Excess of purchase price
of acquired assets over
predecessor owner book
value.................... -- -- (17,553) -- (17,553)
Net loss.................. -- -- -- (187,860) (187,860)
Balance, March 31, 1994... $ 135 $ 109 $ 198,431 $(1,116,739) $ (918,064)
See notes to consolidated financial statements.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended March 31,
1994 1993 1992
Cash flows from operating activities:
Net loss................................. $ (187,860) $ (176,795) $ (121,605)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation........................... 56,370 54,129 51,224
Amortization........................... 33,032 36,277 33,593
Noncash interest expense............... 1,680 164 35,602
Equity in loss of joint ventures
before cumulative effect of accounting
change................................ 30,054 46,841 52,718
Extraordinary loss on debt retirement.. 752 14,386 --
Loss on disposal of property........... 1,051 -- --
Cumulative effect of accounting change. 89,660 59,500 --
Increase in deferred income taxes...... 2,061 -- --
Changes in operating assets and
liabilities:
Subscriber receivables.............. (155) (2,596) (2,557)
Prepaid expenses and other assets... (16,288) (4,883) (5,693)
Accounts payable.................... 5,871 (9,900) 1,845
Subscriber advance payments ........ (1,134) 223 308
Accrued interest and other
liabilities........................ 11,858 11,720 4,038
Net cash provided by operating activities. 26,952 29,066 49,473
Cash flows from investing activities:
Cable television systems acquired........ (21,681) (14,501) --
Expenditures for property, plant and
equipment............................... (75,894) (70,975) (52,808)
Investments in joint ventures............ (8,890) (14,989) --
Preferred equity investment in and notes
receivable from Managed Partnership..... (33,338) -- --
Amounts invested in and advanced to
Olympus and related parties - net....... (30,285) (62,960) (23,853)
Alternative access rights acquired....... (27,000) -- --
Net cash used for investing activities.... (197,088) (163,425) (76,661)
Cash flows from financing activities:
Proceeds from debt....................... 744,770 1,277,847 178,391
Repayments of debt....................... (690,232) (1,109,924) (155,750)
Costs associated with debt financing..... (4,961) (17,791) (2,872)
Redemption premium on debt retirement.... -- (10,000) --
Issuance of Class A Common Stock......... 155,963 21,725 --
Net cash provided by financing activities. 205,540 161,857 19,769
Increase (decrease) in cash and cash
equivalents.............................. 35,404 27,498 (7,419)
Cash and cash equivalents, beginning of
year..................................... 38,671 11,173 18,592
Cash and cash equivalents, end of year.... $ 74,075 $ 38,671 $ 11,173
Supplemental disclosure of cash flow
activity - Cash payments for interest.... $ 178,840 $ 151,653 $ 133,746
See notes to consolidated financial statements.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. The Company and Summary of Significant Accounting Policies:
The Company and Basis for Consolidation
Adelphia Communications Corporation and subsidiaries ("ACC") owns, operates
and manages cable television systems. ACC's operations consist primarily of
selling video programming which is distributed to subscribers for a monthly
fee through a network of fiber optic and coaxial cables. These services are
offered in the respective franchise areas under the name Adelphia Cable
Communications.
The consolidated financial statements include the accounts of ACC and its
more than 50% owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Investment in Olympus Joint Venture Partnership
The investment in the Olympus joint venture partnership comprises both
limited and general partner interests. The general partner interest
represents a 50% voting interest in Olympus Communications, L.P. ("Olympus")
and is being accounted for using the equity method. Under this method,
ACC's investment, initially recorded at the historical cost of contributed
property, is adjusted for subsequent capital contributions and its share of
the losses of the partnership as well as its share of the accretion
requirements of the partnership's redeemable partnership interests. The
limited partner interest represents a redeemable preferred interest ("PLP
Interests") entitled to a 16.5% annual return. The PLP interests are
nonvoting, are senior to claims of other partner interests, provide for an
annual priority return of 16.5% and are to be repaid by 2004. Olympus is
not required to pay the entire 16.5% return currently and priority return on
PLP interests is recognized as income by ACC when received.
Correspondingly, equity in net loss of Olympus excludes accumulated unpaid
priority return.
Subscriber Revenues
Subscriber revenues are recorded in the month the service is provided.
Subscriber Receivables
An allowance for doubtful accounts of $3,603 and $2,016 has been deducted from
subscriber receivables at March 31, 1994 and 1993, respectively.
Property, Plant and Equipment
Property, plant and equipment are comprised of the following:
March 31,
1994 1993
Operating plant and equipment..........................$ 673,451 $ 583,980
Real estate and improvements........................... 41,150 28,493
Support equipment...................................... 25,132 24,044
Construction in progress............................... 48,118 49,130
787,851 685,647
Accumulated depreciation............................... (341,561) (286,788)
$ 446,290 $ 398,859
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
1. The Company and Summary of Significant Accounting Policies, continued:
Property, Plant and Equipment, continued
Depreciation is computed on the straight-line method using estimated useful
lives of 5 to 12 years for operating plant and equipment and 3 to 20 years
for support equipment and buildings. Additions to property, plant and
equipment are recorded at cost which includes amounts for material,
applicable labor and overhead, and interest. Capitalized interest amounted
to $1,345, $1,009 and $1,498 for the years ended March 31, 1994, 1993 and
1992, respectively.
Intangible Assets
Intangible assets, net of accumulated amortization, are comprised of the
following:
March 31,
1994 1993
Purchased franchises......................................$368,938 $379,337
Purchased subscriber lists................................ 4,365 10,512
Goodwill.................................................. 41,691 42,184
Non-compete agreements.................................... 2,794 7,566
$417,788 $439,599
A portion of the aggregate purchase price of cable television systems acquired
has been allocated to purchased franchises, purchased subscriber lists,
goodwill and non-compete agreements. Purchased franchises and goodwill are
amortized on the straight-line method over 40 years. Purchased subscriber
lists are amortized on the straight-line method over periods which range from
5 to 10 years. Non-compete agreements are amortized on the straight-line
method over their contractual lives which range from 4 to 12 years.
Accumulated amortization of intangible assets amounted to $270,191 and $262,799
at March 31, 1994 and 1993, respectively.
Amortization of Other Assets and Debt Discounts
Deferred debt financing costs, included in prepaid expenses and other assets,
and debt discounts, a reduction of the carrying amount of the debt, are
amortized over the term of the related debt. The unamortized amounts included
in prepaid expenses and other assets were $22,328 and $22,484 at March 31, 1994
and 1993, respectively.
Cash and Cash Equivalents
ACC considers all highly liquid investments with original maturities of three
months or less to be cash equivalents. Interest on liquid investments in
revenue was $2,020, $1,076, and $581 for the years ended March 31, 1994, 1993,
and 1992, respectively.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
1. The Company and Summary of Significant Accounting Policies, continued:
Noncash Financing and Investing Activities
Year Ended March 31,
1994 1993 1992
Capital leases......................................$ 7,186 $8,742 $1,002
Reclassification
Certain 1993 and 1992 amounts have been reclassified for comparability with
the 1994 presentation.
2. Related Party Investments and Receivables:
The following table summarizes the investments in and receivables from
Olympus and related parties:
March 31,
1994 1993
Investment in Olympus....................................$(75,961) $(61,692)
Amounts due from Olympus................................. 85,938 69,384
Amounts due from other related parties - net............. 11,663 3,835
$ 21,640 $ 11,527
Amounts due from other related parties - net represent advances to (from)
Managed Partnerships (see Note 9), and the Rigas Family (principal
shareholders and officers of ACC) and Rigas Family controlled entities.
During the year ended March 31, 1993, concurrent with Olympus's redemption
of $6,500 in limited partner interests, ACC converted 6.5 general partner
units to PLP interests, thereby maintaining 50% of the outstanding general
partner and limited partner voting units of Olympus. At March 31, 1994,
1993 and 1992, ACC owned $276,101, $276,101 and $269,601 in Olympus PLP
Interests, respectively.
On March 31, 1994, ACC acquired from Olympus the rights to provide
alternative access in its respective franchise areas and an investment in an
unaffiliated partnership for a purchase price of $15,500. The purchase
price of the assets resulted in a reduction of amounts due ACC. The $15,400
excess of the purchase price over Olympus' book value has been recorded by ACC
as an additional investment in Olympus.
The major components of the financial position of Olympus as of March 31, 1994
and 1993, and December 31, 1993 and 1992, and the results of operations for the
three months ended March 31, 1994 and 1993, and the years ended December 31,
1993 and 1992 were as follows:
March 31, December 31,
1994 1993 1993 1992
(Unaudited)
Balance Sheet Data
Property, plant and equipment - net. $ 165,455 $ 159,954 $ 163,689 $ 157,752
Total assets........................ 445,623 473,853 458,663 467,279
Notes payable to banks.............. 367,100 355,900 368,000 361,900
Total liabilities................... 621,794 594,247 629,677 500,218
PLP Interests....................... 276,101 276,101 276,101 269,601
Redeemable limited partner
interests.......................... 5,000 10,000 5,000 19,515
General partner's equity
(deficiency)....................... (457,274) (406,495) (452,115) (322,055)
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
2. Related Party Investments and Receivables, continued:
March 31, December 31,
1994 1993 1993 1992
Income Statement Data
Revenues............................ $ 25,450 $ 23,627 $ 98,646 $ 93,401
Operating income.................... 3,480 2,613 17,955 7,873
Loss before cumulative effect
of change in accounting principle.. (5,751) (4,676) (11,244) (16,617)
Cumulative effect of change in
accounting for income taxes........ -- (59,500) (59,500) --
Net loss............................ (5,751) (64,176) (70,744) (16,617) Net
loss of general partners after
priority return and accretion
requirements....................... (20,608) (77,940) (123,460) (73,367)
The following reconciles ACC's investment in Olympus to the related equity
accounts of Olympus:
March 31,
1994 1993
Investment in Olympus joint venture partnership.......$ (75,961) $ (61,692)
Accumulated unpaid priority return requirements........ (105,212) (68,702)
Olympus' combined PLP Interests and general partners'
equity (deficiency)..................................$(181,173) $(130,394)
Through March 27, 1992, an affiliated partnership guaranteed certain
indebtedness of a subsidiary of Olympus. As provided for in the Olympus
partnership agreement, Olympus had accrued prior to this date approximately
$7,727 in net consideration for this guaranty. Prior to March 31, 1992, ACC,
Olympus and the affiliate consummated a series of transactions which resulted
in the repayment of amounts owned to Olympus by the affiliate, the release of
the affiliate from the guarantee and the cancellation of the rights of the
affiliate and ACC to contribute assets to Olympus in return for PLP Interests
and the related return thereon, through an amendment to the Olympus partnership
agreement. In connection with the amendment, during the three month period
ended March 31, 1992, Olympus reversed $5,674 of the expense previously accrued
under the guarantee arrangement. The reversal of such amount previously
accrued by Olympus is reflected in ACC's March 31, 1992 consolidated financial
statements as a reduction in its equity in net loss of Olympus.
Effective January 1, 1993, Olympus adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes"
which requires an asset and liability approach for financial accounting and
reporting for income taxes. SFAS No. 109 resulted in the cumulative
recognition of an additional liability of approximately $59,500 on January 1,
1993. Olympus has not restated prior years' financial statements to reflect
the provisions of SFAS No. 109.
On October 6, 1993, ACC purchased the preferred Class B Limited Partnership
Interest in Syracuse Hilton Head Holdings, L.P. ("SHHH"), for a price of
$18,338 from Robin Media Group, an unrelated party. SHHH is a joint venture
of the Rigas Family and Tele-Communications, Inc. ("TCI") and owns systems
managed by ACC. The Class B Limited Partnership Interest has a preferred
return of 14% which is payable currently at the option of SHHH, and is senior
in priority to the partnership interests of the Rigas Family and TCI. SHHH is
obligated to redeem the Class B Limited Partnership Interest between June 11,
1996 and December 31, 1996.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
2. Related Party Investments and Receivables, continued:
During the year ended March 31, 1994, ACC made loans to Managed Partnerships
(See Note 9), in the net amount of $20,000, for the purpose of acquiring
from unrelated parties cable television systems serving Palm Beach County,
Florida. Interest rates are based upon one of the following rates: prime
rate plus 1.25% to 2.00% or LIBOR rate plus 2.25% to 3.00%. As of March 31,
1994, $15,000 was outstanding.
In September 1993, the Board of Directors of ACC authorized ACC to make
loans in the future to two Managed Partnerships up to an amount of $25,000
for each.
3. Debt:
Notes Payable of Subsidiaries to Banks and Institutions
Notes payable of subsidiaries to banks and institutions are comprised of the
following:
March 31,
1994 1993
Credit agreements with banks payable through 2000
(weighted average interest rate 6.35% and 6.26% at March 31,
1994 and 1993, respectively)................................. $354,375 $440,000
10.66% Senior Secured Notes due 1996 through 1999............. 250,000 250,000
9.95% Senior Secured Notes due through 1997................... 16,000 22,400
10.80% Senior Secured Notes due 1996 through 2000............. 45,000 45,000
10.50% Senior Secured Notes due 1997 through 2001............. 16,000 16,000
9.73% Senior Secured Notes due 1998 through 2001.............. 37,500 37,500
10.25% Senior Subordinated Notes due 1995 through 1998........ 80,000 80,000
11.85% Senior Subordinated Notes due 1998 through 2000........ 60,000 60,000
11.13% Senior Subordinated Notes due 1999 through 2002........ 12,000 12,000
$870,875 $962,900
The amount of borrowings available to ACC under its revolving credit agreements
is generally based upon achieving certain levels of operating performance. ACC
had commitments from banks for additional borrowings of up to $143,000 at March
31, 1994, which expire through 1999. At the expiration of the commitments, all
outstanding borrowings are convertible into term loans. ACC pays commitment
fees of up to .5% of unused principal.
Borrowings under most of these credit arrangements of subsidiaries are
collateralized by a pledge of the stock in their respective subsidiaries, and,
in some cases, by assets. These agreements stipulate, among other things,
limitations on additional borrowings, investments, transactions with
affiliates and other subsidiaries, and the payment of dividends and fees by the
subsidiaries. They also require maintenance of certain financial ratios by the
subsidiaries. Several of the subsidiaries' agreements, along with the notes
of the parent company, contain cross default provisions. At March 31, 1994,
approximately $216,000 of the net assets of subsidiaries would be permitted to
be transferred to the parent company in the form of dividends, priority return
and loans without the prior approval of the lenders based upon the results of
operations of such subsidiaries for the quarter ended March 31, 1994. The
subsidiaries are permitted to pay fees to the parent company or other
subsidiaries. Such fees are limited to a percentage of the subsidiaries'
revenues.
Bank debt interest rates are based, upon one or more of the following rates at
the option of ACC: prime rate plus 0% to 1.5%; certificate of deposit rate plus
1.25% to 2.75%; or Eurodollar (or London Interbank Offered) rate plus 1% to
2.5%. At March 31, 1994, the weighted average interest rate on notes payable
to banks and institutions was 8.91%. The rates on 70.8% of ACC's notes payable
to banks and institutions were fixed for at least one year through the terms
of the notes or interest rate swap agreements.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
3. Debt, continued:
ACC has entered into fixed and floating interest rate swap agreements with
banks, Olympus and the Managed Partnerships (see Note 9). At March 31,
1994, ACC had a total notional principal amount of $235,000 outstanding
under such agreements, which expire from 1995 through 2000. These
agreements provide for a weighted average rate of 6.59% at March 31, 1994.
ACC is exposed to credit loss in the event of non-
performance by the banks, although it does not expect any such
nonperformance. Net settlement amounts under these swap agreements are
recorded as adjustments to interest expense during the period incurred.
12 1/2% Senior Notes due 2002
On May 14, 1992, ACC issued at face value to the public $400,000 aggregate
principal amount of unsecured 12 1/2% Senior Notes due May 15, 2002.
Interest is due on the notes semi-annually. The notes, which are
effectively subordinated to all liabilities of the subsidiaries, contain
restrictions on, among other things, the incurrence of indebtedness, mergers
and sale of assets, certain restricted payments by ACC, investments in
affiliates and certain other affiliate transactions. The notes further
require that ACC maintain a debt to annualized operating cash flow ratio of
not greater than 8.75 to 1.00, based on the latest fiscal quarter, exclusive
of the incurrence of $50,000 in additional indebtedness which is not subject
to the required ratio. ACC may redeem the notes in whole or in part on or
after May 15, 1997, at 106% of principal, declining to 100% of principal on
or after May 15, 1999.
10 1/4% Senior Notes due 2000
On July 28, 1993, ACC issued $110,000 aggregate principal amount of
unsecured 10 1/4% Senior Notes due July 2000. Interest is due on the notes
semi-annually. The notes which are effectively subordinated to all
liabilities of the subsidiaries, contain restrictions and covenants similar
to the restrictions on the 12 1/2% Senior Notes. The notes are not
redeemable prior to the maturity date of July 15, 2000.
16 1/2% Senior Discount Notes due 1999
On July 1, 1992, ACC redeemed all of the 16 1/2% Senior Discount Notes, at
104% of principal. The $10,000 redemption premium together with $4,386 in
unamortized deferred financing costs comprise the extraordinary loss on early
retirement of debt recognized on ACC's consolidated financial statements for
the year ended March 31, 1993.
11 7/8% Senior Debentures Due 2004
On September 10, 1992, ACC issued to the public $125,000 aggregate principal
amount of unsecured 11 7/8% Senior Debentures due September 2004. Interest is
due on the debentures semi-annually. The debentures, which are effectively
subordinated to all liabilities of the subsidiaries, contain restrictions and
covenants similar to the restrictions on the 12 1/2% Senior Notes. ACC may
redeem the debentures in whole or in part on or after September 15, 1999, at
104.5% of principal, declining to 100% of principal on or after September 15,
2002.
9 7/8% Senior Debentures Due 2005
On March 11, 1993, ACC issued 9 7/8% Senior Debentures due March 2005 in the
aggregate principal amount of $130,000. Interest on the debentures is payable
semi-annually. The debentures, which are effectively subordinated to all
liabilities of the subsidiaries, contain restrictions and covenants similar to
the restrictions on
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
3. Debt, continued:
the 12 1/2% Senior Notes. The debentures are not redeemable prior to the
maturity date of March 1, 2005.
13% Senior Subordinated Notes due 1996
On February 14, 1994, ACC redeemed all of the 13% Senior Subordinated Notes
for 100% of the $100,000 aggregate principal amount.
9 1/2% Pay-In-Kind Notes due 2004
On February 15, 1994, ACC issued $150,000 aggregate principal amount of
unsecured 9 1/2% Senior Pay-In-Kind Notes due February 2004. On or prior to
February 1999, all interest on the notes, which is due semi-annually, may at
the option of ACC be paid in cash or through the issuance of additional
notes valued at 100% of their principal amount. The notes will bear cash
interest from February 1999 through maturity. The notes which are effectively
subordinate to all liabilities of the subsidiaries contain restrictions and
covenants similar to the 12 1/2% Senior Notes. ACC may redeem the notes in
whole or in part on or after February 15, 1999, at 103.56% of principal,
declining to 100% of principal on or after February 15, 2002.
Maturities of Debt
Maturities of debt for the five years after March 31, 1994 are as follows:
1995......................................................$ 17,790
1996...................................................... 100,887
1997...................................................... 195,034
1998...................................................... 239,761
1999...................................................... 220,065
Management intends to fund its requirements for maturities of debt through
borrowings under new and existing credit arrangements and internally generated
funds. Changing conditions in the financial markets may have an impact on how
ACC will refinance its debt in the future.
4. Commitments and Contingencies:
ACC rents office and studio space, tower sites, and space on utility poles
under leases with terms which are generally less than one year or under
agreements that are generally cancelable on short notice. Total rental expense
under all operating leases aggregated $3,988, $4,090 and $3,868 for the years
ended March 31, 1994, 1993 and 1992, respectively.
In connection with certain obligations under franchise agreements, ACC obtains
surety bonds guaranteeing performance to municipalities and public utilities.
Payment is required only in the event of nonperformance. ACC has fulfilled all
of its obligations such that no payments under surety bonds have been required.
As of July 1, 1993, ACC adopted a program to self insure for casualty and
business interruption insurance. This program is part of an agreement between
ACC and each of its subsidiaries in which ACC will provide insurance for
casualty and business interruption claims of up to $10,000 and $20,000 per
claim, respectively, for each subsidiary of ACC. These risks were previously
insured by outside parties with nominal deductible amounts.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
4. Commitments and Contingencies, continued:
On October 5, 1992, Congress passed the 1992 Cable Act which significantly
expands the scope of regulation of certain subscriber rates and a number of
other matters in the cable industry. The original rate regulations required
a reduction of rates charged for regulated services, as defined, to the
greater of a calculated benchmark level or a reduction of 10% from the rate
in force as of September 30, 1992. Under the Cable Act, programming
services offered on a per channel basis ("a la carte") are generally not
considered regulated service.
In March 1994, the FCC released revised rate regulations. These revised
regulations, among other things, created a new benchmark formula and new
targets for additional rate reductions. In addition, the FCC offered
further guidance as to what constitutes a la carte services.
ACC is currently unable to predict the effect that the amended regulations,
future FCC treatment of a la carte packages or further FCC rate rulemaking
proceedings will have on its business and results of operations in future
periods. To the extent applicable, the regulations could result in a
rollback of existing ACC rates. ACC intends to continue to assess the
effect of FCC rate regulations. No assurances can be given at this time
that such matters will not have a material negative financial impact on
ACC's business.
5. Stockholders' Equity (Deficiency):
ACC has no convertible securities or other common stock equivalent
securities outstanding.
Public Offering of Class A Common Stock on May 14, 1992
On May 14, 1992, ACC sold to the public 1,500,000 shares of Class A Common
Stock for $15.00 per share. The net proceeds of the sale, after offering
costs, aggregated $21,725.
Public Offering of Class A Common Stock on January 14, 1994
On January 14, 1994, ACC sold 9,132,604 shares of Class A Common Stock. Of
the 9,132,604 shares, 3,300,000 shares were sold to the public at $18.00 per
share, with an underwriting discount of $.855 per share. Partnerships
controlled by the family of John J. Rigas, President and Chief Executive
Officer of ACC, purchased the other 5,832,604 shares at the public offering
price less the underwriting discount. Net proceeds to ACC after offering
expenses aggregated $155,963.
Preferred Stock
The Certificate of Incorporation of ACC authorizes 5,000,000 shares of
Preferred Stock, $.01 par value. None have been issued.
Common Stock
The Certificate of Incorporation of ACC authorizes two classes of common stock,
Class A and Class B. Holders of Class A Common Stock and Class B Common Stock
vote as a single class on all matters submitted to a vote of the stockholders,
with each
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
5. Stockholders' Equity (Deficiency), continued:
share of Class A Common Stock entitled to one vote and each share of Class B
Common Stock entitled to ten votes, except (i) for the election of directors
and (ii) as otherwise provided by law. In the annual election of directors,
the holders of Class A Common Stock voting as a separate class, are entitled
to elect one of ACC's directors. In addition, each share of Class B Common
Stock is automatically convertible into a share of Class A Common Stock upon
transfer, subject to certain limited exceptions. In the event a cash
dividend is paid, the holders of Class A Common Stock will be paid 105% of
the amount payable per share for each share of Class B Common Stock.
Upon liquidation, dissolution or winding up of ACC, the holders of Class A
Common Stock are entitled to a preference of $1.00 per share. After such
amount is paid, holders of Class B Common Stock are entitled to receive
$1.00 per share. Any remaining amount would then be shared ratably by both
classes.
Restricted Stock Bonus Plan
ACC has reserved 500,000 shares of Class A Common Stock for issuance to
officers and other key employees at the discretion of the Compensation
Committee of the Board of Directors. The bonus shares will be awarded without
any cash payment by the recipient unless otherwise determined by the
Compensation Committee. Shares awarded under the plan vest over a five year
period. No awards have been made under the plan.
Stock Option Plan
ACC has a stock option plan, which provides for the granting of options to
purchase up to 200,000 shares of ACC's Class A Common Stock to officers and
other key employees of the Company and its subsidiaries. Options may be
granted at an exercise price equal to the fair market value of the shares on
the date of grant. The plan permits the granting of tax-qualified incentive
stock options, in addition to non-qualified stock options. Options outstanding
under the plan may be exercised by paying the exercise price per share through
various alternative settlement methods. No stock options have been granted
under the plan.
6. Employee Benefit Plans:
ACC has a savings plan (401(k)) which provides that eligible full-time
employees may contribute from 2% to 20% of their pre-tax compensation. ACC
makes matching contributions not exceeding 1.5% of each participants pre-tax
compensation, up to a maximum of $750 per year. ACC's matching contributions
amounted to $305, $241 and $303 for the years ended March 31, 1994, 1993 and
1992, respectively.
7. Taxes on Income:
ACC and its corporate subsidiaries file a consolidated federal income tax
return, which includes its share of the subsidiary partnerships and joint
venture partnership results. At March 31, 1994, ACC had net operating loss
carryforwards for federal income tax purposes of approximately $890,000
expiring through 2009. Depreciation and amortization expense differs for tax
and financial statement purposes due to the use of prescribed periods rather
than useful lives for tax purposes and also as a result of differences between
tax basis and book basis of certain acquisitions.
ACC adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," effective April 1, 1993. This statement
supersedes Accounting Principles Board Opinion No. 11, "Accounting for Income
Taxes," which ACC had
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
7. Taxes on Income, continued:
followed previously and under which ACC recorded no deferred tax liability.
The cumulative effect of adopting SFAS No. 109 at April 1, 1993 was to
increase the net loss by $89,660 for the year ended March 31, 1994.
As a result of applying SFAS No. 109, $110,498 of previously unrecorded
deferred tax benefits from operating loss carryforwards incurred by ACC were
recognized at April 1, 1993 as part of the cumulative effect of adopting the
Statement. Under prior accounting, a part of these benefits would have been
recognized as a reduction of income tax expense from continuing operations
in the year ended March 31, 1994.
Deferred income taxes reflect the net tax effects of: (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating loss and tax credit carryforwards. The tax effects of
significant items comprising ACC's net deferred tax liability as of March
31, 1994 are as follows:
Deferred tax liabilities:
Differences between book and tax basis of property, plant and
equipment and intangible assets.................................$ 210,816
Other............................................................ 9,703
Total....................................................... 220,519
Deferred tax assets:
Reserves not currently deductible................................ 15,576
Operating loss carryforwards..................................... 337,924
353,500
Valuation allowance.............................................. (224,702)
Total....................................................... 128,798
Net deferred tax liability.......................................$ 91,721
The net change in the valuation allowance for the year ended March 31, 1994
was an increase of $8,656.
The provision for income taxes for the years ended March 31, 1994 and 1993 is
as follows:
March 31,
1994 1993
Current.................................... $ 681 $ 3,143
Deferred................................... 2,061 --
Total...................................... $ 2,742 $ 3,143
8. Disclosures about Fair Value of Financial Instruments:
Included in ACC's financial instrument portfolio are cash, notes payable,
debentures and interest rate swaps. The carrying values of notes payable
approximate their fair values at March 31, 1994. The fair value of the
debentures exceeded their carrying cost by approximately $27,500 and $49,500
at March 31, 1994 and March 31, 1993, respectively. The fair value of the
interest rate swaps exceeded their carrying cost by approximately $15,000 and
$12,500 at March 31, 1994 and March 31, 1993, respectively. The fair values
of the debt and interest rate swaps were based upon quoted market prices of
similar instruments or on rates available to ACC for instruments of the same
remaining maturities.
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
9. Related Party Transactions:
ACC currently manages cable television systems which are principally owned
by Olympus and limited partnerships of which certain of ACC's principal
shareholders who are executive officers have equity interests (the "Managed
Partnerships").
ACC has agreements with Olympus and the Managed Partnerships which provide
for the payment of fees to ACC. The aggregate fee revenues from Olympus and
the Managed Partnerships amounted to $4,159, $4,659 and $3,643 for the years
ended March 31, 1994, 1993 and 1992, respectively. In addition, ACC was
reimbursed by Olympus and Managed Partnerships for allocated corporate costs
of $4,021, $4,521 and $3,696 for the years ended March 31, 1994, 1993 and
1992, respectively, which have been recorded as a reduction of selling,
general and administrative expense.
ACC leases from a partnership and a corporation owned by principal
shareholders who are executive officers support equipment under agreements
which have been accounted for as capital leases. These obligations, which
are included in other debt, amounted to $1,415 and $1,897 at March 31, 1994
and 1993, respectively. ACC also leases from this partnership certain
buildings under operating leases. Rent expense under these operating leases
aggregated $391, $715 and $655 for the years ended March 31, 1994, 1993 and
1992, respectively.
Net settlement amounts under interest rate swap agreements with Olympus and the
Managed Partnerships recorded as adjustments to interest expense during the
period incurred, decreased ACC's interest expense by $1,920 and $1,698 for the
years ended March 31, 1994 and 1993, respectively.
On March 31, 1994, ACC acquired from certain Managed Partnerships the rights
to provide alternative access in their respective franchise areas for a
purchase price of $14,000. Additionally, on March 31, 1994, ACC purchased real
property from certain partnerships owned by principal shareholders who are
certain executive officers for a total of $14,312. The purchase of the assets
resulted in a reduction of amounts due ACC of $28,312. Since these asset
purchases are transactions among entities under common control, they have been
recorded by ACC based upon the predecessor owners' book value. The $17,553
excess of the purchase price of these assets over the predecessor owners' book
value has been recorded as a direct charge to ACC's additional paid-in capital.
10. Quarterly Financial Data (Unaudited):
The following tables summarize the financial results of ACC for each of the
quarters in the years ended March 31, 1994 and 1993:
Three Months Ended,
March 31 Dec. 31 Sept. 30 June 30
Year Ended March 31, 1994:
Revenues..................... $ 80,054 $ 79,945 $ 79,388 $ 79,658
Operating expenses:
Direct operating and
programming................ 23,177 22,675 22,363 22,332
Selling, general and
administrative............. 14,649 12,758 12,577 12,817
Depreciation and
amortization............... 21,886 22,200 23,621 21,695
Total........................ 59,712 57,633 58,561 56,844
Operating income............. 20,342 22,312 20,827 22,814
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
10. Quarterly Financial Data (Unaudited), continued:
Three Months Ended,
March 31 Dec. 31 Sept. 30 June 30
Year Ended March 31, 1994:
Other income (expense):
Interest income from
affiliates................. $ 4,559 $ 1,565 $ 1,629 $ 1,435
Other income (expense)...... (869) 287 283 --
Priority investment income.. 5,575 5,575 5,575 5,575
Interest expense............ (45,379) (46,626) (46,096) (44,035)
Equity in net loss of
joint ventures............. (6,646) (8,087) (5,374) (9,947)
Total........................ (42,760) (47,286) (43,983) (46,972)
Loss before income taxes,
extraordinary loss and
cumulative effect of change
in accounting principle..... (22,418) (24,974) (23,156) (24,158)
Income tax expense........... (141) (811) (660) (1,130)
Loss before extraordinary loss
and cumulative effect
of change in accounting
principle................... (22,559) (25,785) (23,816) (25,288)
Extraordinary loss on early
retirement of debt.......... (752) -- -- --
Cumulative effect of change
in accounting for income
taxes....................... -- -- -- (89,660)
Net loss..................... $ (23,311) $ (25,785) $ (23,816) $ (114,948)
Loss per weighted average
share of common stock before
cumulative effect of change
in accounting principle..... $ (.98) $ (1.68) $ (1.55) $ (1.65)
Extraordinary loss on early
retirement of debt.......... (.03) -- -- --
Cumulative effect of change
in accounting for income
taxes....................... -- -- -- (5.85)
Net loss per weighted average
share of common stock....... $ (1.01) $ (1.68) $ (1.55) $ (7.50)
Weighted average shares of
common stock outstanding.... 23,031,453 15,319,476 15,319,476 15,319,476
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
10. Quarterly Financial Data (Unaudited), continued:
Three Months Ended,
March 31 Dec. 31 Sept. 30 June 30
Year Ended March 31, 1993:
Revenues..................... $ 79,302 $ 77,342 $ 74,701 $ 73,877
Operating expenses:
Direct operating and
programming................ 21,267 21,319 19,989 19,802
Selling, general and
administrative............. 13,840 11,983 11,860 11,785
Depreciation and
amortization............... 24,261 21,336 22,964 21,845
Total........................ 59,368 54,638 54,813 53,432
Operating income............. 19,934 22,704 19,888 20,445
Other income (expense):
Interest income from
affiliates................. 1,255 1,333 1,314 1,314
Other income................ 445 370 265 367
Priority investment income.. 5,575 5,575 5,575 5,575
Interest expense............ (44,541) (42,833) (37,938) (39,547)
Equity in loss of
joint venture before
cumulative effect of
change in accounting
principle.................. (10,532) (1,819) (21,133) (13,357)
Total........................ (47,798) (37,374) (51,917) (45,648)
Loss before income taxes,
extraordinary loss and
cumulative effort of change
in accounting principle..... (27,864) (14,670) (32,029) (25,203)
Income tax expense........... (3,143) -- -- --
Loss before extraordinary
loss and cumulative effect
of change in accounting
principle................... (31,007) (14,670) (32,029) (25,203)
Extraordinary loss on early
retirement of debt.......... -- -- -- (14,386)
Cumulative effect of Olympus
change in accounting for
income taxes................ (59,500) -- -- --
Net loss..................... $ (90,507) $ (14,670) $ (32,029) $ (39,589)
Loss per weighted average
share of common stock before
extraordinary loss and
cumulative effect of change
in accounting principle..... $ (2.02) $ (.96) $ (2.09) $ (1.72)
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
10. Quarterly Financial Data (Unaudited), continued:
Three Months Ended,
March 31 Dec. 31 Sept. 30 June 30
Year Ended March 31, 1993:
Extraordinary loss on early
retirement of debt.......... $ -- $ -- $ -- $ (.99)
Cumulative effect of Olympus
change in accounting
estimate................... (3.88) -- -- --
Net loss per weighted average
share of common stock....... $ (5.90) $ (.96) $ (2.09) $ (2.71)
Weighted average shares of
common stock outstanding.... 15,319,476 15,319,476 15,319,476 14,610,685
11. Subsequent Events
On May 27, 1994, ACC signed a letter of intent (subject to various
conditions, including obtaining bank financing) to increase the overall
investment of ACC and the companies it manages (the "Adelphia Group") in
cable systems held by Tele-Media Investment Partnership, L.P. ("TMIP"). The
letter of intent provides that the Adelphia Group invest between $63,000 and
$75,000 in TMIP, in exchange for controlling interests in TMIP.
On June 15, 1994, ACC invested $34,000 in TMC Holdings Corporation ("THC"),
the parent of Tele-Media of Western Connecticut. The investment in THC
provides ACC with a $30,000 Preferred Stock interest in THC and a 75% non-
voting common equity interest, with a liquidation preference to the remaining
25% common stock ownership interest in THC. ACC has the right to convert such
interest to a 75% voting common equity interest, with a liquidation preference
to the remaining shareholder's 25% common stock ownership interest, on demand.
On April 12, 1994, ACC acquired a 34% equity interest in Niagara Frontier
Hockey, L.P., which owns the Buffalo Sabres National Hockey League franchise
for a purchase price of $15,000; $7,500 of which was paid on April 12, 1994
with the remainder to be paid in four installments over the next year.
INDEPENDENT AUDITORS' REPORT
Olympus Communications, L.P.:
We have audited the accompanying consolidated balance sheets of Olympus
Communications L.P. and its subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of operations, general partner's equity
(deficiency), and cash flows for each of the three years in the period ended
December 31, 1993. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Olympus Communications L.P.
and its subsidiaries at December 31, 1993 and 1992 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Note 9 to the financial statements, effective January 1, 1993,
the Partnership changed its method of accounting for income taxes.
DELOITTE & TOUCHE
Pittsburgh, Pennsylvania
April 15, 1994
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
1993 1992
ASSETS:
Cable television systems, at cost, net of accumulated
depreciation and amortization:
Property, plant and equipment - net...................... $ 163,689 $ 157,752
Intangible assets - net.................................. 273,489 293,895
Total............................................ 437,178 451,647
Cash and cash equivalents.................................. 11,371 7,050
Subscriber receivables - net............................... 6,294 5,404
Prepaid expenses and other assets - net.................... 3,820 3,178
Total............................................ $ 458,663 $ 467,279
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY):
Notes payable to banks..................................... $ 368,000 $ 361,900
Other debt................................................. 263 528
Accounts payable........................................... 6,236 7,821
Subscriber advance payments and deposits................... 3,251 4,135
Accrued interest and other liabilities..................... 7,907 8,401
Accrued priority return on redeemable preferred limited partner
interests......................................... 95,930 60,794
Deferred business interruption proceeds.................... 1,037 6,279
Due to affiliates - net.................................... 87,553 50,360
Deferred income taxes...................................... 59,500 --
Total............................................ 629,677 500,218
Commitments and Contingencies (Note 7)
16.5% redeemable preferred limited partner interests....... 276,101 269,601
Redeemable limited partner interests....................... 5,000 19,515
General partner's equity (deficiency)...................... (452,115) (322,055)
Total............................................ $ 458,663 $ 467,279
See notes to consolidated financial statements.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
Year Ended
December 31,
1993 1992 1991
Revenues........................................ $ 89,099 $ 86,255 $ 90,597
Business interruption revenue................... 9,547 7,146 --
Total................................. 98,646 93,401 90,597
Operating expenses:
Direct operating and programming............... 22,078 22,473 24,433
Selling, general and administrative............ 16,692 18,817 16,761
Depreciation and amortization.................. 37,240 39,407 38,427
Management fees to Managing Affiliate.......... 4,681 4,831 4,497
Total................................. 80,691 85,528 84,118
Operating income................................ 17,955 7,873 6,479
Interest expense................................ (29,470) (30,272) (39,413)
Priority return to an affiliate................. -- 5,247 (3,643)
Other income.................................... 271 535 --
Loss before cumulative effect of change in
accounting principle........................... (11,244) (16,617) (36,577)
Cumulative effect of change in accounting for
income taxes................................... (59,500) -- --
Net loss.............................. (70,744) (16,617) (36,577)
Priority return on redeemable preferred limited
partner interests.............................. (57,436) (52,135) (44,271)
Net loss allocated to redeemable limited
partners....................................... 9,720 8,309 10,494
Accretion requirements of redeemable limited
partners....................................... (5,000) (12,924) (14,900)
Net loss of general partner after
priority return and accretion
requirements......................... $(123,460) $ (73,367) $ (85,254)
Net loss per general partner unit
after priority return and accretion
requirements......................... $ (12,346) $ (4,446) $ (5,162)
See notes to consolidated financial statements.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF GENERAL PARTNER'S EQUITY (DEFICIENCY)
(Dollars in thousands)
General
Partner
Balance, December 31, 1990............................................$(163,434)
Net loss of general partner after priority return and accretion
requirements......................................................... (85,254)
Balance, December 31, 1991............................................ (248,688)
Net loss of general partner after priority return and accretion
requirements......................................................... (73,367)
Balance, December 31, 1992............................................ (322,055)
Conversion of general partnership interests to preferred limited
partnership interests................................................ (6,500)
Net loss of general partner after priority return and accretion
requirements......................................................... (123,460)
Capital distribution.................................................. (100)
Balance, December 31, 1993............................................$(452,115)
See notes to consolidated financial statements.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended
December 31,
1993 1992 1991
Cash flows from operating activities:
Net loss.......................................... $(70,744) $(16,617) $(36,577)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization................... 37,240 39,407 38,427
Gain on property damage related to hurricane.... -- (535) --
Cumulative effect of change in accounting
principle...................................... 59,500 -- --
Changes in operating assets and liabilities, net
of effects of acquisitions and transfer of
property:
Subscriber receivables........................ (890) 498 (1,835)
Prepaid expenses and other assets............. (251) (58) (1,444)
Accounts payable.............................. (1,585) (13) (347)
Subscriber advance payments and deposits...... (884) (59) (446)
Accrued interest and other liabilities........ (494) (10,245) 2,402
Deferred business interruption proceeds......... (5,240) 6,279 --
Net cash provided by operating activities.......... 16,652 18,657 180
Cash flows from investment activities:
Expenditures for property, plant and equipment.... (23,164) (26,827) (21,859)
Insurance proceeds for property damage related to
hurricane........................................ -- 6,800 --
Proceeds from repayment of note receivable from
affiliated partnership........................... -- 10,157 --
Purchase of limited partner equity interests...... (9,795) -- --
Net cash used for investment activities............ (32,959) (9,870) (21,859)
Cash flows from financing activities:
Proceeds from debt................................ 13,000 59,956 276
Repayments of debt................................ (7,165) (90,314) (4,510)
Costs associated with debt financing.............. -- (969) --
Limited partners' contributions................... -- -- 32,100
Payments of priority return....................... (22,300) (22,300) (20,950)
Amounts advanced from (to) affiliates............. 37,193 48,119 (3,451)
Capital distribution.............................. (100) -- --
Net cash provided by (used for) financing
activities........................................ 20,628 (5,508) 3,465
Increase (decrease) in cash and cash equivalents... 4,321 3,279 (18,214)
Cash and cash equivalents, beginning of period..... 7,050 3,771 21,985
Cash and cash equivalents, end of period........... $ 11,371 $ 7,050 $ 3,771
Supplemental disclosure of cash flow activity -
Cash payments for interest........................ $ 30,117 $ 32,387 $ 40,846
See notes to consolidated financial statements.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. The Partnership:
Olympus Communications, L.P. and Subsidiaries ("Olympus") is a joint venture
limited partnership formed under the laws of Delaware with 50% of the
outstanding voting interests controlled by Adelphia Communications
Corporation ("ACC"). Olympus' operations consist primarily of selling
video programming which is distributed to subscribers for a monthly fee
through a network of fiber optic and coaxial cables.
The consolidated financial statements include the accounts of Olympus and
its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
2. Summary of Significant Accounting Policies:
Subscriber Revenues
Subscriber revenues are recorded in the month the service is provided.
Subscriber Receivables
An allowance for doubtful accounts of $2,598 and $1,638 is recorded as a
reduction of subscriber receivables at December 31, 1993 and 1992,
respectively.
Programming Expense
Prior to July 1, 1992, ACC charged programming expense to affiliates
(including Olympus) based on the number of subscribers to each programming
service in the affiliate. Effective July 1, 1992, programming expense
charged by ACC to affiliates is based on cost reductions under programming
contracts from incremental subscribers, as well as the number of
subscribers. The effect of this change was to decrease programming expense
by $2,888 and $814 for the years ending December 31, 1993 and 1992,
respectively.
Property, Plant and Equipment
Property, plant and equipment are comprised of the following:
December 31,
1993 1992
Operating plant and equipment........................... $197,604 $174,509
Real estate and improvements............................ 4,158 5,717
Support equipment....................................... 3,440 3,113
Construction in progress................................ 15,258 13,966
220,460 197,305
Accumulated depreciation................................ (56,771) (39,553)
$163,689 $157,752
Depreciation is computed on the straight-line method using estimated useful
lives of 5 to 18 years for operating plant and equipment and 3 to 20 years for
support equipment and buildings. Additions to property, plant and equipment
are recorded at cost which includes amounts for material, applicable labor, and
interest. Olympus capitalized interest amounting to $436 for 1993 and 1992.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
2. Summary of Significant Accounting Policies, continued:
Intangible Assets
Intangible assets, net of accumulated amortization, are comprised of the
following:
December 31,
1993 1992
Purchased franchises..................................... $248,647 $255,926
Purchased subscriber lists............................... 63 2,024
Goodwill................................................. 4,568 4,707
Non-compete agreements................................... 20,211 31,238
$273,489 $293,895
A portion of the aggregate purchase price of cable television systems acquired
has been allocated to purchased franchises, purchased subscriber lists, non-
compete agreements and goodwill. Purchased franchises and goodwill are
amortized on the straight-line method over periods, which range from 34 to 40
years. Purchased subscriber lists are amortized on the straight-line method
over 7 years. Non-
compete agreements are amortized over their contractual lives, which range from
2 to 10 years. Accumulated amortization of intangible assets amounted to
$81,668 and $62,101 at December 31, 1993 and 1992, respectively.
Amortization of Other Assets
Deferred debt financing costs, included in other assets, are amortized over the
term of the related debt. The unamortized amount included in prepaid expenses
and other assets was $2,426 and $1,360 at December 31, 1993 and 1992,
respectively.
Net Loss Per General Partner Unit After Priority Return and Accretion
Requirements
Net loss per general partner unit after priority return and accretion
requirements is based upon the weighted average number of general partner units
outstanding of 10.0 for 1993, and 16.5 for 1992 and 1991.
Cash and Cash Equivalents
Olympus considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
Noncash Financing and Investment Activities
December 31,
1993 1992 1991
Notes issued to sellers in connection with an
acquisition......................................$ -- $ -- $ 274
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
3. Business Interruption and Property Damage Related to Hurricane:
On August 24, 1992, service in Olympus' South Dade system was interrupted by
Hurricane Andrew. The hurricane damaged property with a net book value of
approximately $6,265. Olympus maintained insurance for property loss and
for business interruption and transmission lines. Olympus received net
proceeds of approximately $4,305 and $20,225 from the insurance carriers in
the years ended December 31, 1993 and 1992, respectively.
Olympus has made an allocation of insurance proceeds. Of the $24,530 in
total insurance proceeds received, $6,800 was allocated to property damage
resulting in a $535 gain (included in other income) in 1992 and $9,547 and
$7,146 were allocated to business interruption in 1993 and 1992,
respectively. Remaining insurance proceeds of $1,037 have been deferred to
provide for business interruption in 1994.
4. Debt:
Notes Payable to Banks
Notes payable to banks of Olympus' subsidiaries are comprised of the
following:
December 31,
1993 1992
Revolving credit agreement with banks, converted into
term notes with quarterly principal installments
increasing from 1% to 5.25% due March 31, 1993 through
1999 -- Adelphia Cable Partners, L.P. ("ACP")........... 323,900 $323,900
$45,000,000 revolving credit agreement with banks
convertible into term notes with the first quarterly
installment of 2% due September 30, 1993 and due through
1999 -- Northeast Cable, Inc. ("Northeast")............. 44,100 38,000
$368,000 $361,900
The ACP revolving credit agreement converted to a term note on December 30,
1992. Simultaneous with the conversion, ACP prepaid $25,000 of principal
through March 31, 1994. The amount of actual borrowings available to Northeast
under revolving credit agreements is generally based upon achieving certain
levels of operating performance. Northeast pays commitment fees of .375% of
unused principal. Borrowings under the ACP and Northeast credit arrangements
are collateralized substantially by a pledge of the stock or partnership
interests of the subsidiaries. These agreements stipulate, among other things,
limitations on additional borrowings, investments, transactions with
affiliates, payment of dividends, distributions and fees, and requires the
maintenance of certain financial ratios. The indebtedness under these
agreements is non-recourse to Olympus and ACC.
Interest rates charged for the ACP and Northeast bank debt are based upon one
or more of the following options: prime rate plus 0% to 1.50%, certificate of
deposit rate plus .88% to 2.63%, or Eurodollar rate plus .75% to 2.50%. The
weighted average interest rate on notes payable of ACP and Northeast to the
banks, including the effect of interest rate hedging arrangements was 6.26% and
6.85% at December 31, 1993 and 1992, respectively. Interest on outstanding
borrowings is generally payable on a quarterly basis.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
4. Debt, continued:
Notes Payable to Banks, continued:
Olympus has entered into interest rate swap agreements with banks and ACC to
reduce the impact of changes in interest rates on its floating rate bank
debt. At December 31, 1993, Olympus had a net total notional principal
amount of $150,000 outstanding under such agreements, which expire from 1992
through 2000. These agreements provide for a weighted average rate of
8.36%, at December 31, 1993. Olympus is exposed to credit loss in the event
of nonperformance by the bank and ACC. Olympus does not expect any such
nonperformance. Net settlement amounts under these swap agreements are
recorded as adjustments to interest expense during the period incurred.
Through March 27, 1992, an affiliated partnership of certain executive
officers of ACC, which owns several cable television systems, guaranteed
indebtedness under ACP's credit agreement with banks. During the period of
this guarantee, the cash flow of this affiliated partnership was available
to Olympus for the purpose of paying interest on this indebtedness. This
guarantee was subject to release by the banks if certain conditions were met
including the achieving of certain levels of operating performance, the
repayment of a $10,157 term note of the affiliated partnership to Olympus,
plus accrued interest, and the repayment of a certain amount of ACP bank debt.
In consideration for this guarantee, the affiliated partnership had the right
to transfer all of its assets to Olympus, on or before March 31, 1992, as
amended, in exchange for $29,000 in Preferred Limited Partner ("PLP") Interests
subject to a 16.5% return on such interests as if they had been issued on
January 30, 1990. Alternatively, before or at the time the banks released the
guarantee, but not later than March 31, 1992, ACC was entitled to contribute
to Olympus an amount equal to the fair market value of $29,000 in PLP Interests
assuming such interests had been issued on January 30, 1990 in exchange for
$29,000 in PLP Interests subject to a 16.5% return on such interests as if
they had been issued on January 30, 1990. If such a transaction had occurred,
Olympus would have been required to pay to the affiliated partnership the
excess, if any, of the contribution over $29,000. Through December 31, 1991,
Olympus has accrued $9,251 for this potential obligation. This accrual, net
of the available cash flow provided by the affiliated partnership of $1,524
through December 31, 1991, has been included on the Statement of Operations
under the caption "Priority Return to an Affiliate".
Prior to March 31, 1992, Olympus, ACC and the affiliated partnership
consummated a series of transactions which resulted in the repayment of amounts
owed to Olympus by the affiliate, the release of the affiliate from the
guarantee and the cancellation of the rights of the affiliate and ACC to
contribute assets to Olympus in return for PLP Interest and the related
return thereon, through an amendment to the Olympus partnership agreement. As
a condition of the release of the affiliate's guarantee, ACP repaid $24,000 of
its bank debt through funds provided by Olympus. Olympus obtained these funds
through the repayment of the term note plus interest from the affiliate and
advances from affiliates of ACC. In connection with the amendment, as of March
31, 1992, Olympus reversed $5,674 of the net priority return amounts previously
accrued under the guarantee arrangement.
Other Debt
Other debt, with interest at 6.0% to 11.3%, consists of purchase money
indebtedness and capital leases incurred in connection with the acquisition
of, and are collateralized by, certain equipment.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
4. Debt, continued:
Maturities of Debt
Maturities of debt, for the five years after December 31, 1993, are as
follows:
1994................................................................$20,658
1995................................................................ 41,262
1996................................................................ 56,047
1997.................................................................71,801
1998................................................................ 98,025
Management intends to fund its requirements for maturities of debt under new
credit arrangements and internally generated funds. Changing conditions in
the financial markets may have some impact on how Olympus will refinance its
debt in the near future. Management does not expect these matters to
adversely affect Olympus' operations during the next several years.
5. 16.5% Redeemable PLP Interests and Special Limited Partner Interests:
The PLP Interests issued to ACC are nonvoting, senior to claims represented
by other partner interests, provide for a priority return of 16.5% per
annum, (payable quarterly) and are to be repaid by 2004. In the event that
any priority return is not paid when due, such unpaid amounts will accrue
additional return at a rate of 18.5% per annum. The unpaid priority return
amounted to $95,930 and $60,794 at December 31, 1993 and 1992, respectively.
The following summarizes the issuance of PLP Interests to ACC for the three
years ended December 31, 1993:
Balance, December 31, 1990.........................................$237,501
Issuances during 1991.............................................. 32,100
Balance, December 31, 1991 and 1992................................ 269,601
Conversion of general partnership interests to preferred limited
partnership interests............................................. 6,500
Balance, December 31, 1993.........................................$276,101
Special limited partner interests were issued to ACC in connection with the
issuance of PLP Interests and general partner interests, without any
contribution of assets by ACC. These interests provide for special allocations
of Olympus' income (Note 6).
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
6. Redeemable Limited Partner Interests and General Partner's Equity
(Deficiency):
The general partner and limited partners of Olympus will generally share in
future net income and losses of Olympus based upon their respective
percentage ownership of partnership voting units except for certain special
allocation provisions set forth in the Olympus partnership agreement. As
specified in the partnership agreement, after the holders of the PLP
Interests have received a return of their capital plus 16.5% per annum
priority return, distributions by Olympus will be made in the following
order: (i) to partners holding voting units (other than ACC) until each
partner receives an 18% compounded return on its investment; (ii) to ACC
until it receives an 18% compounded return on its investment in the voting
units; (iii) to ACC as managing general partner, to the special limited
partners and to the partners holding voting units until each partner holding
voting units receives a 24% compounded return on its investment; and (iv)
to ACC as managing general partner, to the special limited partners and to the
partners holding voting units.
The $16,500 in redeemable limited partner units issued to unrelated parties
in connection with the 1990 cable television system acquisitions represent
voting partnership interests which are subject to certain put and call
rights. In the event that any such redemption or purchase of limited partner
units results in ACC owning more than 50% of the Partnership's voting
interests, ACC will be required under the Partnership Agreement to reduce its
voting interests so as to maintain its voting interest at or below 50%. ACC
may at its option convert voting partner units to PLP Interests or senior debt
in order to maintain its voting interest at or below 50%.
After giving notice to Olympus in July 1992, the holder of the $6,500 in
limited partner interests exercised its right to require Olympus to redeem
its units on or before January 30, 1993. On January 3, 1993, Olympus acquired
the redeemable limited partner units from the holder for $9,795. Concurrently,
ACC converted 6.5 general partner units to PLP interests, thereby maintaining
its 50% partnership voting interest.
The holders of $10,000 of redeemable limited partner units can, at various
dates through January 1996, require Olympus to redeem all of its units at
the fair market value of the units on the exercise date. In the event that
Olympus does not make the required purchase or if such purchase would cause
Olympus, ACC or any affiliate of ACC to be in default of the provisions of
their respective loan agreements, then Olympus may sell the assets and
liquidate the partnership. At various dates through January 1996, ACC may
purchase the $10,000 in limited partner units at their fair market value at the
exercise date.
For financial reporting purposes, the $9,900 redemption price on the $6,500 in
limited partner units was being accreted using the interest method. Such
accretion was charged proportionately to the remaining limited and general
partners' capital accounts. The carrying value of the $10,000 limited partner
units are being adjusted as the fair market value of the units change. The
difference between the carrying value and the fair market value was being
accreted ratably through January 1993 as a charge to the general partners'
capital account.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
6. Redeemable Limited Partner Interests and General Partners' Equity
(Deficiency),
continued:
The following summarizes activity related to the redeemable limited partners
for the three years ended December 31, 1993:
Balance, December 31, 1990.............................................$ 10,494
Net loss allocated to redeemable limited partners................. (10,494)
Accretion requirements to redeemable limited partners............. 14,900
Balance, December 31, 1991............................................. 14,900
Net loss allocated to redeemable limited partners................. (8,309)
Accretion requirements to redeemable limited partners............. 12,924
Balance, December 31, 1992............................................. 19,515
Redemption of limited partnership interests on January 3, 1993.... (9,795)
Net loss allocated to redeemable limited partners................. (9,720)
Accretion requirements to redeemable limited partners............. 5,000
Balance, December 31, 1993.............................................$ 5,000
7. Commitments and Contingencies:
Olympus rents office space, tower sites, and space on utility poles under
leases with terms which are generally less than one year or under agreements
that are generally cancelable on short notice. Total rental expense under
all operating leases aggregated $1,148, $1,008 and $1,104 for 1993, 1992 and
1991, respectively.
In connection with certain obligations under existing franchise agreements,
Olympus obtains surety bonds guaranteeing performance to municipalities and
public utilities. Payment is required only in the event of nonperformance.
Olympus has fulfilled all of their obligations such that no payments under
surety bonds have been required.
As of July 1, 1993, Olympus adopted a program to self insure for casualty
and business interruption insurance. This program is part of an aggregate
agreement between Olympus and subsidiaries in which Olympus will provide
insurance for casualty and business interruption claims of up to $10,000 and
$20,000 per claim, respectively, for each subsidiary. These risks were
previously insured by outside partners with nominal deductible amounts.
On October 5, 1992, Congress passed the 1992 Cable Act which significantly
expands the scope of regulation of certain subscriber rates and a number of
other matters in the cable industry. The original rate regulations required
a reduction of rates charged for regulated services, as defined, to the
greater of a calculated benchmark level or a reduction of 10% from the rate in
force as of September 30, 1992. Under the Cable Act, programming services
offered on a per channel basis, "a la carte", are generally not considered
regulated service. In March 1994, the FCC released revised rate regulations.
These revised regulations, among other things, created a new benchmark formula
and new targets for additional rate reductions. In addition, the FCC offered
further guidance as to what constitute a la carte services.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
7. Commitments and Contingencies, continued:
Olympus is currently unable to predict the effect that the amended
regulations, future FCC treatment of a la carte packages or further FCC rate
rulemaking proceedings will have on its business and results of operations
in future periods. To the extent applicable, the regulations could result
in a rollback of existing Olympus rates. Olympus intends to continue to
assess the effect of FCC rate regulations. No assurances can be given at
this time that such matters will not have a material negative financial
impact on Olympus's business.
8. Employee Benefit Plans:
Olympus participates in an ACC savings plan (401(k)) which provides that
eligible full-time employees may contribute from 2% to 20% of their pre-tax
compensation. Olympus matches contributions not exceeding 1.5% of each
participant's pre-tax compensation. During 1993, 1992 and 1991, no significant
matching contributions were made by Olympus.
9. Taxes on Income:
Several subsidiaries of Olympus are corporations that file separate federal and
state income tax returns. At December 31, 1993, these subsidiaries had
net operating loss carryforwards federal income tax purposes of approximately
$150,400 expiring through 2008.
Olympus adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," effective January 1, 1993. This Statement
supersedes Accounting Principles Board Opinion No. 11, "Accounting for Income
Taxes," which Olympus had followed previously and under which Olympus recorded
no deferred tax liability. The cumulative effect of adopting SFAS No. 109 at
January 1, 1993 was to increase the net loss by $59,500 for the year ended
December 31, 1993. As a result of applying SFAS No. 109, $47,130 of previously
unrecorded deferred tax benefits from operating loss carryforwards incurred by
Olympus were recognized at January 1, 1993 as part of the cumulative effect of
adopting the Statement. Under prior accounting, a part of these benefits would
have been recognized as a reduction of income tax expense from continuing
operations in the year ended December 31, 1993.
Deferred income taxes reflect the net tax effects of: (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
and tax credit carryforwards. The tax effects of significant items comprising
Olympus's net deferred tax liability as of December 31, 1993 are as follows:
Deferred tax liabilities:
Differences between book and tax basis of property..............$106,309
Deferred tax assets:
Operating loss carryforwards.................................... 58,034
Other........................................................... 380
Valuation allowance............................................. (11,605)
Subtotal..................................................... 46,809
Net deferred tax liability........................................$ 59,500
The net change in the valuation allowance in 1993 was an increase of $11,509.
OLYMPUS COMMUNICATIONS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Continued)
10. Disclosures about Fair Value of Financial Instruments:
Included in Olympus' financial instrument portfolio are cash, notes payable,
interest rate swaps, and redeemable limited partner interests (including
redeemable preferred limited partner interests and the accrued priority
return thereon). The carrying values of the notes payable and redeemable
limited partnership interests approximate their fair values at December 31,
1993. The fair value of the interest rate swaps exceeded their carrying
cost by approximately $7,121 at December 31, 1993. The fair values of the
debt and interest rate swaps were based upon quoted market prices of similar
instruments or on rates available to Olympus for instruments of the same
remaining maturities.
The aggregate of the redeemable limited partner and the redeemable preferred
limited partner interests (collectively "The Aggregate Redeemable Partner
Interests") had carrying values totalling $377,000 at December 31, 1993.
The Aggregate Redeemable Partner Interests had an estimated fair value
ranging from $250,000 to $300,000 at December 31, 1993. The fair value of
the Aggregate Redeemable Partner Interests was based upon an investment bank
market research report, computed using multiples of estimated cash flows.
Considerable judgment is necessary to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative
of the amounts that a holder could realize in a current market exchange.
The use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.
11. Transactions with Related Parties:
Olympus has an agreement with a subsidiary of ACC (Managing Affiliate) which
provides for payment of management fees by Olympus equal to 5% of Olympus'
gross revenues. The amount and payment of these fees is subject to the
restrictions contained in the credit agreements. Olympus also reimburses
ACC for direct operating costs, which amounted to $600, $1,245 and $525 for
1993, 1992 and 1991, respectively. In 1992 Olympus assigned to ACC $750 of
insurance proceeds for assistance provided with respect to the hurricane and
the resulting insurance claims (Note 3).
At December 31, 1991, Olympus held a 16.5% term note from an affiliated
partnership of certain executive officers of ACC in the amount of $10,157.
This note was repaid on March 27, 1992. Interest income from this affiliated
partnership on the term note and other receivables amounted to $597 and $2,271
for 1992 and 1991, respectively, which are included in revenues.
Olympus has periodically received funds from and advanced funds to ACC and
other affiliates. Olympus was charged $4,955, $4,497 and $2,798 of interest
on such net payables for 1993, 1992 and 1991, respectively.
Net settlement amounts under interest rate swap agreements with ACC are
recorded as adjustments to interest expense during the period incurred. The
effect of the interest rate swaps was to increase interest expense by $651 and
$1,434 in 1993 and 1992, respectively.
Olympus entered into an agreement with an affiliated partnership in 1993
providing for the payment of management fees to Olympus equal to 5% of the
affiliated partnership's revenues. Such fees amounted to $397 for 1993, which
are included in revenues.
On March 31, 1994, Olympus sold to ACC, rights to provide alternative access
in its franchised areas and an investment in an unaffiliated partnership for
a purchase price of $15,500. The sale resulted in the reduction of a payable
to ACC of $15,500.
ITEM 9. DISAGREEMENT ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set
forth above in Part I under the caption "Executive Officers of the Registrant"
is incorporated herein by reference. The other information required by this
item is incorporated herein by reference to the information set forth under the
caption "Election of Directors - Description of Board of Directors"; the
information set forth under the caption "Election of Directors - Nominee for
Election by Holders of Class A Common Stock"; the information set forth under
the caption "Election of Directors - Nominees for Election by Holders of Class
A Common Stock and Class B Common Stock"; and the information under the caption
"Certain Transactions - Certain Reports" in the Company's definitive proxy
statement for the 1994 Annual Meeting of Stockholders filed pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended.
ITEM 11. EXECUTIVE COMPENSATION
The information
required by this item is incorporated herein by reference to the information
set forth under the caption "Executive Compensation" in the Company's
definitive proxy statement for the 1994 Annual Meeting of Stockholders filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information
required by this term is incorporated herein by reference to the information
set forth under the caption "Principal Stockholders" in the Company's
definitive proxy statement for the 1994 Annual Meeting of Stockholders filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information
required by this item is incorporated herein by reference to the information
set forth under the caption "Certain Transactions" in the Company's definitive
proxy statement for the 1994 Annual Meeting of Stockholders filed pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements,
schedules and exhibits not listed have been omitted where the required
information is included in the consolidated financial statements or notes
thereto, or is not applicable or required.
(a)(1)A listing of the consolidated financial statements, notes and independent
auditors' report required by Item 8 are listed on page 43 of this Annual Report
on Form 10-K.
(2)Financial Statement Schedules:
The following are included in this Report:
Schedule II - Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees other than Related Parties
Schedule III -- Condensed Financial Information of the Registrant
Schedule V -- Property, Plant and Equipment
Schedule VI -- Accumulated Depreciation and Amortization of Property, Plant
and Equipment
Schedule VIII -- Valuation and Qualifying Accounts
(3)Exhibits
Exhibit No.
Reference
3.01 Certificate of Incorporation
of Adelphia Communications
Corporation
Incorporated herein by reference
is Exhibit 3.01 to Registration
Statement No. 33-6974 on Form S-1.
3.02 Bylaws of Adelphia
Communications Corporation, as
amended
Filed herewith.
4.01 First Supplemental Indenture,
dated as of May 4, 1994, with
respect to Registrant's 9 1/2%
Senior Pay-In-Kind Notes Due 2004
Incorporated herein by reference
is Exhibit 4.01 to Registrant's
Current Report on Form 8-K dated
May 5, 1994.
4.02 Indenture, dated as of
February 22, 1994, with respect to
Registrant's 9 1/2% Senior Pay-In-
Kind Notes Due 2004
Incorporated herein by reference
is Exhibit 4.05 to Registration
Statement No. 33-52513 on
Form S-4.
4.03 Indenture, dated as of July
28, 1993, with respect to
Registrant's 10 1/4% Senior Notes
Due 2000
Incorporated herein by reference
is Exhibit 4.01 to Registrant's
Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993.
4.04 Amended and Restated
Indenture, dated as of May 11,
1993, with respect to Registrant's
9-7/8% Senior Debentures Due 2005
Incorporated herein by reference
is Exhibit 4.01 to Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1993.
4.05 Indenture, dated as of
September 2, 1992, with respect to
the Registrant's 11-7/8% Senior
Debentures Due 2004
Incorporated herein by reference
is Exhibit 4.03 to Registration
Statement No. 33-52630 on Form
S-1.
4.06 Indenture, dated as of May 7,
1992, with respect to the
Registrant's 12-1/2% Senior Notes
Due 2002
Incorporated herein by reference
is Exhibit 4.03 to Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1992.
10.01 Class B Common Stockholders
Agreement
Incorporated herein by reference
is Exhibit 10.01 to Registration
Statement No. 33-6974 on Form S-1.
10.02 Joinder to Class B Common
Stockholders Agreement
Filed herewith.
10.03 Registration Rights Agreement
and Amendment to Registration
Rights Agreement
Incorporated herein by reference
are Exhibit 10.02 to Registration
Statement No. 33-6974 on Form S-1
and Exhibit 10.35 to Registration
Statement No. 33-25121 on Form S-
1.
10.04 Management Agreement--
Highland Video Associates, L.P.
Incorporated herein by reference
is Exhibit 10.06 to Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1990.
10.05 Management Agreement--
Montgomery Cablevision Associates,
L.P.
Incorporated herein by reference
is Exhibit 10.08 to Registration
Statement No. 33-6974 on Form S-1.
10.0
6
Management Agreement--
Adelphia Cablevision
Associates of Radnor, L.P.
Incorporated herein by reference
is Exhibit 10.09 to Registration
Statement No. 33-6974 on Form S-1.
10.07 Form of Agreement Regarding
Management Services for Olympus
Communications, L.P.
Incorporated herein by reference
is Exhibit 10.06 to Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1991.
10.08* Stock Option Plan of 1986,
as amended
Incorporated herein by reference
is Exhibit 10.07 to Registration
Statement No. 33-46551 on Form
S-1.
10.09* Restricted Stock Bonus Plan,
as amended
Incorporated herein by reference
is Exhibit 10.08 to Registration
Statement No. 33-46551 on Form
S-1.
10.10 Business Opportunity
Agreement
Incorporated herein by reference
is Exhibit 10.13 to Registration
Statement No. 33-3674 on Form S-1.
10.11* Employment Agreement between
the Company and John J. Rigas
Incorporated herein by reference
is Exhibit 10.14 to Registration
Statement No. 33-6974 on Form S-1.
10.12* Employment Agreement between
the Company and Daniel R. Milliard
Incorporated herein by reference
is Exhibit 10.15 to Registration
Statement No. 33-6974 on Form S-1.
10.13* Employment Agreement between
the Company and Timothy J. Rigas
Incorporated herein by reference
is Exhibit 10.16 to Registration
Statement No. 33-6974 on Form S-1.
10.14* Employment Agreement between
the Company and Michael J. Rigas
Incorporated herein by reference
is Exhibit 10.17 to Registration
Statement No. 33-6974 on Form S-1.
10.15* Employment Agreement between
the Company and James P. Rigas
Incorporated herein by reference
is Exhibit 10.18 to Registration
Statement No. 33-6974 on Form S-1.
10.16 Agreement Regarding
Management Fees relating to the
subsidiaries of Chauncey
Communications Corporation
Incorporated herein by reference
is Exhibit 10.16 of Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1991.
10.17 Loan Agreement among Chelsea
Communications, Inc. and The
Toronto-Dominion Bank Trust
Company and NCNB Texas National
Bank, as Agents, and the Banks
named therein, dated as of
September 25, 1989
Incorporated herein by reference
is Exhibit 10.01 of Registrant's
Quarterly Report on Form 10-Q for
the quarter ended September 30,
1989.
10.18 First Amended and Restated
Limited Partnership Agreement of
Olympus Communications, L.P. and
First Addendum to the First
Amended and Restated Limited
Partnership Agreement of Olympus
Communications, L.P.
Incorporated herein by reference
is Exhibit 10.01 of Registrant's
Quarterly Report on Form 10-Q for
the quarter ended December 31,
1989.
10.19 First Amendment to First
Amended and Restated Limited
Partnership Agreement of Olympus
Communications, L.P.
Incorporated herein by reference
is Exhibit 10.32 of Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1990.
10.20 Second Addendum to the First
Amended and Restated Limited
Partnership Agreement of Olympus
Communications, L.P.
Incorporated herein by reference
is Exhibit 10.21 of Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1991.
1
0.21 Loan Agreement among Adelphia
Cable Partners, L.P., CCTC
Acquisition, Inc., Southeast
Florida Cable, Inc., and The
Toronto-Dominion Bank Trust
Company, as Agent, and the Banks
named therein, dated December 19,
1989
Incorporated herein by reference
is Exhibit 10.28 of Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1990.
10.22 Agreement Regarding
Management Fees relating to
subsidiaries of Chelsea
Communications, Inc.
Incorporated herein by reference
is Exhibit 10.31 of Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1990.
10.23 Form of Note Agreement, dated
as of August 1, 1990, relating to
the 10.66% Senior Secured Notes
due August 1, 1998 of Chauncey
Communications Corporation
Incorporated herein by reference
is Exhibit 10.01 of Registrant's
Quarterly Report on Form 10-Q for
the quarter ended June 30, 1990.
10.24 Amendatory Agreement
regarding Chauncey Communications
Corporation 10.66% Senior Secured
Note Agreement, dated as of
August 6, 1991
Incorporated herein by reference
is Exhibit 10.02 of Registrant's
Quarterly Report on Form 10-Q for
the quarter ended September 30,
1991.
10.25 $50,000 Term Note and Pledge
Agreement between Adelphia
Communications Corporation as
lender and Daniel R. Milliard,
dated October 1, 1988
Incorporated herein by reference
is Exhibit 10.03 of Registrant's
Quarterly Report on Form 10-Q for
the quarter ended September 30,
1991.
10.26 $205,000 Revolving Term Note
and Pledge Agreement among
Adelphia Communications
Corporation as lender, Daniel R.
Milliard and David Acker
Incorporated herein by reference
is Exhibit 10.04 of Registrant's
Quarterly Report on Form 10-Q for
the quarter ended September 30,
1991.
10.27 First Amendment to Loan
Agreement among Adelphia Cable
Partners, L.P., Southeast Florida
Cable and The Toronto-Dominion
Bank Trust Company, as Agent,
dated as of March 1, 1990
Incorporated herein by reference
is Exhibit 10.32 to Registration
Statement No. 33-46551 on Form
S-1.
10.28 Second Amendment to Loan
Agreement among Adelphia Cable
Partners, L.P., Southeast Florida
Cable and The Toronto-Dominion
Bank Trust Company, as Agent,
dated as of July 31, 1991
Incorporated herein by reference
is Exhibit 10.33 to Registration
Statement No. 33-46551 on Form
S-1.
10.29 Third Amendment to Loan
Agreement among Adelphia Cable
Partners, L.P., Southeast Florida
Cable and The Toronto-Dominion
Bank Trust Company, as Agent,
dated February 21, 1992
Incorporated herein by reference
is Exhibit 10.34 to Registration
Statement No. 33-46551 on Form
S-1.
10.30 Second Amendment to First
Amended and Restated Limited
Partnership Agreement of Olympus
Communications, L.P.
Incorporated herein by reference
is Exhibit 10.35 to Registration
Statement No. 33-46551 on Form
S-1.
10.31 Third Amendment to First
Amended and Restated Limited
Partnership Agreement of Olympus
Communications, L.P.
Incorporated herein by reference
is Exhibit 10.36 to Registration
Statement No. 33-46551 on Form
S-1.
10.32 Agreement for the Purchase of
Class A Common Stock by the Rigas
Family, dated May 7, 1992
Incorporated herein by reference
is Exhibit 10.36 of Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1992.
10.33 First Amendment to Loan
Agreement among Chelsea
Communications, Inc. and The
Toronto-Dominion Bank Trust
Company and NCNB Texas National
Bank, as Agents, and the Banks
named therein, dated as of
August 10, 1992
Incorporated herein by reference
is Exhibit 10.39 to Registration
Statement No. 33-52630 on Form
S-1.
10.34 Underwriting Agreement
relating to 11-7/8% Senior
Debentures Due 2004 by and between
Adelphia Communications
Corporation and the Underwriter,
dated September 2, 1992
Incorporated herein by reference
is Exhibit 10.40 to Registration
Statement No. 33-52630 on Form
S-1.
10.35 Fourth Amendment to Loan
Agreement among Adelphia Cable
Partners, L.P., Southeast Florida
Cable and The Toronto-Dominion
Bank Trust Company, as Agent,
dated December 23, 1992
Incorporated herein by reference
is Exhibit 10.41 to Registration
Statement No. 33-52630 on Form S-
1.
10.36 Third Addendum to the First
Amended and Restated Limited
Partnership Agreement of Olympus
Communications, L.P.
Incorporated herein by reference
is Exhibit 10.43 to Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1993.
10.37 Fourth Addendum to the First
Amended and Restated Limited
Partnership Agreement of Olympus
Communications, L.P.
Incorporated herein by reference
is Exhibit 10.44 to Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1993.
10.38 Fifth Addendum to the First
Amended and Restated Limited
Partnership Agreement of Olympus
Communications, L.P.
Incorporated herein by reference
is Exhibit 10.45 to Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1993.
10.39 Sixth Addendum to the First
Amended and Restated Limited
Partnership Agreement of Olympus
Communications, L.P.
Incorporated herein by reference
is Exhibit 10.46 to Registrant's
Annual Report on Form 10-K for the
fiscal year ended March 31, 1993.
10.40 Purchase Agreement relating
to 10 1/4% Senior Notes Due 2000,
Series A and B, by and between
Adelphia Communications
Corporation and the Purchaser,
dated July 20, 1993
Incorporated herein by reference
is Exhibit 10.01 to Registrant's
Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993.
10.41 Registration Rights Agreement
relating to 10 1/4% Senior Notes
Due 2000, Series A and B, by and
between Adelphia Communications
Corporation and the Purchaser,
dated July 28, 1993
Incorporated herein by reference
is Exhibit 10.02 to Registrant's
Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993.
10.42 Agreement for the Purchase of
Class A Common Stock by the Rigas
family, dated January 7, 1994
Incorporated herein by reference
is Exhibit 10.01 to Registrant's
Quarterly Report on Form 10-Q for
the quarter ended December 31,
1993.
10.43 Underwriting Agreement
between the Company and Salomon
Brothers, Inc., dated January 7,
1994
Incorporated herein by reference
is Exhibit 10.01 to Registrant's
Current Report on Form 8-K dated
January 14, 1994.
10.44 Registration Agreement
between the Company and Salomon
Brothers, Inc., dated January 7,
1994
Incorporated herein by reference
is Exhibit 10.02 to Registrant's
Current Report on Form 8-K dated
January 14, 1994.
10.45 Second Amendment to Loan
Agreement between Chelsea
Communications, Inc. and The
Toronto-Dominion Bank Trust
Company and Nationsbank of Texas,
N.A, as Agents, dated December 31,
1993
Incorporated herein by reference
is Exhibit 10.03 to Registrant's
Current Report on Form 8-K dated
January 14, 1994.
10.46 Purchase Agreement relating
to 9 1/2% Senior Pay-In-Kind Notes
Due 2004, Series A, by and between
Adelphia Communications
Corporation and the Purchaser,
dated February 14, 1994
Incorporated herein by reference
is Exhibit 10.01 to Registration
Statement No. 33-52513.
10.47 Registration Rights Agreement
relating to 9 1/2% Senior Pay-In-
Kind Notes Due 2004, Series A, by
and between Adelphia
Communications Corporation and the
Purchaser, dated February 22, 1994
Incorporated herein by reference
is Exhibit 10.02 to Registration
Statement No. 33-52513.
21.01 List of Subsidiaries of
Adelphia Communications
Corporation
Incorporated herein by reference
is Exhibit 21.01 to registrant's
Annual Report on form 10-K for the
fiscal year ended March 31, 1993.
23.01 Independent Auditors Consent Filed herewith.
The Registrant will furnish to the Commission upon request copies of
instruments not filed herewith which authorize the issuance of long-term
obligations of Registrant not in excess of 10% of the Registrant's total assets
on a consolidated basis.
(b)The Registrant filed the following Reports on Form 8-K during the three (3)
months ended March 31, 1994.
Date of Report Item Reported Financial Statements Filed
January 7, 1994 Item 5 None
(c)The Company hereby files as exhibits to this Form 10-K the exhibits set
forth in Item 14(a)(3) hereof which are not incorporated by reference.
(d)The Company hereby files as financial statement schedules to this Form 10-K
the financial statement schedules set forth in Item 14(a)(2) hereof.
_________________________
*Denotes management contracts and compensatory plans and arrangements
required to be identified by Item 14(a)(3).
SCHEDULE II
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
(Dollars in thousands)
Balance at Balance at
Beginning end of
of Period Additions Collections Period
Year Ended March 31, 1992
Name of debtor:
Daniel R. Milliard........... 245 10 -- 255
$ 245 $ 10 $ -- $ 255
Year Ended March 31, 1993
Name of debtor:
Daniel R. Milliard........... 255 -- -- 255
$ 255 $ -- $ -- $ 255
Year Ended March 31, 1994
Name of debtor:
Daniel R. Milliard........... 255 -- 50
205
$ 255 $ -- $ 50 $ 205
During fiscal 1990 and 1991, the Company loaned an aggregate $225,000 to Daniel
R. Milliard and an unaffiliated third party, pursuant to several revolving term
and term notes, for capital expenditures and working capital purposes.
Interest on the notes varies based on the published applicable federal rate.
SCHEDULE III
Page 1 of 4
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Information as to the
Financial Position of the Registrant
(Dollars in thousands)
March 31,
1994 1993
ASSETS:
Investments in cable television subsidiaries........... $ 50,126 $ 79,188
Property and equipment - net........................... 21,297 5,309
Cash and cash equivalents.............................. 80 88
Other assets - net.................................... 21,582 17,819
Notes and receivables from cable television
subsidiaries and related parties - net................ 295,862 112,962
Total........................................$ 388,947 $ 215,366
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY):
Losses and distributions in excess of investments in
and net advances to cable television subsidiaries....$ 237,006 $ 182,510
Other debt............................................ 6,931 2,915
Unsecured notes payable to cable television
subsidiaries......................................... 128,382 128,382
12 1/2% Senior Notes due 2002......................... 400,000 400,000
10 1/4% Senior Notes due 2000 (face amount ($110,000). 108,765 --
11 7/8% Senior Debt due 2004 (face amount $1250,00)... 124,442 124,416
9 7/8% Senior Debt due 2005 (face amount $130,000).... 127,882 127,781
13% Senior Subordinated Notes due 1996............... -- 99,329
9 1/2% Pay-In-Kind Notes due 2004..................... 150,000 --
Accrued interest and other liabilities................ 23,603 18,647
Total liabilities........................... 1,307,011 1,083,980
Stockholders' equity (deficiency) (see consolidated
financial statements for detail).................... (918,064) (868,614)
Total......................................$ (388,947) $ 215,366
See notes to condensed financial information of the Registrant.
SCHEDULE III
Page 2 of 4
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Information as to the
Operations of the Registrant
(Dollars in thousands)
Year Ended March 31,
1994 1993 1992
INCOME:
Income from subsidiaries and affiliates......... $ 53,004 $ 46,666 $ 42,156
EXPENSES:
Operating expenses.............................. 660 704 1,258
Fees to subsidiaries............................ 2,050 1,107 524
Depreciation and amortization................... 3,610 2,321 1,809
Interest expense to subsidiaries and
affiliates..................................... 5,893 25,813 32,354
Interest expense to others...................... 88,724 68,759 51,862
Total........................................... 100,937 98,704 87,807
Loss before equity in loss of
subsidiaries................................... (47,933) (52,038) (45,651)
Equity in net loss of subsidiaries before
cumulative effect.............................. ( 49,515) (50,871) (75,954)
Loss before extraordinary loss and cumulative
effect of change in accounting principle....... (97,448) (102,909) (121,605)
Extraordinary loss on early retirement of debt.. (752) (14,386) --
Cumulative effect of change in accounting for
income taxes................................... (89,660) -- --
Cumulative effect of Olympus change in
accounting for income taxes.................... -- (59,500) --
Net Loss........................................ $(187,860) $(176,795) $(121,605)
See notes to condensed financial information of the Registrant.
SCHEDULE III
Page 3 of 4
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Information as to the
Cash Flows of the Registrant
(Dollars in thousands)
Year Ended March 31,
1994 1993 1992
Cash flows from operating activities:
Net loss....................................... $(187,860) $(176,795) $(121,605)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Equity in loss of subsidiaries............... 49,515 50,871 75,954
Cumulative effect of accounting change....... 89,660 59,500 --
Extraordinary loss on debt retirement........ 752 14,386 --
Depreciation and amortization ............... 3,396 2,321 1,809
Noncash interest expense..................... 363 164 35,602
Loss on disposal of property................. 214 -- --
Changes in operating assets and liabilities:
Other assets................................ (6,877) (18,335) 37
Accrued interest and other liabilities...... 4,956 15,009 948
Net cash used for operating activities.......... (45,881) (52,879) (7,255)
Cash flows from investing activities:
Investments in and advances to subsidiaries.... (72,642) (135,921) (69,481)
Return of capital from a subsidiary............ -- -- 37,000
Proceeds from sale of a subsidiary............. -- -- 12,000
Dividends received from subsidiaries........... -- 16,150 14,000
Amounts advanced to related parties - net...... (182,900) (93,477) (1,891)
Expenditures for property and equipment........ (11,772) (2,184) --
Net cash used for investing activities......... (267,314) (215,432) (8,372)
Cash flows from financing activities:
Proceeds from debt............................. 258,674 652,181 45
Repayments of debt............................. (101,450) (251,692) (5,656)
(Advances to) repayments of amounts due from
consolidated subsidiaries..................... -- (143,823) 21,111
Redemption premium on debt retirement.......... -- (10,000) --
Issuance of Class A Common Stock............... 155,963 21,725 --
Net cash provided by financing activities....... 313,187 268,391 15,500
Increase (decrease) in cash and cash
equivalents.................................... (8) 80 (127)
Cash and cash equivalents, beginning of year... 88 8 135
Cash and cash equivalents, end of year.......... $ 80 $ 88 $ 8
Supplemental disclosure of cash flow activity-
Cash payments for interest..................... $ 84,904 $ 53,262 $ 15,150
See notes to condensed financial information of the Registrant.
SCHEDULE III
Page 4 of 4
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Condensed Financial Information of the Registrant
(Dollars in thousands)
1. Notes Payable to Subsidiaries:
Adelphia Communications Corporation ("ACC") has partially funded its
acquisitions and capital needs through borrowings and advances from
subsidiaries. ACC had issued to certain of its subsidiaries unsecured
demand notes payable in the principal amount of and $128,382 at March 31,
1994 and 1993. The notes, which have been eliminated in consolidation,
provide for interest at rates ranging from 4.83% to 16.5%, are due upon
demand five years after March 31, 1994, and provide that non-payment of
principal or interest is not an event of default.
SCHEDULE V
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands)
Balance Balance
at at
Beginning Other End of
of Period Additions Retirements Changes Period
Year Ended March 31, 1992
Operating Plant and 1
Equipment............... $490,245 $ -- $ -- $ 55,281 $545,526
Real Estate and
Improvements............ 20,275 4,269 -- -- 24,544
Support Equipment........ 13,754 1,350 -- 34 15,138
Construction in
Progress................ 25,915 48,191 -- (55,281) 18,825
Total................. $550,189 $ 53,810 $ -- $ 34 $604,033
Year Ended March 31, 1993
Operating Plant and 1
Equipment............... $545,526 $ -- $ -- $ 38,454 $583,980
Real Estate and
Improvements............ 24,544 3,949 -- -- 28,493
Support Equipment........ 15,138 8,906 -- -- 24,044
Construction in
Progress................ 18,825 66,862 -- (36,557) 49,130
Total................. $604,033 $ 79,717 $ -- $ 1,897 $685,647
Year Ended March 31, 1994
Operating Plant and 1
Equipment............... $583,980 $ -- $ 2,632 $ 92,103 $673,451
Real Estate and
Improvements............ 28,493 12,657 -- -- 41,150
Support Equipment........ 24,044 1,104 16 -- 25,132
Construction in
Progress................ 49,130 69,319 -- (70,331) 48,118
Total................. $685,647 $ 83,080 $ 2,648 $ 21,772 $787,851
1
Amounts include transfers of fixed assets between account categories and
assets acquired in a business combination.
SCHEDULE VI
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands)
Balance Balance
at at
Beginning Other End of
of Period Additions Retirements Changes Period
Year Ended March 31, 1992
Accumulated
Depreciation........... $181,418 $ 51,224 $ -- $ 34 $232,676
Year Ended March 31, 1993
Accumulated
Depreciation........... $232,676 $ 54,112 $ -- $ -- $286,788
Year Ended March 31, 1994
Accumulated
Depreciation........... $286,788 $ 56,370 $ 1,597 $ -- $341,561
/TABLE
SCHEDULE VIII
ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Balance Charged
at to Costs Balance
Beginning and Deductions- at End
of Period Expenses Write-Offs of Period
Year Ended March 31, 1992
Allowance for Doubtful Accounts...... $ 1,527 $ 1,767 $ 1,330 $ 1,964
Year Ended March 31, 1993
Allowance for Doubtful Accounts...... $ 1,964 $ 3,024 $ 2,972 $ 2,016
Year Ended March 31, 1994
Allowance for Doubtful Accounts...... $ 2,016 $ 3,975 $ 2,388 $ 3,603
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ADELPHIA COMMUNICATIONS CORPORATION
June 28, 1994
By: /s/ John J. Rigas
John J. Rigas,
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
June 28, 1994
/s/ John J. Rigas
John J. Rigas,
Director
June 28, 1994
/s/ Timothy J. Rigas
Timothy J. Rigas,
Senior Vice President,
Chief Financial Officer,
Treasurer, Director and
Chief Accounting Officer
June 28, 1994
/s/ Michael J. Rigas
Michael J. Rigas,
Senior Vice President
and Director
June 28, 1994
/s/ James P. Rigas
James P. Rigas,
Vice President and
Director
June 28, 1994
/s/ Daniel R. Milliard
Daniel R. Milliard,
Vice President, Secretary
and Director
June 28, 1994
/s/ Perry S. Patterson
Perry S. Patterson,
Director
June 28, 1994 /s/ Pete J.
Metros
Pete J. Metros,
Director