SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report under Section 13 or 15(d) of the Securities Exchange
- ------- Act of 1934
For the quarterly period ended September 30, 2000
- ------- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ______________
to _____________
Commission File Number: 000-21605
ADELPHIA BUSINESS SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1669404
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One North Main Street
Coudersport, PA 16915-1141
(Address of principal (Zip code)
executive offices)
814-274-9830
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
At November 9, 2000, 35,749,866 shares of Class A Common Stock, par value
$0.01 per share, and 35,143,859 shares of Class B Common Stock, par value
$0.01 per share, of the registrant were outstanding.
ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
--------------------------------------------------
INDEX
Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1999 and September 30, 2000...........................4
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1999 and 2000............5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 2000......................6
Notes to Condensed Consolidated Financial Statements...............7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................11
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................28
Item 2. Changes in Securities............................................28
Item 3. Defaults Upon Senior Securities..................................28
Item 4. Submission of Matters to a Vote of Security Holders..............28
Item 5. Other Information................................................29
Item 6. Exhibits and Reports on Form 8-K.................................29
SIGNATURES................................................................30
INDEX TO EXHIBITS.........................................................31
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Statements included in this Form 10-Q,
including Management's Discussion and Analysis of Financial Condition and
Results of Operations, which are not historical facts are forward-looking, such
as information relating to future growth, expansion of operations or the effect
of future regulation or competition. These "forward-looking statements" include
statements regarding the intent, belief and current expectations of Adelphia
Business Solutions and its directors and officers, and can be identified by the
use of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "intends" or anticipates" or the negative thereof or other variations
thereon or comparable terminology or by discussions of strategy that involve
risks and uncertainties. Any such forward-looking information involves important
risks and uncertainties that could significantly affect expected results in the
future from those expressed in any forward-looking statements made by, or on
behalf of, the Company.
These risks and uncertainties include, but are not limited to,
uncertainties relating to our ability to successfully market our services to
current and new customers, access markets on a nondiscriminatory basis,
identify, design and construct fiber optic networks, install cable and
facilities (including switching electronics) and obtain rights of way, access
rights to buildings and any required governmental authorizations, franchises and
permits, all in a timely manner, at reasonable costs and on satisfactory terms
and conditions, as well as risks and uncertainties relating to general economic
conditions, the availability and cost of capital, acquisitions and divestitures,
government and regulatory policies, the pricing and availability of equipment,
materials and inventories, reliance on vendors, dependence on customers and
their spending patterns, technological developments, the costs and other effects
of rapid growth and changes in the competitive environment in which the Company
operates. Readers of this Form 10-Q are cautioned that such statements are only
predictions, that no assurance can be given that any particular future results
will be achieved, and that actual events or results may differ materially. In
evaluating such statements, readers should specifically consider the various
factors which could cause actual events or results to differ materially from
those indicated by such forward looking statements. Unless otherwise stated, the
information contained in this Form 10-Q is as of and for the three and nine
months ended September 30, 1999 and 2000. Additional information regarding
factors that may affect the business and financial results of Adelphia Business
Solutions can be found in the Company's filings with the Securities and Exchange
Commission, including the prospectus and most recent prospectus supplement under
Registration Statement 333-11142 (formerly No. 333-88927), under the caption
"Risk Factors." The Company does not undertake to update any forward looking
statements in this report or with respect to matters described herein.
Item 1. Financial Statements
ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
December September
31, 1999 30, 2000
------------ ------------
ASSETS:
Current assets:
Cash and cash equivalents ......................... $ 2,133 $ 2,466
Due from parent - net ............................. 392,629 --
Due from affiliates - net ......................... 6,230 --
Accounts receivable - net ......................... 68,075 108,755
Other current assets .............................. 9,852 16,489
------------ ------------
Total current assets ......................... 478,919 127,710
U.S. government securities - pledged ................... 29,899 --
Restricted cash ........................................ -- 66,652
Investments ............................................ 44,066 51,197
Property, plant and equipment - net .................... 943,756 1,384,844
Other assets - net ..................................... 67,063 95,965
------------ ------------
Total ........................................ $ 1,563,703 $ 1,726,368
============ ============
LIABILITIES, PREFERRED STOCK, COMMON STOCK AND
OTHER STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable ................................. $ 150,151 $ 78,677
Due to affiliates-net ............................ -- 5,106
Accrued interest and other current liabilities ... 27,595 33,575
------------ ------------
Total current liabilities .................... 177,746 117,358
13% Senior discount notes due 2003 ..................... 253,860 281,764
12 1/4% Senior secured notes due 2004 .................. 250,000 250,000
12% Senior subordinated notes due 2007 ................. 300,000 300,000
Note payable ........................................... -- 349,709
Other debt ............................................. 41,318 54,892
------------ ------------
Total liabilities ............................ 1,022,924 1,353,723
------------ ------------
12 7/8% Senior exchangeable redeemable preferred stock . 260,848 287,584
------------ ------------
Commitments and contingencies (Note 3)
Common stock and other stockholders' equity:
Class A common stock, $0.01 par value, 800,000,000
Shares authorized, 34,066,587 and 35,749,866 shares
Outstanding, respectively ......................... 341 357
Class B common stock, $0.01 par value, 400,000,000
Shares authorized, 35,371,458 and 35,143,859 shares
Outstanding, respectively ......................... 354 351
Additional paid in capital ........................... 666,021 652,619
Class B common stock warrants ........................ 2,177 1,370
Unearned stock compensation .......................... (5,715) (4,481)
Accumulated deficit .................................. (383,247) (565,155)
------------ ------------
Total common stock and other stockholders'
equity ...................................... 279,931 85,061
------------ ------------
Total ........................................ $ 1,563,703 $ 1,726,368
============ ============
See notes to condensed consolidated financial statements.
ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1999 2000 1999 2000
---------- ---------- ---------- ----------
Revenues ............................... $ 43,347 $ 93,551 $ 99,000 $ 243,066
---------- ---------- ---------- ----------
Operating expenses:
Network operations ................... 15,862 50,893 36,037 126,286
Selling, general and administrative .. 39,972 67,205 93,618 189,399
Depreciation and amortization ........ 18,168 27,103 45,289 73,230
---------- ---------- ---------- ----------
Total ........................ 74,002 145,201 174,944 388,915
---------- ---------- ---------- ----------
Operating loss ......................... (30,655) (51,650) (75,944) (145,849)
Other income (expense):
Interest income ...................... 2,867 1,247 19,645 2,671
Interest income-affiliate ............ 1,336 -- 6,943 6,282
Interest expense-affiliate ........... -- (2,191) -- (2,191)
Interest expense ..................... (19,045) (14,557) (56,383) (42,751)
---------- ---------- ---------- ----------
Loss before income taxes and equity in
net (loss) income of joint ventures ... (45,497) (67,151) (105,739) (181,838)
Income tax expense ..................... -- -- (4) --
---------- ---------- ---------- ----------
Loss before equity in net (loss) income
of joint venutres...................... (45,497) (67,151) (105,743) (181,838)
Equity in net (loss) income of joint
ventures .............................. (246) 381 (7,340) (70)
---------- ---------- ---------- ----------
Net loss ............................... (45,743) (66,770) (113,083) (181,908)
Dividend requirements applicable to
preferred stock ....................... (7,969) (9,053) (23,168) (26,321)
---------- ---------- ---------- ----------
Net loss applicable to common
stockholders .......................... $ (53,712) $ (75,823) $ (136,251) $ (208,229)
========== ========== ========== ==========
Basic and diluted net loss per weighted
average share of common stock ......... $ (0.97) $ (1.08) $ (2.46) $ (2.98)
========== ========== ========== ==========
Weighted average shares of
common stock outstanding .............. 55,497 70,531 55,497 69,788
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Nine Months
Ended September 30,
----------------------
1999 2000
--------- ---------
Cash flows from operating activities:
Net loss ............................................. $(113,083) $(181,908)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation ................................... 41,063 68,108
Amortization ................................... 4,226 5,122
Noncash interest expense ....................... 24,268 27,904
Equity in net loss of joint ventures ........... 7,340 70
Non-cash stock compensation .................... 274 585
Change in operating assets and liabilities net
of effects of acquisitions:
Other assets - net ............................. (46,244) (66,547)
Accounts payable ............................... (5,445) (72,435)
Accrued interest and other liabilities ......... 7,959 6,576
--------- ---------
Net cash used in operating activities .................. (79,642) (212,525)
--------- ---------
Cash flows from investing activities:
Expenditures for property, plant and equipment ....... (232,418) (479,001)
Investments .......................................... (27,421) (10,375)
Net cash used for acquisitions ....................... (129,118) --
Investment in restricted cash - net .................. -- (66,651)
Sale of U.S. government securities - pledged ......... 30,626 30,626
Repayment of senior secured note ..................... 20,000 --
--------- ---------
Net cash used in investing activities .................. (338,331) (525,401)
--------- ---------
Cash flows from financing activities:
Repayments of debt ................................... (2,465) (4,330)
Repayments and advances from related parties ......... 9,607 402,278
Proceeds from exercise of warrant .................... -- 5,611
Proceeds from debt ................................... 300,000 349,709
Costs associated with financing ...................... (5,751) (15,009)
--------- ---------
Net cash provided by financing activities .............. 301,391 738,259
--------- ---------
(Decrease) increase in cash and cash equivalents ....... (116,582) 333
Cash and cash equivalents, beginning of period ......... 242,570 2,133
--------- ---------
Cash and cash equivalents, end of period ............... $ 125,988 $ 2,466
========= =========
See notes to condensed consolidated financial statements.
ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands)
Adelphia Business Solutions, Inc. is a majority owned subsidiary of
Adelphia Communications Corporation ("Adelphia"). The accompanying unaudited
condensed consolidated financial statements of Adelphia Business Solutions, Inc.
and its majority owned subsidiaries ("Adelphia Business Solutions" or the
"Company") have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission.
These condensed consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements included in its
Annual Report on Form 10-K for the year ended December 31, 1999.
In the opinion of management, all adjustments, consisting of only normal
recurring adjustments necessary for a fair presentation of the financial
position of Adelphia Business Solutions at September 30, 2000, and the unaudited
results of operations for the three and nine months ended September 30, 1999 and
2000, have been included. The results of operations for the three and nine
months ended September 30, 2000 are not necessarily indicative of the results to
be expected for the year ending December 31, 2000.
1. Significant Events Subsequent to December 31, 1999:
On January 7, 2000, the Company entered into an agreement with Allegheny
Communications Connect, Inc. ("Allegheny") to purchase an indefeasible right of
use ("IRU") for a total of approximately 600 long-haul and metro route miles
from western Pennsylvania through West Virginia, and in Maryland and Virginia.
On January 10, 2000, the Company entered into an agreement with Williams
Communications, Inc. ("Williams") to purchase an IRU for a total of 4,543 route
miles of fiber in the western United States at a cost of approximately $23,000.
During January 2000, the Company entered into an IRU agreement with Level
3 Communications ("Level 3") for approximately 3,100 long-haul route miles
throughout much of the western United States. In addition, the Company entered
into an agreement with Level 3 to acquire access to approximately 750 miles of
metro duct in the following central business districts: Chicago, Cincinnati,
Dallas, Denver, Detroit, Los Angeles, Orlando, Phoenix, San Diego, San
Francisco, San Jose and Seattle. The total cost of the agreement is
approximately $54,600.
During January 2000, the Company entered into an agreement with Metromedia
Fiber Network ("Metromedia") which allows the Company to acquire access to fiber
strand miles across any of Metromedia's North American markets.
During April 2000, the Company was the successful bidder, in the Federal
Communications Commission ("FCC") auction, for 177 licenses covering the 39 Ghz
spectrum for approximately 164 million points of presence ("POPS"). The Company
has deposited $15,000 of the total $77,605 purchase price with the remaining
balance paid during October 2000, when the Company was granted the licenses.
During April 2000, the Company and Bell Atlantic (now known as Verizon
Communications) reached a settlement for outstanding amounts due to the Company
from Bell Atlantic. As a result of the settlement, the Company wrote off $6,981
of accounts receivable during the quarter ended March 31, 2000.
On May 3, 2000, the Company entered into a contract to build an advanced
information technology infrastructure and to provide communication services to
the Commonwealth of Pennsylvania state government. As part of the contract, the
Company was required to place $75,785 into a restricted account to be used for
the completion of the technology infrastructure. As of September 30, 2000, the
Company had used $9,133 towards the completion of the infrastructure.
The Company and certain of Adelphia's other subsidiaries and affiliates
are parties to a joint bank credit facility. As part of this facility, the
Company and its subsidiaries have the ability to borrow up to an aggregate of
$500,000, which would be guaranteed by other members of the borrowing group,
subject to compliance by the entire borrowing group with certain covenants and
financial tests. As of September 30, 2000, a subsidiary of the Company had
borrowed $349,709 under this new credit facility. In addition, the Company has
agreed to pay a subsidiary of Adelphia approximately $15,000 as a fee for
placing the credit facility.
During June 2000, Adelphia exercised a warrant to purchase 913,380 shares
of Class A common stock of the Company at a price of $6.15 per share. Adelphia
purchased the warrant in May 1998 from Worldcom in connection with the Company's
IPO. Total proceeds to the Company were $5,611.
During July 2000, the Company consummated a purchase agreement with
Allegheny to acquire interests in a jointly owned network located in State
College, Pennsylvania. Consideration paid to Allegheny was 330,000 shares of the
Company's Class A common stock. This purchase increased the Company's ownership
in this network to 100%. The acquisition was accounted for under the purchase
method of accounting. Accordingly, the financial results of the acquired network
have been included in the consolidated results of Adelphia Business Solutions
effective from the date acquired.
During the nine months ended September 30, 2000, the Company had
outstanding demand advances to Adelphia which, as of September 30, 2000, had
been repaid. The Company received interest on the advances at a rate of 6.33%.
During August 2000, the Company entered into an agreement with Dominion
Telecom, Inc. ("Dominion") in which the Company agreed to provide Dominion with
an IRU for approximately 865 miles of long-haul fiber on the Company's Virginia
ring. The total proceeds to be received from this agreement will be
approximately $16,000 of which the Company has received approximately $5,600.
Investments:
The equity method of accounting is used to account for investments
in joint ventures in which the Company holds less than a majority interest.
Under this method, the Company's initial investment is recorded at cost and
subsequently adjusted for the amount of its equity in the net income or losses
of its joint ventures. Dividends or other distributions are recorded as a
reduction of the Company's investment. Investments in joint ventures accounted
for using the equity method reflect the Company's equity in their underlying net
assets.
The Company's non-consolidated investments are as follows:
Current
Ownership December 31, September 30,
Percentage 1999 2000
------------------------- -------------
Investments accounted for using the equity method:
PECO-Hyperion (Philadelphia) 50.0% $ 42,475 $ 46,725
PECO-Hyperion (Allentown, Bethlehem, Easton, Reading) 50.0 7,425 11,050
Hyperion of York 50.0 6,525 6,525
Allegheny Hyperion Telecommunications (1) 100.0 4,975 ---
------------ ------------
61,400 64,300
Cumulative equity in net loss (17,334) (15,603)
------------ ------------
Subtotal 44,066 48,697
Investments accounted for using the cost method --- 2,500
------------ ------------
Total $ 44,066 $ 51,197
============ ============
<FN>
(1) As discussed in Note 1, during July 2000, the Company consummated an
agreement to increase its ownership to 100% in this market.
</FN>
Summarized combined unaudited financial information for the Company's
investments, which as of September 30, 2000 were being accounted for using the
equity method of accounting follows:
December 31, September 30,
1999 2000
------------ ------------
Current assets $ 20,583 $ 30,839
Property, plant and equipment - net 101,168 103,601
Other non-current assets 43 35
Current liabilities 8,476 5,688
Non current liabilities 31,987 31,393
Nine Months Ended September 30,
1999 2000
------------ ------------
Revenues $ 23,407 $ 44,984
Net (loss) income (4,660) 313
3. Commitments and Contingencies:
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations for a discussion of material commitments and
contingencies.
4. Net Loss Per Weighted Average Share of Common Stock:
Net loss per weighted average share of common stock is computed based on
the weighted average number of common shares outstanding after giving effect to
dividend requirements on the Company's preferred stock. Diluted net loss per
common share is equal to basic net loss per common share because additional
warrants outstanding had an anti-dilutive effect for the periods presented;
however, these warrants could have a dilutive effect on earnings per share in
the future.
5. Supplemental Financial Information:
For the nine months ended September 30, 1999 and 2000, the Company paid
interest of $36,525 and $48,625 respectively.
Accumulated depreciation of property, plant and equipment amounted to
$97,518 and $165,627 as of December 31, 1999 and September 30, 2000,
respectively.
In connection with the Company's acquisition of the State College network
from Allegheny, the Company issued 330,000 shares of Class A Common Stock, with
a fair market value of $6,930 at the time of issuance.
-------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with
(i) the Company's unaudited Condensed Consolidated Financial Statements and the
Notes thereto appearing elsewhere in this Form 10-Q and the Company's audited
Consolidated Financial Statements and Notes thereto included in its Form 10-K
for the year ended December 31, 1999 and (ii) the section entitled "Forward
Looking Statements" following the index to this Form 10-Q, which section is
incorporated by reference herein.
Overview
The "Company" or "Adelphia Business Solutions" means Adelphia Business
Solutions, Inc. together with its majority-owned subsidiaries, except where the
context otherwise requires. Unless the context otherwise requires, references
herein to the networks mean (i) the 22 telecommunications networks in operation
or under construction as of May 8, 1998, the date of the Company's initial
public offering (the "Original Markets"), which are wholly owned subsidiaries or
are joint venture partnerships, limited liability companies or corporations
managed by the Company and in which the Company holds a 50% equity interest with
one or more other partners which are currently separated into two groups, those
commencing operations in 1996 or before, and those commencing operations in 1997
and 1998, and (ii) the additional networks operational or under development
subsequent to May 8, 1998 (the "Expansion Markets") which are also separated
into two groups, those commencing operations in 1999 and those commencing
operations in 2000.
Adelphia Business Solutions is a leading national provider of
facilities-based integrated communications services to customers that include
businesses, governmental and educational end users and other communications
services providers throughout the United States. The Company currently offers a
full range of communications services in 79 markets. To serve the Company's
customers' broad and expanding communications needs, the Company has assembled a
diverse collection of high-bandwidth, local and national network assets. The
Company intends to integrate these assets with advanced communications
technologies and services in order to provide comprehensive end-to-end
communications services over its national network. The Company provides
customers with communications services such as local switch dial tone (also
known as local phone service), long distance service, high-speed data
transmission, and Internet connectivity. The customers have a choice of
receiving these services separately or as bundled packages which are typically
priced at discount when compared to the price of the separate services.
In order to take advantage of the improved economic returns and better
customer service from providing services "on-net," or over the Company's own
network, the Company is in the process of further expanding the reach of its
network system nationwide. The Company's Original Markets are principally
located in the eastern half of the United States; however, due to the Company's
success in operating and expanding these markets the Company is pursuing a
nationwide growth plan. The Company believes the full buildout of its nationwide
footprint will position it to address approximately 65% of the 60 million
business access lines nationwide, which currently represent approximately $75
billion in annual revenues. This network system expansion includes the purchase,
lease or construction of local fiber optic network facilities and the
interconnection of all of the Company's existing and new markets with Company
owned or leased fiber optic facilities. The Company will also implement various
technologies including Dense Wave Division Multiplexing to provide greater
bandwidth capacity on its local and long-haul network system. Once fully
installed, the 33,000 route mile fiber optic backbone will connect each of the
Company's local markets. This fully redundant network system will support the
Company's full line of communication service offerings.
Access lines installed increased by 83,225 in the September 2000 quarter,
resulting in an installed access line base of 576,857 as of September 30, 2000.
Access lines sold as of September 30, 2000 totaled 612,544, an increase of
103,139 in the quarter. The Company expects additions of installed access lines
of 80,000 to 100,000 in the fourth quarter of 2000 and 450,000 to 550,000 for
calendar 2001. Furthermore, the Company expects the majority of its access line
additions from this point forward to be serviced on the Company's network. The
following table summarizes the Company's installed access lines as of September
30, 2000 and for the quarter then ended.
For the Three Months
Ended September 30, As of
2000 September 30, 2000
---------------------- ----------------------
Lines Percent Lines Percent
----------- ---------- ---------- -----------
On-Network 20,250 24% 225,259 39%
Type II 6,132 8% 55,091 10%
Off-Network 56,843 68% 296,507 51%
----------- ---------- ---------- -----------
Totals 83,225 100% 576,857 100%
Access lines converted onto the Company's own network through a
combination of leased T-1s, unbundled network elements and on-net fiber services
totaled 12,120 for the September 2000 quarter, a substantial increase over the
June 2000 quarter which had approximately 4,000 lines converted. While the
Verizon Communications ("Verizon") strike had some impact on the September 2000
quarter conversions and will impact the December 2000 quarter expected results
somewhat less, the Company expects to exceed 20,000 lines converted in the
December 2000 quarter.
A summary of the Company's non-financial statistical information as of
September 30, 2000 follows:
Under
Active Development(a) Total
------------- -------------- ------------
Local Route Miles 8,439 2,600 11,049
Fiber Strand Miles 468,026 133,000 601,026
Long-Haul Route Miles 4,497 25,840 30,337
Buildings Connected on-network
with owned facilities 3,161 N/A 3,161
Central Offices Connected
on-network 282 180 462
Lucent 5ESS Voice Switch 29 9 38
Data Switches 26 10 36
Sales Employees 741 N/A 741
Total Employees 2,594 N/A 2,594
Average Lines per Customer 14 N/A 14
(a) Includes projects in progress and, with respect to Local and Long-Haul
Route Miles, also includes fiber under construction or under agreement with
third party providers as of September 30, 2000. N/A indicates information is
either not applicable or not available.
Recent Developments
On January 7, 2000, the Company entered into an agreement with Allegheny
Communications Connect, Inc. ("Allegheny") to purchase an indefeasible right of
use ("IRU") for a total of approximately 600 long-haul and metro route miles
from western Pennsylvania through West Virginia, and in Maryland and Virginia.
On January 10, 2000, the Company entered into an agreement with Williams
Communications, Inc. ("Williams") to purchase an IRU for a total of 4,543 route
miles of fiber in the western United States at a cost of approximately $23,000.
During January 2000, the Company entered into an IRU agreement with Level
3 Communications ("Level 3") for approximately 3,100 long-haul route miles
throughout much of the western United States. In addition, the Company entered
into an agreement with Level 3 to acquire access to approximately 750 miles of
metro duct in the following central business districts: Chicago, Cincinnati,
Dallas, Denver, Detroit, Los Angeles, Orlando, Phoenix, San Diego, San
Francisco, San Jose and Seattle. The total cost of the agreement is
approximately $54,600.
During January 2000, the Company entered into an agreement with Metromedia
Fiber Network ("Metromedia") which allows the Company to acquire access to fiber
strand miles across any of Metromedia's North American markets.
During April 2000, the Company was the successful bidder, in the Federal
Communications Commission ("FCC") auction, for 177 licenses covering the 39 Ghz
spectrum for approximately 164 million points of presence ("POPS"). The Company
has deposited $15,000 of the total $77,605 purchase price with the remaining
balance paid in October, when the Company was granted the licenses.
During April 2000, the Company and Bell Atlantic (now known as Verizon
Communications) reached a settlement for outstanding amounts due to the Company
from Bell Atlantic. As a result of the settlement, the Company wrote off $6,981
of accounts receivable during the quarter ended March 31, 2000.
On May 3, 2000, the Company entered into a contract to build an advanced
information technology infrastructure and to provide communication services to
the Commonwealth of Pennsylvania state government. As part of the contract, the
Company was required to place $75,785 into a restricted account to be used for
the completion of the technology infrastructure. As of September 30, 2000, the
Company has used $9,133 towards the completion of the infrastructure.
The Company and certain of Adelphia's other subsidiaries and affiliates
are parties to a joint bank credit facility. As part of this facility, the
Company and its subsidiaries have the ability to borrow up to an aggregate of
$500,000, which would be guaranteed by other members of the borrowing group,
subject to compliance by the entire borrowing group with certain covenants and
financial tests. As of September 30, 2000, a subsidiary of the Company had
borrowed $349,709 under this new credit facility. In addition, the Company has
agreed to pay a subsidiary of Adelphia approximately $15,000 as a fee for
placing the credit facility.
In June 2000, Adelphia exercised a warrant to purchase 913,380 shares of
Class A common stock of the Company at a price of $6.15 per share. Adelphia
purchased the warrant in May 1998 from Worldcom in connection with the Company's
IPO. Total proceeds to the Company were $5,611.
During July 2000, the Company consummated a purchase agreement with
Allegheny to acquire interests in a jointly owned network located in State
College, Pennsylvania. Consideration paid to Allegheny was 330,000 shares of the
Company's Class A common stock. The agreement increased the Company's ownership
in this network to 100%. The acquisition was accounted for under the purchase
method of accounting. Accordingly, the financial results of the acquired network
have been included in the consolidated results of Adelphia Business Solutions
effective from the date acquired.
During the nine months ended September 30, 2000, the Company had
outstanding demand advances to Adelphia which, as of September 30, 2000, had
been repaid. The Company received interest on the advances at a rate of 6.33%.
During August 2000, the Company entered into an agreement with Dominion
Telecom, Inc. ("Dominion") in which the Company agreed to provide Dominion with
an IRU for approximately 865 miles of long-haul fiber on the Company's Virginia
ring. The total proceeds to be received from this agreement will be
approximately $16,000 of which the Company has received approximately $5,600.
Results of Operations
Three Months Ended September 30, 2000 in Comparison with Three Months Ended
September 30, 1999
Revenues increased 116% to $93,551 for the three months ended September
30, 2000, from $43,347 for the same quarter in the prior year.
Amounts
The change is attributable to the following: (in thousands)
----------------
Growth in Original Markets $ 34,089
Acquisition of local partner interests 1,604
Expansion Markets 14,833
Management fees (322)
The primary sources of revenues, reflected as a percentage of total
revenue were as follows:
Three Months
Ended
September 30,
1999 2000
----------------
Voice services 69.6% 71.4%
Data and dedicated access services 24.7% 18.4%
Management fees 2.8% 1.0%
Other 2.9% 9.2%
Network operations expense increased 221% to $50,893 for the three months
ended September 30, 2000 from $15,862 for the same quarter in the prior year.
Amounts
The change is attributable to the following: (in thousands)
---------------
Growth in Original Markets $ 12,933
Acquisition of local partner interests 411
Expansion Markets 21,262
Network Operations Control Center ("NOCC") 425
The increase in network operations expense was due to start up costs in
the Company's Expansion Markets as regional switches and network rings were
activated, combined with start up costs in the Company's Original Markets
associated with the Company data and internet access products. The increased
number and size of the operations of the networks resulted in increased employee
related costs, equipment maintenance costs and expansion costs.
Selling, general and administrative expense increased 68% to $67,205 for
the three months ended September 30, 2000 from $39,972 for the same quarter in
the prior year, primarily reflecting the expansion of the Original and Expansion
Markets.
Amounts
The change is attributable to the following: (in thousands)
---------------
Growth in Original Markets $ 9,110
Acquisition of local partner interests 374
Expansion Markets 13,178
Sales and marketing activities (974)
Corporate overhead charges 6,887
Non-cash stock compensation (1,342)
Depreciation and amortization expense increased 49% to $27,103 during the
three months ended September 30, 2000 from $18,168 for the same quarter in the
prior year primarily as a result of increased depreciation resulting from the
higher depreciable asset base at the NOCC and the networks, amortization of
deferred financing costs and the acquisition of local partner interests.
Interest income for the three months ended September 30, 2000 decreased
57% to $1,247 from $2,867 for the same quarter in the prior year as a result of
decreases in interest income from lower amounts of cash and cash equivalents and
U.S. Government securities.
Interest income-affiliate for the three months ended September 30, 2000
was zero as compared to $1,336 for the same quarter in the prior year as a
result of no demand advances outstanding to Adelphia during the period.
Interest expense decreased 12% to $16,748 during the three months ended
September 30, 2000 from $19,045 for the same period in the prior year. The
decrease was primarily attributable to an increase in the amount of interest
capitalized as a result of the Company's network expansion.
Equity in net (loss) income of joint ventures for the three months ended
September 30, 2000 was net income of $381 as compared to a net loss of $246 for
the same quarter in the prior year as a result of the consolidation of several
joint ventures resulting from the purchase of the local partners' interests, and
the maturing of the remaining joint venture networks.
The number of joint ventures paying management fees to the Company
decreased from four at September 30, 1999 to three at September 30, 2000 due to
the Company's increased ownership in the State College network. These
non-consolidated joint ventures paid management and monitoring fees to the
Company, which are included in revenues, aggregating approximately $893 for the
three months ended September 30, 2000, as compared with $1,215 for the same
quarter in the prior fiscal year. The nonconsolidated joint ventures, for the
three months ended September 30, 1999 and 2000, had a net loss of approximately
$831 and a net income of $551, respectively.
Preferred stock dividends increased by 14% to $9,053 for the three months
ended September 30, 2000 from $7,969 for the same period in the prior year. The
increase was due to a higher outstanding preferred stock base resulting from the
payments of dividends in additional shares of preferred stock.
Nine Months Ended September 30, 2000 in Comparison with Nine Months Ended
September 30, 1999
Revenues increased 146% to $243,066 for the nine months ended September
30, 2000, from $99,000 for the same period in the prior year.
Amounts
The change is attributable to the following: (in thousands)
---------------
Growth in Original Markets $ 86,377
Acquisition of local partner interests 18,885
Expansion Markets 39,421
Management fees (617)
The primary sources of revenues, reflected as a percentage of total
revenue were as follows:
Nine Months
Ended
September 30,
1999 2000
----------------
Voice services 68.0% 73.3%
Data and dedicated access services 25.8% 18.7%
Management fees 3.9% 1.3%
Other 2.3% 6.7%
Network operations expense increased 250% to $126,286 for the nine months
ended September 30, 2000 from $36,037 for the same period in the prior year.
Amounts
The change is attributable to the following: (in thousands)
---------------
Growth in Original Markets $ 28,207
Acquisition of local partner interests 7,909
Expansion Markets 52,003
Network Operations Control Center 2,130
The increase in network operations expense was due to start up costs in
the Company's Expansion Markets as regional switches and network rings were
activated, combined with higher start up costs in the Company's Original Markets
associated with the Company data and internet access products. The increased
number and size of the operations of the networks resulted in increased employee
related costs, equipment maintenance costs and expansion costs.
Selling, general and administrative expense increased 102% to $189,399 for
the nine months ended September 30, 2000 from $93,618 for the same period in the
prior year, primarily reflecting the expansion activity of the Original and
Expansion Markets and the acquisition of local partner interests.
Amounts
The change is attributable to the following: (in thousands)
---------------
Growth in Original Markets $ 26,003
Acquisition of local partner interests 8,264
Expansion Markets 34,349
Sales and marketing activities 3,268
Corporate overhead charges 17,034
Bell Atlantic settlement charges 6,981
Non-cash stock compensation (118)
Depreciation and amortization expense increased 62% to $73,230 during the
nine months ended September 30, 2000 from $45,289 for the same period in the
prior year primarily as a result of increased depreciation resulting from the
higher depreciable asset base at the NOCC and the networks, amortization of
deferred financing costs and the acquisition of local partner interests.
Interest income for the nine months ended September 30, 2000 decreased 86%
to $2,671 from $19,645 for the same period in the prior year as a result of
decreases in interest income from lower amounts of cash and cash equivalents and
U.S. Government securities.
Interest income-affiliate for the nine months ended September 30, 2000
decreased to $6,282 from $6,943 for the same period in the prior year, as a
result of a decrease in the amount of demand advances outstanding to Adelphia
during the period.
Interest expense decreased 20% to $44,942 during the nine months ended
September 30, 2000 from $56,383 for the same period in the prior year. The
decrease was primarily attributable to an increase in the amount of interest
capitalized as a result of the Company's network expansion.
Equity in net loss of joint ventures for the nine months ended September
30, 2000 decreased 99% to $70 as compared to a loss of $7,340 for the same
period in the prior year as a result of the consolidation of several joint
ventures resulting from the purchase of the local partners' interests, and the
maturing of the remaining joint venture networks.
The number of joint ventures paying management fees to the Company
decreased from four at September 30, 1999 to three at September 30, 2000 due to
the Company's increased ownership in the State College network. These
non-consolidated joint ventures paid management and monitoring fees to the
Company, which are included in revenues, aggregating approximately $3,129 for
the nine months ended September 30, 2000, as compared with $3,824 for the same
period in the prior fiscal year. The nonconsolidated joint ventures, for the
nine months ended September 30, 1999 and 2000, had a net loss of approximately
$4,660 and a net income of $313, respectively.
Preferred stock dividends increased by 14% to $26,321 for the nine months
ended September 30, 2000 from $23,168 for the same period in the prior year. The
increase was due to a higher outstanding preferred stock base resulting from the
payments of dividends in additional shares of preferred stock.
Supplementary Network Financial Analysis
At September 30, 2000, 57 of the 79 operational markets had been in
operation for two years or less, while the remaining 22 markets have been in
operation for more than two years. In order to provide an additional measure of
the financial position, growth and performance of the Company and its networks,
management analyzes and aggregates operational markets based on the year or
years in which the markets became operational. The Original Markets, including
nonconsolidated joint ventures, are broken down in to two categories, those
which began operations in 1996 or before and those which began operations in
1997 or 1998. The Expansion Markets are also broken down into two categories,
those markets which began operations in 1999 and those markets which began
operations in 2000. The following table provides information relating to the
aggregation of those markets. This financial information, however, is not
indicative of the Company's overall historical financial position or results of
operations.
Quarter Ended September 30, 2000 Quarter Ended June 30, 2000
----------------------------------------------- -----------------------------------------------
Original Expansion Original Expansion
Markets Markets Markets Markets
------------------ ----------------- ------------------ -----------------
(dollars in Class Class Class Class Total Class Class Class Class Total
thousands) of of of of Operating of of of of Operating
1996 1997/98 1999 2000 Results(a) 1996 1997/98 1999 2000 Results(a)
-------- -------- -------- -------- ---------- -------- -------- -------- -------- ----------
Revenue $ 78,168 $ 14,061 $ 18,829 $ 105 $ 111,163 $ 68,478 $ 11,931 $ 15,576 $ 6 $ 95,991
Direct Operating
Expenses 20,933 6,575 23,986 879 52,373 17,998 5,971 18,997 155 43,121
-------- -------- -------- -------- ---------- -------- -------- -------- -------- ----------
Gross Margin 57,235 7,486 (5,157) (774) 58,790 50,480 5,960 (3,421) (149) 52,870
Gross Margin
Percentage 73.2% 53.2% (27.4%) NM(c) 52.9% 73.7% 50.0% (22.0%) NM(c) 55.1%
Sales, General
and Administrative
Expenses 30,171 5,296 21,689 3,519 60,675 31,825 4,980 18,545 1,910 57,260
-------- -------- -------- -------- ---------- -------- -------- -------- -------- ----------
EBITDA before
allocation of
Corporate
Overhead (b) 27,064 2,190 (26,846) (4,293) (1,885) 18,655 980 (21,966) (2,059) (4,390)
-------- -------- -------- -------- ---------- -------- -------- -------- -------- ----------
EBITDA as a
Percentage
of Revenues 34.6% 15.6% (142.6%) NM(c) (1.7%) 27.2% 8.2% (141.0%) NM(c) (4.6%)
September 2000 Quarter vs.
June 2000 Quarter
Percentage Change Comparison
-----------------------------------------------
Original Expansion
Markets Markets
------------------ -----------------
Percent Change Class Class Class Class Total
Comparison of of of of Operating
1996 1997/98 1999 2000 Results(a)
-------- -------- -------- -------- ----------
Revenues 14.2% 17.9% 20.9% NM(c) 15.8%
Direct Operating
Expenses 16.3% 10.1% 26.3% NM(c) 21.5%
-------- -------- -------- -------- ----------
Gross Margin 13.4% 25.6% 50.7% NM(c) 11.2%
Sales, General
and Administrative
Expenses (5.2%) 6.3% 17.0% NM(c) 6.0%
-------- -------- -------- -------- ----------
EDITDA before
allocation of
Corporate
Overhead (b) 45.1% 123.5% (22.2%) NM(c) 57.1%
-------- -------- -------- -------- ----------
<FN>
(a) The table above summarizes operating results before the allocation of
corporate overhead for Adelphia Business Solutions' Original and Expansion
Markets, grouped by the year or years in which operations commenced. Operating
results are presented before an allocation of corporate overhead for network
operating control center, engineering and other administrative support functions
totaling $17.1 million in the September 2000 quarter and $15.9 million in the
June 2000 quarter. The Expansion Markets include thirty markets in the Class of
1999 and twenty-seven markets in the Class of 2000.
(b) Earnings before interest, income taxes, depreciation and amortization, other
income/expense and noncash stock compensation ("EBITDA") and similar measures of
cash flow are commonly used in the telecommunications industry to analyze and
compare telecommunications companies on the basis of operating performance,
leverage, and liquidity. While EBITDA is not an alternative indicator of
operating performance or an alternative to cash flows from operating activities
as a measure of liquidity as defined by GAAP, and while EBITDA may not be
comparable to other similarly titled measure of other companies, management of
Adelphia Business Solutions believes that EBITDA is a meaningful measure of
performance.
(c) Not meaningful
</FN>
Quarter Ended September 30, 2000 Quarter Ended September 30, 1999
----------------------------------------------- -----------------------------------------------
Original Expansion Original Expansion
Markets Markets Markets Markets
------------------ ----------------- ------------------ -----------------
(dollars in Class Class Class Class Total Class Class Class Class Total
thousands) of of of of Operating of of of of Operating
1996 1997/98 1999 2000 Results(a) 1996 1997/98 1999 2000 Results(a)
-------- -------- -------- -------- ---------- -------- -------- -------- -------- ----------
Revenue $ 78,168 $ 14,061 $ 18,829 $ 105 $ 111,163 $ 42,785 $ 6,730 $3,335 $ - $ 52,850
Direct
Operating
Expenses 20,933 6,575 23,986 879 52,373 10,507 3,616 2,707 (1) 16,829
-------- -------- -------- -------- ---------- -------- -------- -------- -------- ----------
Gross Margin 57,235 7,486 (5,157) (774) 58,790 32,278 3,114 628 1 36,021
Gross Margin
Percentage 73.2% 53.2% (27.4%) NM(c) 52.9% 75.4% 46.3% 18.8% NM(c) 68.2%
Sales, General
and Administrative
Expenses 30,171 5,296 21,689 3,519 60,675 17,778 4,460 13,067 87 35,392
-------- -------- -------- -------- ---------- -------- -------- -------- -------- ----------
EBITDA before
allocation
of Corporate
Overhead (b) 27,064 2,190 (26,846) (4,293) (1,885) 14,500 (1,346) (12,439) (86) 629
-------- -------- -------- -------- ---------- -------- -------- -------- -------- ----------
EBITDA
Percentage
of Revenues 34.6% 15.6% (142.6%) NM(c) (1.7%) 33.9% (20.0%) (373.0%) NM(c) 1.2%
September 2000 Quarter vs.
September 1999 Quarter
Percentage Change Comparison
-----------------------------------------------
Original Expansion
Markets Markets
------------------ -----------------
Percent Change Class Class Class Class Total
Comparison of of of of Operating
1996 1997/98 1999 2000 Results(a)
-------- -------- -------- -------- ----------
Revenues 82.7% 108.9% 464.6% NM(c) 110.3%
Direct
Operating
Expenses 99.2% 81.8% 786.1% NM(c) 211.2%
-------- -------- -------- -------- ----------
Gross Margin 77.3% 140.4% NM(c) NM(c) 63.2%
Sales, General
and Administrative
Expenses 69.7% 18.7% 66.0% NM(c) 71.4%
-------- -------- -------- -------- ----------
EDITDA before
allocation of
Corporate
Overhead (b) 86.6% NM(c) (115.8%) NM(c) NM(c)
-------- -------- -------- -------- ----------
<FN>
(a) The table above summarizes operating results before the allocation of
corporate overhead for Adelphia Business Solutions' Original and Expansion
Markets, grouped by the year or years in which operations commenced. Operating
results are presented before an allocation of corporate overhead for network
operating control center, engineering and other administrative support functions
totaling $17.1 million in the September 2000 quarter and $10.3 million in the
September 1999 quarter. The Expansion Markets include thirty markets in the
Class of 1999 and twenty-seven markets in the Class of 2000.
(b) Earnings before interest, income taxes, depreciation and amortization, other
income/expense and noncash stock compensation ("EBITDA") and similar measures of
cash flow are commonly used in the telecommunications industry to analyze and
compare telecommunications companies on the basis of operating performance,
leverage, and liquidity. While EBITDA is not an alternative indicator of
operating performance or an alternative to cash flows from operating activities
as a measure of liquidity as defined by GAAP, and while EBITDA may not be
comparable to other similarly titled measure of other companies, management of
Adelphia Business Solutions believes that EBITDA is a meaningful measure of
performance
(c) Not meaningful
</FN>
Liquidity and Capital Resources
The development of the Company's business and the installation and
expansion of the networks, as well as the development of new markets, combined
with the construction and expansion of the Company's NOCC, have resulted in
substantial capital expenditures and investments during the past several years.
Capital expenditures by the Company were $232,418 and $479,001 for the nine
months ended September 30, 1999 and 2000, respectively. Further, investments
made by the Company in nonconsolidated joint ventures were $27,421 and $10,375
for the nine months ended September 30, 1999 and 2000, respectively. The
increase in capital expenditures for the nine months ended September 30, 2000 as
compared with the same period in the prior fiscal year is largely attributable
to the capital expenditures necessary to develop the Original Markets and the
Expansion Markets as well as the fiber purchases and electronics to interconnect
the networks. The Company expects that it will continue to incur substantial
capital expenditures in this development effort. The Company also expects to
continue to fund operating losses as the Company develops and grows its
business. For information regarding recent transactions affecting the Company's
liquidity and capital resources, see "Recent Developments."
The Company has experienced negative operating and investing cash flow
since its inception. A combination of operating losses, substantial capital
investments required to build the Company's networks and NOCC, and incremental
investments in the joint ventures has resulted in substantial negative cash
flow.
Expansion of the Company's Original Markets and services and the
development of Expansion Markets and additional networks and services will
require significant capital expenditures. The Company's operations have required
and will continue to require substantial capital investment for (i) the
installation of electronics for voice and data services in the Company's
networks, (ii) the expansion and improvement of the Company's NOCC and Original
Markets, (iii) the design, construction and development of the Expansion Markets
and (iv) the acquisition of additional ownership interests in the Original
Markets. The Company has made substantial capital investments and investments in
joint ventures in connection with the installation of 5ESS switches or remote
switching modules in all of its Original Markets and certain key Expansion
Markets when such Expansion Markets are operational. To date, the Company has
installed switches in all of its Original Markets and plans to provide such
services in all of its Expansion Markets on a standard switching platform based
on Lucent 5 switch technology. In addition, the Company intends to continue to
increase spending on marketing and sales significantly in the foreseeable future
in connection with the expansion of its sales force and marketing efforts
generally. The Company also plans to continue to purchase its partners'
interests in the joint ventures when it can do so on attractive economic terms.
The Company estimates that, in addition to the cash and cash equivalents on hand
as of September 30, 2000, a total of approximately $800,000 will be required to
fund the Company's capital expenditures, working capital requirements, operating
losses and pro rata investments in the joint ventures from October 1, 2000
through the quarter ending September 30, 2001. This amount includes the $62,605
due on the 177 39 Ghz licenses which was paid during October 2000.
During the September 2000 quarter, the Company funded a portion of its
free cash flow deficit with draws of approximately $253,600 million under a
$500,000 million bank credit commitment. As of September 30, 2000, approximately
$349,709 million was drawn on the bank credit facility. The Company expects to
fund its projected future deficits through early 2002 through a combination of
additional draws under the credit facility, additional bank or institutional
indebtedness, the issuance of public equity or equity linked securities in which
the Company expects Adelphia would participate, and capital contributions from
minority partners (including potential Adelphia contributions) relating to the
creation of new partnerships for the development of certain new markets. The
Company expects to implement these financing plans in 2000 and the first half of
2001. There can be no assurances, however, that the Company will be successful
in generating sufficient cash flow or in raising sufficient additional capital
on terms that it will consider acceptable, or at all.
There can be no assurance (i) that the Company's future cash requirements
will not vary significantly from those presently planned due to a variety of
factors including acquisition of additional networks, continued acquisition of
increased ownership in its networks, material variance from expected capital
expenditure requirements for the Original Markets and the Expansion Markets and
development of the LMDS or the 39 Ghz spectrum or (ii) that anticipated
financings, Local Partner investments and other sources of capital will become
available to the Company on a basis consistent with the current expansion plan
or on an economically attractive terms or at all. In addition, it is possible
that expansion of the Company's networks may include the geographic expansion of
the Company's existing clusters and the development or acquisition of other new
networks not currently planned.
Recent Accounting Pronouncements
In June 1998, June 1999 and June 2000, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS No. 133," and SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of SFAS No. 133." These statements outline the accounting
treatment for all derivative activity. The Company is required to and will
adopt SFAS No. 133 in the first quarter of fiscal 2001 and does not expect
adoption to have a significant effect on its consolidated results of operations
or financial position.
Competition
The Company faces competition from many competitors with significantly
greater financial resources, well-established brand names and large, existing
installed customer bases. Moreover, we expect the level of competition to
intensify in the future.
In each of the markets served by the Company's networks, the services
offered by the Company compete principally with the services offered by the
incumbent local exchange carrier ("ILEC") serving that area. ILECs have
long-standing relationships with their customers, have the potential to
subsidize competitive services from monopoly service revenues, and benefit from
favorable state and federal regulations. In light of the passage of the
Telecommunications Act of 1996 (the "Telecommunications Act"), federal and state
regulatory initiatives provide increased business opportunities to competitive
local exchange carriers ("CLECs") such as the Company, but regulators may
provide ILECs with increased pricing flexibility for their services as
competition increases. Further, if a Regional Bell Operating Company ("RBOC") is
authorized to provide long distance service originating in one or more states by
fulfilling the market opening provisions of the Telecommunications Act, the RBOC
may be able to offer "one stop shopping" that would be competitive with the
Company's offerings. To date, the only RBOCs to gain such approval from the FCC
are Bell Atlantic ("Verizon"), for New York State, and Southwestern Bell, for
Texas. Additional entry by the RBOCs into long distance markets could result in
decreased market share for the major inter-exchange carriers ("IXCs"), which are
among the our significant customers. Any of these results could have an adverse
effect on the Company.
There has been significant merger activity among the RBOCs in anticipation
of entry into the long distance market, including the completed mergers of
Ameritech and SBC, Bell Atlantic and GTE, and Qwest and U.S. West, whose
combined territories cover a substantial portion of the Company's markets. Other
combinations have occurred in the industry, which may have an effect on the
Company. The effects of these combinations are unknown at this time. The Company
believes that combinations of RBOCs and others will pose a greater competitive
threat to the Company's strategy of originating and terminating a significant
proportion of its customers' communications traffic over its own networks,
rather than relying on the network of the ILEC.
The Company also faces, and will continue to face, competition from other
current and potential market entrants, including other CLECs and data-centric
local providers, incumbent LECs which are not subject to RBOC restrictions on
long distance, AT&T, WorldCom, Sprint and other IXCs, cable television
companies, electric utilities, microwave carriers, wireless telecommunications
providers and private networks built by large end users. In addition, new
carriers, such as Global Crossing, Williams, Qwest and Level 3 are building and
managing nationwide networks which, in some cases, are designed to provide local
services. Further, AT&T's acquisition of various cable companies will exploit
ubiquitous local cable infrastructure for telecommunications and other services
provided by the operating companies. Finally, although the Company has generally
good relationships with the other existing IXCs, there are no assurances that
any of these IXCs will not build their own facilities, purchase other carriers
or their facilities, or resell the services of other carriers rather than use
the Company's services when entering the market for local exchange services.
Regulation
Government Overview
A significant portion of the services provided by the Company and its
networks are subject to regulation by federal, state and local government
agencies. Future federal or state regulations and legislation may be less
favorable to the Company than current regulation and legislation and therefore
may have a material and adverse impact on its business and financial prospects.
In addition, the Company may expend significant financial and managerial
resources to participate in proceedings setting rules at either the federal or
state level, without achieving a favorable result.
Federal Legislation and Regulation
The Telecommunications Act enacted in 1996 establishes local exchange
competition as a national policy. This act removes state regulatory barriers to
competition, and imposes numerous requirements to facilitate the provision of
local telecommunications services by multiple providers. For instance, carriers
must provide to each other services for resale, number portability, dialing
parity, access to rights of way, and compensation for traffic they exchange.
ILECs must also provide competitors with network interconnection, access to
unbundled network elements, and collocation at ILEC premises, among other
things. Finally, the FCC is responsible for implementing and presiding over
rules relating to these requirements as well as universal service subsidies,
charges for access to long distance carriers, access to buildings, customer
privacy, and services for the disabled.
The Telecommunications Act prohibits state and local governments from
enforcing any law, rule or legal requirement that prohibits or has the effect of
prohibiting any entity from providing interstate or intrastate
telecommunications services. States retain jurisdiction under the
Telecommunications Act to adopt laws necessary to preserve universal service,
protect public safety and welfare, ensure the continued quality of
telecommunications services and safeguard the rights of consumers. The Company
has successfully challenged states' attempts to limit competition in certain
rural areas, and is continuing such challenges in other states. Some of these
challenges are subject to further administrative and court appeals; if the
states succeed in delaying competitive entry into rural areas, the Company's
expansion plans may be adversely affected.
The FCC is charged with the broad responsibility of implementing the local
competition provisions of the Telecommunications Act. It has done so by
promulgating rules which encourage increased local competition. In 1997, a
federal appeals court for the Eighth Circuit vacated some of these rules. In
January 1999, the United States Supreme Court reversed the majority of the
Eighth Circuit's ruling, finding that the FCC has broad authority to interpret
the Telecommunications Act and issue rules for its implementation. Specifically,
the Court stated that the FCC has authority to set pricing guidelines for
unbundled network elements, to prevent ILECs from dismantling existing
combinations of network elements, and to establish rules allowing competitors to
"pick and choose" among provisions of existing interconnection agreements.
However, the Court vacated the FCC's rules that identified the unbundled network
elements that ILECs must provide to CLECs, and the FCC issued an order
explaining which unbundled network elements ILECs must provide. On July 18,
2000, the United States Court of Appeals for the Eighth Circuit issued a
decision vacating certain rules of the FCC regarding the pricing of unbundled
network elements provided by the ILECs to CLECs. Either the Court of Appeals or
the Supreme Court may be asked to review this decision further. If the decision
is not further reviewed, the FCC will be required to revise its pricing rules,
which may result in changes in the prices paid by the Company to ILECs for use
of their telephone lines and other facilities. Until the FCC actually issues new
rules and they are implemented by the state regulatory commission, it is
impossible to predict how this development may affect the Company's costs.
Many new carriers have experienced difficulties in working with the ILECs,
with respect to provisioning, interconnection, rights-of-way, collocation and
implementing the systems used by these new carriers to order and receive
unbundled network elements and wholesale service from the ILECs. Coordination
with ILECs is necessary for new carriers such as the Company to provide local
service to customers on a timely and competitive basis. The Telecommunications
Act created incentives for RBOCs to cooperate with new carriers, allowing the
RBOCs to offer long distance services originating in their region, if the RBOC
satisfies statutory conditions designed to open their local markets to
competition. The Company cannot be assured that RBOCs will be accommodating to
the Company's networks once they are permitted to offer long distance service.
If the Company's networks are unable to obtain the cooperation of an RBOC in a
region, whether or not such RBOC has been authorized to offer long distance
service, the Company's networks' ability to offer local services in such region
on a timely and cost effective basis would be adversely affected.
On December 9, 1999 the FCC released an order requiring the incumbent
carriers to offer "line sharing" arrangements that will permit CLECs to offer
DSL service and other advanced services over the same copper wires used by
incumbent local exchange carriers to provide voice service. The specific prices
and terms of these arrangements will be determined by future decisions of state
utility commissions, and cannot be predicted at this time. The FCCs ruling may
also be challenged in court. We expect that this order, if implemented, will
allow CLECs to offer DSL services at a significantly lower cost than is now
possible.
On March 17, 2000, the U.S. Court of Appeals for the District of Columbia
Circuit (the "DC Circuit Court") vacated certain FCC rules relating to
collocation of competitors' equipment in ILEC central offices. This decision
requires the FCC to limit collocation to equipment that is "necessary" for
interconnection with the ILEC or access to the ILECs unbundled network elements.
Any disputes over the "necessary" status of particular items of equipment may
have to be resolved by the FCC or by state commissions, and such disputes could
result in delays or changes to the Company's collocation plans.
A number of ILECs around the country have been contesting whether the
obligation to pay reciprocal compensation to CLECs should apply to local
telephone calls terminating to Internet service providers ("ISPs"). The ILECs
claim that this traffic is interstate in nature and therefore should be exempt
from compensation arrangements applicable to local, intrastate calls. Most
states have required ILECs to pay ISPs reciprocal compensation. In addition, on
March 24, 2000, the DC Circuit Court vacated the FCC's ruling in which the FCC
determined that calls to ISPs are interstate in nature. The FCC ruling, however,
was not in any case intended to dislodge previous state decision interpreting
interconnection agreements between ILECs and CLECs to require reciprocal
compensation between local tow carriers jointly delivering dial-up traffic to
ISPs. Although the FCC does not intend to require ISPs to pay access charges or
contribute to universal service funds, the FCC's order and subsequent state
rulings could affect thecosts incurred by ISPs and the demand for their
offerings. An unfavorable outcome could materially affect the Company's
potential future revenues.
Several ILECs have filed petitions at the FCC and have initiated
legislative efforts to effect a waiver of certain obligations imposed on ILECs
in the Telecommunications Act with respect to RBOC-provisioned high-speed data
services, including, among other things, the obligation to unbundle and offer
for resale such services. In addition, the ILECs are seeking to provide
high-speed data services on an interLATA basis without complying with the market
opening provisions of the competitive checklist set forth in the
Telecommunications Act, which would be otherwise required of them. The FCC has
determined that such services are subject to interstate jurisdiction and to the
resale and unbundling obligation of the Telecommunications Act. In addition,
there are numerous bills being considered by Congress which would deregulate
advanced services. These outcomes could have a material adverse effect on the
Company.
Any of the regulatory changes discussed above could require renegotiation
of relevant portions of existing interconnection agreements, or subject them to
additional court and regulatory proceedings. It remains to be seen whether the
networks can continue to obtain and maintain interconnection agreements on terms
acceptable to them in every state, though most states have already adopted
pricing rules, if not interim prices, which are for the most part consistent
with the FCC's related pricing provisions.
The FCC also manages universal service subsidies for rural, high-cost, and
low-income markets, qualifying schools and libraries and services provided to
rural health care providers. It currently assesses the Company's networks for
such payments and other subsidies on the basis of certain revenue for the
previous year. Various states also implement their own universal service
programs to which the Company is subject.
To the extent that the Company's networks provide interexchange
telecommunications service, access charges are required to be paid to ILECs when
the facilities of those companies are used to originate or terminate
interexchange calls. Also, as CLECs, the Company's networks provide access
service to other interexchange service providers. The interstate access charges
of ILECs are subject to extensive regulation by the FCC, while those of CLECs
are subject to a lesser degree of FCC regulation but remain subject to the
requirement that all charges be just, reasonable, and not unreasonably
discriminatory. In recent months, AT&T and Sprint have sent letters to virtually
every nondominant provider asserting that the nondominant provider's terminating
access rates are unreasonable, and demanding a reduction in rates to a
"competitive" level. AT&T has also asserted that it has no obligation to
purchase switched access services from nondominant providers if it is not
satisfied with their rates, and has refused to pay some carriers' invoices for
these services. The FCC is also considering whether it should take steps to
limit the access charges of nondominant providers. Adverse decisions by the FCC
or the courts could significantly reduce the Company's revenues from the access
charges.
On May 31, 2000, the FCC adopted an industry proposal for further reform
of access charges. This has resulted in substantial reductions in the per-minute
access charges of the major ILECs, which we expect will result in further
downward competitive pressure on long-distance prices. This plan also resulted
in some price increases for the ILEC's local services for business customers,
which will make the Company's services more competitive in some markets.
In an exercise of its "forbearance authority," the FCC has ruled that
following a transition period non-dominant IXCs will no longer be able to file
tariffs with the FCC concerning their interexchange long distance services (the
"IXC Detariffing Order"). Tariffs set forth the terms and conditions under which
the operating companies provide services. This would deprive the Company of the
advantages of being able to rely on terms and conditions contained in a filed
tariff, requiring instead reliance on individual contracts. The FCC's transition
period will expire on January 31, 2001, by which date the Company will have to
cancel its interexchange service tariffs. It is also likely that the FCC may
impose a similar detariffing requirement on interstate access services, which
could make it more difficult for the Company to obtain payment of its access
charges from interexchange providers.
The FCC also presides over ongoing proceedings addressing a variety of
other matters, including number portability, Internet, telephony, slamming,
rights of way, building access, pole attachments, customer privacy, and services
to the disabled. The outcome of any such proceedings may adversely affect the
Company and its ability to offer service in competition with LECs.
State Regulation
Most State Public Utility Commissions ("PUCs") require companies that wish
to provide intrastate common carrier services to be certified to provide such
services. These certifications generally require a showing that the carrier has
adequate financial, managerial and technical resources to offer the proposed
services in a manner consistent with the public interest. The certificates or
other authorizations held by the Company permit it to provide a full range of
local telecommunications services, including basic local exchange service. In
certain states, each of the Company, its subsidiaries and the Company's networks
may be subject to additional state regulatory requirements, including tariff
filing requirements, to begin offering the telecommunications services for which
such entities have been certificated. In some states, the Company network tariff
lists a rate range or sets prices on an individual case basis. Many states also
may have additional regulatory requirements such as reporting and customer
service and quality requirements, Y2K compliance, unbundling and universal
service contributions all of which are subject to change and may adversely
affect the Company. In addition, in virtually every state, the Company's
certificate or other authorization is subject to the outcome of proceedings by
the state commission that address regulation of LECs and CLECs, competition,
geographic build-out, mandatory detariffing, service requirements, and universal
service issues.
In addition to obtaining certification, a Company network must negotiate
terms of interconnection with the ILEC before it can begin providing switched
services. To date, the Company's networks have negotiated interconnection
agreements with one or more of the ILECs, in each state in which they are
currently operating. Agreements are subject to State PUC approval.
The Company is subject to requirements in some states to obtain prior
approval for, or notify the commission of any transfers of control, sales of
assets, corporate reorganizations, issuance of stock or debt instruments, name
changes and other transactions that may effect a change in the way that the
Company does business. Although the Company believes such authorization could be
obtained, there can be no assurance that the state commissions would grant the
Company authority to complete any transactions.
Local Government Authorizations
A Company network may be required to obtain from municipal authorities
street opening and construction permits, or operating franchises, to install and
expand its fiber optic networks in certain cities. In some cities, the Local
Partners or subcontractors may already possess the requisite authorizations to
construct or expand the Company's networks. A Company network or its Local
Partners also may be required to obtain a license to attach facilities to
utility poles in order to build and expand facilities. Because utilities that
are owned by a cooperative or municipality are not subject to federal pole
attachment regulation, there are no assurances that a Company network or its
Local Partners will be able to obtain pole attachments from these utilities at
reasonable rates, terms and conditions.
In some of the areas where the Company's networks provide service, their
Local Partners pay license or franchise fees based on a percent of fiber lease
payment revenues. In addition, in areas where the Company does not use
facilities constructed by a Local Partner, the Company's networks may be
required to pay such fees. There are no assurances that certain municipalities
that do not currently impose fees will not seek to impose fees in the future,
nor is there any assurance that, following the expiration of existing
franchises, fees will remain at their current levels. In addition, some
municipalities may seek to impose requirements or fees on users of transmission
facilities, even though they do not own such facilities.
In many markets, other companies providing local telecommunications
services, particularly the ILECs, currently are excused from paying license or
franchise fees or pay fees that are materially lower than those required to be
paid by the Company network or Local Partner. The Telecommunications Act
requires municipalities to charge nondiscriminatory fees to all
telecommunications providers, but it is uncertain how quickly this requirement
will be implemented by particular municipalities in which the Company operates
or plans to operate or whether it will be implemented without a legal challenge
initiated by the Company or another CLEC.
If any of the existing local partner agreements or fiber lease agreements
held by a Local Partner or a Company network for a particular market were
terminated prior to its expiration date, such termination could have a material
adverse effect on the Company.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company uses fixed rate debt, redeemable preferred stock and variable
rate debt to fund its working capital requirements, capital expenditures and
acquisitions. These financing arrangements expose the Company to market risk
related to changes in interest rates. The Company has only limited involvement
with derivative financial instruments and does not use them for trading
purposes. The table below summarizes the fair values and contract terms of the
Company's financial instruments subject to interest rate risk as of
September 30, 2000.
Expected Maturity
---------------------------------------------
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
----------------------------------------------------------------------------------
Fixed Rate Debt and
Redeemable Preferred
Stock: $ --- $ --- $ --- $303,840 $250,000 $587,584 $1,141,424 $821,435
Average Interest Rate 12.54% 12.54% 12.54% 12.43% 12.38% 12.60% --- ---
Variable Rate Debt $ --- $ --- $ --- $ 2,207 $ 2,703 $344,979 $ 349,709 $349,709
Average Interest Rate 12.50% 12.50% 12.50% 12.50% 12.50% 12.50% --- ---
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was held on July 31,
2000. At such meeting, eight (8) directors were elected by a vote of the holders
of Class A Common Stock, Class B Common Stock and 12 7/8% Preferred Stock,
voting together. The results of voting at that meeting are as follows:
- --------------------------------------------------------------------------------
Broker
Director Elected Class of Stock Vote For Withheld Non-Votes
- --------------------------------------------------------------------------------
John J. Rigas Class A Common 30,665,973 40,026 0
Class B Common 343,073,570 0 0
12 7/8% Preferred 165,196 36,711 0
- --------------------------------------------------------------------------------
Michael J. Rigas Class A Common 30,662,599 43,400 0
Class B Common 343,073,570 0 0
12 7/8% Preferred 165,196 0 0
- --------------------------------------------------------------------------------
Timothy J. Rigas Class A Common 27,884,758 2,821,241 0
Class B Common 343,073,570 0 0
12 7/8% Preferred 157,065 44,842 0
- --------------------------------------------------------------------------------
James P. Rigas Class A Common 30,666,153 39,846 0
Class B Common 343,073,570 0 0
12 7/8% Preferred 165,196 36,711 0
- --------------------------------------------------------------------------------
Pete J. Metros Class A Common 27,673,814 3,032,185 0
Class B Common 343,073,570 0 0
12 7/8% Preferred 193,364 8,543 0
- --------------------------------------------------------------------------------
James L. Gray Class A Common 30,672,129 33,870 0
Class B Common 343,073,570 0 0
12 7/8% Preferred 201,495 412 0
- --------------------------------------------------------------------------------
Peter L. Venetis Class A Common 30,674,888 31,111 0
Class B Common 343,073,570 0 0
12 7/8% Preferred 201,907 0 0
- --------------------------------------------------------------------------------
Edward S. Mancini Class A Common 30,675,127 30,872 0
Class B Common 343,073,570 0 0
12 7/8% Preferred 201,907 0 0
- --------------------------------------------------------------------------------
Item 5. Other Information
The attached Exhibit 99.01 provides certain financial and business
information of the Company for the three months ended September 30, 2000,
pursuant to Section 4.03(a)(iii) of the Indenture dated April 15, 1996 with
respect to the 13% Senior Discount Notes.
The attached Exhibit 99.02 provides certain financial and business
information of the Company for the three months ended September 30, 2000,
pursuant to Section 4.03(a)(iii) of the Indenture dated August 27, 1997 with
respect to the 12 1/4% Senior Secured Notes.
The attached Exhibit 99.03 provides certain financial and business
information of the Company for the three and nine months ended September 30,
2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.01 Credit Agreement dated as of April 14, 2000, among Century
Cable Holdings, LLC, Ft. Myers Cablevision, LLC, and Highland
Prestige Georgia, Inc., Bank of America, N.A. and the Chase
Manhattan Bank, Co-Administrative Agents and Toronto Dominion
(Texas), Inc., Syndication Agent (Incorporated by reference
herein is Exhibit 10.01 to the Form 10-Q of Adelphia
Communications Corporation for the Quarter ended March 31,
2000 (File No. 0-16014).
Exhibit 27.01 Financial Data Schedule (supplied for the information of
the Commission).
Exhibit 99.01 "Schedule E - Form of Financial Information and
Operating Data of the Subsidiaries and the Joint Ventures
Presented by Cluster".
Exhibit 99.02 "Schedule F - Form of Financial Information and
Operating Data of the Pledged Subsidiaries and the Joint
Ventures".
Exhibit 99.03 Press Release dated November 9, 2000
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADELPHIA BUSINESS SOLUTIONS, INC.
(Registrant)
Date: November 14, 2000 By: /s/ Timothy J. Rigas
----------------------
Timothy J. Rigas
Vice Chairman, Chief Financial
Officer (authorized officer),
Chief Accounting Officer
and Treasurer
Index to Exhibits
Exhibit 10.01 Credit Agreement dated as of April 14, 2000, among
Century Cable Holdings, LLC, Ft. Myers Cablevision, LLC,
and Highland Prestige Georgia, Inc., Bank of America,
N.A. and the Chase Manhattan Bank, Co-Administrative
Agents and Toronto Dominion (Texas), Inc., Syndication
Agent (Incorporated by reference herein is Exhibit 10.01
to the Form 10-Q of Adelphia Communications Corporation
for the Quarter ended March 31, 2000 (File No. 0-16014).
Exhibit 27.01 Financial Data Schedule (supplied for the information of
the Commission).
Exhibit 99.01 "Schedule E - Form of Financial Information and
Operating Data of the Subsidiaries and the Joint
Ventures Presented by Cluster".
Exhibit 99.02 "Schedule F - Form of Financial Information and
Operating Data of the Pledged Subsidiaries and the Joint
Ventures".
Exhibit 99.03 Press Release dated November 9, 2000
Exhibit
99.01
SCHEDULE E
Adelphia Business Solutions, Inc.
Form of Financial Information and Operating Data
Of the Subsidiaries and the Joint Ventures Presented by Cluster
Data presented for the quarter ended: 9/30/00
Unaudited
***
FINANCIAL DATA Other
(dollars in thousands): North East Mid-Atlantic Mid-South Markets Total
Total Revenue $ 21,016.7 $ 54,582.8 $ 20,422.8 $ 14,248.1 $ 110,270.4
Total Capital Expenditures $ 8,993.8 $111,618.8 $ 18,481.9 $ 73,884.8 $ 212,979.3
Total EBITDA $ 4,502.8 $ 6,033.8 $ (4,989.7) $ (7,332.8) $ (1,785.9)
Gross PP&E $157,699.3 $769,001.0 $254,713.4 $508,338.3 $1,689,752.0
Proportional Revenue* $ 21,016.7 $ 45,776.9 $ 20,422.8 $ 14,248.1 $ 101,464.5
Proportional Capital Expenditures* $ 8,993.8 $109,390.3 $ 18,481.9 $ 73,884.8 $ 210,750.8
Proportional EBITDA* $ 4,502.8 $ 3,244.4 $ (4,989.7) $ (7,332.8) $ (4,575.3)
Proportional Gross PP&E $157,699.3 $699,360.6 $254,713.4 $508,338.3 $1,620,111.6
STATISTICAL DATA
Increase for September 30, 2000:
Markets in Operation 3 3 2 9 17
Route Miles 33 86 157 16 292
Fiber Miles 1,677 18,321 20,847 67,319 108,164
Buildings connected - 42 35 27 104
Buildings with Customers 514 2,542 2,467 513 6,036
LEC-Cos collocated** - 11 16 21 48
Voice Grade Equivalent Circuits 11,424 246,624 59,136 47,712 364,896
As of June 30, 2000:
Markets in Operation 12 28 14 8 62
Route Miles 3,565 4,914 4,034 4,607 17,120
Fiber Miles 109,600 176,383 87,220 78,962 452,165
Buildings connected 800 943 798 516 3,057
Buildings with Customers 2,866 9,268 9,490 5,227 26,851
LEC-Cos collocated** 22 101 53 58 234
Voice Grade Equivalent 395,808 1,373,568 708,288 497,280 2,974,944
Circuits
As of September 30, 2000:
Markets in Operation 15 31 16 17 79
Route Miles 3,598 5,000 4,191 4,623 17,412
Fiber Miles 111,277 194,704 108,067 146,281 560,329
Buildings connected 800 985 833 543 3,161
Buildings with Customers 3,380 11,810 11,957 5,740 32,887
LEC-Cos collocated** 22 112 69 79 282
Voice Grade Equivalent Circuits 407,232 1,620,192 767,424 544,992 3,339,840
Access Lines Sold 76,462 306,590 121,014 108,478 612,544
Access Lines Installed 73,906 275,812 120,542 106,597 576,857
* Represents portion attributable to the Company.
** Local Exchange Carrier's central office
*** Other Markets amounts include, among other things, Network Control Centers
and Corporate Capital Expenditures and Gross Property, Plant and Equipment
Exhibit 99.02
SCHEDULE F
Adelphia Business Solutions, Inc.
Form of Financial Information and Operating Data
of the Pledged Subsidiaries and the Joint Ventures
Data presented for the quarter ended: 9/30/00
Unaudited
Total
FINANCIAL DATA (dollars in thousands)(a):
Total Revenue $ 33,812.3
Total Capital Expenditures $ 9,368.5
Total EBITDA $ 8,310.6
Gross Property, Plant & Equipment $ 341,975.9
STATISTICAL DATA(b):
As of September 30, 2000:
Markets in Operation 7
Route Miles 3,672
Fiber Miles 168,523
Buildings connected 1,654
LEC-COs collocated 63
Voice Grade Equivalent Circuits 1,120,224
Access Lines Sold 139,341
Access Lines Installed 137,989
<FN>
(a) Financial Data represents 100% of the operations of all entities except
Adelphia Business Solutions of Florida, which is reflected at its ownership
in the Jacksonville network, which is 20%.
(b) Statistical Data represents 100% of operating data for all entities.
</FN>