UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report under Section 13 or 15(d) of the Securities
- ------ Exchange Act of 1934
For the quarterly period ended September 30, 2001
- ------ 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, 2001, 47,772,906 shares of Class A Common Stock, par value
$0.01 per share, and 86,744,378 shares of Class B Common Stock, par value
$0.01 per share, of the registrant were outstanding.
ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 2000
and September 30, 2001.............................................4
Condensed Consolidated Statements of Operations - Three and
Nine Months Ended September 30, 2000 and 2001......................5
Condensed Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 2000 and 2001..................................6
Notes to Condensed Consolidated Financial Statements................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................13
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................30
Item 2. Changes in Securities............................................30
Item 3. Defaults Upon Senior Securities..................................30
Item 4. Submission of Matters to a Vote of Security Holders..............30
Item 5. Other Information................................................31
Item 6. Exhibits and Reports on Form 8-K.................................31
SIGNATURES................................................................32
INDEX TO EXHIBITS.........................................................33
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-Q, including Management's Discussion and Analysis of Financial Condition
and Results of Operations, is forward-looking, such as information relating to
future growth, expansion of operations or the effects of future regulation or
competition. Such forward-looking information involves important risks and
uncertainties that could significantly affect expected results in the future
from those expressed in any forward-looking statements made by, or on behalf of,
Adelphia Business Solutions, Inc. and subsidiaries ("the Company"). 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. These risks and
uncertainties include, but are not limited to, the cost and availability of
capital (including short term capital), the ability of the Company to execute
and fund is business plan, 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 and business conditions, acquisitions and divestitures,
government and regulatory policies and developments, the pricing and
availability of equipment, materials and inventories, risks associated with
reliance on the performance and financial condition of vendors and customers,
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. Persons reading this Form 10-Q are
cautioned that forward-looking statements herein are only predictions, that no
assurance can be given that the future results will be achieved, and that actual
events or results may differ materially as a result of risks and uncertainties
facing the Company. 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, 2000 and 2001. 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.
ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except share and per share amounts)
December 31, September 30,
2000 2001
------------ ------------
ASSETS:
Current assets:
Cash and cash equivalents ............... $ 3,543 $ 506
Assets held for sale to affiliates ...... -- 100,490
Accounts receivable - net ............... 79,650 102,197
Other current assets .................... 26,114 33,385
----------- -----------
Total current assets ............... 109,307 236,578
Restricted cash .............................. 54,178 18,900
Investments .................................. 48,409 54,829
Property, plant and equipment - net .......... 1,523,434 1,671,529
Other assets - net ........................... 154,138 144,498
----------- -----------
Total .............................. $ 1,889,466 $ 2,126,334
=========== ===========
LIABILITIES, PREFERRED STOCK, COMMON STOCK AND
OTHER STOCKHOLDERS' (DEFICIENCY) EQUITY:
Current liabilities:
Accounts payable ....................... $ 158,249 $ 86,408
Deposits on assets held for sale
to affiliates ......................... -- 61,225
Due to parent - net .................... 1,544 --
Due to affiliates - net ................ 8,067 27,747
Accrued interest ....................... 31,011 50,005
Accrued interest - parent .............. 7,003 9,442
Other current liabilities .............. 13,339 30,169
----------- -----------
Total current liabilities .......... 219,213 264,996
13% Senior discount notes due 2003 ........... 291,891 303,840
12 1/4% Senior secured notes due 2004 ........ 250,000 250,000
12% Senior subordinated notes due 2007 ....... 300,000 300,000
Note payable ................................. 500,000 494,085
Other debt ................................... 48,565 41,422
----------- -----------
Total liabilities .................. 1,609,669 1,654,343
----------- -----------
12 7/8% Senior exchangeable redeemable
preferred stock ............................. 297,067 327,360
----------- -----------
Commitments and contingencies (Note 3)
Common stock and other stockholders'
(deficiency) equity:
Class A common stock, $0.01 par value,
800,000,000 shares authorized,
35,848,366 and 47,772,906 shares
outstanding, respectively ................. 358 478
Class B common stock, $0.01 par value,
400,000,000 shares authorized,
35,143,859 and 86,744,378 shares
outstanding, respectively ................. 351 867
Additional paid in capital ................. 678,140 1,109,430
Class B common stock warrants .............. 1,022 --
Unearned stock compensation ................ (4,070) (2,836)
Accumulated deficit ........................ (693,071) (963,308)
----------- -----------
Total common stock and other
stockholders' (deficiency) equity . (17,270) 144,631
----------- -----------
Total .............................. $ 1,889,466 $ 2,126,334
=========== ===========
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,
---------------------- ----------------------
2000 2001 2000 2001
--------- --------- --------- ---------
Revenues ............................ $ 93,551 $ 116,278 $ 243,066 $ 343,562
--------- --------- --------- ---------
Operating expenses:
Network operations ................ 50,893 54,765 126,286 177,390
Selling, general and administrative 67,205 67,112 189,399 196,910
Restructuring charges ............. -- -- -- 4,979
Depreciation and amortization ..... 27,103 59,368 73,230 131,062
--------- --------- --------- ---------
Total ..................... 145,201 181,245 388,915 510,341
--------- --------- --------- ---------
Operating loss ...................... (51,650) (64,967) (145,849) (166,779)
Other income (expense):
Interest income ................... 1,247 238 2,671 1,381
Interest income-affiliate ......... -- -- 6,282 --
Interest expense .................. (14,557) (33,450) (42,751) (88,709)
Interest expense-affiliate ........ (2,191) (9,442) (2,191) (22,250)
--------- --------- --------- ---------
Loss before equity in net (loss)
income of joint ventures ........... (67,151) (107,621) (181,838) (276,357)
Equity in net (loss) income of
joint ventures ..................... 381 2,985 (70) 6,121
--------- --------- --------- ---------
Net loss ............................ (66,770) (104,636) (181,908) (270,236)
Dividend requirements applicable
to preferred stock ................. (9,053) (10,276) (26,321) (29,877)
--------- --------- --------- ---------
Net loss applicable to common
stockholders ....................... $ (75,823) $(114,912) $(208,229) $(300,113)
========= ========= ========= =========
Basic and diluted net loss per
weighted average share
of common stock .................... $ (1.08) $ (0.85) $ (2.98) $ (2.60)
========= ========= ========= =========
Weighted average shares of
common stock outstanding ........... 70,531 134,517 69,788 115,523
========= ========= ========= =========
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,
----------------------
2000 2001
--------- ---------
Cash flows from operating activities:
Net loss .......................................... $(181,908) $(270,236)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation ................................ 68,108 113,964
Amortization ................................ 5,122 17,098
Non-cash interest expense ................... 27,904 11,949
Equity in net loss (income) of joint ventures 70 (6,121)
Non-cash stock compensation ................. 585 1,485
Restructuring charges ....................... -- 4,979
Change in operating assets and liabilities net
of effects of acquisitions:
Other assets - net .......................... (68,609) (45,793)
Accounts payable ............................ (72,435) (68,747)
Accrued interest and other liabilities ...... 6,576 28,017
--------- ---------
Net cash used in operating activities ............... (214,587) (213,405)
--------- ---------
Cash flows from investing activities:
Expenditures for property, plant and equipment .... (476,939) (370,186)
Investments ....................................... (10,375) (300)
Sale of U.S. government securities-pledged ........ 30,626 --
Change in restricted cash ......................... (66,651) 35,278
Cash received from deposit for assets held for sale -- 61,225
--------- ---------
Net cash used in investing activities ............... (523,339) (273,983)
--------- ---------
Cash flows from financing activities:
Repayments of debt ................................ (4,330) (277,761)
Repayments and advances from related parties, net . 402,278 33,276
Proceeds from rights offering ..................... -- 460,835
Proceeds from exercise of warrant ................. 5,611 --
Proceeds from debt ................................ 349,709 268,446
Costs associated with financing ................... (15,009) (445)
--------- ---------
Net cash provided by financing activities ........... 738,259 484,351
--------- ---------
Increase (decrease) in cash and cash equivalents .... 333 (3,037)
Cash and cash equivalents, beginning of period ...... 2,133 3,543
--------- ---------
Cash and cash equivalents, end of period ............ $ 2,466 $ 506
========= =========
See notes to condensed consolidated financial statements.
ADELPHIA BUSINESS SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands; except share and per share amounts)
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, 2000.
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, 2001 and the unaudited
results of operations for the three and nine months ended September 30, 2000 and
2001 have been included. The results of operations for the three and nine months
ended September 30, 2001 are not necessarily indicative of the results to be
expected for the year ending December 31, 2001.
The Company has incurred substantial losses applicable to common shares
for each of the last three years, has had negative cash flows from operations in
the last year, and had a stockholder's deficit at December 31, 2000.
Additionally, the Company has incurred losses and negative cash flows from
operations for the first nine months of 2001. The Company's outstanding
borrowings have increased over the past year in connection with funding
operating losses, servicing debt requirements, and funding capital expenditures.
In addition, the health of the general economy, which continued to
deteriorate in the third quarter 2001, is not expected to improve in the near
term, particularly in light of uncertainties created by recent world events.
This economic downturn has affected and is expected to continue to negatively
impact the Company for the remainder of 2001.
The Company estimates that under its current business plan a total of
approximately $395,000 will be required to fund its capital expenditures,
working capital requirements, operating losses and pro rata investments in its
joint ventures from October 1, 2001 through September 30, 2002, of which
approximately $85,000 will be required through December 31, 2001. As of
September 30, 2001, approximately $5,915 was available under a bank credit
facility with approximately $19,406 cash on hand, including restricted cash, and
on October 1, 2001, an additional $80,000 in cash was paid by Adelphia to close
its purchase of network assets from the Company. The Company believes that it
has the resources to meet its funding requirements for the quarter ending
December 31, 2001. The Company's ability to fund its future operations, capital
expenditures and debt service will depend upon its access funding, including its
ability to access the capital markets, and its future financial and operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, many of which are beyond the Company's
control. The Company had previously announced that it was pursuing an additional
$300,000 to $500,000 bank credit facility. However, the Company does not expect
to obtain this additional bank credit facility. The Company does not have any
commitments for additional funding.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The items described
above raise substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
1. Significant Events Subsequent to December 31, 2000:
During December 2000, the Company revised its network expansion plan. The
Company reduced the number of markets it intended to be operating in by the end
of 2001 from a range of 175 to 200 to approximately 80. During January 2001, the
Company reduced its national staff by approximately 8% as a result of the
Company's revised network expansion plan. Most affected employees were located
in markets in which the Company has stopped expansion.
During March 2001, the Company issued and sold 11,820,070 and 51,459,624
shares of Class A and Class B common stock, respectively in a rights offering to
Adelphia at a price of $7.28 per share. Simultaneously, the Company issued and
sold 25,322 shares of Class A common stock, to the public in the rights offering
at a price of $7.28 per share. Total proceeds to the Company were approximately
$460,835.
During September 2001, the Company further revised its capital spending
plan, reducing planned expenditures to $60,000 to $70,000 in the fourth quarter
of 2001, $235,000 in 2002, and $200,000 in 2003. The reduced capital
expenditures were a result of decreased amounts to be spent on long-haul fiber,
elimination of investment in approximately 10 markets, reduction in the further
expansion of local fiber rings, decreases in prices for equipment purchases and
the sale of assets to Adelphia.
During October 2001, subsidiaries of the Company sold to subsidiaries of
Adelphia certain network and telecommunication assets. The assets sold related
to eight markets in Virginia and the northeastern United States. The aggregate
purchase price for these transactions was approximately $141,225 plus the
assumption of approximately $8,999 of liabilities. During September 2001, the
Company received a deposit of $61,225 in consideration for the sale of these
assets. On October 1, 2001 an additional $80,000 in cash was received by the
Company to close its sale of network assets to Adelphia. The network and
telecommunication assets were included in the "Assets held for sale to
affiliates" category on the Company's Condensed Consolidated Balance Sheet as of
September 30, 2001. For the three and nine months ended September 30, 2001, the
eight markets had revenues of $11,988 and $37,187, respectively, and net income
of $1,100 and $364, respectively. As the network and telecommunication assets
sold to Adelphia constitute businesses contained within legal entities under
common control, the sales will be reported as a change in reporting entity. As a
result, the Company expects to be recasting its financial statements for the
year ended December 31, 2001 to reflect these asset sales for all applicable
periods that the network and telecommunication assets were under the common
control of Adelphia. The sales price of the network and telecommunication assets
was based upon their fair market value. As the transaction was between related
parties, the Company received a fairness opinion on the fair market value of the
assets. Any gain on the transaction will be recorded as a capital contribution.
After excluding the results of the networks associated with these asset sales,
the Company would have had revenues and earnings before interest, income taxes,
depreciation and amortization ("EBITDA") loss on a consolidated basis of
approximately $104,290 and $9,893 respectively, for the quarter ended September
30, 2001.
On November 9, 2001, Adelphia announced that its Board of Directors had
authorized in principle the distribution of Adelphia's 79% common equity
interest in the Company to the common stockholders of Adelphia, that the
spin-off of Adelphia's equity interests was expected to occur no later than
March 31, 2002, and that in connection with the spin-off Adelphia may provide up
to $100,000 of additional credit support to the Company's subsidiaries.
2. Reclassification
Certain December 31, 2000 amounts have been reclassified to conform with
the presentation for the nine months ended September 30, 2001.
3. 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 and
cannot exercise control. 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 2000 2001
---------- ------------ ------------
Investments accounted for using the equity method:
PECO-Hyperion (Philadelphia) 50.0% $ 46,725 $ 46,725
PECO-Hyperion (Allentown, Bethlehem,
Easton, Reading) 50.0 11,050 11,050
Hyperion of York 50.0 6,525 6,525
------------ ------------
64,300 64,300
Cumulative equity in net loss (18,391) (12,271)
------------ ------------
Subtotal 45,909 52,029
Investments accounted for using the
cost method 2,500 2,800
------------ ------------
Total $ 48,409 $ 54,829
============ ============
Summarized combined unaudited financial information for the Company's
investments, which as of September 30, 2001 were being accounted for using the
equity method of accounting follows:
December 31, September 30,
2000 2001
------------ ------------
Current assets $ 26,942 $ 35,475
Property, plant and equipment - net 105,420 114,254
Current liabilities 10,221 6,360
Non current liabilities 31,010 39,052
Nine Months Ended
September 30,
2000 2001
---------- ----------
Revenues $ 44,984 $ 63,789
Net income 313 12,499
4. Commitments and Contingencies:
Reference is made to the Liquidity and Capital Resources and Regulations
sections of Management's Discussion and Analysis of Financial Condition and
Results of Operations for a discussion of material commitments and
contingencies.
5. 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.
6. Supplemental Financial Information:
For the nine months ended September 30, 2000 and 2001, the Company paid
interest of $48,625 and $91,889 respectively.
Accumulated depreciation of property, plant and equipment amounted to
$193,214 and $273,235 as of December 31, 2000 and September 30, 2001,
respectively.
For the nine months ended September 30, 2000 and 2001, the Company recorded
non-cash preferred stock dividends of $26,231 and $29,877, respectively.
7. Restructuring Charges:
During December 2000, the Company initiated a plan to reduce its network
expansion plan from its former target of 175 to 200 markets nationwide by the
end of 2001 to a new target of approximately 80 markets, thereby canceling plans
to enter or continue operations in approximately 120 markets. In January 2001,
the Company reduced its national staff by approximately 8% as a result of the
Company's revised business plan. Most of the affected employees were located in
markets in which the Company has stopped expansion. For the year ended December
31, 2000, the Company recorded a charge of approximately $5,420 to cover a
portion of the costs associated with this revised business plan. During the
quarter ended March 31, 2001, the Company recorded a charge of approximately
$4,979 to cover additional costs associated with this revised business plan.
During the three and nine months ended September 30, 2001, the Company paid
$1,278 and $7,623, respectively, associated with the restructuring charge
resulting in a liability of $2,776 at September 30, 2001.
8. Recent Accounting Pronouncements
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138,. "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." SFAS No. 133, as amended,
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value, with changes in fair value reflected in the
statement of operations or other comprehensive income. As of December 31, 2000
and September 30, 2001, the Company did not hold any derivative instruments.
Accordingly, the adoption of this statement did not have an effect on the
Company's consolidated results of operations or financial position.
The Financial Accounting Standards Board has issued SFAS No. 141,
"Business Combinations" and No. 142 "Goodwill and Other Intangible Assets". SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 and the use of the
pooling-of-interests method is no longer allowed. SFAS No. 142 requires that
upon adoption, amortization of goodwill will cease and instead, the carrying
value of goodwill will be evaluated for impairment on an annual basis.
Identifiable intangible assets will continue to be amortized over their useful
lives and reviewed for impairment in accordance with SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". SFAS No. 142 is effective for the Company's fiscal year beginning January
1, 2002. The Company is evaluating the impact of the adoption of these standards
and has not yet determined the effect of adoption on its financial position and
results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment
or Disposal of Long-Lived Assets." SFAS No. 144, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of, supercedes SFAS No. 121 and is effective
for fiscal years beginning after December 15, 2001. While the Company is
currently evaluating the impact the adoption of SFAS No. 144 will have on its
financial position and results of operations, it does not expect such impact to
be material.
-------------------------------------------------
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, 2000 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 21 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 owned by wholly- and
majority-owned subsidiaries or by two joint venture partnerships or limited
liability companies managed by the Company and in which the Company holds a 50%
equity interest with one or more other partners, and are broken into two
subcategories: the 13 markets which began operations in 1996 or previously (the
"Class of 1996") and the eight markets which began operations in 1997 and 1998
(the "Class of 1997/98"), and (ii) the additional networks operational or under
development subsequent to May 8, 1998 (the "Expansion Markets") which are also
broken into two subcategories: those which began operations in 1999 (the "Class
of 1999") and those which began operations in 2000 (the "Class of 2000"). During
December 2000, subsidiaries of the Company sold to a subsidiary of Adelphia
certain network and telecommunications assets. The assets sold related to six
markets in Virginia, Colorado, California and Ohio which the Company has decided
not to pursue as part of the revised business plan. During October 2001,
subsidiaries of the Company sold to subsidiaries of Adelphia certain network and
telecommunications assets. The assets sold relate to eight markets in Virginia
and the Northeastern United States which the Company has decided not to pursue
as part of the revised business and capital spending plan. Unless otherwise
stated, all historical amounts and network or market information presented in
this Form 10-Q for periods ending on or before September 30, 2001 include
results for the eight markets sold to Adelphia on October 1, 2001.
Adelphia Business Solutions provides facilities-based integrated
communications services to customers that include businesses, governmental and
educational end users and other communications services providers. The Company
currently offers a full range of communications services in 75 markets through
its collection of high-bandwidth, local and long-haul network assets. 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 a discount when compared to the price of the separate services. The
Company's objective is to take advantage of the improved economic returns and
better customer service from providing services "on-net," or over the Company's
own network.
A summary of the Company's non-financial statistical information as of
September 30, 2001 follows:
Active
---------
Local Route Miles 9,536
Fiber Strand Miles 562,188
Long-Haul Route Miles 7,879
Buildings Connected on-network with owned facilities 3,135
Central Offices Connected on-network 309
Lucent 5ESS Voice Switches 27
Data Switches 26
Sales Employees 493
Total Employees 2,523
Customers, including joint ventures 39,264
Average monthly revenue per customer $1,071
Recent Developments
During December 2000, the Company revised its network expansion plan. The
Company reduced the number of markets it intended to be operating in by the end
of 2001 from a range of 175 to 200 to approximately 80. During January 2001, the
Company reduced its national staff by approximately 8% as a result of the
Company's revised network expansion plan. Most affected employees were located
in markets in which the Company has stopped expansion.
During March 2001, the Company issued and sold 11,820,070 and 51,459,624
shares of Class A and Class B common stock, respectively in a rights offering to
Adelphia at a price of $7.28 per share. Simultaneously, the Company issued and
sold 25,322 shares of Class A common stock, to the public in the rights offering
at a price of $7.28 per share. Total proceeds to the Company were approximately
$460,835.
During September 2001, the Company further revised its capital spending
plan, reducing planned expenditures to $60,000 to $70,000 in the fourth quarter
of 2001, $235,000 in 2002, and $200,000 in 2003. The reduced capital
expenditures were a result of decreased amounts to be spent on long-haul fiber,
elimination of investment in approximately 10 markets, reduction in the further
expansion of local fiber rings, decreases in prices for equipment purchases and
the sale of assets to Adelphia.
During October 2001, subsidiaries of the Company sold to subsidiaries of
Adelphia certain network and telecommunication assets. The assets sold related
to eight markets in Virginia and the northeastern United States. The aggregate
purchase price for these transactions was approximately $141,225 plus the
assumption of approximately $8,999 of liabilities. During September 2001, the
Company received a deposit of $61,225 in consideration for the sale of these
assets. On October 1, 2001 an additional $80,000 in cash was received by the
Company to close its sale of network assets to Adelphia. The network and
telecommunication assets were included in the "Assets held for sale to
affiliates" category on the Company's Condensed Consolidated Balance Sheet as of
September 30, 2001. For the three and nine months ended September 30, 2001, the
eight markets had revenues of $11,988 and $37,187, respectively, and net income
of $1,100 and $364, respectively. As the network and telecommunication assets
sold to Adelphia constitute businesses contained within legal entities under
common control, the sales will be reported as a change in reporting entity. As a
result, the Company expects to be recasting its financial statements for the
year ended December 31, 2001 to reflect these asset sales for all applicable
periods that the network and telecommunication assets were under the common
control of Adelphia. The sales price of the network and telecommunication assets
was based upon their fair market value. As the transaction was between related
parties, the Company received a fairness opinion on the fair market value of the
assets. Any gain on the transaction will be recorded as a capital contribution.
After excluding the results of the networks associated with these asset sales,
the Company would have had revenues and earnings before interest, income taxes,
depreciation and amortization ("EBITDA") loss on a consolidated basis of
approximately $104,290 and $9,893 respectively, for the quarter ended September
30, 2001.
On November 9, 2001, Adelphia announced that its Board of Directors had
authorized in principle the distribution of Adelphia's 79% common equity
interest in the Company to the common stockholders of Adelphia, that the
spin-off of Adelphia's equity interests was expected to occur no later than
March 31, 2002, and that in connection with the spin-off Adelphia may provide up
to $100,000 of additional credit support to the Company's subsidiaries.
Results of Operations
Three Months Ended September 30, 2001 in Comparison with Three Months Ended
September 30, 2000
Revenues increased 24% to $116,278 for the three months ended September
30, 2001, from $93,551 for the same quarter in the prior year.
Amounts
The change is attributable to the following: (in thousands)
--------------
Growth in Class of 1996 Markets $ 8,110
Growth in Class of 1997/98 Markets 4,942
Growth in Class of 1999 Markets 6,315
Growth in Class of 2000 Markets 2,730
Management fees 630
The primary sources of revenues, reflected as a percentage of total
revenue were as follows:
Three Months
Ended
September 30,
2000 2001
-------------
Voice services 71.4% 69.5%
Data and dedicated access services 18.4% 25.4%
Management fees 1.0% 1.3%
Other 9.2% 3.8%
Network operations expense increased 8% to $54,765 for the three months
ended September 30, 2001 from $50,893 for the same quarter in the prior year.
Amounts
The change is attributable to the following: (in thousands)
--------------
Original Markets $ (2,779)
Expansion Markets 6,900
Network Operations Control Center ("NOCC") (249)
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 compared to the prior year
period resulted in increased employee related costs, equipment maintenance costs
and expansion costs.
Selling, general and administrative expense were relatively unchanged for
the three months ended September 30, 2001 at $67,112 compared to $67,205 for the
same quarter in the prior year.
Amounts
The change is attributable to the following: (in thousands)
--------------
Growth in Markets $ 4,341
Sales and marketing and corporate activities (5,349)
Non-cash stock compensation 915
Depreciation and amortization expense increased 119% to $59,368 during the
three months ended September 30, 2001 from $27,103 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, 2001 decreased to
$238 from $1,247 for the same quarter in the prior year primarily as a result of
decreases in interest income from lower amounts of cash and cash equivalents
throughout the quarter.
Interest income-affiliate for the three months ended September 30, 2001
was zero as compared to zero for the same quarter in the prior year as a result
of no demand advances outstanding to Adelphia during either period.
Interest expense increased 130% to $33,450 during the three months ended
September 30, 2001 from $16,748 for the same period in the prior year. The
increase was primarily attributable to an increase in the amount of interest
expense incurred as a result of outstanding borrowings on the Company's joint
credit facility with other subsidiaries of Adelphia.
Interest expense-affiliate increased to $9,442 during the three months
ended September 30, 2001 from $2,191 for the same period in the prior year as a
result of increased outstanding borrowings on the Company's joint credit
facility with other subsidiaries of Adelphia.
Equity in net income of joint ventures for the three months ended
September 30, 2001 was $2,985 as compared to $381 for the same quarter in the
prior year.
The number of joint ventures paying management fees to the Company was
three at September 30, 2000 and 2001. In addition, the properties sold to
Adelphia during December 2000 are paying management fees to the Company. These
non-consolidated joint ventures and Adelphia networks paid management and
monitoring fees to the Company, which are included in revenues, aggregating
approximately $1,522 for the three months ended September 30, 2001, as compared
with $893 for the same quarter in the prior fiscal year. The nonconsolidated
joint ventures, for the three months ended September 30, 2000 and 2001, had a
net income of approximately $551 and $6,228, respectively.
Preferred stock dividends increased by 14% to $10,276 for the three months
ended September 30, 2001 from $9,053 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, 2001 in Comparison with Nine Months Ended
September 30, 2000
Revenues increased 41% to $343,562 for the nine months ended September 30,
2001, from $243,066 for the same period in the prior year.
Amounts
The change is attributable to the following: (in thousands)
--------------
Growth in Class of 1996 Markets $ 46,544
Growth in Class of 1997/98 Markets 12,226
Growth in Class of 1999 Markets 27,380
Growth in Class of 2000 Markets 8,878
Acquisition of local partner interests 3,113
Management fees 2,355
The primary sources of revenues, reflected as a percentage of total
revenue were as follows:
Nine Months
Ended
September 30,
2000 2001
-------------
Voice services 73.3% 68.8%
Data and dedicated access services 18.7% 22.9%
Management fees 1.3% 1.6%
Other 6.7% 6.7%
Network operations expense increased 41% to $177,390 for the nine months
ended September 30, 2001 from $126,286 for the same period in the prior year.
Amounts
The change is attributable to the following: (in thousands)
--------------
Growth in Original Markets $ 10,070
Acquisition of local partner interests 679
Expansion Markets 40,129
Network Operations Control Center ("NOCC") 226
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, compared to the prior year
period, resulted in increased employee related costs, equipment maintenance
costs and expansion costs.
Selling, general and administrative expenses increased 4% to $196,910 for
the nine months ended September 30, 2001 from $189,399 for the same period in
the prior year, primarily reflecting the growth in the Expansion Markets.
Amounts
The change is attributable to the following: (in thousands)
--------------
Growth in Markets $ 11,787
Acquisition of local partner interests 1,287
Sales and marketing and corporate activities (6,399)
Non-cash stock compensation 836
Restructuring charges for the nine months ended September 30, 2001, were
$4,979 as compared to zero for the same period in the prior year primarily as a
result of the Company's revised business plan.
Depreciation and amortization expense increased 79% to $131,062 during the
nine months ended September 30, 2001 from $73,230 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, 2001 decreased 48%
to $1,381 from $2,671 for the same period in the prior year primarily as a
result of decreases in interest income from lower amounts of cash and cash
equivalents throughout the period.
Interest income-affiliate for the nine months ended September 30, 2001 was
zero as compared to $6,282 for the same period in the prior year as a result of
no demand advances outstanding to Adelphia during the current period.
Interest expense increased 108% to $88,709 during the nine months ended
September 30, 2001 from $42,751 for the same period in the prior year. The
increase was primarily attributable to an increase in the amount of interest
expense incurred as a result of outstanding borrowings on the Company's joint
credit facility with other subsidiaries of Adelphia.
Interest expense-affiliate increased to $22,250 for the nine months ended
September 30, 2001 from $2,191 for the same period in the prior year as a result
of increased outstanding borrowings on the Company's joint credit facility with
other subsidiaries of Adelphia.
Equity in net (loss) income of joint ventures for the nine months ended
September 30, 2001 was $6,121 as compared to ($70) for the same period in the
prior year.
The number of joint ventures paying management fees to the Company was
three at September 30, 2000 and 2001. In addition, the properties sold to
Adelphia during December 2000 are paying management fees to the Company. These
non-consolidated joint ventures and Adelphia networks paid management and
monitoring fees to the Company, which are included in revenues, aggregating
approximately $5,483 for the nine months ended September 30, 2001, as compared
with $3,129 for the same period in the prior fiscal year. The nonconsolidated
joint ventures, for the nine months ended September 30, 2000 and 2001, had a net
income of approximately $313 and $12,499, respectively.
Preferred stock dividends increased by 14% to $29,877 for the nine months
ended September 30, 2001 from $26,321 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.
Forward Looking Guidance
The Company expects that for the quarter ending December 31, 2001,
consolidated revenues will be approximately $115,000 to $120,000 and
consolidated positive EBITDA will be approximately $2,000 to $5,000. These
expectations include the Company's estimate of the effect of the revised
business plan, the general economic downturn affecting the United States economy
and its effect on the Company's customers and vendors, and the sale of assets to
Adelphia which closed on October 1, 2001.
Supplementary Network Financial Analysis
At September 30, 2001, 54 of the 75 operational markets had been in
operation for thirty-three months or less, while the remaining 21 markets have
been in operation for more than thirty-three months. 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 into 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, 2001 Quarter Ended June 30, 2001
---------------------------------------------------- ---------------------------------------------------
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 ........... $ 88,281 $ 20,374 $ 25,144 $ 2,835 $ 136,634 $ 90,775 $ 18,101 $ 24,710 $ 3,768 $ 137,354
Direct Operating
Expenses ......... 22,475 5,339 24,422 3,701 55,937 27,127 6,405 27,319 3,336 64,187
-------- -------- -------- -------- ---------- --------- -------- -------- -------- ----------
Gross Margin ...... 65,806 15,035 722 (866) 80,697 63,648 11,696 (2,609) 432 73,167
Gross Margin
Percentage ....... 74.5% 73.8% 2.9% (30.5%) 59.1% 70.1% 64.6% (10.6%) 11.5% 53.3%
Sales, General
and Administrative
Expenses ......... 29,752 6,854 18,465 3,890 58,961 26,076 5,054 19,217 4,590 54,937
-------- -------- -------- -------- ---------- --------- -------- -------- -------- ----------
EBITDA before
allocation of
Corporate
Overhead (b) ..... $ 36,054 $ 8,181 $(17,743) $ (4,756) $ 21,736 $ 37,572 $ 6,642 $(21,826) $ (4,158) $ 18,230
-------- -------- -------- -------- ---------- --------- -------- -------- -------- ----------
EBITDA as a
Percentage
of Revenues ...... 40.8% 40.2% (70.6%) (167.8%) 15.9% 41.4% 36.7% (88.3%) (110.4%) 13.3%
September 2001 Quarter vs. June 2001 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 ........... (2.7%) 12.6% 1.8% (24.8%) (0.5%)
Direct Operating
Expenses .......... (17.2%) (16.6%) (10.6%) 11.0% (12.9%)
-------- -------- -------- -------- ----------
Gross Margin ....... 3.4% 28.6% NM(c) NM(c) 10.3%
Sales, General
and Administrative
Expenses ......... 14.1% 35.6% (3.9%) (15.3%) 7.3%
-------- -------- -------- -------- ----------
EDITDA before
allocation of
Corporate
Overhead (b) ...... (4.0%) 23.2% 18.7% (14.4%) 19.2%
-------- -------- -------- -------- ----------
<FN>
(a) Table 2 summarizes operating results before the allocation of corporate
overhead for Adelphia Business Solutions' Original and Expansion Markets,
which includes non-consolidated joint ventures, 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 $14.8
million in the September 2001 quarter and $14.4 million in the June 2001
quarter. Amounts presented include results for the networks sold to Adelphia
on October 1, 2001.
(b) Earnings before interest, income taxes, depreciation and amortization,
restructuring charges, 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, 2001 Quarter Ended September 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 ........... $ 88,281 $ 20,374 $ 25,144 $ 2,835 $ 136,634 $ 77,261 $ 14,061 $ 18,829 $ 105 $ 110,256
Direct Operating
Expenses ......... 22,475 5,339 24,422 3,701 55,937 20,933 6,575 23,986 879 52,373
-------- -------- -------- -------- ---------- --------- -------- -------- -------- ----------
Gross Margin ...... 65,806 15,035 722 (866) 80,697 56,328 7,486 (5,157) (774) 57,883
Gross Margin
Percentage ....... 74.5% 73.8% 2.9% (30.5%) 59.1% 72.9% 53.2% (27.4%) NM(c) 52.5%
Sales, General
and Administrative
Expenses ......... 29,752 6,854 18,465 3,890 58,961 29,665 4,921 21,689 3,519 59,794
-------- -------- -------- -------- ---------- --------- -------- -------- -------- ----------
EBITDA before
allocation of
Corporate
Overhead (b) ..... $ 36,054 $ 8,181 $(17,743) $ (4,756) $ 21,736 $ 26,663 $ 2,565 $(26,846) $ (4,293) $ (1,911)
-------- -------- -------- -------- ---------- --------- -------- -------- -------- ----------
EBITDA as a
Percentage
of Revenues ...... 40.8% 40.2% (70.6%) (167.8%) 15.9% 34.5% 18.2% (142.6%) NM(c) (1.7%)
September 2001 Quarter vs. September 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 .......... 14.3% 44.9% 33.5% NM(c) 23.9%
Direct Operating
Expenses ......... 7.4% (18.8%) 1.8% NM(c) 6.8%
-------- -------- -------- -------- ----------
Gross Margin ...... 16.8% 100.8% NM(c) NM(c) 39.4%
Sales, General
and Administrative
Expenses ......... 0.3% 39.3% (14.9%) NM(c) (1.4%)
-------- -------- -------- -------- ----------
EDITDA before
allocation of
Corporate
Overhead (b) ..... 35.2% 218.9% 33.9% NM(c) NM(c)
-------- -------- -------- -------- ----------
<FN>
(a) Table 2 summarizes operating results before the allocation of corporate
overhead for Adelphia Business Solutions' Original and Expansion Markets,
which includes non-consolidated joint ventures, 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 $14.8 million
in the September 2001 quarter and $16.2 million in the September 2000
quarter. Amounts presented include results for the networks sold to Adelphia
on October 1, 2001.
(b) Earnings before interest, income taxes, depreciation and amortization
restructuring charges, 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 network operations control
center ("NOCC"), have resulted in substantial capital expenditures and
investments during the past several years. Capital expenditures by the Company
were $476,939 and $370,186 for the nine months ended September 30, 2000 and
2001, respectively. Further, investments made by the Company in nonconsolidated
joint ventures were $10,375 and $300 for the nine months ended September 30,
2000 and 2001, respectively. The decrease in capital expenditures for the nine
months ended September 30, 2001 as compared with the same period in the prior
fiscal year is largely attributable to the revised business plan announced
during December 2000.
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, debt service
payments, and incremental investments in the joint ventures has historically
resulted in substantial negative cash flow. Expansion of the Company's Original
Markets, the development of Expansion Markets and additional investment in new
products 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) strategic further investments in
the operation and development of the Original Markets. The Company has made
substantial capital investments and investments in joint ventures in connection
with the installation of 5ESS switches in all of its Original Markets and
certain key Expansion Markets. 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.
The Company has historically funded the substantial deficit between cash
generated from operations and its cash needs through a combination of issuances
of debt securities, issuances of common stock, short term advances and
borrowings from Adelphia, asset sales to Adelphia and borrowings under the
$500,000 bank credit facility. During the September 2001 quarter, the Company
funded its free cash flow deficit with draws from the $500,000 bank credit
facility and a deposit on asset sales to Adelphia which closed on October 1,
2001. Under its current business plan, the Company estimates that a total of
approximately $395,000 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, 2001 through September 30,
2002, of which approximately $85,000 will be required through December 31, 2001.
For information regarding recent transactions affecting the Company's liquidity
and capital resources, see "Recent Developments." Even if the Company made
further cutbacks in its current business plan to develop its markets, the
Company would still incur substantial cash deficits that would require
additional funding during these periods.
To fund its projected cash needs as well as future deficits, the Company
is continuing to explore additional sources of liquidity. As of September 30,
2001, approximately $5,915 was available under the $500,000 bank credit facility
with approximately $19,406 in cash on hand, including restricted cash, and on
October 1, 2001 an additional $80,000 in cash was paid by Adelphia to close its
purchase of network assets from the Company. The Company believes it has the
resources to meet its funding requirements for the quarter ending December 31,
2001. The Company's ability to fund its future operations, capital expenditures
and debt service will depend upon its access to funding, including its ability
to access the capital markets, and its future financial and operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, many of which are beyond the Company's
control. The Company has been pursuing but currently does not expect to obtain
the additional $300,000 to $500,000 bank credit facility previously discussed.
The Company does not have any commitments for additional funding. There
can be no assurance (i) that additional funding will become available to the
Company on either a short term or long term basis, (ii) that the terms of any
additional funding would not be materially adverse to the Company including
substantial interest rates, the imposition of restrictive covenants, the
pledging of assets, the sale of assets, the dilution of existing stockholders'
interest or otherwise, (iii) that the Company will not be required to consider
further revisions to its business plan and reductions in capital and other
expenditures, the sale of assets or other strategic alternatives, or (iv) that
the Company's future cash requirements will not vary significantly from those
presently planned due to a variety of factors including failure to generate
anticipated revenues, acquisition of additional networks, continued acquisition
of increased ownership in its networks, material variances from expected capital
expenditure requirements for the Original Markets and the Expansion Markets and
development of the LMDS or the 39 Ghz spectrum.
On November 9, 2001, Adelphia announced that its Board of Directors had
authorized in principle the distribution of Adelphia's 79% common equity
interest in the Company to the common stockholders of Adelphia, that the
spin-off of Adelphia's equity interests was expected to occur no later than
March 31, 2002, and that in connection with the spin-off Adelphia may provide up
to $100,000 of additional credit support to the Company's subsidiaries.
Recent Accounting Pronouncements
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting For Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." SFAS No. 133, as amended,
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value with changes in fair value reflected in the statement
of operations or other comprehensive income. As of December 31, 2000 and
September 30, 2001, the Company did not hold any derivative instruments.
Accordingly, the adoption of this statement did not have an effect on the
Company's consolidated results of operations or financial position.
The Financial Accounting Standards Board has issued SFAS No. 141,
"Business Combinations" and No. 142 "Goodwill and Other Intangible Assets". SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 and the use of the
pooling-of-interests method is no longer allowed. SFAS No. 142 requires that
upon adoption, amortization of goodwill will cease and instead, the carrying
value of goodwill will be evaluated for impairment on an annual basis.
Identifiable intangible assets will continue to be amortized over their useful
lives and reviewed for impairment in accordance with SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". SFAS No. 142 is effective for the Company's fiscal year beginning January
1, 2002. The Company is evaluating the impact of the adoption of these standards
and has not yet determined the effect of adoption on its financial position and
results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment
or Disposal of Long-Lived Assets." SFAS No. 144, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of, supercedes SFAS No. 121 and is effective
for fiscal years beginning after December 15, 2001. While the Company is
currently evaluating the impact the adoption of SFAS No. 144 will have on its
financial position and results of operations, it does not expect such impact to
be material.
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. The Telecommunications Act of 1996 (the
"Telecommunications Act") and associated federal and state regulatory
initiatives are intended to provide increased business opportunities to
competitive local exchange carriers ("CLECs") such as the Company. However,
regulators may provide ILECs with increased pricing flexibility for their
services or other significant regulatory relief, as competition increases or for
other reasons. 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 FCC has approved applications for such
authority for Verizon (formerly Bell Atlantic) in New York, Massachusetts and
Pennsylvania, and for SBC in Texas, Oklahoma, Kansas and Connecticut. These
approvals may well result in decreased market share for the major inter-exchange
carriers ("IXCs"), which are among the operating companies' 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 merger of
Ameritech and SBC, whose combined territory covers a substantial portion of the
Company's markets. Other combinations have occurred in the industry, which may
have an effect on the Company, such as the combination of AT&T Corp. with
MediaOne Group, Bell Atlantic with GTE, which became Verizon Communications,
Qwest with US West, and AOL with Time Warner. 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, ILECs 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 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 ownership of various cable companies may enable it to
exploit ubiquitous local cable infrastructure for telecommunications and other
services provided by the operating companies. Finally, although the Company has
generally good relationships with 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 establishes local exchange competition
as a national policy. This act is intended to remove state and local regulatory
barriers to competition. To do so, it imposes numerous requirements to
facilitate the provision of local telecommunications services by multiple
providers. For example carriers interconnect their networks, transfer their
customers' telephone numbers to each other when customers change carriers, and
may agree to compensate each other for local traffic they exchange. ILECs have
additional duties, such as providing competitors with network interconnection at
any technically feasible point, with access to unbundled network elements, and
to make available 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. On the other hand, states may 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, and localities may manage public rights-of-way. There have been
numerous disputes over what conditions a local government may impose on CLECs as
part of a "franchise" to occupy the public rights-of-way. The result of these
cases have been mixed, in some cases sustaining, and in others rejecting,
burdensome financial and/or operational requirements. Depending on the result,
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. The FCC's rules have been
and likely will continue to be subject to litigation, but in most significant
respects they have ultimately been upheld by the courts. The FCC's rules for
setting the prices that ILECs may charge CLECs for use of their networks remains
in litigation. These rules are generally viewed as favorable to CLECs. There can
be no assurance that these rules will be sustained by the courts.
Many CLECs have experienced difficulties with the ILECs' fulfillment of
their duties with respect to provisioning, interconnection, rights-of-way,
collocation and implementing the systems used by CLECs 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. Increasingly, however, ILECs may not view that incentive as
sufficient to justify willing compliance with their obligations under the
Telecommunications Act. Moreover, the Company cannot be assured that RBOCs will
be accommodating to the Company's networks once they are permitted to offer long
distance service as they have thus far in New York, Massachusetts, Pennsylvania,
Texas, Oklahoma, Kansas and Connecticut. If the Company's networks cannot obtain
the cooperation of an RBOC for any reason, the Company's networks' ability to
offer local services in such region on a timely and cost effective basis would
be adversely affected.
The FCC has adopted rules designed to make it easier and less expensive
for CLECs to obtain collocation at ILEC central offices by, among other things,
restricting the ILECs' ability to prevent certain types of equipment from being
collocated, requiring ILECs to offer alternative collocation arrangements to
CLECs, and establishing nationwide guidelines for how long it should take to
establish a collocation arrangement. The FCC has also required ILECs to allow
CLECs to use the high-frequency portion of the spectrum on a customer line to
offer data services even if the CLEC does not provide the customer with voice
service. While the intent of these rules is to facilitate competition by CLECs
such as the Company's networks, ILECs continue to resist the rules and it
remains uncertain that they will prove significant in practical terms.
ILECs generally contest the claim that the obligation to pay reciprocal
compensation to CLECs applies 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. The FCC accepted this logic, but ruled that this
general conclusion did not supercede any state ruling that compensation is
required under a particular contract or prevent a state from imposing
compensation on a prospective basis. On March 24, 2000, a federal court of
appeals vacated the ruling and remanded the issue to the FCC for further
consideration. On April 27, 2001, the FCC released an order in which it held
that ISP-bound calls should not be subject to inter-carrier compensation; the
FCC also held that, because of existing compensation arrangements, the
transition to a compensation-free regime will be phased in over three years,
during which time compensation rates for ISP-bound calls will be capped at
gradually decreasing rates. Significantly, for an ILEC to receive the benefit of
the capped rates during the three-year transition period, it must agree to
exchange all traffic at these rates. If an ILEC refuses to accept the lower
rates for all calls (including calls that a CLEC sends to the ILEC), then
ISP-bound calls are to be compensated for like any other traffic. In addition,
the FCC capped the number of minutes for which a CLEC may receive compensation
in a given state, at the number of minutes received in the first quarter of 2001
(annualized), plus a 10% growth factor. The FCC's ruling is on appeal. If upheld
or remanded to the FCC on a bases favorable to the ILECs, the FCC's order and/or
subsequent court and/or state rulings could affect the costs incurred by ISPs
and CLECs and the demand for their offerings. An unfavorable outcome may affect
the Company's potential future revenues. The Company expects reciprocal
compensation revenues going forward to decrease by approximately 50% to 70% as a
result of the FCCs recent ruling.
Several ILECs have initiated legislative efforts to remove certain
obligations imposed 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 first opening their markets to competition in accordance with the
Telecommunications Act. The FCC reaffirmed in late 1999 that such services are
subject to the resale and unbundling obligations of the Telecommunications Act.
Following court review and additional FCC proceedings, the question of the
proper regulatory classification of, and regulatory obligations associated with,
ILEC provision of high-speed data service remains pending at the FCC. 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.
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 revenues for
such payments and other subsidies on the basis of prior year analyses. Various
states also implement their own universal service programs and other assesssment
obligations to which the Company is subject.
When the Company's networks provide interexchange telecommunications
service to customers who receive local service from another carrier, the Company
will generally be required to pay the other carrier access charges. Similarly,
when another carrier provides interexchange service to a customer who receives
local service from the Company, the other carrier owes the Company access
charges. ILEC interstate access charges are subject to extensive regulation by
the FCC; CLEC access charges are subject to less regulation but still must be
just reasonable, and not unreasonably discriminatory. Some of the interexchange
providers to whom the Company's networks provide access services, including AT&T
and Sprint, have refused to pay access charges that exceed the access charges of
the ILEC in any given geographic area, leading to litigation. While the
Company's networks have not experienced any such challenges to their right to
collect access charges, they could experience them in the future. On April 27,
2001, the FCC released an order detariffing CLEC interstate access rates above
established maximum levels over a three-year period. This means that CLECs will
no longer be able to rely on the legally binding force of filed tariffs to seek
to collect access charges above the newly established levels. At the same time,
however, the FCC gave CLECs greater power to collect access charges at or below
the new maximums. Specifically, the FCC established that CLEC access rates set
at or within its benchmarks are conclusively presumed to be reasonable. Notably,
the new rules do not forbid above-cap CLEC access rates; however, they do remove
CLECs' ability to simply tariff such access rates, which now must be negotiated.
The manner in which the FCC has lowered access charge levels could have material
effect on the ability of the Company's networks to compete in providing
interstate access services and terminating and originating long distance
traffic.
On April 27, 2001, the FCC also released a Notice of Proposed Rulemaking
seeking comment on, among other things, the benefits and legal sustainability of
moving to a regime under which there would be no intercarrier compensation for
local calls, ISP-bound calls, wireless calls and, indirectly, toll calls. The
manner in which the FCC resolves these issues could have a material effect on
both the Company's expenses and revenues.
The FCC has ruled that non-dominant IXCs, such as the Company, will no
longer be able to file tariffs with the FCC concerning their interexchange long
distance services. This ruling deprives 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 also presides over ongoing proceedings addressing a variety of
other matters, including number portability, Internet-Protocol, telephony,
slamming, rights of way, building access, numbering resources, pole attachments,
customer privacy, wire tapping, 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. With respect to pole attachments, in
particular, the FCC regulations currently cap rental fees that may be assessed
by electric utilities and others. The FCC has reaffirmed its approach, but the
matter is on appeal. In the event the courts reject the FCC's position, such an
outcome could have a material effect on the Company.
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, 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 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 have been
certificated. 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 revenues or some other
measure such as quantity of facilities installed. In addition, in areas where
the Company does not use its own facilities or those 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. Such legal challenges by other CLECs
have produced mixed results, with some municipal requirements that the Company
believes are discriminatory or otherwise illegal being judicially upheld.
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 no 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, 2001.
Expected Maturity
--------------------------------------------
Fair
2002 2003 2004 2005 2006 Thereafter Total Value
-----------------------------------------------------------------------------
Fixed Rate Public Debt and
Redeemable Preferred Stock: $ --- $303,840 $250,000 $ --- $ --- $627,360 $1,181,200 $500,084
Average Interest Rate 12.55% 12.45% 12.41% 12.45% 12.45% 12.75% --- ---
Fixed Rate Non Public Debt $ --- $ 1,971 $ 2,628 $32,851 $56,242 $400,393 $ 494,085 $494,085
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 August 7, 2001. 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:
- ---------------------------------------------------------------------------
Director Elected Class of Stock Vote For Votes Broker
Against Non-Votes
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
John J. Rigas Class A Common 45,187,524 1,074,707 0
Class B Common 858,310,400 0 0
12 7/8% Preferred 87,570 132,405 0
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Michael J. Rigas Class A Common 45,187,524 1,074,707 0
Class B Common 858,310,400 0 0
12 7/8% Preferred 87,570 132,405 0
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Timothy J. Rigas Class A Common 45,187,524 1,074,707 0
Class B Common 858,310,400 0 0
12 7/8% Preferred 87,570 132,405 0
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
James P. Rigas Class A Common 45,187,524 1,074,707 0
Class B Common 858,310,400 0 0
12 7/8% Preferred 87,570 132,405 0
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Pete J. Metros Class A Common 46,081,074 181,157 0
Class B Common 858,310,400 0 0
12 7/8% Preferred 217,140 2,835 0
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
James L. Gray Class A Common 46,081,074 181,157 0
Class B Common 858,310,400 0 0
12 7/8% Preferred 217,140 2,835 0
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Peter L. Venetis Class A Common 46,081,074 181,157 0
Class B Common 858,310,400 0 0
12 7/8% Preferred 217,140 2,835 0
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Edward S. Mancini Class A Common 46,081,074 181,157 0
Class B Common 858,310,400 0 0
12 7/8% Preferred 217,140 2,835 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, 2001,
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, 2001,
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,
2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
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 12, 2001
(b) Reports on Form 8-K:
During the three months ended September 30, 2001, the Company filed a
report on Form 8-K on September 5, 2001.
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 13, 2001 By: /s/ Timothy J. Rigas
----------------------
Timothy J. Rigas
Vice Chairman, Chief Financial Officer
(authorized officer), Chief Accounting
Officer and Treasurer
Index to Exhibits
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 12, 2001
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: 9/30/01
***
Unaudited Other
North East Mid-Atlantic Mid-South Markets Total
FINANCIAL DATA (dollars in thousands):
Total Revenue $ 22,133.6 $ 66,003.0 $ 25,216.1 $ 23,281.3 $ 136,634.0
Total Capital Expenditures $ 16,982.2 $ 37,590.1 $ 16,798.8 $ 49,396.6 $ 120,767.7
Total EBITDA $ 4,283.6 $ 13,070.2 $ (605.3) $ 648.7 $ 17,397.2
Gross PP&E $ 122,437.8 $ 858,378.8 $ 351,656.9 $ 780,350.4 $2,112,823.9
Proportional Revenue* $ 22,133.6 $ 55,063.6 $ 25,216.1 $ 23,281.3 $ 125,694.6
Proportional Capital Expenditures* $ 16,982.2 $ 36,111.9 $ 16,798.8 $ 49,396.6 $ 119,289.5
Proportional EBITDA* $ 4,283.6 $ 7,236.4 $ (605.3) $ 648.7 $ 11,563.4
Proportional Gross PP&E* $ 122,437.8 $ 774,350.7 $ 351,656.9 $ 780,350.4 $2,028,795.8
STATISTICAL DATA Increase for September 30, 2001:
Markets in Operation --- --- --- --- ---
Route Miles 105 154 22 71 352
Fiber Miles 744 10,862 1,568 8,729 21,903
Buildings connected 47 83 43 26 199
LEC-Cos collocated** 4 9 6 6 25
Voice Grade Equivalent Circuits 47,040 124,320 134,400 166,656 472,416
As of June 30, 2001:
Markets in Operation*** 15 30 15 15 75
Route Miles 3,686 5,945 4,484 4,559 18,674
Fiber Miles 105,239 265,575 113,192 170,885 654,891
Buildings connected 886 1,008 633 591 3,118
LEC-Cos collocated** 31 107 85 66 289
Voice Grade Equivalent Circuits 493,920 1,920,576 919,968 817,152 4,151,616
As of September 30, 2001:
Markets in Operation 15 30 15 15 75
Route Miles 3,791 6,099 4,506 4,630 19,026
Fiber Miles 105,983 276,437 114,760 179,614 676,794
Buildings connected 933 1,091 676 617 3,317
LEC-Cos collocated** 35 116 91 72 314
Voice Grade Equivalent Circuits 540,960 2,044,896 1,054,368 983,808 4,624,032
* 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: 9/30/01
Unaudited
Total
FINANCIAL DATA (dollars in thousands)(a):
Total Revenue $ 33,891.3
Total Capital Expenditures $ 8,131.1
Total EBITDA $ 8,513.7
Gross Property, Plant & Equipment $ 437,233.0
STATISTICAL DATA(b):
As of September 30, 2001:
Markets in Operation 6
Route Miles 3,017
Fiber Miles 114,512
Buildings connected 1,192
LEC-COs collocated 54
Voice Grade Equivalent Circuits 1,534,848
(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.