Adelphia Says Results Were Overstated

Already under federal investigation for its questionable accounting practices, cable television operator Adelphia Communications Corp. on Monday fired its auditor, Deloitte & Touche, and restated financial results for the last two years, acknowledging that the previous management team had overstated earnings, customer numbers and sales figures.

Adding to Adelphia’s problems, on Monday Leonard Tow and Scott Schneider resigned from its board after only two weeks of service because they saw little chance of saving the troubled cable company from a Chapter 11 bankruptcy filing. Tow also complained about the “unreliability” of Adelphia’s financial results, as well as “the ongoing serial disclosures of wrongdoing.”

Also Monday, one of Adelphia’s subsidiaries, Century Communications Corp., filed for Chapter 11 protection from creditors. Century, in a joint venture, operates cable properties in Puerto Rico.

Analysts say a bankruptcy filing by Adelphia now is expected within days. The company already has defaulted on a $45-million interest payment and faces another deadline Saturday for an additional $50 million. The delisting of Adelphia’s shares on Nasdaq last week also put the company into default with its bondholders.

Adelphia has been trying to raise $2 billion to avoid bankruptcy, but potential lenders, investors and buyers have concluded that such a deal would be too risky given the company’s liabilities. Adelphia faces more than 20 class-action shareholder lawsuits and is under investigation by federal and state regulators because of $3.1 billion in loans to the founding Rigas family backed by the company without shareholder knowledge.

“It will be easier in bankruptcy [for Adelphia] to get sales done” of its cable assets, said Oren Cohen, a bond analyst at Merrill Lynch. “[The buyer] doesn’t have to assume any liability.”

Some on Wall Street speculated Monday that Tow might make a bid to buy some of Adelphia’s cable businesses. Tow became the largest Adelphia shareholder outside the controlling Rigas family when he sold Century Communications, the largest cable operator in Los Angeles, to Adelphia in 1999 for about $5.2 billion. Some Adelphia shareholders were backing Tow as the company’s next CEO.

Investigators from the Securities and Exchange Commission reportedly are looking into Deloitte’s role as auditor of both Adelphia and the privately owned Rigas partnerships that used the corporation to finance its other businesses. For instance, Adelphia loaned about $150 million to the Rigas’ NHL hockey team, the Buffalo Sabres.

After disclosures in late March of questionable accounting practices, Adelphia asked federal regulators for an extension to file its 2001 annual report to give it time to consult with its auditors. Deloitte refused to sign off on the annual report, and its audit was suspended after the Rigases stepped down and independent directors disclosed the first details of the family’s self-dealing practices.

Adelphia founder John Rigas, 77, resigned as chief executive three weeks ago. Soon after, his three sons quit from their top management posts.

Although the Rigas family has relinquished control, many shareholders remain wary of the independent Adelphia board members who have been running the company since then, including Erland Kailbourne, the Rigases’ hand-picked successor as acting chief executive. Some Adelphia investors have called for Kailbourne, and the other three independent board members, to step down.

Paul Allen, the computer billionaire-turned cable mogul, was in advanced negotiations with Adelphia a week ago to put up about $2 billion in the form of a loan that would entitle him to buy certain Los Angeles cable systems. Sources said he backed away from the deal after investors signaled their disapproval by driving down the stock of his cable company, Charter Communications Inc.

Adelphia’s problems have dragged down the entire cable TV sector. Charter has been one of the hardest hit as its stock fell 25% in the last five days; it closed Monday at $4.64, down 51 cents. Shares of Cablevision Systems Corp., another major cable operator, have fallen almost 18% in the last five days, while rival Comcast Corp. has seen its stock fall 12% and Cox Communications’ shares have dropped 11% in the same period.

Adelphia’s stock has plummeted more than 99% since the financial irregularities were revealed in late March. Adelphia’s shares, which trade over the counter, closed Monday at 18 cents, down 12 cents.

Sources say Adelphia’s lenders had agreed to extend more credit to the company if the Rigas family resigned, but they refused when the company’s problems deepened.

In a regulatory filing Monday, Adelphia said it would cut its earnings before interest, taxes, depreciation and amortization by $210 million for fiscal 2001 and by $160 million for 2000. Adelphia also revised 2001 revenue to $3.51 billion from $3.58 billion, and to $2.55 billion in 2000, down from $2.6 billion.

The company also lowered its subscriber count to 5.76 million, a reduction of 47,000.