Adelphia Plans to Restate Results After Review of Its Accounting
Cable operator Adelphia Communications Corp. said it expects to restate its last three years of financial results and may default on some of its debt because of an internal accounting review.
Adelphia, the nation’s sixth-biggest cable firm, said that it could add $1.6 billion in debt to the company’s balance sheet and that its delay in filing an annual report for 2001 may make it default on certain debt. The firm is the subject of a Securities and Exchange Commission probe and could have its shares delisted from Nasdaq.
Adelphia shares fell 94 cents, or 14%, to close at $6.01. The stock has plunged about 70% since officials disclosed in March that the company had guaranteed $2.3 billion in loans to off-balance-sheet partnerships owned by the Rigas family, Adelphia’s founders.
The Securities and Exchange Commission is investigating whether Adelphia properly disclosed the off-balance-sheet practices. More than 10 class-action shareholder suits have been filed against the Rigas family and Adelphia, based in Coudersport, Pa.
The restated financial results may place it in violation of existing credit arrangements, analysts said. As a result, Adelphia could have trouble raising additional cash.
Adelphia probably failed to convince its auditors, Deloitte & Touche, that debt to the Rigas family partnerships should remain separate from the company’s results, an investor said.
“The auditors are afraid they’ll get sued and made these guys restate their earnings” to reflect the loans on the balance sheet, said Kevin Loome, an analyst at T. Rowe Price. “You know who was holding all the cards: It was the auditors, not Adelphia.”
Adelphia said it had obtained a waiver to prevent default “until at least May 16” on one credit agreement relating to its UCA unit.
Adelphia may have avoided adding the full $2.3 billion in loans to its books because it plans to recognize $700 million as a receivable from the Rigas family, one analyst said. The $1.6-billion balance is being written off because Adelphia believes that amount will not be repaid, said Lehman Bros. analyst Robert Willens.
Adelphia also may sell up to half its cable systems, worth as much as $8 billion, to pay down debts, according to people close to the company. The Rigas family has agreed to put up for sale cable operations, including the Los Angeles cable system it acquired two years ago.
Adelphia also owns cable systems in New York, Pennsylvania, Ohio and Florida and serves a total of about 5.8 million subscribers.
Even before the restatement, Adelphia ranked among the most leveraged of the major cable companies, with about $15 billion in debt. As part of an industrywide consolidation, Adelphia purchased several rivals in recent years, including Century Communications Corp., the leading provider in Los Angeles.
In addition, Adelphia, like other cable firms, poured millions of dollars into costly upgrades of its systems. The new digital technology enabled it to sell Internet access and interactive television services.
Adelphia said it is continuing to work with its auditor to complete its 2001 annual report.
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Times wire services were used in compiling this report.
