Bankruptcy Of a Division May Signal Adelphia’s Fall
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Complications mounted yesterday for the embattled cable company Adelphia Communications, as one of its units filed for bankruptcy protection, two newly appointed Adelphia directors resigned and the company filed documents showing it had overstated revenue and cash flow for the last two years. The Chapter 11 bankruptcy filing, by Adelphia’s Century Communications unit, was widely seen as a precursor to a bankruptcy filing within days by Adelphia itself. Adelphia is in default on $7 billion in loans, and its shares have been delisted by the Nasdaq stock market. Adelphia’s troubles started to become evident in March when it disclosed that it had guaranteed $2.3 billion in loans to its controlling shareholders, the Rigas family. Subsequent disclosures have increased that amount to $3.1 billion. Century is a cable company that had about 1.6 million subscribers in California, Colorado and Puerto Rico when Adelphia acquired it for nearly $5 billion in 1999, in a deal that made Century’s longtime leader, Leonard Tow, a big shareholder in Adelphia. The Century bankruptcy filing was set in motion by a demand from Merrill Lynch, which had a 50-50 venture with the company in Puerto Rico, that Century buy out Merrill’s stake for $275 million. Otherwise, according to terms of the partnership agreement, Merrill would have the right to seize management control of Century. To avoid that outcome, Century sought Chapter 11 bankruptcy protection. For his part, Mr. Tow had succeeded in putting pressure on Adelphia to add him and an associate, Scott Schneider, to the company’s board. But yesterday, the two men resigned from the board, writing in a letter to Adelphia’s interim chairman, Erland E. Kailbourne, that ”the unreliability of corporate data, as well as ongoing serial disclosures of wrongdoing, have made it impossible to contribute meaningfully” to the company’s turnaround efforts. Mr. Tow’s departure prompted some industry analysts to speculate that he might try to assemble an investor group to acquire some of Adelphia’s cable properties. Adelphia has yet to name a replacement for Deloitte & Touche, the accounting firm its board dismissed over the weekend. The likeliest candidate is PricewaterhouseCoopers, people briefed on the situation said yesterday. In documents filed with the Securities and Exchange Commission yesterday, Adelphia said that its revised accounting would reduce reported cash flow by nearly 15 percent for each of the last two years — down to $1.2 billion for 2001 and $1.04 billion for 2000. Revised revenue for 2001 was $3.51 billion, down from $3.58 billion. Revised revenue for 2000 was $2.55 billion, down from $2.6 billion. The largest single factor in the reported cash flow decline was a $54 million reduction related to the way the company accounted for the purchase of cable set-top boxes. According to the filing, Adelphia paid a premium for the boxes and accounted for them as capital expenditures. When the vendors repaid Adelphia the premium in the form of marketing fees, those fees inflated the company’s cash flow because there were no associated costs. The documents also said that some Internet cable services that Adelphia carried had paid the company in stock, which was booked as revenue. When the value of the stock declined, though, Adelphia had not reduced its reported revenue accordingly. The accounting revisions to reflect the lower stock values had the effect of reducing revenue by $52 million for 2001 and by $28 million for 2000 and cash flow for both years by comparable amounts. Another major item was an estimated $40 million in labor costs for 2001 that was capitalized and should have been listed as expenses, the filing said. Another revised calculation covered programming costs, which should have been reduced by $42 million last year and $23 million a year earlier, if Adelphia had calculated programming expenses in an appropriate manner, the document said. Yesterday’s developments at Adelphia, the nation’s sixth-largest cable company, had a negative effect on other cable stocks, as investors apparently worried that the accounting discrepancies might not be unique to the company. More : query.nytimes.com |