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Oh, Brother! Adelphia's Chapter 11

Light Reading
News Analysis
Light Reading
6/26/2002

The country's sixth largest cable company, Adelphia Communications Corp. (Nasdaq: ADLAC), announced Wednesday that it has filed for Chapter 11 bankruptcy protection. The company says it will continue to pay its employees and operate its networks as it works to straighten out its finances (see Adelphia Files Chapter 11).

Adelphia will operate its businesses and upgrade its cable plants, thanks to a debtor-in-possession facility of $1.5 billion that it expects to have approved at the end of this week.

Among the interesting financial footnotes of Adelphia's past: Shareholders were apparently funding the construction of a golf course as well as lending money to company officers to pay off margin debt.

Since April, the Securities and Exchange Commission (SEC) has been looking at the off-the-balance sheet loans Adelphia made to the family of its founder, John J. Rigas, who stepped down from his position as chairman, president, and CEO on May 15. By the end of May, Timothy Rigas, the company's CFO; Michael J. Rigas, its executive VP of operations; James P. Rigas, its executive VP of strategic planning; and James R. Brown [!], its VP of finance had all resigned.

In the company's bankruptcy filing, Adelphia lists assets of $24.4 billion and liabilities of $18.6 billion as of September 30, 2001. Those totals, however, do not include off-the-balance-sheet obligations.

The company's debtors include Motorola Inc. (NYSE: MOT), Scientific-Atlanta Inc. (NYSE: SFA), Arris Group Inc. (Nasdaq: ARRS), ADC Telecommunications Inc. (Nasdaq: ADCT), C-COR.net (Nasdaq: CCBL), Fujitsu Ltd. (KLS: FUJI.KL), and a slew of banks and broadcast networks.

Since the Rigas family gave up control of Adelphia's board of directors, the company has disclosed that its revenues and subscriber figures had been overstated. In early May, the company revealed that some $3.5 billion had been borrowed by the Rigas family and their associates largely without the approval of Adelphia's board or its shareholders.

Adelphia's continued efforts to untangle its finances have yielded several noteworthy disclosures to the SEC in recent months. Some of those include:

  • Adelphia, through a subsidiary, had been making loans to a Rigas-controlled partnership that owns the Buffalo Sabres, a National Hockey League team.

  • The Rigas family and its entities had used Adelphia shares and debt to secure margin loans from several investment banks. Since January 2001, the Rigas family and their associates have used Adelphia's cash to make some $241 million in payments for margin calls.

  • At one time, Adelphia had seven people on payroll whose job was to "provide services to members of the Rigas family," according to one SEC filing. All seven were either fired or transferred to the Rigas family payroll, the filing states.

  • Adelphia had also ceased construction of a golf club and golf course, located on approximately 830 acres of land near Coudersport, Pa. The golf course was another Rigas family venture that relied on Adelphia's coffers. Adelphia fired the 11 people on its payroll whose primary jobs were links-related.

    Given all it's been through, Adelphia's long expected bankruptcy comes as a relief to its customers and employees. "Entering into these proceedings will enable us to fully evaluate our enterprise without the immediate pressure to sell valuable assets that may well benefit the company in the future," says the company's interim CEO, Erland Kailbourne, in a statement released Wednesday.

    Investors, however, continue to distance themselves from the cable operator. Adelphia shares dropped $0.01 (13%) to $0.13 in early afternoon trading on Wednesday.

    — Phil Harvey, Senior Editor, Light Reading
    http://www.lightreading.com
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    erbiumfiber
    erbiumfiber
    12/4/2012 | 10:12:33 PM
    re: Oh, Brother! Adelphia's Chapter 11
    >>Among the interesting financial footnotes of Adelphia's past: Shareholders were apparently funding the construction of a golf course as well as lending money to company officers to pay off margin debt.<<

    I'm thinking of the LU golf course and the money lent to Bernie Ebbers...I guess great communications companies think alike.

    Thanks. This will be an interesting one to watch-forget about the excesses of 1980's Wall Street dramatized in the film of the same name; Hollywood needs to make a film called Tech Bubble...
    BobbyMax
    BobbyMax
    12/4/2012 | 10:12:21 PM
    re: Oh, Brother! Adelphia's Chapter 11
    It is indeed very disturbing to hear about the corruptions widely prevelent in the US companies.

    The corruption pertains to stock options, loans from the companies and then forgiving the loan, hiring cronies in the top management positions, nominating cronies and incompetents to the Board of Directors. The company assets are considered as personal property by the CEOs.

    Since cronies are hired, there is no dissention in the management. They support each other without reservation. These guys also banrupt the company.

    Serious corruption is present in about 80% of the US companies.

    It is also well known how some ofthe guys go to a trade show and then have a business plan ready for presentation to VCs. Since there are over 10,000 VCs in the USA walking all over in California, Mass, New York. It is very easy to get any thing funded. It has serious effect on our economy.

    The coruption in hiring is so rampant that Cisco recently appointed four or five high level executives from a small start-up company called Crecendo Communications. This cannot happen anywhere else in the world. When this kind of activity takes place all ability on the part of a company, all credibility is lost.
    badguy
    badguy
    12/4/2012 | 10:12:18 PM
    re: Oh, Brother! Adelphia's Chapter 11
    I am not suprised about this at all. Most of those CEOs are graduates of business schools. To enter any business school in this country, you have to write a few essays to impress the admitt commettee members. Usually, the more you decorate youe experience in the essays (in the way the admit commettee members want), the more chances you have to get in. I believe the message from the business schools to these applicants is very clear: it is OK to lie, just try to do it in the "right" way so that nobody can catch you.
    What can you expect these business school students do after the graduation (and become CEOs)? Do you guys still remember Kenneth Lay (ENRON's CEO), a graduate from Havard Business School.
    zweisel
    zweisel
    12/4/2012 | 10:12:17 PM
    re: Oh, Brother! Adelphia's Chapter 11
    BobbyMax wrote - "Serious corruption is present in about 80% of the US companies."

    I agree that corruption exists but where does thi number come from given only a handful of companies have been reportedly enjoying the excesses you mentioned?
    lvezz
    lvezz
    12/4/2012 | 10:12:13 PM
    re: Oh, Brother! Adelphia's Chapter 11
    >Serious corruption is present in about 80% of >the US companies.

    Huh? Where is that fact-oid from? Public and private? Define serious.
    rlander
    rlander
    12/4/2012 | 10:12:12 PM
    re: Oh, Brother! Adelphia's Chapter 11
    One simple step in helping to solve this problem seems to be coming now from the SEC.

    Personal Liability for CEOs and CFO. Hopefully it will be extended to directors as well.

    Knowing that the corporate veil will not protect these execs from massive personal fines, personal bankruptcy and jail time has got to help get this under control.
    jamesbond
    jamesbond
    12/4/2012 | 10:12:10 PM
    re: Oh, Brother! Adelphia's Chapter 11
    One simple step in helping to solve this problem seems to be coming now from the SEC.

    Personal Liability for CEOs and CFO. Hopefully it will be extended to directors as well.

    Knowing that the corporate veil will not protect these execs from massive personal fines, personal bankruptcy and jail time has got to help get this under control.

    ---------------------------

    I am not holding my breath. There will definitely
    be some loophole which will be exploited. This
    does remind me of India. Corruption everywhere.
    As Scott said, there are lots of skeletons in
    the closets which haven't yet come out.
    BobbyMax
    BobbyMax
    12/4/2012 | 10:12:06 PM
    re: Oh, Brother! Adelphia's Chapter 11
    The forms of corruption in the US Corporations is very intersting. But the space and time limitations do not permit me to do full justice to this topic. I am attempting to list a few well known forms of corruption:

    -- False announcements of products and technologies to boost up the stock options
    -- Nomitating and appointing stock to cronies and friends. In many instances a lot of companies would not disclose the names of the board of directors
    -- Campaigning and accepting unfair number of stock options, excessive salaries, unfair employment packages
    -- Appointing cronies and friends to the management jobs
    -- Lacking fundamental and basic education. There is no connection between education and the job one gets to occupying. Justifying this evil form of corruption with various annecdotes and folklores
    -- No limiting opportunities to follow and well known technologies and products.
    -- No punishment for wrong doers regardless of the extent of crime.
    -- Misusing hiring and firing privilleges. Taking unfair advantage of at-will employment ( an unfair doctrine and brutal abuse of power but supported by the US Government)
    -- No punishment even if the activities are illegal
    -- Too much invest money from pension funds and investment bankers available paving a way for extreme form of corruption.

    sauron5
    sauron5
    12/4/2012 | 10:12:00 PM
    re: Oh, Brother! Adelphia's Chapter 11
    That's an interesting point you make BobbyMax.
    Sometimes I wonder if the money we all put in
    to 401ks and pensions does not simply go to
    buy some exec's $80 million California mansion and
    build golf courses for the rich.

    (I won't mention names, though) :)

    Certainly, the $675 Billion that VCs poured into
    tech startups in 2000-2001 must have gone somewhere
    since it certainly didn't result in any great
    products or infrastructure buildout.

    Sauron
    IPIPIP
    IPIPIP
    12/4/2012 | 10:11:50 PM
    re: Oh, Brother! Adelphia's Chapter 11
    People who did these things got away too easily. In many cases, they just got fired and that's it.

    People who steal millions of dollars should face criminal charges, and sentenced to life in prison or capital punishment.
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