AFTER 10-K EXTENSION, ADELPHIA FAILS TO MEET SEC DEADLINE
Two weeks after receiving 15-day extension from SEC to file its annual 10-K report, Adelphia said it wouldn’t meet new deadline (CD April 2 p2), which was end of day Tues. Company said it still was working with its auditor, Deloitte & Touche, to review how it treated its co-borrowing agreements for accounting purposes. Adelphia said it would file its 10-K “as soon as practicable.” Company disclosed earlier in conference call with analysts that certain subsidiaries of Adelphia were parties to co-borrowing agreements with several business entities that were owned by Rigas family, which founded Adelphia. Company officials said co-borrowing arrangements totaled $2.3 billion, but analysts now say those pacts could put Adelphia on hook for $2.7 billion or more. Adelphia said Tues. it didn’t believe its review would result in other material changes in its 4th quarter or full-year results for 2001, as reported March 27. However, company said that “in light of the review process,” it intended to re-evaluate its previous guidance for 2002.
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Any company that misses SEC filing deadline technically is noncompliant, which could result in various penalties, although none very severe. Adelphia already is subject of informal inquiry by SEC (CD April 4 p3), so company officials were in talks with agency about issues related to its accounting practices. One federal official, speaking on condition of anonymity, said SEC typically didn’t punish company if it was making good-faith effort to become compliant and that missing deadline was better than filing something that misrepresented situation. Nevertheless, company still could face fines if it didn’t become compliant.
Adelphia also could face penalties not related to govt. intervention, including violating Nasdaq listing requirements. Company that doesn’t make its regular SEC filings typically has “E” character appended to its trading symbol in order to notify investors and potential investors that it was delinquent in meeting trading requirements. Adelphia already has character “C” appended to its symbol, which means Nasdaq has granted it continuance for meeting qualification standards, but only for limited time. Nasdaq spokesman declined to say how Adelphia was delinquent or time period granted, citing policy of not discussing specific companies. In such case, “E” would replace “C,” meaning Adelphia’s trading symbol would be ADLAE until it met full listing requirements. If company doesn’t meet those requirements, Nasdaq also can notify it that it could be delisted from exchange. Company can appeal that decision, however, and Nasdaq can grant exception, along with milestones for coming into compliance.
Adelphia’s virtual silence in wake of controversy has left Wall St. abuzz. Merrill Lynch analyst Oren Cohen said he wasn’t ready to upgrade to “buy” rating until he heard something positive from company executives: “There’s too much uncertainty here. There could be more bad news.” And analyst Scott Cleland of Precursor Group said: “There’s virtually no way you can spin this positively. They're in the no-trust zone.” He called Adelphia’s conduct “egregious to the extreme.” Several class-action lawsuits by shareholders have been filed recently against Adelphia and Riga family that created company, and it has said it was considering selling its assets (CD April 8 p9).