HomeMy WebLinkAbout; ; Report On Agreed Upon Procedures Adelphia Communications; 2005-05-26CITY OF CARLSBAD
REPORT ON AGREED-UPON PROCEDURES
REVIEW OF ADELPHIA COMMUNICATIONS
MAY 26,2005
CITY OF CARLSBAD
TABLE OF CONTENTS
MAY 26,2005
Page(s)
Cover Letter 1
Independent Accountants' Report on
Agreed-Upon Procedures Review 2
Executive Summary 3
Limitations on the Scope of this Engagement 4-5
Summary of Procedures 6
Summary of Findings 7-10
Schedules
1 - Schedule of Under Reported Subscriber Revenues
2 - Schedule of Under Reported Nonsubscriber Revenues
3 - Schedule of Under Reported Advertising Revenues
4 - Schedule of Under Reported Cable Launch Fees
5 - Schedule of Penalties and Interest
Attachments
1 - Disclaimer by Adelphia Officials Regarding the Accuracy of
the Company's Accounting Records
2 - Los Angeles Times Article Regarding the Company's Practice of
Keeping Two Sets of Books
3 - New York Times Article Regarding the Conviction of John J. and
Timothy J. Rigas
4 - Adelphia's System for Allocating Nonsubscriber Revenues
Within the "Carlsbad System"
DiEHL, EVANS St COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS
2121 ALTON PARKWAY, SUITE 100
mVINE, CALIFORNIA 92606-4956
(949) 399-0600 • FAX (949) 399-0610
www.diehlevans.com
MICHAEL R. LUDIN. CPA
CRAlCi W. SPRAKER. CPA
NITINRPATEUCPA
ROBERT J. CALLANAN. CPA
•PHILIP H. HOLTKAMP, CPA
•THOMAS M. PERLOWSKI. CPA
•HARVEY J. SCHROEDER. CPA
KENNETH R. AMES. CPA
•A PROFESSIONAL CORPORATION
COVER LETTER
May 26, 2005
To the City Council Members,
City of Carlsbad
Ladies and Gentlemen:
We have completed our agreed-upon procedures review of the cable television franchise fees paid by
Adelphia Communications (Adelphia) to the City of Carlsbad (City) for the calendar years 2001, 2002
and 2003. The results of our review are summarized on our "Executive Summary" at page 3 herein.
Also, there were significant limitations on the scope of our engagement, which are summarized on
pages 4 and 5.
Please contact us if you have any questions regarding this report.
Very Truly Yours
Diehl, Evans & Company, LLP
William S. Morgan, CPA
Director of Consulting Services
1 -
OTHER OFRCES AT: 2965 ROOSEVELT STREET
CARLSBAD. CALIFORNIA 92008-2389
(760) 729-2343 • FAX (760) 729-2234
613 W. VALLEY PARKWAY. SUITE 330
ESCONDIDO. CALIFORNIA 92025-2598
(760) 741-3141 . FAX (760) 741-9890
DiEHL, EVANS & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
A PARTNERSHIP INCLUDING ACCOUNTANCY CORPORATIONS
2121 ALTON PARKWAY, SUITE 100
IRVINE, CALIFORNIA 92606-4956
(949) 399-0600 • FAX (949) 399-0610
www.diehlevans.com
MICHAEL R. LUDIN. CPA
CRAIG W. SPRAKER. CPA
NITIN P. PATEL. CPA
ROBERT I. CALLANAN. CPA
•PHILIP H. HOLTKAMP. CPA
•THOMAS M. PERLOWSKI. CPA
•HARVEY I. SCHROEDER. CPA
KENNETH R. AMES. CPA
•A PROFESSIONAL CORPORATION
INDEPENDENT ACCOUNTANTS' REPORT ON
AGREED-UPON PROCEDURES REVIEW
May 26, 2005
To the City Council Members,
City of Carlsbad
We have performed the procedures enumerated herein on page 6, which was agreed to by the City of
Carlsbad, solely to assist the City with respect to the cable television franchise taxes paid to the City by
Adelphia Communications, Inc. (Adelphia) for the calendar years 2001, 2002 and 2003. This agreed-
upon procedures engagement was conducted in accordance with attestation standards established by
the American Institate of Certified Public Accountants. The sufficiency of the procedures is solely the
responsibility of the City. Consequently, we make no representation regarding the sufficiency of the
procedures described herein either for the purpose for which this report has been requested or for any
other purpose.
Our summary of findings is included herein on pages 7 through 10.
We were not engaged to, and did not conduct, an examination, the objective of which would be the
expression of an opinion on the cable television franchise taxes paid to the City by Adelphia for the
calendar years 2001, 2002 and 2003. Accordingly, we do not express such an opinion. Had we
performed additional procedures, other matters might have come to our attention that would have been
reported to the City.
There were a number of limitations on the scope of our engagement. These limitations are summarized
on pages 4 and 5 herein.
This report is intended solely for the information and use of the City, and is not intended to be and
should not be used by anyone other than the City.
-2-
OTHER OFFICES AT: 2965 ROOSEVELT STREET
CARLSBAD. CALIFORNIA 92008-2389
(760) 729-2343 • FAX (760) 729-2234
613 W. VALLEY PARKWAY. SUITE 330
ESCONDIDO. CALIFORNIA 92025-2598
(760) 741-3)41 • FAX (760) 741-9890
CITY OF CARLSBAD
EXECUTTVE SUMMARY
FOR THE CALENDAR YEARS 2001,2002 AND 2003
Description of Under (Over) Sch.
Reported Revenues Ref. 2001 2002 2003 Total
Subscriber Revenues 1 $ 173,058 $ 790,217 $ 158,507 $ 1,121,782
Home Shopping Revenues 2 42,439 90,837 24,666 157,942
Local Origination Revenues 2 442 757 (1,326) (127)
Advertising Revenues 2,3 705,878 433 82,516 788,827
Cable Launch Fees 2,4 121,012 113,964 114,044 349,020
Total Under Reported
Gross Revenues 1,042,829 996,208 378,407 2,417,444
Franchise Fee Rate 0.05 0.05 0.05 0.05 Underpaid Franchise Fees 52,141 49,810 18,920 120,872
Penalties and Interest 5 21,538 14,532 6,796 42,866
Total Unpaid Franchise
Fees, Penalties and
Interest 73,679 64,342 25,716 163,738
Add: Audit Fee Assessed to
Adelphia, Pursuant to City
Ordinance 6055, Section
5.28.020:
Original Contract Amount 5,717 5,717 5,716 17,150
Supplemental Contract
Amount for Cost Overrun 2,833 2,833 2,834 8,500
Total Assessment $ 82,229 $ 72,892 $ 34,266 $ 189,388
LIMITATIONS ON THE SCOPE OF TfflS ENGAGEMENT
Overview
There were three major scope limitations with respect to this engagement, as follows:
• Disclaimer by Adelphia officials regarding the accuracy of the Company's accounting records.
• Failure of Adelphia officials to sign our questionnaires
• Failure of Adelphia to fumish all requested information and documents
These matters are discussed more fully in the paragraphs below.
Disclaimer Bv Adelphia Officials Regarding the Accuracy of the Company's Accounting Records
The package of documents submitted to our firm was accompanied by a "Disclaimer to Financial
Statements", a copy of which is included at Attachment 1 to this report. Among other statements, the
disclaimer noted that:
• The "financial information may be subject to change",
• "operating information disclosed by prior management was unreliable",
• "the books and records . . . may not accurately reflect the financial condition, results of
operations and cash flows of Adelphia", and
• "Adelphia does not make, and specifically disclaims, any representation or warranty as to the
completeness or accuracy of the information set forth herein".
Further, on May 8, 2004, Adelphia's former Vice President of Finance testified that the Company kept
two sets of books. (See Attachment 2).
Also, on July 8, 2004, the Company's former Chairman and former Chief Financial Officer, Mr. John
J. Rigas and Timothy J. Rigas, were convicted on various counts of fraud and conspiracy. (See
Attachment 3).
In light of the above information, our firm cannot rely on the integrity and accuracy of the financial
data presented to us for this review.
Failure of Adelphia Officials to Sign Our Ouestionnaires
In connection with this engagement, we submitted two questionnaires to Adelphia. The last page of
these questionnaires included a certification page, whereby the key financial officers of Adelphia could
attest that the gross revenue and franchise fee information submitted to the City of Carlsbad for
calendar years 2001, 2002 and 2003 was true and correct, to the best of the knowledge and belief of
such officers. By having the chief financial officers of cable companies sign such questionnaires,
attesting that the numbers are true and correct, it provides our firm and our city clients some (but not
absolute) assurance regarding the integrity of the information reported to the city. This is similar in
concept to provisions of the Sarbanes-Oxley Act, pursuant to which the SEC requires Chief Executive
Officers (CEOs) and Chief Financial Officers (CFOs) of publicly-held companies to personally certify
to the accuracy of their financial statements. Also, when CPA firms perform certified audits or reviews
on the financial statements of companies, govemmental agencies or other entities, they are required to
obtain a "representation letter" from executive and financial officers regarding the integrity and
accuracy of disclosures in the financial statements and related footnotes.
LIMITATIONS ON THE SCOPE OF TfflS ENGAGEMENT (CONTINUED)
Failure of Adelphia Officials to Sign Our Ouestionnaires(Continued)
On May 27, 2004, the Company submitted a letter to our firm stating that the Company's "Vice
President, Disbursement Control" was willing to sign the following representation.
"To the best of our knowledge and belief, the information, supporting narratives, schedules and
documents prepared and submitted by Adelphia for the 5 North San Diego County areas,
accurately and fairly represent gross revenues."
While such a representation is, of course, helpful, it does not specifically address the various questions
included in our questionnaires.
Accordingly, the failure of Adelphia to retum the signed questionnaires constitutes a scope limitation
with respect to this engagement.
Failure of Adelphia to Furnish All Requested Information and Documents
On Febmary 6, 2004, we notified Adelphia officials by e-mail that our firm had been retained by the
City of Carlsbad and other San Diego County Cities to perform this review.
On March 18, 2004, we submitted a letter to Adelphia setting forth our document requests. On
March 26, 2004 we submitted our questionnaire to Adelphia regarding general subscriber revenues. On
March 31, 2004, we submitted our questionnaire to Adelphia regarding advertising and other
nonsubscriber revenues. During the months of April through June 2004, we had various phone and e-
mail communications with Adelphia officials. On July 16, 2004, we submitted our final request for
information needed regarding advertising revenues.
We provided Adelphia with approximately a six-month period (from mid March to early September) to
provide all documents and information. We cut off our acceptance of documents as of September 10,
2004 (except for one document related to advertising revenues). Accordingly, our scope of work is
limited to information and documents submitted by Adelphia to our firm through September 10, 2004.
-5-
SUMMARY OF PROCEDURES
In connection with this engagement, we performed the agreed-upon procedures noted below to assist
the City in determining if Adelphia paid the City of Carlsbad the appropriate franchise fees for the
calendar years 2001,2002 and 2003. Our review consisted of the following procedures:
1. Shortly after we received a signed contract, we sent a document request to the City of Carlsbad.
Our document request included cable television franchise agreements, franchise fee returns filed
with the City, rate and channel information, copies of City maps and annexation information
(where applicable).
2. We prepared and forwarded two questionnaires to Adelphia.
3. We reviewed the Franchise Agreements and any Transfer Agreements between the City and
Adelphia (and a former cable operator), to identify definitions of "gross revenues", franchise fee
rates, late payment provisions, etc.
4. We were provided with Adelphia's intemal control procedures related to the billing and cash
collection of cable revenues.
5. We identified the various types of revenue recorded by Adelphia.
6. We identified Adelphia's method for the allocation of non-specific revenues between franchise
areas (such as Home Shopping revenues).
7. We reviewed Adelphia's method for identifying subscribers to the proper franchise area.
8. We selected a sample of revenue transactions for the City for the period from January 1, 2001
through December 31, 2003, and traced them through Adelphia's books and records.
9. We reviewed the accounting records provided by Adelphia for revenue items in these records that
were not being reported to the City with the periodic remittances.
10. We reviewed the procedures described to us by Adelphia for recording advertising revenue in its
accounting system.
11. We tested the information provided to determine if Adelphia has been paying franchise fees on
franchise fee revenues for the period from January 1, 2001 through December 31, 2003, based on
the records provided.
12. We tested the mathematical accuracy of selected remittances to the City for the period January 1,
2001 through December 31, 2003.
SUMMARY OF FINDINGS
Subscriber Revenues
As a result of our review, we found that the Company had not properly reported the following amounts
for the calendar years 2001, 2002 and 2003. The following amounts are set forth at Schedule 1.
2001 2002 2003
Under Reported Gross Revenues $ 173.058 $ 790.217 $ 158.507
Cable Internet Access Revenue
Regarding gross revenues from subscribers, Adelphia ceased paying franchise fees on cable intemet
access revenue in April 2002. Noted below is a discussion of this issue.
1. Overview:
Over the past five years, the following legal question has been addressed by various courts and the
FCC: Is a "cable modem service" part of a "cable service" regulated by a local franchising
authority? This section of our report addresses the legal issues involved, and the affect on
franchise fees reported to the City of Carlsbad by Adelphia.
2. Definition of a "Cable Service":
The 1996 Telecommunications Act defined a "cable service" as "the one-way transmission to
subscribers of video programming or other programming service, and subscriber interaction, if any,
which is required for the selection or use of such video programming or other programming
service".
3. AT&T Corp vs. City of Portland:
Under current FCC regulations and recent court decisions, cable lines generally are not required to
be unbundled and accessible to other users or providers, such as Intemet Service Providers (ISPs).
Observation: Under current FCC mles, cable companies are required to make channel capacity
available for Public, Educational and Govemmental (PEG) programming, and to make certain
channels available for commercial (leased) access.
In order to force a resolution of the "open access" issue, in 1999, two Oregon cable franchisers (the
City of Portland and Multnomah County) imposed "unbundling" requirements on AT&T in
connection with the transfer of the TCI franchises to AT&T. AT&T then filed a lawsuit against the
municipalities, to prevent the mandatory carriage of third-party online services on TCI's cable
lines. On June 4, 1999, a United States District Court for Oregon mled that AT&T must open
TCI's cable lines to competing ISPs. However, on June 22, 2000, the Ninth Circuit Court of
Appeals reversed the United States District Court, raling that AT&T's @Home cable intemet
system is both a "telecommunications service" and an "information service", subject to federal
control, not a "cable service" regulated by a local franchising authority.
SUMMARY OF FINDINGS (CONTINUED)
Cable Internet Access Revenues (Continued)
4. FCC Decision in March 2002:
On March 14, 2002, by a vote of 3 to 1, the FCC mled that a cable modem Intemet service is an
"interstate information service", not a "cable service". FCC Chairman Michael Powell stated that
the increasing availability of broadband offered by competing cable, telephone and satellite
companies pointed to deregulation, which was at least one reason for the Commission's decision.
5. Adelphia Stopped Paying Franchise Fees on Cable Intemet Services In April 2002j_
As a result of the FCC decision in March 2002, Adelphia stopped paying franchise fees on cable
intemet services (i.e., high-speed cable modem equipment rental revenues) in April 2002.
Adelphia also stopped paying franchise fees on the following services or equipment related to cable
Intemet access:
• Intemet connection charges
• Revenue from the sale of cable modems
6. Opposition to the FCC Decision by Local Governments:
Local govemment groups throughout the United States joined to fight the FCC's March 2002
mling. Organizations representing the interests of local govemments across the country formed the
Alliance of Local Organizations Against Preemption (ALOAP), to be the single voice for all cities
and counties and to provide a coordinated legal response both in the Ninth Circuit and in making
comments to the FCC. ALOAP includes the National Association of Telecommunications Officers
and Advisors (NATOA), the National League of Cities, the U.S. Conference of Mayors, the
National Association of Counties and the Intemational Municipal Lawyers Association.
7. The Brand X Intemet Service Case:
In 2004, the Ninth Circuit mled in "Brand X Intemet Services vs. FCC" that a cable-modem
service is partly a telecommunications service under federal law. The Ninth Circuit decision
overtumed the FCC's March 2002 mling that cable modem service was purely an "interstate
information service", beyond the scope of state and local regulation. The U.S. Justice Department,
the National Cable & Telecommunications Association and several individual cable companies
have filed petitions with the U.S. Supreme Court appealing this mling.
8. U.S. Supreme Court Ruling:
In December 2004, the U.S. Supreme Court dismissed an appeal by the National League of Cities
to overtum the FCC's March 2002 decision.
SUMMARY OF FINDINGS (CONTINUED)
Adelphia's Method for Allocating Nonsubscriber Revenues
Revenues for the City of Carlsbad are accounted for in Adelphia's "System 341". The system is
comprised of the following franchise areas:
Franchise
Franchise Name Tax Area
City of Carlsbad 001
County of San Diego 002
City of San Marcos 003
County of San Diego 004
City of Vista 005
City of Del Mar 006
Not Used 007
City of Carlsbad (La Costa Area) 008
County of San Diego 009
City of Solana Beach 010
City of Encinitas Oil
Regarding these franchise tax areas, Adelphia has developed fixed percentages for allocating
nonsubscriber revenues. The allocation percentages for 2003 are set forth herein at Attachment 4.
These percentages have been used for all allocations within this report.
Home Shopping Revenues
1. Calendar Year 2001:
a. Adelphia acquired the Daniels' cable franchise in 2001. Daniels operated the system through
mid 2001. Neither Adelphia nor the City retained any detail documents supporting revenues
for the period January 1, 2001 through June 30, 2001. Accordingly, we have no findings for
this six month period.
b. Adelphia reported gross revenues for the quarters ended September 2001 and December 2001.
For the quarter ended September 2001, no home shopping revenues were reported. For the
quarter ended December 2001, only QVC revenues were reported.
c. The amount of unreported home shopping revenues for the calendar year 2001 is set forth on
Schedule 2.
2. Calendar Years 2002 and 2003:
At Schedule 2, home shopping revenues have been adjusted to agree with amounts reported on the
Company's General Ledger provided to us, plus certain other adjustments agreed to by Adelphia
management.
SUMMARY OF FINDINGS (CONTINUED)
Local Origination Fees
As with home shopping revenues, revenues from local origination programming have been adjusted to
amounts reported in the Company's General Ledger that was provided to us. (See Schedule 2).
Advertising Revenues
Adelphia did not complete our questionnaires with respect to advertising revenues. Nor did the
Company respond to our final request for information on advertising revenues. Accordingly, we have
estimated unreported advertising revenues. Our computations are included at Schedule 3.
Observation: Our estimates for gross advertising revenues per subscriber are based, in part, on
database information provided to us on Adelphia's advertising operations for the West Region
Advertising Division of Media Services West.
Cable Launch Fees
When a new channel is launched on a cable system, the cable operator and cable network enter into a
programming affiUation agreement. Under a typical programming agreement, a cable company agrees
to carry a network's channel on its cable system over a multi-year period, and the cable operator agrees
to pay a specified amount per subscriber per month to the network for the right to carry such
programming. The amount per month is generally based on the programmer's "rate card", or an
adjusted amount based on negotiations between the cable company and the network. Also, in
connection with the launch of the new network, it is not uncommon for the cable networks to offer
incentives, such as cable launch fees and marketing credits. Such fees may be intended to compensate
the cable company for up-front promotional costs that are incurred to launch the new channel, or to
provide general compensation for the launch of the new network.
Under Generally Accepted Accounting Principles (GAAP), most cable companies (including
Adelphia) record cable launch fees as a credit to, or reduction of, programming costs. As such, cable
launch fees are not reported as gross revenues for franchise fee purposes.
It is the position of our firm that if:
1. the City's "gross revenue" definition is not tied to, or bound by, GAAP, and
2. launch fees are received in cash, and
3. the underlying agreements with the programmers provide that such launch fees are general or fixed
amounts that are not specifically identified as a mandatory reimbursement of specific expenditures,
then cable launch fees should be reported for franchise fee purposes.
Our firm was not able to come to an agreement with Adelphia regarding a "Nondisclosure
Agreement". Accordingly, we were not able to review underlying agreements with respect to cable
launch fees.
At Schedule 4 to this report, we have included an arbitrary estimate of under reported cable launch
fees, based on $4.00 per subscriber.
-10-
SCHEDULE 1
CITY OF CARLSBAD
SCHEDULE OF UNDER REPORTED SUBSCRIBER REVENUES
FOR THE CALENDAR YEARS ENDED 2001,2002 AND 2003
Description 2001 2002 2003 Total
Under Reported Gross Revenues From
Cable Intemet Access Revenue r-^'
(See Note Below) $ 129,295 $ 715,959 $ - $ 845,254
Other Adjustments ( Agreed to By
Adelphia Officials) 43,763 74,258 158,507 276,528
Total Under Reported Gross
Subscriber Revenues $ 173,058 $ 790,217 $ 158,507 $ 1,121,782
Note
The under reported gross revenues from cable internet access represent amounts received during the
period from July 1, 2001 through April 30, 2002. As explained on pages 7 and 8 of this report, Adelphia
discontinued paying franchise fees on cable intemet access revenue in April 2002, in response to a
March 2002 FCC mling.
During a review of twelve Inland Empire Cities by our firm, we noted that Adelphia did, in fact, pay
franchise fees to certain Inland Empire Cities on cable intemet access revenue received through
April 2002. On this engagement, Adelphia officials have taken the position that, with respect to
the City of Carlsbad, the March 2002 FCC mUng should be retroactive to January 1, 2001. Accordingly,
Adelphia officials dispute the assessment of franchise fees on cable intemet access revenue for the
period from July 1, 2001 through April 2002.
SCHEDULE 2
CITY OF CARLSBAD
• SCHEDULE OF OVER (UNDER) REPORTED NONSUBSCRIBER REVENUES
FOR THE CALENDAR YEARS 2001,2002 AND 2003
Description
Gross
Revenues
Reported
By Adelphia
Gross
Revenues/
Carlsbad
System
City of
Carlsbasd
System
Percentage
Adjusted
Gross
Revenues
Revenues
Over
(Under)
Reported
'M
'-mm
•mm
Home Shopping Revenues:
2001:
QVC
HSN
Other
$ 12,568
0
0
(System 341)
$ 64,739
46,996
0
0.4923
0.4923
$ 31,871
23,136
0
$ (19,303)
(23,136)
0
2002:
QVC
HSN
Other
69,646
15,948
0
162,550
134,864
60,966
0.4923
0.4923
0.4923
80,023
66,394
30,014
(10,377)
(50,446)
(30,014)
<«•
2003:
QVC
HSN
Other
79,509
76,964
56,195
174,505
176,896
130,690
0.4923
0.4923
0.4923
85,909
87,086
64,339
(6,400)
(10,122)
(8,144)
Subtotal-Home Shopping 310,830 952,206 0.4923 468,771 (157,941)
Local Origination Revenues:
2001:
2002:
2003:
16,635
33,746
25,763
34,689
70,085
49,639
0.4923
0.4923
0.4923
17,077
34,503
24,437
(442)
(757)
1,326
Subtotal-Local Origination 76,144 154,413 0.4923 76,018 126
'•l-M
Advertising Revenues
( See Schedule 3 ):
2001:
2002:
2003:
0
751,515
735,393
N/A
N/A
N/A
705,878
751,948
817,909
(705,878)
(433)
(82,516)
mm Subtotal-Advertising Revenues 1,486,908 N/A 2,275,735 (788,827)
•.im
Cable Launch Fees
( See Schedule 4 ):
2001:
2002:
2003:
0
0
0
N/A
N/A
N/A
121,012
113,964
114,044
(121,012)
(113,964)
(114,044)
Subtotal-Cable Launch Fees 0 N/A 349,020 (349,020)
-m
••mi Total Under Reported
Nonsubscriber Revenues $ 1,873,882 $ 1,106,619 $ 3,169,544 $(1,295,662)
SCHEDULE 3
CrrY OF CARLSBAD
SCHEDULE OF UNDER REPORTED ADVERTISING REVENUES
FOR THE CALENDAR YEARS 2001,2002 AND 2003
Description 2001 2002 2003 Total
Carlsbad Subscribers 30,253 28,491 28,511
Estimated Gross Revenue/Subscriber $61 $69 $75
Total Estimated Gross Advertising
Revenues 1,845,433 1,965,879 2,138,325 5,949,637
Less: 15% Agency Commissions 276,814 294,882 320,748 892,444
Estimated Net Advertising Revenues $ 1,568,619 $ 1,670,997 $ 1,817,577 $ 5,057,193
Estimated Amount Due to Adelphia $ 705,878 $ 751,948 $ 817,909 $ 2,275,735
Advertising Revenues Reported
By Adelphia 0 751,515 735,393 1,486,908
Total Estimated Under Reported
Advertising Revenues $ 705,878 $ 433 $ 82,516 $ 788,827
SCHEDULE 4
CITY OF CARLSBAD
SCHEDULE OF ESTIMATED UNDER REPORTED CABLE LAUNCH FEES
FOR THE CALENDAR YEARS 2001, 2002 AND 2003
Year
2001
2002
2003
Number of
Carlsbad
Subscribers
30,253
28,491
28,511
Amount
Per
Subscriber
Total Estimated Under Reported Cable Launch Fees
4.00
4.00
4.00
Estimated
Under Reported
Cable
Launch Fees
$ 121,012
113,964
114,044
349,020
SCHEDULE 5
CITY OF CARLSBAD
SCHEDULE OF PENALTIES AND INTEREST
FOR THE CALENDAR YEARS 2001,2002,2003 AND 2004
Description 2001 2002 2003 Total
Penalties, Per City's Municipal Code:
Calendar Year 2001 $ 1,800 $ $ $ 1,800
Calendar Year 2002 4,000 1,800 -5,800
Calendar Year 2003 4,000 4,000 1,800 9,800
Calendar Year 2004 4,000 4,000 4,000 12,000
Subtotal - Penalties 13,800 9,800 5,800 29,400
Interest, Based on Annual Average
Yield on City's Investment Portfolio:
Calendar Year 2001:
$ 52,141 X 4.24% X 3.5 Years =
Calendar Year 2002:
$ 49,810 X 3.80% X 2.5 Years =
Calendar Year 2003:
$ 18,920 X 3.51% X 1.5 Years =
7,738
4,732
996
7,738
4,755
996
Total Penalties and Interest $ 21,538 $ 14,532 $ 6,796 $ 42,889
Note: Penalties and interest computed through December 31, 2004.
ATTACHMENT 1
DISCLAIMER TO FINANCIAL INFORMATION
The general ledger information contained in this packet has been derived from the books
and records of Adelphia Communications Corporation and subsidiaries (Adelphia) and
has not been subject to the application of any audit procedures. The information
presented herein has been compiled using U.S. Generally Accepted Accounting
Principals ("GAAP"). However, the Company has not completed certain procedures
required in accordance with GAAP and, therefore, upon completion of such procedures,
the selected financial information herein may be subject to changes and these changes
could be material. Furthermore, Adelphia has publicly announced in a Form 8-K, dated
June 10, 2002, that they believe that operating information disclosed by prior
management was unreliable. As such, the books and records of Adelphia from which the
selected financial infonnation is derived may not accurately reflect the fmancial
condition, results of operation and cash flow of Adelphia.
Adelphia will review their records and other information on an on-going basis to
determine whether the financial information provided herein should be supplemented or
otherwise amended. Adelphia reserves the right to file, at any time, such supplements or
amendments to the fmancial information, as Adelphia deems appropriate. Adelphia does
not make, and specifically disclaims, any representation or warrant as to the completeness
or accuracy of the information set forth herein.
ATTACHMENT 2
[SCAN NATOA] Adelphia Insider Tells of Secret Accounting __Pgflgi
From: friedman@telecom-mgmt.com
To: '"SCAN Listserve'" <scannatoa@listserve.com>
Date: Wed, May 5, 2004 1:19 PM
Subject: [SCAN NATOA] Adelphia Insider Tells of Secret Accounting
Los Angeles Times
http://www.latimes.com/business/la-fi-adelphia5may05,1,3848272.story?co!
I=la-headlines-business
Adelphia Insider Tells of Secret Accounting
>From Bloomberg News
May 5, 2004
Adelphia Communications Corp. ex-finance Vice President James Brown
testified Tuesday that the company kept one set of records to back its
inflated financial results and a second, secret set that recorded true
performance.
Accounting and operations executives saw the phony records as early as
1997, or five years before Adelphia's bankruptcy filing in June 2002,
Brown said at the fraud trial of founder John Rigas and two of his sons,
Michael and Timothy. Brown also detailed several arrangements to inflate
financial results as performance lagged at Adelphia, the No. 5 U.S.
cable television operator.
Brown, 41, who pleaded guilty to conspiracy at Adelphia, said that he
and Timothy Rigas, the former finance chief, relied more on fraud at the
end of 2000 because results badly lagged behind investors' expectations.
Brown recounted a talk he had with Timothy Rigas in late January 2001 or
early February 2002.
"We just couldn't push the numbers as hard as we were because it was
getting to be a bigger and bigger problem," Brown told federal jurors in
New York on his second day of testimony.
Brown, who referred to his manipulations of Adelphia's books as
"accounting magic," recounted a conversation he had with John Rigas, 79,
a few days later.
"He told me that he felt sorry for Tim and me because the operating
results were putting so much pressure on us" to comply with loan
covenants, Brown said. "But he said you have to do what you have to do.
He said we can't afford to default."
Brown is the highest-ranking insider to testify against the Rigases, who
are accused of hiding $2.3 billion in debt, stealing $100 million and
lying about operations. Brown is cooperating with prosecutors in a bid
to reduce a possible 15-year prison term.
ATTACHMENT 3
pBHIMofg^iBSC^^ 's Fbtind Gjjjjty^
From: friedman@telecom-mgmt.com
Jo: "SCAN Listserve'" <scannatoa@listserve.com>
Date: Thu, Jul 8, 2004 4:17 PM
Subject: [SCAN NATOA] Founder of Adelphia Is Found Guilty of Conspiracy
New York Times
http://www.nytimes.com/2004/07/08/business/media/08WIRE-RIGAS.html7hp
July 8,2004
Founder of Adelphia Is Found Guilty of Conspiracy
By BARRY MEIER
Afederal jury today convicted John J. Rigas and his son and
heir-apparent, Timothy J. Rigas, of conspiracy and fraud in connection
with the financial collapse of Adelphia Communications Corp., one of the
nation's largest cable companies.
Jurors said that they had failed to reach a verdict on any of the
charges against another of Mr. Rigas' sons, Michael J. Rigas, and they
were ordered by the case's presiding judge to continue their
deliberations on Friday. A fourth man on trial, Michael Mulcahey, was
acquitted on all counts.
The verdicts, which follow a fourth-month trial in a Manhattan federal
court and eight days of deliberation, mark a substantial prosecution
victory and follow the convictions of top executives at other
corporations on charges that they deceived investors about corporate
finances or enriched themselves at shareholder expense.
The jury's decision also marks the final downfall of John Rigas, the
79-year former chairman of Adelphia who founded the company 50 years ago
in the small town of Coudersport, Pa. After the jury's forewoman had
responded guilty to virtually every charge against him, Mr. Rigas, a
small man with a shock of white hair, sat slumped in his seat for more
than 30 minutes, apparently in shock.
Mr. Rigas and his 47-year-old son Timothy, who was Adelphia's former
chief financial officer, were found guilty of one count of conspiracy,
15 counts of securities fraud and two counts of bank fraud. In essence,
prosecutors had charged that the Rigases had used $2.3 billion in
Adelphia funds for their own purpose and had lied to investors and banks
about the company's financial condition.
While they were acquitted on wire fraud charges, both men could face
ATTACHIVIENT 4
Jan for Feb 2003 Non Sub Allocation
System Franchise
Allocation
Percentage HSN QVC
Meadowlands
Racing
Local
Origination AHN
Video
JukeBox
Tower
Rental
Total
System
Adverting
Revenues
Allocated
Advertising
Revenues
341 City of Carlsbad 49.23% 2,479.93 6.684.76 0 3.521.19 0 0 0 89.663.17 44.144.41
341 City of Del Mar 2.93% 147.5 397.59 0 209.43 0 0 0 89.663.17 2.625.60
341 City of Encinitas 12.50% 629.74 1.697.50 0 894.16 0 0 0 89.663.17 11.209.84
341 City of San Marcos 4.67% 235.04 633.55 0 333.72 0 0 0 89.663.17 4.183.82
341 City of Solana Beach 4.94% 248.96 671.07 0 353.49 0 0 0 89.663;17 4,431.58
341 City of Vista 7.37% 371.16 1.000.47 0 527 0 0 0 89.663.17 6,606.86
341 County of San Diego 18.36% 924.74 2.492.69 0 1.313.02 0 0 0 89.663.17 16.461.05
TOTAL 100.00% 5.037.07 13.577.63 0 7.152.01 0 0 0 89.663.17