**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 
| **ý****Annual Report under Section 13 or 15(d) of the  Securities Exchange Act of 1934**      |
|--------------------------------------------------------------------------------------------------------------|
|                                                                                                         |
| **For the Fiscal Year Ended December 31,  2005**                                                        |
|                                                                                                         |
| **o****Transition report pursuant to Section 13 or 15(d) of  the Securities Exchange Act of 1934** |

 

**Commission File Number: 0-16014**

 

**ADELPHIA COMMUNICATIONS CORPORATION******(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                              |       | **23-2417713**      |
|-----------------------------------------------------------|------------|---------------------|
| (State or other jurisdiction of                           |       | (I.R.S. Employer)   |
| incorporation or organization)                            | ** ** | Identification No.) |
|                                                      |       |                |
| **5619 DTC Parkway**                                      | ** ** | ** **          |
| **Greenwood Village, CO**                                 |       | **80111**           |
| (Address of principal executive offices)                  |       | (Zip Code)          |
|                                                      |       |                |
| **303-268-6300**                                          |
| (Registrant’s telephone number, including area code) |

 

Securities registeredpursuant to Section 12(b) of the Act: **None**.

 

Securities registeredpursuant to Section 12(g) of the Act:

**Class A Common Stock, $0.01par value; and**

**51⁄2% Series D ConvertiblePreferred Stock, $0.01 par value.**

 

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.Yes  o    No  ý

 

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act.Yes  o    No  ý

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.Yes  ý    No  o

 

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of the Form 10-K or any amendment to the Form 10-K. o

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):  Large accelerated filer o  Accelerated filer oNon-accelerated filer ý

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Act).Yes  o    No  ý

 

Aggregate marketvalue of outstanding Class A Common Stock, par value $0.01, held bynon-affiliates of the registrant, as of June 30, 2005, was approximately$23.6 million, based on the closing sale price reported in the Pink SheetsElectronic Quotation Service maintained by Pink Sheets LLC on such date. Forpurposes of this calculation only, directors and executive officers of theregistrant are deemed to be affiliates of the registrant.

 

At December 31,2005, 228,692,414 shares of Class A Common Stock, par value $0.01, and25,055,365 shares of Class B Common Stock, par value $0.01, of theregistrant were outstanding.

 

 

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**ADELPHIA COMMUNICATIONSCORPORATION**

 

**TABLE OF CONTENTS**

 
| CAUTIONARY STATEMENTS |                                                                                                                |
|-----------------------|---------------------------------------------------------------------------------------------------------------------|
|                  |                                                                                                                |
| INTRODUCTORY NOTES    |                                                                                                                |
|                  |                                                                                                                |
| PART I           |                                                                                                                |
|                  |                                                                                                                |
| ITEM 1.               | BUSINESS                                                                                                            |
|                  |                                                                                                                |   |   |
|                  | Overview                                                                                                            |   |   |
|                  |                                                                                                                |   |   |
|                  | Corporate Governance                                                                                                |   |   |
|                  |                                                                                                                |   |   |
|                  | Business Operational Strategy                                                                                       |   |   |
|                  |                                                                                                                |   |   |
|                  | Customer Statistics                                                                                                 |   |   |
|                  |                                                                                                                |   |   |
|                  | Services                                                                                                            |   |   |
|                  |                                                                                                                |   |   |
|                  | Pricing For Services                                                                                                |   |   |
|                  |                                                                                                                |   |   |
|                  | Network Technology                                                                                                  |   |   |
|                  |                                                                                                                |   |   |
|                  | Management of Our Cable Systems                                                                                     |   |   |
|                  |                                                                                                                |   |   |
|                  | Customer Service                                                                                                    |   |   |
|                  |                                                                                                                |   |   |
|                  | Sales and Marketing                                                                                                 |   |   |
|                  |                                                                                                                |   |   |
|                  | Programming Suppliers                                                                                               |   |   |
|                  |                                                                                                                |   |   |
|                  | Competition                                                                                                         |   |   |
|                  |                                                                                                                |   |   |
|                  | Regulation and Legislation                                                                                          |   |   |
|                  |                                                                                                                |   |   |
|                  | Franchises                                                                                                          |   |   |
|                  |                                                                                                                |   |   |
|                  | Partnerships and Ventures                                                                                           |   |   |
|                  |                                                                                                                |   |   |
|                  | Employees                                                                                                           |   |   |
|                  |                                                                                                                |   |   |
|                  | Certain Business and Other  Developments Relating to the Chapter 11 Cases                                           |   |   |
|                  |                                                                                                                |   |   |
|                  | Segment  Operations and Certain Financial Information                                                               |   |   |
|                  |                                                                                                                |   |   |
| ITEM 1A.              | RISK FACTORS                                                                                                        |   |
|                  |                                                                                                                |
| ITEM 1B.              | UNRESOLVED  STAFF COMMENTS                                                                                          |   |
|                  |                                                                                                                |
| ITEM 2.               | PROPERTIES                                                                                                          |   |
|                  |                                                                                                                |
| ITEM 3.               | LEGAL PROCEEDINGS                                                                                                   |   |
|                  |                                                                                                                |
| ITEM 4.               | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                |   |
|                  |                                                                                                                |
| PART II          |                                                                                                                |
|                  |                                                                                                                |
| ITEM 5.               | MARKET FOR  REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES  OF EQUITY SECURITIES |   |
|                  |                                                                                                                |   |
| ITEM 6.               | SELECTED FINANCIAL  DATA                                                                                            |   |
|                  |                                                                                                                |   |
| ITEM 7.               | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         |   |
|                  |                                                                                                                |   |   |
|                  | Overview                                                                                                            |   |
|                  |                                                                                                                |   |
|                  | Results of Operations                                                                                               |   |
|                  |                                                                                                                |   |
|                  | Liquidity and  Capital Resources                                                                                    |   |
|                  |                                                                                                                |   |
|                  | Current and  Future Sources of Liquidity                                                                            |   |
|                  |                                                                                                                |   |
|                  | Critical Accounting  Policies                                                                                       |   |
|                  |                                                                                                                |   |
| ITEM 7A.              | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         |   |
|                  |                                                                                                                |   |
| ITEM 8.               | CONSOLIDATED  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                           |   |
|                  |                                                                                                                |   |
| ITEM 9.               | CHANGES IN  AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               |   |
|                  |                                                                                                                |   |
| ITEM 9A.              | CONTROLS AND PROCEDURES                                                                                             |   |
|                  |                                                                                                                |   |
| ITEM 9B.              | OTHER INFORMATION                                                                                                   |   |
|                       |                                                                                                                     |  |  |  |

 

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| PART III              |                                                                                                 |
|----------------------------|------------------------------------------------------------------------------------------------------|
|                       |                                                                                                 |
| ITEM 10.                   | DIRECTORS  AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                  |   |
|                       |                                                                                                 |   |
| ITEM 11.                   | EXECUTIVE  COMPENSATION                                                                              |   |
|                       |                                                                                                 |   |   |
|                       | Summary Compensation                                                                                 |   |
|                       |                                                                                                 |   |
|                       | Stock Option/SAR Grants                                                                              |   |
|                       |                                                                                                 |   |   |
|                       | Aggregated  Option/SAR Exercises and Year-End Option/SAR Values                                      |   |
|                       |                                                                                                 |   |   |
|                       | Long-Term Incentive  Plan Awards                                                                     |   |
|                       |                                                                                                 |   |   |
|                       | Director Compensation                                                                                |   |
|                       |                                                                                                 |   |   |
|                       | Employment Arrangements                                                                              |   |
|                       |                                                                                                 |   |   |
|                       | Non-Equity  Based Plans and Agreements Maintained by the Company                                     |   |
|                       |                                                                                                 |   |   |
| ITEM 12.                   | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS     |   |
|                       |                                                                                                 |   |   |
|                       | Equity  Compensation Plan Information                                                                |   |
|                       |                                                                                                 |   |   |
|                       | Amended and  Restated Adelphia Communications Corporation Performance Retention Plan                 |   |
|                       |                                                                                                 |   |   |
|                       | Adelphia and  Hyperion Telecommunications Corporation Executive Performance Share  Compensation Plan |   |
|                       |                                                                                                 |   |   |
|                       | Employment  Agreements for William T. Schleyer and Ron Cooper                                        |   |
|                       |                                                                                                 |   |   |
| ITEM 13.                   | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                                      |   |
|                       |                                                                                                 |   |   |
|                       | Related  Transactions - Rigas Family                                                                 |   |   |
|                       |                                                                                                 |   |   |
| ITEM 14.                   | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                              |   |
|                       |                                                                                                 |   |   |
| PART IV               |                                                                                                 |
|                       |                                                                                                 |   |   |
| ITEM 15.                   | EXHIBITS AND  FINANCIAL STATEMENT SCHEDULES                                                          |   |
|                       |                                                                                                 |   |   |
|                       | Exhibit Index                                                                                   |   |   |
|                       |                                                                                                 |   |   |
|                       | Consolidated  Financial Statements                                                                   |   |   |
|                       |                                                                                                 |   |   |
|                       | Financial  Statement Schedules                                                                       |   |   |
|                       |                                                                                                 |   |   |
| GLOSSARY OF DEFINED  TERMS |                                                                                                 |
|                       |                                                                                                 |   |   |
| SIGNATURES                 |                                                                                                 |
|                            |                                                                                                      |  |  |  |

 

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**CAUTIONARYSTATEMENTS**

 

ThisAnnual Report includes forward-looking statements. All statements regardingAdelphia Communications Corporation’s (“Adelphia”) and its consolidatedsubsidiaries’ and other consolidated entities’ (collectively, the “Company,” “we,”“our” or “us”) expected future financial position, results of operations, cashflows, the sale of the Company, the settlements with the Securities andExchange Commission (the “SEC”) and the United States Attorney’s Office for theSouthern District of New York (the “U.S. Attorney”), the sale of Century/MLCable Venture, restructuring and financing plans, expected emergence frombankruptcy, business strategy, budgets, projected costs, capital expenditures,network upgrades, products and services, competitive positions, growthopportunities, plans and objectives of management for future operations areforward-looking statements. In some instances, you can identify theseforward-looking statements by the presence of words such as “anticipate,” “if,”“believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “could,” “should,” “will”and other similar expressions. Such forward-looking statements are inherentlyuncertain, and readers must recognize that actual results may differmaterially from our expectations. We do not undertake a duty to update suchforward-looking statements. Factors that may cause actual results todiffer materially from those in the forward-looking statements include whetherthe proposed sale of our assets to Time Warner NY Cable LLC, a subsidiary ofTime Warner Cable Inc., the cable subsidiary of Time Warner Inc., and ComcastCorporation is approved and consummated, whether the transactions contemplatedby the settlements with the SEC and the U.S. Attorney and any other agreementsneeded to effect those transactions are consummated, our pending bankruptcyproceeding, results of litigation against us, results and impacts of theproposed sale of our assets, the effects of government regulation including theactions of local cable franchising authorities, the availability of financing,actions of our competitors, pricing and availability of programming, equipment,supplies and other inputs, our ability to upgrade our broadband network,technological developments, changes in general economic conditions and those discussedin Item 1A, “Risk Factors” in this Annual Report. Many of these factors areoutside of our control.

 

**INTRODUCTORY NOTES**

 

All of ourfinancial, statistical and operating data in this Annual Report, including datarelating to subscribers, includes information with respect to Adelphia and itssubsidiaries that are consolidated for financial reporting purposes as well ascertain entities that were owned or controlled by members of the John J. Rigasfamily (the “Rigas Family”). Effective January 1, 2004, we beganconsolidating certaincable television entities that were owned by members of the Rigas Family andtheir subsidiaries that are subject to co-borrowing arrangements with us (the “RigasCo-Borrowing Entities”). Our financial, statistical and operatingdata for periods prior to January 1, 2004 does not include data withrespect to the Rigas Co-Borrowing Entities. See Note 5, “Variable Interest Entities,” to theaccompanying consolidated financial statements for a discussion of the basisfor consolidating the Rigas Co-Borrowing Entities.

 

Through May 2002,John J. Rigas, his sons and members of his immediate family held all of thesenior executive positions at Adelphia and constituted five of the nine membersof Adelphia’s board of directors, none of whom remain with the Company(collectively, “Rigas Management”). We filed a lawsuit against members of theRigas Family and their controlled entities which generally alleged that thedefendants misappropriated billions of dollars from us in breach of their fiduciaryduties to us. In addition, John J. Rigas and Timothy J. Rigas have been foundguilty in the United States District Court for the Southern District of NewYork (the “District Court”) of conspiracy, securities fraud and bank fraud inconnection with certain actions taken by them during their tenure as officersand directors of Adelphia, and on November 23, 2005, Michael J. Rigas pledguilty to a violation of Title 47, U.S. Code, Section 220(e) formaking a false entry in a Company record (in a form required to be filedwith the SEC). All statements in this report regarding improper actions ofcertain members of the Rigas Family and Rigas Management, except to the extentrelating to the subject matter of the guilty verdicts, constitute allegationson the part of the Company. On April 25, 2005, Adelphia and membersof the Rigas Family entered into a settlement agreement with respect to, amongother things, Adelphia’s lawsuit against members of the Rigas Family and theircontrolled entities. See Item 3, “Legal Proceedings — Adelphia’s LawsuitAgainst the Rigas Family.”

 

Pursuant to a ConsentOrder of Forfeiture entered by the District Court on June 8, 2005 (the “ForfeitureOrder”), all right, title and interest of the Rigas Family and the entities inwhich members of the Rigas Family directly or indirectly held controllinginterests in the Rigas Co-Borrowing Entities (other than Coudersport TelevisionCable Co. and Bucktail Broadcasting Corporation), certain specified real estateand any of our securities

 

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were forfeited to the United States. Such assets andsecurities are expected to be transferred to us (subject to completion offorfeiture proceedings before a federal judge to determine if there are any superiorclaims) in furtherance of our agreement with the U.S. Attorney. Upon obtainingownership of such Rigas Co-Borrowing Entities, we expect to file voluntarypetitions to reorganize such entities in proceedings jointly administered withour Chapter 11 cases.

 

A glossary ofcertain defined terms is included at the end of this Annual Report.

 

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# **PART I**

 

## **ITEM1. BUSINESS**

 

### **OVERVIEW**

 

#### ***General***

 

We are the fifthlargest operator of cable systems in the United States. Our operationsprimarily consist of providing analog and digital video services, high-speedInternet (“HSI”) access and other advanced services over our broadbandnetworks. These services are generally provided to residential subscribers. Asof December 31, 2005, our consolidated cable operations servedapproximately 4,936,000 basic cable subscribers, of which approximately2,008,000 also received digital cable service. Our consolidated cable systemsalso provided HSI services to approximately 1,714,000 subscribers as of December 31,2005. With the exception of approximately 55,000 basic cable subscribers thatwere located in Brazil, all of our consolidated basic cable subscribers as of December 31,2005 were located in the United States. Our domestic consolidated cableoperations are located in 31 states, with large clusters in Los Angeles, NewEngland, Western New York, West Palm Beach, Cleveland, Western Pennsylvania,Northern Virginia and Colorado Springs.

 

In June 2002,Adelphia and substantially all of its domestic subsidiaries (the “Debtors”)filed voluntary petitions to reorganize (the “Chapter 11 Cases”) in the UnitedStates Bankruptcy Court for the Southern District of New York (the “BankruptcyCourt”) under Chapter 11 (“Chapter 11”) of Title 11 of the United States Code(the “Bankruptcy Code”) and are currently operating as debtors-in-possession. Certain cable televisionentities that were owned by certain members of the John J. Rigasfamily (the “Rigas Family”) and their subsidiaries that are subject to co-borrowingarrangements with us (the “Rigas Co-Borrowing Entities”) did notfile for bankruptcy protection.

 

Effective April 20,2005, Adelphia entered into definitive agreements with Time Warner NY Cable LLC(“TW NY”) and Comcast Corporation (“Comcast”), pursuant to which TW NY andComcast will purchase substantially all of our U.S. assets and assume certainof our liabilities (the “Sale Transaction”) for an aggregate consideration ofcash in the amount of approximately $12.7 billion plus shares of Class Acommon stock (“TWC Class A Common Stock”) of Time Warner Cable Inc. (“TWC”),which are expected to represent 16% of the outstanding equity securities of TWCas of the closing of the Sale Transaction. Such percentage is subject toadjustment for issuances pursuant to employee stock programs (subject to a cap)and issuances of securities for fair consideration and assumes the redemptionof Comcast’s interest in TWC. The TWC Class A Common Stock is expected tobe listed on The New York Stock Exchange (the “NYSE”). TW NY is a subsidiary ofTWC, the cable subsidiary of Time Warner Inc. (“Time Warner”). Pursuant to aseparate Parent Agreement, dated as of April 20, 2005, TWC, among otherthings, has guaranteed the obligations of TW NY under the asset purchaseagreement between TW NY and Adelphia. Time Warner and Comcast have also agreedto swap certain cable systems and unwind Comcast’s investments in TWC and TimeWarner Entertainment Company, L.P. (“TWE”), a subsidiary of TWC. The SaleTransaction does not include our cable system joint venture in Puerto Rico,which, as described below, was sold to San Juan Cable, LLC effective October 31,2005.

 

On November 21,2005, the Debtors filed their Fourth Amended Joint Plan of Reorganization, as may beamended or modified (the “Plan”), and related Fourth Amended DisclosureStatement (the “Disclosure Statement”) with the Bankruptcy Court. The Plancontemplates, among other things, consummation of the Sale Transaction anddistribution of the cash and TWC Class A Common Stock received pursuant tothe Sale Transaction to the holders of claims against and equity interests inthe Debtors in accordance with the Plan. By order dated November 23, 2005,the Bankruptcy Court approved the Disclosure Statement. By December 12, 2005,the Debtors completed the mailing of the solicitation packages. The votingdeadline to accept or reject the Plan is April 6, 2006, and in the case ofsecurities held through an intermediary, the deadline for instructions to bereceived by the intermediary is April 3, 2006 or such other date asspecified by the applicable intermediary. The confirmation hearing on the Planis scheduled to commence on April 24, 2006. Both the Plan and the SaleTransaction are subject to

 

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customaryconditions, including Bankruptcy Court approval and various regulatoryapprovals. See Item 1, “Business — Events Occurring During the Pendency ofthe Chapter 11 Cases under Interim Management and Current Management — The Planof Reorganization and the Sale Transaction.”

 

On June 3,2005, our subsidiary, Century Communications Corp. (“Century”), entered into aninterest acquisition agreement with ML Media Partners, L.P. (“ML Media”),Century/ML Cable Venture (“Century/ML Cable”), Century-ML Cable Corporation, asubsidiary of Century/ML Cable (“Century-ML Cable Corp.”), and San Juan Cable,LLC (the “IAA”) pursuant to which, subject to the terms and conditions thereof,ML Media and Century agreed to sell their interests in Century/ML Cable to SanJuan Cable, LLC, a Puerto Rico limited liability company in which MidOceanPartners, LP, Crestview Capital Partners LP and other investors are members (“SanJuan Cable”), for approximately $520 million. The sale of Century/ML Cable toSan Juan Cable was consummated on October 31, 2005 (the “Century/ML Sale”).See Item 1, “Business — Partnerships and Ventures — Nonconsolidated JointVenture — Century/ML Cable.”

 

As a result of actions allegedly taken or directed bycertain members of the Rigas Family who held all of the senior executivepositions at Adelphia and constituted five of the nine members of Adelphia’sboard of directors, none of whom remain with the Company (collectively, “RigasManagement”), the SEC filed the SEC Civil Action (as defined below) againstvarious parties, including Adelphia, and we were subject to investigation bythe United States Department of Justice (the “DoJ”). On April 25, 2005,we settled the SEC Civil Action and entered into an agreement with the UnitedStates Attorney’s Office for the Southern District of New York (the “U.S.Attorney”), whichprovides, among other things, that, if Adelphia complies with the agreement,Adelphia and specified subsidiaries of Adelphia will not be prosecuted for any conduct (other thancriminal tax violations) related to the Rigas Criminal Action (as definedbelow) or the allegations contained in the SEC Civil Action. Also effective April 25,2005, we entered into a settlement agreement with certain members of the RigasFamily, who have also entered into a settlement agreement with the U.S.Attorney. See Item 3, “Legal Proceedings — SEC Civil Action and DoJInvestigation.”

 

#### ***Period DuringWhich Members of the Rigas Family Held Executive Positions***

 

The predecessorcable business of the Company was founded in 1952 in Coudersport, Pennsylvania.Adelphia was incorporated in Delaware in July 1986 for the purpose ofreorganizing five cable television companies, which were then principally ownedby members of the Rigas Family, into a holding company structure in connectionwith the initial public offering of Adelphia’s Class A common stock, parvalue $0.01 per share (the “Class A Common Stock”).

 

Prior to May 2002,Rigas Management held all of the senior executive positions at Adelphia and constitutedfive of the nine members of Adelphia’ board of directors. In addition, Adelphia’sClass B common stock, par value $0.01 per share (the “Class B CommonStock,” and together with the Class A common stock, the “Adelphia CommonStock”), was owned by members of the Rigas Family and entities in which membersof the Rigas Family directly or indirectly held controlling interests (suchentities collectively referred to as the “Rigas Family Entities”) until theRigas Family and the Rigas Family Entities forfeited their right, title andinterest in the Adelphia Common Stock to the United States on or about June 8,2005 pursuant to the Forfeiture Order entered by the District Court(the “Forfeiture Order”) and the settlement agreement between theU.S. Attorney and the Rigas Family, dated April 25, 2005 (the “Government-RigasSettlement Agreement”). The Class B Common Stock is a “super-voting”common stock that entitles the holders to 10 votes per share and, prior to thecommencement of the Chapter 11 Cases, effectively enabled the Rigas Family toelect eight of the nine members of Adelphia’s board of directors. As describedin greater detail below, beginning in 2002, we alleged that, among otherwrongdoing, Rigas Management had issued false and misleading public disclosures,consolidated financial statements and compliance certificates, improperlycapitalized operating expenses, engaged in improper transactions, failed toreflect indebtedness for which we were liable in our accounting records or inour public disclosures, engaged in improper self-dealing transactions, allowedmembers of the Rigas Family to utilize our assets for their personal benefit,and took other improper actions. Following the discovery of Rigas Management’smisconduct, a special committee of Adelphia’s board of directors (the “Board”)obtained the agreement of

 

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all ofthe members of Rigas Management to resign from their positions as officers anddirectors of Adelphia. Beginning in May 2002, the Board beganreconstituting itself. As of January 1, 2004, the Board was composed ofseven directors, none of whom had served as directors during the period whenRigas Management operated the Company. Although members of the Rigas Family andRigas Family Entities owned shares of the Class B Common Stock with amajority of the voting power in Adelphia during this period, the Rigas Familywas unable to exercise such voting power since they resigned from theirpositions as officers and directors of Adelphia and were effectively precludedfrom exercising such voting power during the pendency of the Chapter 11 Cases.See Item 3, “Legal Proceedings — Rigas Criminal Action.”

 

#### ***Current Management***

 

Effective March 18,2003, William T. Schleyer was appointed as our Chairman and Chief ExecutiveOfficer (“CEO”) and Ron Cooper was appointed as our President and ChiefOperating Officer (“COO”). Shortly after the appointments of Messrs. Schleyerand Cooper, the Board and these new officers hired a new senior management team.These executives have implemented internal controls and procedures designed,among other things, to prevent a recurrence of the improper acts that occurredduring the tenure of Rigas Management. Following the resignation of RigasManagement, we performed an extensive review of our historical publicdisclosures, books and records, accounting policies and practices andconsolidated financial statements and determined that certain of our publicdisclosures, books and records and consolidated financial statements as of andfor the years ended December 31, 2000 and 1999 were materially misstatedas a result of the actions taken by Rigas Management.

 

#### ***AvailableInformation***

 

Our Internetaddress is *www.adelphia.com*. In addition, ourwebsite contains a hyperlink to the Adelphia page on the Securities andExchange Commission (the “SEC”) website (*www.sec.gov*).Thus, our annual reports on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K and amendments to those reports filed orfurnished pursuant to Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), are all available freeof charge through our Internet website as soon as reasonably practicable afterfiling such reports with or furnishing them to the SEC. Information containedon our Internet website is not incorporated by reference into this AnnualReport. Readers are advised that our periodic and other reports filed with orfurnished to the SEC prior to May 24, 2002 were prepared by RigasManagement and do not reflect the results of the subsequent investigation ofactions taken by Rigas Management, the implementation of our new corporategovernance policies and procedures or other steps subsequently taken by us.Therefore, readers should not rely on our periodic and other reports filed withor furnished to the SEC prior to May 24, 2002.

 

Our principalexecutive offices are located at 5619 DTC Parkway, Greenwood Village, Colorado80111, telephone number (303) 268-6300.

 

### **CORPORATEGOVERNANCE**

 

Since May 2002,the Board and senior management extensively reformed our corporate governancepractices. Although the Board and management’s work in this area is ongoing,they have implemented corporate governance policies and procedures that meet orexceed the requirements of the Sarbanes-Oxley Act of 2002 and other applicablerules, and have incorporated corporate governance principles from stockexchange listing requirements, suggestions from various shareholder advocacygroups and best practices and procedures from other major public corporations.

 

#### ***Reorganization ofthe Board Committees***

 

As part ofAdelphia’s corporate governance initiatives, the Board has made substantialchanges with respect to its various committees. Prior to May 2002, theBoard had three standing committees, the Audit Committee, the NominatingCommittee and the Compensation Committee. During the tenure of RigasManagement, the Nominating Committee was comprised of four non-independentdirectors, John J. Rigas,

 

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MichaelJ. Rigas, Timothy J. Rigas and James P. Rigas, and the Audit Committee includedTimothy J. Rigas until June 2001.

 

Following thedeparture of the Rigas Family members from the Board, the Board created aCorporate Governance Committee, which was later combined with the NominatingCommittee to form the Corporate Governance and Nominating Committee. TheBoard also has adopted written charters for the Corporate Governance andNominating Committee and the Compensation Committee and has amended theprevious Audit Committee charter. Each of these charters was prepared to meetor exceed applicable legal and stock exchange requirements and to incorporateprogressive corporate governance practices. Pursuant to each committee charter,each of the Corporate Governance and Nominating Committee, the Audit Committeeand the Compensation Committee are to be comprised solely of independentdirectors as determined in accordance with Adelphia’s corporate governanceguidelines.

 

The CorporateGovernance and Nominating Committee assists the Board by:  recommending to the Board and carrying outand maintaining our corporate governance policies and processes; identifyingqualified individuals for membership on the Board and its committees;recommending the composition and procedures of the Board and its committees;and assessing the effectiveness of the Board and its committees.

 

The AuditCommittee assists the Board by monitoring the integrity of Adelphia’s financialstatements (and audits thereof) and its financial and accounting reportingprocesses, audit process, procedures and systems of internal controls regardingfinance, accounting and legal and regulatory compliance which management andthe Board have established, monitoring the independence, qualifications andperformance of Adelphia’s independent registered public accounting firm andinternal auditing department, and providing an open avenue of communicationamong the independent registered public accounting firm, management, theinternal auditing department and the Board.

 

The CompensationCommittee assists the Board by providing a forum for independent judgment as tothe fairness of director, executive and employee compensation arrangements atthe Company and determining, subject to Board oversight, the terms of suchcompensation arrangements.

 

#### ***Lead DirectorPosition***

 

The Board createdthe Lead Director position in light of current best governance practices.Anthony Kronman serves as our Lead Director. The Lead Director is responsiblefor, among other things:

 

•                  calling and presiding over executivesessions of the independent directors;

 

•                  serving as a liaison between theindependent directors and the non-independent directors and managementregarding matters addressed in executive sessions;

 

•                  acting as chairperson of the Board inthe absence of the chairperson of the Board;

 

•                  advising the chairperson of the Boardand the committee chairpersons as to the agenda for meetings of the Board andits committees;

 

•                  serving as the director contact forshareholder communications; and

 

•                  providing leadership in the event ofthe incapacitation of the chairperson of the Board or a crisis or other eventor circumstance that would make management leadership ineffective orinappropriate.

 

4

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#### ***CorporateGovernance Guidelines***

 

Pursuant to therecommendation of the Corporate Governance and Nominating Committee, the Boardin July 2004 approved corporate governance guidelines for Adelphia (the “CorporateGovernance Guidelines”). The Corporate Governance Guidelines, together with allapplicable laws, Adelphia’s Certificate of Incorporation and Bylaws, the Codeof Business Conduct and Ethics (as subsequently amended, the “Code of Ethics”)and the various committee charters, are intended to provide a comprehensiveframework for the governance of Adelphia. The Corporate Governance Guidelinesincorporate new legal requirements and best practices with respect to thefunction and composition of the Board, selection of new directors, tenure ofdirectors, Lead Director position, meetings of the Board, executive sessions ofindependent directors, committees of the Board, access of the Board tomanagement and outside advisors, compensation of directors, director andofficer conduct, evaluation of the Board, evaluation of senior management,management succession, director orientation and continuing education, stockownership and conflicts.

 

#### ***Code of BusinessConduct and Ethics***

 

In April 2003,the Board adopted the Code of Ethics, which sets forth Adelphia’s policies fordirectors, officers (including Adelphia’s principal executive officer,principal financial officer and principal accounting officer) and employees inconnection with, among other things, the maintenance of accurate companyrecords, communications with the public, conflicts of interest, treatment ofconfidential information, use of company assets, anti-nepotism, the reportingof violations of the Code of Ethics and illegal and unethical behavior,compliance with laws relating to contracting or dealing with governmentalagencies, discrimination and harassment, commercial bribery, competition andfair dealing and insider trading. The Code of Ethics has been disseminated toall of our employees, all of whom are required to certify their agreement toabide by the Code of Ethics. The Code of Ethics is filed as Exhibit 14.1to this Annual Report.

 

#### ***CorporateGovernance Officer***

 

The Code of Ethicscontemplates the appointment of a corporate governance officer (“CGO”). Therole of the CGO is to assist with the administration and implementation of theCode of Ethics and, among other things, to serve as the central point ofcontact for employees wishing to report any illegal or unethical behavior. BradM. Sonnenberg, Adelphia’s General Counsel, serves as the CGO.

 

#### ***ComplaintsRegarding Accounting Matters or Other Wrongdoing***

 

As part ofour implementation of the Code of Ethics, we have established procedures forthe receipt of all complaints regarding any alleged wrongdoings. Theseprocedures include the establishment of a dedicated toll-free hotline number, aU.S. mailing address and an e-mail address to facilitate such communications,whether from employees or outside interested parties. The CGO receives andoversees the investigation of all such complaints in the first instance.

 

Furthermore, ourAudit Committee and Board have adopted a whistleblower policy, which links theCode of Ethics and the existing Sarbanes-Oxley requirements by addressing thereceipt, retention and handling of all complaints received by us (whetheraudit-related or not).

 

### **BUSINESS OPERATIONAL STRATEGY**

 

We have implemented a strategy designed to increase revenue, customerretention, profitability and competitiveness, reduce costs and improve theoverall efficiency of our business. Our objective is to maintain and leverage our position as a leading provider of analogand digital video and HSI services. Key elements of our strategy include:

 

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•                  **Ownand operate an upgraded high-bandwidth, two-way network** — Theupgrade of our broadband network allows us to introduce advanced products andservices including high definition television (“HDTV”), digital video recorders(“DVR”) and video-on-demand (“VOD”), and to extend the reach of our HSIservices. The introduction of advanced services such as HDTV, DVR and VOD beganin late 2003. As of December 31, 2005, approximately 97% of homes passedhad bandwidth capacity of at least 550 megahertz (“MHz”) with two-way capacity,and approximately 91% of homes passed had bandwidth capacity of at least750 MHz with two-way capacity. A home is deemed to be “passed” by cable ifit can be connected to the cable network without any further extension of thecable network. We are able to offer HSI services and a more robust digitaloffering to homes at 550 MHz with two-way capacity. For homes withbandwidth capacity of at least 750 MHz, we are able to drive incrementalrevenue and customer choice by offering HDTV, DVR and VOD. We will utilize theadvanced services and packages to attract and retain customers and competeagainst video services offered by direct broadcast satellite (“DBS”) and otherproviders and HSI services offered by digital subscriber line (“DSL”)providers. We expect that our ability to offer a competitively priced packageof video and HSI services will be a key factor in increasing customer retentionand competing effectively against DBS and DSL providers.

 

•                  **Offer bundled services**— We offer a bundled package of video and HSI services to subscribers. Bundlingof video and HSI services is an important part of our strategy.Competitive pressures from DBS and DSL providers have increased subscribermovement, or churn, away from cable operators. We believe the ability to offera competitively priced bundle of services through one contact and one bill canreduce overall churn, improve operating efficiencies, reduce customer calls anddrive revenue growth.

 

•                  **Delivera quality customer experience** — Customer service is an importantelement of our business operational strategy. Pursuant to a plan initiated in2003, we have reduced the number of call centers, expanded the scale ofexisting centers and improved the training, skills and product knowledge of ourcall center employees. We made significant improvements in this area with theintroduction of interactive voice response (“IVR”) technology that allowscustomers to resolve issues quickly and leads to improvements in our internaloperating efficiencies. In addition, we opened an inbound call center inOrlando, Florida in April 2004 staffed with customer representativesfocused on sales, including opportunities to sell additional services toexisting customers (upselling) and on assisting customers withself-installation of HSI.

 

We believe that thecombination of an upgraded broadband cable network, expanded service offeringsand customer choice and commitment to customer service should enable us toincrease our revenue through HSI growth, increase the sale of advanced productsand services, such as HDTV, DVR and VOD, increase customer retention andprofitability, maintain or increase our average revenue per unit (“ARPU”) andeffectively compete in the marketplace, while continuing to manage ouroperating expenses.

 

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### **CUSTOMERSTATISTICS**

 

The followingtable summarizes our consolidatedcustomer statistics for basic and digital video and HSI as of December 31,2005, 2004 and 2003 (numbers in thousands, except percentage data):

 
| ** **                                                            | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                            | ** ** | **2005**              | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Homes Passed (a) (b)**                                         |       |                  |       |   |   |   |   |
| Homes passed  before consolidation of the Rigas Co-Borrowing Entities |       | 10,477                |       | 10,327 |   | 10,061 |   |
| Homes passed by  the Rigas Co-Borrowing Entities                      |       | 428                   |       | 428 |   | — |   |
| Homes passed  after consolidation of the Rigas Co-Borrowing Entities  |       | 10,905                |       | 10,755 |   | 10,061 |   |
| **Subscribers  (b)**                                                  |       |                  |       |   |   |   |   |
| Subscribers  before consolidation of the Rigas Co-Borrowing Entities: |       |                  |       |   |   |   |   |
| Video                                                                 |       |                  |       |   |   |   |   |
| Basic cable (c)                                                       |       | 4,717                 |       | 4,841 |   | 5,085 |   |
| Basic  penetration (d)                                                |       | 45.0                  | %          | 46.9 | % | 50.5 | % |
| Digital cable  (e)                                                    |       | 1,917                 |       | 1,857 |   | 1,802 |   |
| Digital  penetration (f)                                              |       | 40.7                  | %          | 38.3 | % | 35.4 | % |
| High-speed  Internet (g)                                              |       | 1,626                 |       | 1,320 |   | 954 |   |
| High-speed  Internet penetration (h)                                  |       | 17.1                  | %          | 14.0 | % | 11.5 | % |
| Total revenue  generating units (i)                                   |       | 8,260                 |       | 8,018 |   | 7,841 |   |
| Subscribers of  the Rigas Co-Borrowing Entities:                      |       |                  |       |   |   |   |   |
| Video                                                                 |       |                  |       |   |   |   |   |
| Basic cable (c)                                                       |       | 219                   |       | 228 |   | — |   |
| Basic  penetration (d)                                                |       | 51.3                  | %          | 53.2 | % | — |   |
| Digital cable  (e)                                                    |       | 91                    |       | 85 |   | — |   |
| Digital  penetration (f)                                              |       | 41.3                  | %          | 37.5 | % | — |   |
| High-speed  Internet (g)                                              |       | 88                    |       | 77 |   | — |   |
| High-speed  Internet penetration (h)                                  |       | 22.3                  | %          | 18.3 | % | — |   |
| Total revenue  generating units (i)                                   |       | 398                   |       | 390 |   | — |   |
| Subscribers  after consolidation of the Rigas Co-Borrowing Entities:  |       |                  |       |   |   |   |   |
| Video                                                                 |       |                  |       |   |   |   |   |
| Basic cable (c)                                                       |       | 4,936                 |       | 5,069 |   | 5,085 |   |
| Basic  penetration (d)                                                |       | 45.3                  | %          | 47.1 | % | 50.5 | % |
| Digital cable  (e)                                                    |       | 2,008                 |       | 1,942 |   | 1,802 |   |
| Digital  penetration (f)                                              |       | 40.7                  | %          | 38.3 | % | 35.4 | % |
| High-speed  Internet (g)                                              |       | 1,714                 |       | 1,397 |   | 954 |   |
| High-speed  Internet penetration (h)                                  |       | 17.3                  | %          | 14.1 | % | 11.5 | % |
| Total revenue  generating units (i)                                   |       | 8,658                 |       | 8,408 |   | 7,841 |   |

 

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(a)                                  Ahome is deemed to be “passed” by cable if it can be connected to the cablenetwork without any further extension of the cable network.

 

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(b)                                 For2003, homes passed and subscribers of the Rigas Co-Borrowing Entities areexcluded from this table. Such subscribers are included for 2005 and 2004 uponconsolidation of the Rigas Co-Borrowing Entities effective January 1,2004. In connection with the Forfeiture Order, as of June 30, 2005, theRigas Co-Borrowing Entities no longer include Coudersport Television Cable Co.(“Coudersport”) and Bucktail Broadcasting Corporation (“Bucktail”).

 

(c)                                  Aresidential subscriber who has at a minimum broadcast service, regardless ofany other services taken, is counted as one basic cable subscriber. “Basiccable subscribers” excludes complimentary accounts and includes promotionalaccounts. Subscribers in commercial, multi-dwelling or other bulkestablishments are counted as an equivalent bulk unit (“EBU”), based on theprevailing rate for the franchise area. EBUs are calculated by dividing thetotal basic and expanded basic revenue from the commercial, multi-dwelling orother bulk establishment by the prevailing rate for the franchise area. The EBUmethod of estimating basic video subscribers is consistent with our methodologyused in determining costs paid to programmers and has been consistently appliedfor all periods. If we increase our effective basic rates to residentialsubscribers without a corresponding increase in the rates charged tocommercial, multi-dwelling or other bulk establishments, our EBU count willdecline even if there is no decrease in commercial, multi-dwelling or otherbulk establishment subscribers.

 

(d)                                 Basiccable subscribers as a percentage of homes passed. As described in (c) above,basic cable subscribers includes an adjustment for subscribers in commercial,multi-dwelling or other bulk establishments. Homes passed does not include a similaradjustment. As a result, relative to commercial, multi-dwelling or other bulkestablishments, the calculation results in penetration of less than 100% evenwhen such establishment is fully penetrated.

 

(e)                                  Aresidence or business with one or more active digital set-top boxes is countedas one digital cable subscriber. “Digital cable subscribers” excludescomplimentary accounts and includes promotional accounts.

 

(f)                                    Digitalcable subscribers as a percentage of basic cable subscribers.

 

(g)                                 Aresidence or business with one or more active HSI modems is counted as one HSIsubscriber. “HSI subscribers” excludes complimentary accounts and includespromotional accounts.

 

(h)                                 HSIsubscribers as a percentage of HSI-market ready homes. HSI-market ready homes wereapproximately 9.9 million at each of December 31, 2005 and 2004.

 

(i)                                     Totalrevenue generating units is a statistic developed by the National Cable &Telecommunications Association and is calculated as the sum of basic cablesubscribers, digital subscribers and HSI subscribers.

 

### **SERVICES**

 

#### ***Video Services***

 

Video servicesrepresented approximately 77%, 80% and 82% of our total revenue in 2005, 2004and 2003, respectively. We typically offer these services to our customers fora monthly subscription fee. Our video services consist of the following:

 

•                  Basic cable. Our basic cableservice generally consists of between 10-20 channels. This service generallyconsists of programming provided by national television networks, localbroadcast television stations, a limited number of satellite-delivered channelsand public, educational and governmental access channels.

 

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•                  Expanded Basic. Our expandedbasic service generally consists of a group of satellite-delivered ornon-broadcast channels in addition to the basic cable service channel line-up.

 

•                  Premium Services. Our premiumservice channels provide, without commercial interruption, movies, live andtaped concerts, sporting events and other programming.

 

•                  Pay-Per-View Programming. Ourpay-per-view programming service allows our customers to order special eventsor movies on a per-event basis for a fee.

 

•                  Digital Cable. Our digitalcable services offer customers more channels and choices than our basic cableservice. As of December 31, 2005, approximately 41% of our basic cablesubscribers were also digital cable subscribers. Subscribers to our digitalcable service receive one or more of the following:

 

•                  an interactive program guide;

 

•                  multiple channels of digital videoprogramming and music;

 

•                  “multiplexes” of premium videochannels that are varied as to time of broadcast or programming content theme;and

 

•                  additional pay-per-view programming,such as more pay-per-view options and/or frequent showings of the most popularfilms.

 

•                  Advanced Services. Many of ourupgraded homes are able to receive enhanced offerings, through the use ofset-top boxes, such as VOD, HDTV and DVR.

 

•                  *Videoon**Demand* — VOD isan interactive service that provides access to hundreds of movies and otherprogramming with functionality similar to VCRs. We offer three types of VODservices:  programming that customers payfor on a per-selection basis and have access to for a 24-hour period,programming that is provided as part of a premium package at noincremental charge to the customer and free, on demand content that features avariety of subjects and that is available to all digital subscribers.

 

•                  *High**Definition****Television Service* — HDTVservice includes a high definition (“HD”) capable receiver that allowscustomers with an HD television to experience better picture quality andenhanced audio. We also offer an HD tier of channels at an additional monthlycharge.

 

**•****                 ***DigitalVideo Recorders* — DVR services allow customers to storeprogramming on a hard disk drive for viewing at a later time. The DVR functionslike a VCR except there is no tape, and DVR offers greater ease of use andenhanced recording and playback options.

 

#### ***High-SpeedInternet Services***

 

Our HSI servicesrepresented approximately 17%, 13% and 11% of our total revenue for 2005, 2004and 2003, respectively. Our HSI services were available for a monthly fee toapproximately 91% of our homes passed as of December 31, 2005. HSIservices are provided through cable modems and represent a robust alternativeto Internet access over analog modems using dial-up connections. Our HSIservices currently include virus protection, firewall and pop-up blockers. Wealso offer digital music service and a “best-of-the-web” package of content as premiumservices at an additional monthly charge. In addition, our HSI services provideconstant Internet connectivity without needing to tie up a telephone line. Thenetwork capability also allows us to offer tiered services at different speedsand price points.

 

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#### ***Media Services***

 

We sell televisionadvertising that we insert into certain of the programming services we carry onour networks, along with commercial production and creative services to supportsuch advertising. The sale of such advertising and services representedapproximately 6% of our total revenue for each of 2005, 2004 and 2003. Ouradvertising sales organization covers more than 60 designated market areasacross the United States.

 

#### ***Other Services***

 

We sold all of theassets of our home security monitoring business in Florida, New York andPennsylvania in February 2005 and in Maine in June 2005 and ourlong-distance telephone resale services in February 2006. As a result, weno longer provide home security monitoring or long-distance telephone resaleservices. Revenue from other services represented less than 1% of our totalrevenue for 2005 and approximately 1% of our total revenue for each of 2004 and2003.

 

#### ***Voice overInternet Protocol (“VoIP”) Services***

 

Our upgradednetwork will support the delivery of a competitive alternative to traditionalswitched telephone service using VoIP. In 2005, we completed the technical andoperational trials validating our network and operations ability in providingresidential phone services using VoIP technology over the hybrid fiber coaxial(“HFC”) network. We have determined that it is not a good use of our resourcesto launch VoIP service at this time, particularly in light of the impendingSale Transaction.

 

### **PRICINGFOR SERVICES**

 

Our revenue isderived principally from the monthly fees our customers pay for the services weoffer. A one-time installation fee, which is often waived for a standardinstallation during certain promotional periods, is charged to new customers.The prices we charge vary based on the level of service the customer choosesand the particular geographic market. Most of our pricing is reviewed andadjusted on an annual basis.

 

In accordance withthe rules of the Federal Communications Commission (the “FCC”), in ourcable systems that are not subject to effective competition (as defined byfederal law), the prices we charge for basic cable service and cable-relatedequipment, such as set-top boxes and remote control devices, and for installationservices in those communities where the local franchising authority (the “LFA”)has elected to regulate such prices, are based on actual costs plus a permittedrate of return.

 

### **NETWORKTECHNOLOGY**

 

Cable televisiondelivers multiple channels of video and audio programming to subscribers thatpay a monthly fee for the services they receive. Cable systems receive at “headends”video, audio and data signals transmitted by nearby television broadcaststations, terrestrial microwave relay services and communications satellites.These signals are amplified and distributed by optical fiber and coaxial cableto the premises of customers.

 

We are engaged inan ongoing effort to upgrade the network capabilities of our cable plant and toincrease channel capacity for the delivery of additional programming and newservices. As of December 31, 2005, approximately 97% of our homes passedwere upgraded to a capacity of 550 MHz or greater and had two-waycapability. Homes upgraded to a capacity of 550 MHz or greater and havingtwo-way capability are capable of receiving two-way digital video and HSIservices. Of our total homes passed, approximately 91% were upgraded to750 MHz or higher at December 31, 2005. These homes are now capableof receiving advanced services such as VOD and HDTV. Our cable systemsgenerally carry up to 80 analog channels. We are able to offer additional videoservices through digital video technology which

 

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converts,on average, ten analog channels into a digital format and compresses thesesignals into the space normally occupied by one analog channel.

 

HFC architectureis the standard for our system upgrades. HFC architecture combines the use offiber optic cable with coaxial cable. Fiber optic cable is a communicationmedium that utilizes glass fibers to transmit signals over long distances withminimal signal loss or distortion. Fiber optic cable has high capacity andreliability and can carry hundreds of video, data and voice channels over extendeddistances. Coaxial cable is less expensive but requires extensive signalamplification in order to maintain the desired transmission levels fordelivering channels to homes. In most systems, we deliver channels via fiberoptic cable from the headend to a group of nodes and use coaxial cable todeliver the channels from an individual node to the homes served by that node.Our system design enables a group of segmented homes to be served by a singlenode. Currently, our existing nodes (in 750 MHz and 860 MHz systems) serve anaverage of 250 homes passed. We believe that this hybrid network designprovides high capacity and a high quality signal at a reasonable cost as wellas additional capacity for the introduction of additional advanced services.

 

### **MANAGEMENT OF OUR CABLE SYSTEMS**

 

Many of thefunctions associated with the management of our cable operations arecentralized at our corporate offices in Greenwood Village, Colorado orCoudersport, Pennsylvania, including accounting and finance, billing, payrolland benefit administration, information system design and support, internalaudit, purchasing, product development, programming and HSI networkadministration. In addition to our centralized corporate offices, we have fiveregional offices:  California, Central,Northeast, Southeast and Western.

 

#### ***Operating Regions***

 

Operationally, thefive regions are each managed by a regional senior vice president and include aleadership team of operations, finance, marketing, legal, human resources andengineering personnel. These regional teams manage day-to-day operations,including sales, installations, customer service, technical support and localregulatory relations, and have profit and loss responsibility.

 

##### *California Region*

 

Headquartered inSanta Monica, California, the California region operates in the Los Angelesmetropolitan area, the second largest designated market area in the UnitedStates. Key communities include Los Angeles, Anaheim, East San Fernando Valley,Redlands, Santa Monica, Carlsbad, Simi Valley and Ventura County. A portion ofthe region’s basic cable subscribers (primarily in the Los Angeles area) isserved by a venture with Comcast in which we own a 75% interest and manage theday-to-day operations (“Century-TCI”). The California region is characterizedby a fast-growing, ethnically diverse population and high digital penetration.The region has low basic penetration due to the availability of a significantamount of free-over-the-air television channels, including channels in Spanish,and strong competition from DBS providers, who have captured over 20% of themultichannel market.

 

##### *Central Region*

##### * *

Headquartered inCharlottesville, Virginia, the Central region covers systems in Indiana,Kentucky, Maryland, North Carolina, Ohio, southern Pennsylvania, Tennessee,Virginia and West Virginia. The region is comprised of a mix of urban, suburbanand rural communities. The largest market in this region is Cleveland.

 

##### *Northeast Region*

##### * *

Headquartered inAndover, Massachusetts, the Northeast region covers systems in Connecticut,Maine, Massachusetts, New Hampshire, New York, Pennsylvania and Vermont. Aportion of the region’s

 

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basiccable subscribers (primarily in the Buffalo, New York area) are served by aventure with Comcast in which we hold a 66.67% interest and manage theday-to-day operations (collectively, “Parnassos”). The largest markets in thisregion are the Western New York area and the greater Boston/Cape Cod/Martha’sVineyard area.

 

##### *Southeast Region*

##### * *

Headquartered inWest Palm Beach, Florida, the Southeast region covers systems in Alabama,Florida, Georgia, Mississippi, North Carolina, South Carolina and, until October 31,2005, Puerto Rico. Much of the region is characterized by a significant amountof multi-dwelling units (“MDU”) and master planned communities that are underbulk agreements. A bulk agreement, in general, provides for a long-term,guaranteed penetration for a discount off retail rates. Given the largegeographic area served by the region, there is much diversity among the systemsdue to differing demographics and competitive situations. The largest market inthis region is the West Palm Beach area, encompassing systems in West PalmBeach, Boca Raton, Delray Beach, Palm Beach Gardens and Stuart, Florida. Inaddition to having a high MDU concentration, certain areas of the Southeastregion have high seasonal and retiree populations.

 

##### *Western Region*

##### * *

Headquartered inColorado Springs, Colorado, the Western region covers systems in Arizona,California (covering cable systems not included in the California region),Colorado, Idaho, Kansas, Montana, Oklahoma, Washington and Wyoming. The regionis comprised of primarily suburban and rural communities. The largest market inthis region is Colorado Springs.

 

### **CUSTOMERSERVICE**

 

In an effort toimprove customer satisfaction and provide consistent service to our customers,we consolidated our local call centers during 2003 and 2004. We currently serveall of our domestic customers through national call centers, which utilize IVRtechnology. Sales and retention calls are handled on a company-wide basis intwo separate call centers. HSI technical assistance calls are handled on acompany-wide basis in three separate call centers. All billing and video repaircalls are handled in seven call centers that are aligned with specific regionaloperations. One of the billing and video call centers is operated through adomestic outsourcing arrangement.

 

### **SALESAND MARKETING**

 

Our sales andmarketing efforts are focused on increasing and retaining subscribers as wellas generating incremental revenue through upgrades and the selling of advancedservices. We market our services through promotional campaigns and offers,local media advertising opportunities, telemarketing, direct mail advertising,on-line selling, in person selling and retail distribution, with our internalcall centers as our largest sales channel. In addition, we reserve a portion ofour inventory of locally inserted cable television advertising to market ourservices to our customers.

 

### **PROGRAMMINGSUPPLIERS**

 

We have contractsto obtain the programming we provide to our customers from various programmingsuppliers. We generally compensate the suppliers based on a fixed fee percustomer or a percentage of our gross receipts for specific programmingservices. Our programming contracts are generally for a fixed period of timeand are subject to negotiated renewal periods. Programming costs havehistorically been, and are expected to continue to be, our largest singleexpense item. Increases in programming expenses are driven by increased coststo produce or purchase programming, especially sports programming, inflationaryincreases and expansion of product offerings due to the upgraded cable networkand the introduction of advanced services and new channels.

 

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### **COMPETITION**

 

The broadbandcommunications industry in which we operate is highly competitive. Our cablesystems compete with a number of different sources that provide information,news, entertainment programming, broadband services and telephony to consumers.Local telephone companies in some locations have begun offering so-called “tripleplay” packages consisting of voice, video and Internet access. Because we donot offer voice services, we will be at a potential competitive disadvantage inlocations where telephone companies have begun to offer video services. Inaddition, in some instances, including those involving local telephone companies,we compete with companies that have greater access to financing, greaterpersonnel resources, a more comprehensive bundle of services, better brand namerecognition and/or less extensive regulatory obligations. The followingbusinesses offer some or all of the services that are offered by us and,therefore, are in direct competition with us in some or all of our markets:

 

•                  DBS operators that transmit video andaudio programming and other information by high-powered satellites to consumers’receiving dishes on a nationwide basis;

 

•                  local telephone companies thatprovide voice and data services in direct competition with cable operators.Local telephone companies are now fully deploying DSL service that providesInternet access to subscribers at data transmission speeds substantiallygreater than that of conventional analog modems and approaching, matching or insome cases exceeding cable modem speeds. In addition, certain regional Belloperating companies (“RBOCs”) have begun offering video services and Internetaccess to subscribers at speeds greater than cable modem speeds using fiber tothe node or fiber to the premise architectures;

 

•                  broadcast television, which consistsof television signals that the viewer is able to receive without charge using an“off-air” antenna;

 

•                  cable television operators that buildand provide cable systems in the same communities that we serve (overbuild);

 

•                  other program distributors, such assatellite master antenna television systems (“SMATV systems”) and wireless cableoperators;

 

•                  utilities that may soon enterthe Internet access and data transmission markets; and

 

•                  municipalities that provide video,Internet access and data transmission services through their own distributionfacilities.

 

#### ***Direct BroadcastSatellite***

 

DBS is asignificant competitor to cable systems. The DBS industry has grown rapidlyover the last several years, far exceeding the growth rate of the cabletelevision industry, and now serves more than 27 million subscribersnationwide. Two companies, DIRECTV, Inc. (“DirecTV”) and EchoStarCommunications Corporation (“EchoStar”), provide service to substantially allof these DBS subscribers.

 

DBS service allowsthe subscriber to receive video services directly via satellite using arelatively small dish antenna. News Corp., one of the world’s largest mediacompanies, has a controlling interest in DirecTV, the largest domestic DBScompany, which could significantly strengthen DirecTV’s competitive posture. Inaddition, EchoStar and DirecTV both have entered into joint marketingagreements with RBOCs to offer bundled packages combining telephone service,DSL and DBS services.

 

Video compressiontechnology and high-powered satellites allow DBS providers to offer more than200 digital channels, thereby surpassing the number of channels offered bytypical analog cable systems. Major DBS competitors offer a variety of channelpackages and are especially competitive at the

 

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lowerend of the pricing spectrum. In addition, the initial equipment cost for DBShas decreased substantially as the DBS providers have aggressively marketed tonew customers by offering incentives such as discounted or free equipment,installation and multiple equipment units. DBS providers are able to offerservice nationwide and are able to establish a national image and branding withstandardized offerings, which together with their ability to avoid franchisefees of up to 5% of revenue and property taxes, leads to greater efficiencies andlower costs in the lower tiers of service. However, we believe thatcable-delivered VOD is superior to DBS service because cable headends can storethousands of titles which customers can access and control independently,whereas DBS technology can only make available a much smaller number of titleswith DVR-like customer control. We also believe that our higher tier products,particularly our bundled offerings, are price-competitive with DBS packages.

 

DBS companieshistorically were prohibited from retransmitting popular local broadcastprogramming. However, a change to the copyright laws in 1999 eliminated thislegal impediment. As a result, DBS companies now may retransmit suchprogramming, once they have secured retransmission consent from the popularlocal broadcast stations they wish to carry, and honor mandatory carriageobligations of less popular local broadcast stations in the same televisionmarkets. In response to the legislation, DirecTV and EchoStar have beguncarrying the major network stations across many of the nation’s televisionmarkets. However, DBS is not currently carrying the high definition signals ofall local broadcasters. Both DirecTV and EchoStar have expressed their intentto expand the availability of their HD channel lineup by launching highdefinition local channels in more markets in 2006.

 

#### ***TelephoneCompanies and Utilities***

 

The deployment ofDSL by local phone companies allows Internet access to subscribers at datatransmission speeds greater than those available over analog modems usingdial-up connections. DSL service therefore is competitive with HSI access overcable systems. Several telephone companies that already have existing plantfacilities, existing customer bases and other operational functions in place(such as billing and service personnel) and other companies offer DSL service.The telephone companies heavily market DSL service and many providers haveoffered promotional pricing with a one-year service agreement. The FCC recentlyconcluded a rulemaking proceeding that materially reduces existing regulationof DSL services, essentially freeing such service from traditionaltelecommunications regulation. It is also possible that federal legislationcould reduce regulation of Internet services offered by incumbent telephonecompanies. Legislative action and the FCC’s decisions and policies in this areaare subject to change. We expect DSL and other forms of HSI access to remain asignificant competitor to our HSI services.

 

We believe thatpricing for residential data services on our systems is generally higher thanthat for similar, advertised DSL services given their deep, 12-monthpromotional discounts. We believe that some residential customers prefer ourability to bundle HSI services with video services, but the RBOCs can providesuch bundled services through partnerships with DBS providers. Three majorresidential DSL providers have repeatedly offered 12-month pricing belowdial-up levels. Continuation of such aggressive pricing or similar offers byadditional DSL providers could pose a significant competitive risk to us. Webelieve that pricing for commercial data services on our systems is generallycomparable to that for similar DSL services. DSL providers also may currentlybe in a better position to offer data services to businesses since theirnetworks tend also to service commercial areas whereas our networks primarilyservice residential areas. They also have the ability to bundle telephony withHSI services for a higher percentage of their customers, and that ability isappealing to many consumers.

 

Telephonecompanies that comply with franchise requirements are permitted to enter thecable television business. For example, the City of Anaheim, California,recently awarded AT&T Inc. (“AT&T,” formerly SBC Communications Inc.)the right to offer video service. In addition, Texas recently enacted a lawallowing telephone companies and other new video service providers to obtain astate-wide franchise for the provision of video services on terms less burdensomethan existing local franchise requirements. A number of other states haveenacted or are considering similar laws. Competitive local exchange carriers (“CLECs”)currently provide facilities for the transmission and distribution of voice anddata services, including Internet services, in competition with our existing orpotential product offerings. In addition,

 

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majortelephone companies, such as Verizon Communications, Inc. (“Verizon”) andAT&T, are currently deploying fiber into their networks that will enablethem to offer video services over their networks, in addition to the voice andInternet services that are already offered over their networks. Verizon hasbegun to offer its fiber optic television service in several markets, includingvarious locations in California where we offer services. AT&T is planningto provide Internet protocol video over its upgraded network. AT&T contendsthat its use of this technology should allow it to provide video servicewithout a cable franchise as required under Title VI of the TelecommunicationsAct of 1996 (the “Telecommunications Act”). We cannot predict the likelihood ofsuccess of the broadband and video services offered by our competitors or theimpact on us of such competitive services. The entry of telephone companies asdirect competitors in the video marketplace will become more widespread. Inaddition, we are facing increased competition from larger telephone companycompetitors as telephone companies, such as Verizon and MCI, SBC and AT&Tand potentially AT&T and BellSouth Corporation, continue to consolidate.Initial indications show that the telephone companies intend to position theirvideo service very competitively versus current cable and satellite offerings.This could lead to significant penetration gains by the telephone companies orpricing pressures on cable services that could adversely affect theprofitability and valuation of established cable systems.

 

We are alsosubject to competition from utilities that possess fiber optic transmissionlines capable of transmitting signals with minimal signal distortion. Inaddition, utilities are developing broadband over power line technology, whichis intended to allow the provision of Internet and other broadband services tohomes and offices.

 

#### ***BroadcastTelevision***

 

Cable televisionhas long competed with broadcast television, which consists of televisionsignals that the viewer is able to receive without charge using an “off-air”antenna. The extent of such competition is dependent upon the quality andquantity of broadcast signals available through “off-air” reception compared tothe services provided by the local cable system. Traditionally, cabletelevision has provided a higher picture quality and more channel offeringsthan broadcast television. However, the licensing of digital spectrum by theFCC is providing traditional broadcasters with the ability to deliver highdefinition television pictures and multiple digital-quality program streams.

 

#### ***TraditionalOverbuilds***

 

Cable systems areoperated under non-exclusive franchises granted by local authorities. More thanone cable system may legally be built in the same area. The existence ofmore than one cable system operating in the same territory is referred to as an“overbuild.”  It is possible that afranchising authority might grant a second franchise to another cable operatorand that such a franchise might contain terms and conditions more favorablethan those afforded to us. Although an infrequent occurrence, franchisingauthorities will in certain circumstances seek to promote competition byoffering a less demanding franchise to a new entrant. In a number of statesthis practice is prohibited by “level playing field” statutes. In addition,entities willing to establish an open video system, under which they offerunaffiliated programmers non-discriminatory access to a portion of the system’scable system, may be able to avoid local franchising requirements. Thereare a number of cities that have constructed their own cable systems, in amanner similar to city-provided utility services. There also has been interestin traditional overbuilds by private companies. Constructing a competing cablesystem is a capital intensive process which involves a high degree of risk. Webelieve that in order to be successful, a competitor’s overbuild would need tobe able to serve the homes and businesses in the overbuilt area on a morecost-effective basis than we can. Any such overbuild operation would requireeither significant access to capital or access to facilities already in placethat are capable of delivering cable television programming.

 

We estimate that,as of December 31, 2005, approximately 3.7% of our total homes passed wereoverbuilt by other cable operators. As of December 31, 2005, we haveupgraded many of these systems to at least 550 MHz two-way HFC architecture andhave the ability to effectively compete by offering advanced services.

 

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#### ***Private Cable***

 

Additionalcompetition is posed by SMATV systems serving MDUs, such as condominiums,apartment complexes and private residential communities. These private cablesystems may enter into exclusive agreements with such MDUs, which may precludeoperators who hold franchises with local franchising authorities from servingresidents of such private complexes. Private cable systems can offer bothimproved reception of local television stations and many of the samesatellite-delivered program services that are offered by cable systems. SMATVsystems currently benefit from operating advantages not available to franchisedcable systems, including fewer regulatory burdens and no requirement to servicelow density or economically depressed communities.

 

#### ***Wireless Distribution***

 

Cable systemstraditionally have also competed with wireless program distribution servicessuch as multichannel multipoint distribution systems (“MMDS”), known as “wirelesscable,” which uses low-power microwave frequencies to transmit television programmingover-the-air to paying customers. Wireless distribution services generallyprovide many of the programming services provided by cable systems, and digitalcompression technology increases significantly the channel capacity of theirsystems. Both analog and digital MMDS services, however, require unobstructed “lineof sight” transmission paths and MMDS ventures have been quite limited to date.The FCC recently reconfigured the 2.5 gigahertz (“GHz”) band in an effort tomake the services utilizing the frequencies more effective. As a result, theMMDS service now is known as Broadband Radio Service/Educational BroadbandService (BRS/EDS).

 

The FCC recentlycompleted its auction of multichannel video distribution and data service (“MVDDS”)licenses. MVDDS is a new terrestrial video and data fixed wireless service thatthe FCC hopes will spur competition in the cable and DBS industries. MVDDS willutilize a point-to-multipoint, line-of-sight technology, similar to MMDS;however, MVDDS licensees have significantly more spectrum in each market toprovide service. MVDDS licensees do not, however, have exclusive use of the12.2 to 12.7 GHz spectrum band and are required to share the band with DBSproviders and to protect DBS providers from harmful interference.

 

While notcurrently a threat to our HSI service offerings, WiMAX, which is astandards-based wireless technology that provides high-throughput broadbandconnections over long distances, has received significant attention over thepast year. With claimed ranges that greatly exceed wireless fidelity (“WiFi”)technology and speeds that may be comparable or greater than existingspeeds over a cable modem, new providers that utilize this technology couldpose a threat to the growth of the HSI business in the future. In addition,some city and local governments are currently exploring the development and/orsponsorship of local WiFi networks for use by residents and visitors in theircommunities. Although not complete substitutes for the full range of HSI servicesoffered by cable operators, these initiatives also could pose a future threatto the growth of cable-based HSI offerings, particularly among the moreprice-sensitive consumer segments.

 

### **REGULATION AND LEGISLATION**

 

Laws andregulations affect various aspects of our businesses, including, among otherthings, the prices for basic cable service and equipment, the costs associatedwith attaching wires to utility and telephone poles and customer servicerequirements. In general, our operations are subject to regulation by federal,state and local governments. The FCC is the lead federal agency for regulatingthe cable business, and its rules and regulations, adopted pursuant to theCommunications Act of 1934, as amended (the “Communications Act”), affect ourability to pursue business plans, raise capital and compete with othercompanies in the communications industry. The FCC may enforce itsregulations through fines and other penalties, including the revocation oflicenses used to operate our cable-related transmission facilities. We believethat we are currently in substantial compliance with all applicable statutoryand regulatory requirements imposed by, or under, the Communications Act.

 

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The exact requirementsof applicable law are not always clear, and the rules affecting ourbusinesses are subject to change. For example, the FCC may interpret its rules andregulations in enforcement proceedings in a manner that is inconsistent withthe judgments we have made. Likewise, regulators and legislators at all levelsof government may sometimes change existing rules or establish newrules. Congress, for example, considers new legislative requirements for cableoperators virtually every year, and there is always a possibility that suchproposals will be enacted. Changes in existing laws and regulations could occurthat are inconsistent with our expectations and the expectations of investors.

 

Congress and theFCC have adopted measures in recent years to increase competition in allcommunications services, including the cable industry. For example, subject toobtaining franchises, local telephone companies may now offer cableservice in their local service areas, and satellite providers may nowdeliver local broadcast stations as part of their video offerings. Wecould be materially disadvantaged if we were subject to regulations that do notequally affect our competitors, such as if local telephone companies thatprovide video programming services are not subject to the local franchisingrequirements and other requirements that apply to us. For example, althoughunder court challenge, Texas has enacted legislation that provides state-widefranchises for new video service providers on terms potentially less burdensomethan existing cable franchise requirements. Indiana and Virginia recentlyadopted similar laws, and other states are considering similar legislation.Congress is also considering legislation that would impact the localfranchising process.

 

There are potentialrisks associated with proceedings currently underway, or that may beunderway in the future, at the FCC, in the courts, and before federal and statelegislatures and LFAs. We summarize below those proceedings that hold thegreatest potential to materially affect our ability to conduct our cablebusiness.

 

#### ***Pricing***

 

The CommunicationsAct and the FCC’s regulations impose limits on the prices cable systems may chargefor basic services and related equipment in franchise areas that are notsubject to effective competition (as defined by federal law) and where the LFAhas elected to regulate such rates. Congress may consider imposing newprice and packaging regulations on the cable industry. Some parties haveproposed requiring cable operators to offer individual programming services onan “a la carte” basis, rather than as part of a programming service tier.Such a requirement would disrupt our existing marketing plans and couldadversely affect our business. In addition, there has been political pressurein recent months for cable operators to create “family-friendly” tiers thatexclude potentially offensive programming from popular service packages, andcertain market participants, such as Time Warner, Comcast and DirecTV, haveannounced their intention to begin offering such tiers. We do not currentlyexpect to offer a “family-friendly” tier of service and cannot predict theimpact that offering such a tier could have on pricing, revenue, customerretention or availability, diversity or quality of programming services.

 

#### ***Must-Carry/RetransmissionConsent***

 

The CommunicationsAct and the FCC’s rules regulate the carriage of local broadcast stationsby cable operators. Under the “must-carry” rules, cable operators are requiredto carry the signal of most local broadcast stations. Alternatively, under the “retransmissionconsent” rules, a local broadcast station may choose to negotiate withcable operators over the terms and conditions under which such operatorstransmit the station’s signal, including the imposition of significant paymentor other obligations. As part of the transition from analog to digitalbroadcast transmission, scheduled to be completed by in 2009, Congress and theFCC gave local broadcast stations a digital channel in addition to their currentanalog channel. In February 2005, the FCC voted to reject proposals torequire cable companies to simultaneously carry both the analog and digitalsignals of each broadcaster during the transition (cable companies need onlycarry the broadcaster’s analog signal during the transition or, if thebroadcaster has already returned its analog channel, the broadcaster’s digitalsignal) and the multiple program streams that can be transmitted in abroadcaster’s digital signal (cable companies need only carry the primarydigital video stream of the broadcaster after the broadcaster has returned itsanalog channel). Although the FCC has thus far ruled

 

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againstsuch expanded must-carry requirements, we cannot now predict whether suchrequirements may result from additional FCC proceedings, judicialproceedings or legislation.

 

#### ***High-SpeedInternet Service***

 

Historically, wirelinetelephone companies were required to share their HSI facilities (most commonlyDSL) with unaffiliated third-party Internet service providers (“ISPs”), whilecable companies generally faced no similar regulatory requirement for theircable HSI service. In 2002, the FCC formally classified cable HSI as an “interstateinformation service,” rather than a “telecommunications service.”  Such classification meant that traditionaltelecommunications regulations would not apply to cable HSI. That FCC decisionwas appealed, and, in June 2005, the U.S. Supreme Court upheld the FCC’sclassification of cable HSI as an interstate information service. In responseto the Supreme Court’s decision, the FCC adopted rules in August 2005according similar deregulatory treatment to the HSI offerings of wirelinetelephone companies. Under the FCC’s ruling, telephone companies will no longerbe required to share their HSI facilities with third-party ISPs after aone-year phase-out period. It is uncertain what impact the FCC’s ruling willhave on the competitive position of our cable HSI business.

 

The FCC has launched anumber of follow-on rulemakings to consider whether consumer protection orother regulations, such as universal service funding, should be imposed oncable and other HSI services. The FCC has yet to act in these rulemakings, buthas issued a non-binding policy statement in August 2005 establishing fourbasic “network neutrality” principles that the FCC says will guide its ongoingpolicymaking activities regarding HSI and other broadband-related services.Those principles state that consumers are entitled to access the lawfulInternet content of their choice, consumers are entitled to run applicationsand services of their choice over the network, subject to the needs of lawenforcement, consumers are entitled to connect their choice of legal devicesthat do not harm the network, and consumers are entitled to competition amongnetwork providers, application and service providers and content providers. TheFCC recently required SBC Communications Inc., as a condition for approving itsacquisition of AT&T, and Verizon, as a condition for approving itsacquisition of MCI, to abide by these principles for a two-year period. It isunclear what, if any, regulations the FCC might ultimately impose on cable HSIor competing services and what impact, if any, such regulations might have onour cable HSI business. However, there has been increased pressure to mandate “networkneutrality” requirements on all HSI providers.

 

In addition,Congress, federal regulators and some state and local governments have adoptedand continue to consider a variety of laws and regulations affecting theInternet, including regulations in the areas of privacy, copyright, defamation,taxation and obscenity. The adoption of new Internet laws or the amendment ofexisting laws could have a material adverse effect on our Internet business.

 

#### ***Other RegulatoryIssues***

 

Set forth beloware other regulatory matters under review by Congress, the FCC and otherfederal agencies that could materially affect our cable business:

 

•                  *Set-Top Box Regulation*:  In March 2005, the FCC decided to deferuntil July 1, 2007 its rules prohibiting cable operators from leasingintegrated digital set-top boxes (which combine security and other functions)to customers. The FCC indicated in its deferral order that it would considerfurther delays in the integration ban based solely on the viability ofsoftware-based security for digital set-top boxes but was not inclined toconsider proposals to eliminate the ban (contrary to the position of the cableindustry). The FCC’s order has been appealed. We cannot now predict how the FCCwill ultimately decide this issue and how its decision would affect the designand deployment of our leased digital set-top boxes.

 

•                  *Consumer ElectronicsEquipment Compatibility*:  TheFCC has adopted rules aimed at promoting the manufacture of “plug-and-play”TV sets that can connect directly to the cable network without the need for aset-top box. The rules, for example, direct cable operators to

 

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implement technical standards in their networks to support digitaltelevision sets, require operators to provide conditional access devices tosubscribers who want to receive scrambled programming services on their digitaltelevision sets, and require operators to support home recording rights andcopy protection rules for digital programming content. These rules aresubject to further rulemakings at the FCC and to challenges in the courts, andwe cannot predict the outcome of these rulemaking proceedings and challenges.

 

•                  *MDU Access*:  The FCC has adopted rules to promotecompetition between existing cable operators and new multichannel video serviceproviders in MDUs. However, the FCC declined to prohibit exclusive MDU serviceagreements.

 

•                  *Pole Attachments*:  The Communications Act requires mostutilities to provide cable systems with nondiscriminatory access to any pole,conduit, or rights-of-way controlled by the utility. The FCC has adopted rules thatregulate the rates utilities may charge for such access.

 

•                  *Leased Access Channels*:  The Communications Act requires a cablesystem with 36 or more activated channels to designate up to 15% of its channelcapacity for commercial leased access by third parties to provide programmingthat may compete with services offered by the cable operator.

 

•                  *Obscenity and Indecency*:  The Communications Act prohibits thetransmission of obscene programming over cable systems. Obscene programmingtypically consists of graphic sexual conduct that lacks any serious literary, artistic,political or scientific value. Current law also prohibits broadcasters fromtransmitting indecent programming, which is programming that contains patentlyoffensive sexual material that does not rise to the level of obscenity. Someparties have proposed that new laws or rules regulating indecentprogramming be imposed on cable operators. It is uncertain whether and when anysuch regulations will be adopted, or if enacted, the magnitude of the impact onus. In addition, Congress and the FCC have considered proposals to requirecable operators to provide “family-friendly” tiers of service to customers. Itis uncertain whether and when any such proposals will be adopted, whether theywould survive any potential court challenge or, if adopted, how such changeswould impact us. Recently, certain market participants, such as Time Warner,Comcast and DirecTV, announced their intention to offer a “family- friendly”tier of service. We currently do not expect to offer a “family-friendly” tierof service and cannot predict the impact that offering such a tier could haveon pricing, revenue, customer retention or availability, diversity or qualityof programming services.

 

•                  *Copyright Regulation*:  Cable operators carry television broadcaststations pursuant to a federal copyright compulsory license. The fees requiredby this compulsory license and the carriage rights under the license aresubject to change by legislation or Copyright Office rulemakings, particularlybecause the existing compulsory copyright scheme was devised long before theintroduction of digital broadcast television. Cable operators also pay standardindustry licensing fees for the music used in the programming they provide totheir customers, including local origination programming, local advertising andpay-per-view events. These fees have been the source of litigation between thecable industry and music performance rights organizations in the past, and wecannot predict whether such disputes may arise in the future.

 

•                  *Program Access*:  The Communications Act and the FCC’s “programaccess” rules prevent satellite delivered programming services affiliatedwith cable operators from discriminating among competing multichannel videodistributors. The rules also limit the ability of such programmers tooffer exclusive programming arrangements to cable operators. The FCC hasextended the exclusivity restrictions through October 2007. Congress alsofrom time to time considers proposals to revise the program access rules. It isunclear whether and when

 

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Congress or the FCC might adopt any such proposals and, if it does,what impact that would have on our business.

 

•                  *Ownership Limits*:  The FCC has a pending rulemaking in which itis considering adopting an ownership cap that would limit the percentage ofmultichannel video subscribers that any single cable operator could servenationwide (a federal appellate court struck down the previous 30% limit). TheFCC is also assessing whether it should reinstate ownership limits on thenumber of affiliated programming services a cable operator may carry onits cable systems. (The previous limit of 40% of the first 75 channels was alsostruck down by the federal appellate court.) Our current ownership interests are well below the limits struck down bythe court.

 

•                  *Other Areas*:  The Communications Act and the FCC regulateother aspects of our cable business, including, among other things, themandatory blackout of syndicated, network and sports programming,  customer service standards, privacy,emergency alert systems, closed captioning, advertising in children’sprogramming, political advertising, equal employment opportunity, originationcablecasting, record keeping and public file access requirements, technicalstandards relating to operation of the cable network, sponsorshipidentification and lottery programming. We are unable to predict how theseregulations might be changed in the future and how any such changes mightaffect our cable business.

 

### **FRANCHISES**

 

The CableCommunications Policy Act of 1984, as amended (the “1984 Cable Act”), providesthat cable operators may not offer cable service to a particular communitywithout a franchise unless the operator was lawfully providing service to thecommunity on July 1, 1984 and the relevant LFA does not require afranchise. Our cable systems generally operate pursuant to franchises or otherauthorizations issued by LFAs, all of which are nonexclusive. Competitors,including local telephone companies, can seek and obtain franchises with termsmore favorable then our own. As of December 31, 2005, we heldapproximately 2,700 franchises and also offered cable service in a number ofcommunities without a franchise (where the relevant governmental authorityeither lacked the requisite authority to issue a franchise or affirmativelydecided not to issue a franchise to us). Most of these franchises may beterminated prior to their stated expiration date by the relevant LFA, after dueprocess, for breach of material provisions of the franchise.

 

Under the terms ofmost of our franchises, a franchise fee is payable to the LFA. These fees varyby franchise but most require the federal law maximum of 5% of gross revenuederived from the provision of cable services over the relevant cable system. Inaddition, many franchises have both financial and non-financial requirementsrelated to public, educational and government access channels and facilities.

 

The franchises aresubject to periodic renewal. Generally, within the 30 to 36 month period priorto the applicable expiration date, we must notify the relevant LFA of ourintent to seek formal 1984 Cable Act renewal of the franchise in order tobenefit from the protections and the procedures set forth in the 1984 CableAct. If such notice is given, the 1984 Cable Act requires that the relevant LFAconsider the franchise holder’s renewal proposal on its own merits in light ofthe franchise holder’s past performance and the community’s cable-related needsand interests, without regard to the presence of competing applications. Inrenewal hearings, the LFAs consider and evaluate, pursuant to federalstandards, whether the franchise holder has provided adequate service,substantially complied with franchise terms and offered a renewal proposal thatis reasonable and meets the community’s cable related needs and interests. Thefailure to meet any one of these standards may be grounds for denial ofthe franchise renewal. In connection with a renewal, the LFA may attemptto impose different and more stringent terms, the impact of which cannot bepredicted.

 

At December 31,2005, the majority of our franchises have been renewed or extended or were inthe process of renegotiation, generally on modified terms. Such modified termsgenerally have not been

 

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materiallyadverse to us. We believe that the majority of our franchises are in goodstanding. As of December 31, 2005, we had 173 franchises (representingapproximately 625,000 of our subscribers) that have expired but for whichnotice of renewal was timely provided to the franchising authority and forwhich we intend to pursue the renewal protections and procedures of the 1984Cable Act. As of December 31, 2005, notice of renewal under the 1984 CableAct was not timely provided for 27 franchises (representing approximately44,000 subscribers) that had expired and 28 franchises (representingapproximately 61,000 subscribers) that had less than 30 months untilexpiration.

 

Our failure toobtain renewals of our franchises, especially those in the major metropolitanareas where we have the most customers, could have a material adverse effect onour consolidated financial condition, results of operations or our liquidity,including our ability to comply with our debt covenants.

 

Differentlegislative proposals have been introduced in the United States Congress and insome state legislatures that could greatly streamline cable franchising. Theseproposals are intended to facilitate entry by new competitors, particularlylocal telephone companies. Such legislation has already passed in Indiana,Texas and Virginia, although the Texas law is currently subject to courtchallenge. The various legislative proposals typically do provide someregulatory relief for incumbent cable operators; however, these proposals aregenerally viewed as being more favorable to new entrants. In addition, the FCCrecently initiated a proceeding to determine whether local franchisingauthorities are impeding the deployment of competitive cable services throughunreasonable franchising requirements and whether such impediments should bepreempted. The widespread entry of new competitors, including local telephonecompanies, could have a material adverse effect on our business, particularlyif these competitors operate under franchises more favorable than ourfranchises.

 

### **PARTNERSHIPSAND VENTURES**

 

We have interestsin several partnerships and ventures, the most significant of which aredescribed below.

 

#### ***ConsolidatedPartnerships and Ventures***

 

##### *Comcast Partnerships*

##### * *

The Company andComcast are partners in the two ventures described below. The results andoperating statistics of these partnerships are consolidated in our financialstatements:

 

•                  Century-TCI — We hold a 75%interest in the Century-TCI partnership and manage its day-to-day operations,subject to certain specified rights of our partner, Comcast. As of December 31,2005, the Century-TCI partnership had approximately 646,000 basic cablesubscribers, substantially all of which were in the Los Angeles area.

 

•                  Parnassos — We hold a 66.67%interest in the Parnassos partnerships and manage their day-to-day operations,subject to certain specified rights of our partner, Comcast. As of December 31,2005, the Parnassos partnerships had approximately 408,000 basic cablesubscribers, primarily in Western New York****and NortheastOhio.

 

##### *Tele-Media Ventures*

##### * *

Prior to May 26,2005, we held interests ranging from 75% to 82% in three ventures (the “Tele-MediaVentures”) with certain affiliates of Tele-Media Corporation of Delaware (“TMCD”)and from January 1, 2004, managed their day-to-day operations, subject tocertain specified rights of our former partners. The results and operatingstatistics of these ventures are consolidated in our financial statements.

 

On May 26,2005, we acquired TMCD’s ownership interests in the Tele-Media Venturespursuant to a settlement agreement with TMCD that, among other things, alsoresolved disputes between TMCD and

 

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theCompany related to the Tele-Media Ventures. See Item 3, “Legal Proceedings —Tele-Media Examiner Motion.”

 

#### ***NonconsolidatedJoint Venture***

 

##### *Century/ML Cable*

##### * *

Until October 31,2005, we held a 50% interest in Century/ML Cable and managed its day-to-dayoperations, subject to certain specified rights of our former partner, MLMedia. The results and operating statistics of this joint venture are notconsolidated in our financial statements.

 

On September 30,2002, Century/ML Cable filed with the Bankruptcy Court a voluntary petition toreorganize under Chapter 11 of the Bankruptcy Code. This bankruptcy proceedingwas administered separately from the Chapter 11 Cases. Century/ML Cablecontinued to serve its subscribers in San Juan (through Century/ML Cable’ssubsidiary, which is not a debtor) and Levittown, Puerto Rico, as a debtor anddebtor-in-possession (the “Puerto Rico Systems”). Adelphia, Century, HighlandHoldings, a general partnership previously owned and controlled by members ofthe Rigas Family (“Highland”), and Century/ML Cable are involved in litigationwith ML Media concerning various matters. See Item 3, “Legal Proceedings — MLMedia Litigation.”

 

On June 3,2005, Century entered into the IAA pursuant to which, subject to the terms andconditions of the IAA, Century and ML Media agreed to sell their interests (the“Puerto Rico Interests”) in Century/ML Cable to San Juan Cable. The Century/MLSale was consummated on October 31, 2005.

 

The preliminarypurchase price paid by San Juan Cable in connection with the Century/ML Salewas approximately $519 million plus a working capital adjustment ofapproximately $82.7 million. The purchase price is subject to certainadjustments, including a post-closing review of the working capital adjustment,the Operating Cash Flow (as defined in the IAA) for the 12 months prior to theCentury/ML Sale and the number of basic subscribers. On January 14, 2006,Century and ML Media submitted an adjustment certificate to San Juan Cableseeking additional proceeds of approximately $4.3 million. On February 13,2006, Century and ML Media received a notice from San Juan Cable rejecting theadjustment certificate and requesting additional proceeds of $50 million fromCentury and ML Media. The parties are in discussions regarding the variousproposed adjustments. We do not believe that the resolution of this matter willhave a material impact on our financial condition or results of operations.

 

In connection withthe Century/ML Sale, $25 million of the purchase price was deposited into anindemnity escrow account to indemnify San Juan Cable against anymisrepresentation or breach of warranty, covenant or agreement by Century/MLCable, and $13.5 million of the purchase price was deferred and is subject tooffset to the extent of any additional tax liabilities owed by Century/ML Cablefor periods prior to the Century/ML Sale. In addition, approximately $35.6million of the purchase price was deposited into an account jointly held in thename of Century and ML Media to fund the obligations of Century/ML Cable thatwere not assumed by San Juan Cable (the “Century/ML Cable Account”).

 

Century and MLMedia have each received proceeds of approximately $263.8 million from theCentury/ML Sale that were placed in escrow for the benefit of each partypending the resolution of the litigation among Adelphia, Century, Highland,Century/ML Cable and ML Media. Subsequent to the closing of the Century/MLSale, Century and ML Media each received $5 million of proceeds from theCentury/ML Cable Account, which were placed in their respective escrowaccounts. ML Media may elect to receive a distribution of up to $70million from the proceeds of the Century/ML Sale. In the event that ML Mediaelects to receive a distribution, Century is entitled to receive a distributionof the same amount from its escrow. As of December 31, 2005, ML Media andCentury had each received a distribution of $10 million from their respectiveescrow accounts.

 

On September 7,2005, the Bankruptcy Court confirmed Century/ML Cable’s Plan of Reorganization(the “Century/ML Plan”), which was designed to satisfy the conditions of theIAA with San

 

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JuanCable and provides that all third-party claims will either be paid in full orassumed by San Juan Cable under the terms set forth in the IAA. The Century/MLPlan became effective on October 31, 2005.

 

Neither theCentury/ML Sale nor the effectiveness of the Century/ML Plan resolves thepending litigation among Adelphia, Century, Highland, Century/ML Cable and MLMedia. See Item 3, “Legal Proceedings — ML Media Litigation.”

 

### **EMPLOYEES**

 

As of December 31,2005, we had approximately 14,000 employees, 324 of whom were covered bycollective bargaining agreements at 13 locations. We consider relations withour employees to be good.

 

### **CERTAIN BUSINESS AND OTHER DEVELOPMENTS RELATING TO THECHAPTER 11 CASES**

 

Through May 2002,members of the Rigas Family constituted a majority of our Board and held all ofthe senior executive positions with us. This section summarizessignificant developments during the tenure of Rigas Management that led to theinstallation of interim management and the commencement of the Chapter 11 Casesin 2002, as well as subsequent related developments.

 

#### ***Acquisitions and Financings***

 

From 1999 through2001, we, under the direction of Rigas Management, undertook a series ofacquisition and financing transactions that dramatically increased our size andour indebtedness. During this period, we grew from approximately 1,528,000 basic cable subscribers and$3,754 million of total debt at January 1999 to approximately 5,256,000basic cable subscribers and $17,417 million of total debt (including liabilityunder co-borrowing agreements, as described below) at December 2001. Weissued Class A Common Stock and entered into significant new financingarrangements in connection with these acquisitions. The effects of theacquisitions have been included in our accompanying consolidated financialstatements effective with the purchase date.

 

During this periodof acquisitions, we incurred substantial amounts of debt and sold a substantialamount of equity securities, including the following:

 

•                  bank debt, reaching $7,167 million inprincipal amount of senior secured debt under six different credit facilities(collectively, the “Credit Facilities”), $5,040 million of which was borrowedunder the Co-Borrowing Facilities (as defined below);

 

•                  the issuance of $3,780 million inaggregate principal amount of debt securities under several series ofsenior notes or debentures;

 

•                  the issuance of $2,005 million inaggregate principal amount of convertible debt securities under two series ofconvertible subordinated notes, of which approximately $567 million aggregateprincipal amount was issued to Rigas Family Entities; and

 

•                  the issuance of three series ofpreferred stock with an aggregate liquidation value of $1,495 million.

 

During thisperiod, Rigas Management engaged in sham transactions and record keeping andother financial manipulations to demonstrate compliance with financialcovenants in its outstanding debt obligations, to overstate revenue and othermeasures of its operating results, to artificially reduce reported debt andincrease reported equity, and generally to cover their misappropriation ofcorporate assets. These financial manipulations also included issuing false andmisleading consolidated financial statements and compliance certificates,inappropriately capitalizing operating expenses, engaging in impropertransactions and failing to reflect indebtedness for which we were liable onour accounting records or in our public

 

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disclosure.In addition, Rigas Management engaged in improper self-dealing transactions andutilized Company assets for their personal benefit.

 

As a part ofthese actions, Rigas Management established four credit facilities accessibleby both the Company and the Rigas Co-Borrowing Entities, of which $4,576million in principal amount (collectively, the “Co-Borrowing Facilities”) wasoutstanding in June 2002. The Co-Borrowing Facilities allowed the RigasCo-Borrowing Entities, based on our creditworthiness, to incur indebtednessbeyond their ability to repay, as we were jointly and severally liable for allborrowing under each Co-Borrowing Facility regardless of whether we actuallyborrowed the total indebtedness. Under the terms of each of the Co-BorrowingFacilities, each of the Rigas Co-Borrowing Entities that were co-borrowerscould borrow up to the entire amount of available credit under the applicableCo-Borrowing Facility.

 

During the periodfrom 1999 to 2001, Rigas Management caused us to issue the following securitiesto certain Rigas Family Entities: 4,000,000 shares of Class A Common Stock, 14,220,889 shares of Class BCommon Stock, $567.4 million aggregate principal amount of convertiblesubordinated notes and $100 million aggregate principal amount of TelCove, Inc.(“TelCove”) senior subordinated notes. We believe that Rigas Management causedthese securities to be issued to avoid dilution of the Rigas Family’s directand indirect ownership in the Company and to artificially remove indebtednessfrom our balance sheet. Although we, during the tenure of Rigas Management,previously reported that the Rigas Family Entities paid cash for suchsecurities, current management has determined that Rigas Management arrangedthese transactions to provide that the Rigas Family Entities assumed a portionof the co-borrowing indebtedness that appeared on our books and records and,with the exception of $70 million paid in 1999, our cash balance did notincrease as a result of the issuance of the foregoing securities to the RigasFamily Entities.

 

#### ***Certain EventsLeading to the Installation of Interim Management and Commencement of theChapter 11 Cases in 2002***

 

##### *Public Disclosure of the Co-Borrowing FacilityContingent Liabilities*

##### * *

On March 27,2002, we disclosed that we were jointly and severally liable for more than $2billion of borrowings under the Co-Borrowing Facilities attributed to variousRigas Co-Borrowing Entities that were not reflected as debt on our publiclydisclosed consolidated financial statements. A portion of the borrowings forwhich we were jointly and severally liable had been advanced to the Rigas Co-BorrowingEntities to finance purchases of our securities by other Rigas Family Entities.In response to this disclosure, the SEC began an informal inquiry into theCo-Borrowing Facilities and asked us to provide the SEC with furtherinformation and documentation relating to the facilities. We were informed in April 2002that the SEC had issued a formal order of investigation in connection with theCo-Borrowing Facilities. In the wake of these disclosures, Adelphia failed tofile its Annual Report on Form 10-K for the year ended December 31,2001 (the “2001 Annual Report”). Also in April 2002, Adelphia received aNASD Staff Determination Letter indicating that Adelphia was not in compliancewith certain NASD rules because of Adelphia’s failure to timely file withthe SEC its 2001 Annual Report and, consequently, that the Class A CommonStock was subject to delisting from the Nasdaq Stock Market.

 

##### *Discovery of the Rigas Family Improper Acts, theRestatement and Related Events*

##### * *

The March 2002disclosure of more than $2 billion in off-balance sheet liabilities led to thedisclosure of numerous improprieties of the Rigas Family. In early May 2002,we announced that we expected to restate our consolidated financial statementsfor the years ended December 31, 1999 and 2000, our quarterly consolidatedfinancial statements for 2001 and possibly our consolidated financialstatements for other periods. Deloitte & Touche LLP (“Deloitte”), ourindependent auditors at that time, suspended its auditing work on ourconsolidated financial statements for the year 2001. As further discussedbelow, Deloitte was terminated as our auditors on June 9, 2002. In thesecircumstances, we were unable to deliver audited consolidated financialstatements as required under our then outstanding Credit Facilities, complywith certain information delivery and other requests made pursuant to theCredit Facilities and the notes issued by us (the “Notes”) or file our 2001Annual Report with the SEC. The failure to comply with these

 

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obligationsresulted in default under these Credit Facilities and Notes. On May 15,2002, we failed to make interest payments totaling approximately $38.3 millionunder certain of the Notes and a dividend payment of approximately $6.5 millionon our Series E Mandatory Convertible Preferred Stock (“Series EPreferred Stock”). These payment defaults in turn triggered cross-defaultsamong certain of the Credit Facilities and Notes.

 

##### *The Special Committee of the Board and the Covington &Burling Investigation*

##### * *

In May 2002,the four members of the Board who were not members of the Rigas Family, DennisCoyle, Leslie Gelber, Erland Kailbourne and Pete Metros (collectively, the “CarryoverDirectors”), began to take action to deal with the Rigas Family’s misconduct. Aspecial committee of the Board, composed solely of three Carryover Directors(the “Special Committee”), Dennis Coyle, Leslie Gelber and Erland Kailbourne,began to investigate the allegations against the Rigas Family. In furtheranceof its investigation, the Special Committee had its counsel, the law firm ofCovington & Burling, conduct an independent investigation of theallegations against the Rigas Family, which included an investigation oftransactions between the Company, on the one hand, and certain members of theRigas Family and certain Rigas Family Entities, on the other hand. Theinvestigation was primarily conducted from May 2002 through March 2003.Covington & Burling based its investigation on numerous interviews anda review of documents. As a result of this investigation, Covington &Burling alleged certain misconduct on the part of the Rigas Family,including using Company funds and resources for personal expenses andpurchases, including real estate, misusing our centralized cash managementsystem (the “CMS” or “Cash Management System”), obtaining our securitieswithout payment, manipulating our financial disclosures, accounting records andoperational data, and causing us to incur debt that was not disclosed on ourconsolidated financial statements.

 

##### *The Rigas Agreement*

##### * *

On May 15,2002, we announced that John J. Rigas agreed to resign as President and CEO ofAdelphia and to step down as Chairman of the Board. At that time, one of theCarryover Directors, Erland Kailbourne, assumed the position of Chairman andbecame Adelphia’s interim CEO (together with the Carryover Directors andcertain officers engaged by us after May 2002, “Interim Management”). Asfurther evidence of the Rigas’ improper acts was uncovered, by agreement dated May 23,2002 (the “Rigas Family Agreement”), the Special Committee obtained theagreement of certain members of the Rigas Family to resign from their positionsas officers and directors of Adelphia. Subsequently, certain other Adelphiaofficers and employees who were alleged to have willfully participated in thewrongdoings were dismissed. The 2005 settlement agreement between Adelphia andmembers of the Rigas Family (the “Adelphia-Rigas Settlement Agreement”)contains a provision whereby the Rigas Family (as defined in the Adelphia-RigasSettlement Agreement) and Peter L. Venetis (the son-in-law of John J.Rigas), on the one hand, and the Company (except with regard to the ExcludedParties (as defined below)), on the other hand, covenanted and agreed not tosue each other, or bring any claim, action or proceeding against the other, onaccount of any obligation or liability arising from or relating to, among otherthings, any facts, transactions or occurrences, whether known or unknown,suspected, contingent or claimed, existing as of the date of the Adelphia-RigasSettlement Agreement. Under the terms of the Plan and in accordance with theBankruptcy Code, we intend to reject the Rigas Family Agreement. TheAdelphia-Rigas Settlement Agreement, together with the Non-ProsecutionAgreement between Adelphia and the U.S. Attorney, dated April 20, 2005(the “Non-Prosecution Agreement”), the Government-Rigas Settlement Agreement and thefinal judgment as to Adelphia entered into by the District Court in the SECCivil Action are collectively referred to as the “Government SettlementAgreements.”

 

##### *The Rigas Improper Acts and Transactions with theRigas Family and Rigas Family Entities*

##### * *

Adelphia’sinvestigations in the period following the resignation of members of the RigasFamily from their positions as officers and directors of Adelphia, and otherevents, including the jury verdict of guilty against John J. Rigas and TimothyJ. Rigas on, among other charges, bank fraud and securities fraud as describedbelow, support a variety of allegations against Rigas Management, includingthose described below and in certain actions we have instituted against theRigas Family and the Rigas Family Entities in

 

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theRigas Civil Action (as described below). See Item 3, “Legal Proceedings —Adelphia’s Lawsuit Against the Rigas Family.” Rigas Management materially misstated our operating performance, levelsof debt and other significant information to, among other things, enhance ourreported financial results. Rigas Management failed to disclose the extent ofthis highly leveraged capital structure to investors and the SEC by failing toreport the total borrowings under the Co-Borrowing Facilities for which we werejointly and severally liable. Rigas Management also represented that wereceived cash for purchases of Company securities by Rigas Family Entities whenwe did not receive such cash. A short time after these disclosures, the Debtorscommenced the Chapter 11 Cases.

 

Rigas Managementcommingled Company funds with funds from the Rigas Family Entities throughoperation of the Cash Management System. Rigas Management misused the CMS andthe Rigas Family Entities to access money from us and our credit for personaluse. The improper operation of the CMS resulted in continuous commingling offunds among the participants in the CMS, which included Adelphia and itssubsidiaries, the Rigas Family Entities and members of the Rigas Family. Amongother transactions, Rigas Management misused the CMS to purchase cable andother assets for their personal benefit, including the acquisition of realestate, Adelphia debt and equity securities and other assets.

 

The misuse of theCMS by Rigas Management permitted the Rigas Family Entities to “settle” theirdebts to us through journal entries that purported to “reclassify” debt fromthe books of an Adelphia subsidiary to the books of one of the Rigas FamilyEntities even though the Adelphia subsidiary in fact remained jointly andseverally liable for this debt even after “reclassification.”  Thus, Rigas Management deemed the RigasFamily Entities to have satisfied their obligations to us, even though we werenot released from the underlying debt and did not receive equivalent consideration,if any, in return.

 

Otherimproprieties committed by Rigas Management included:

 

•                  failing to apply the properaccounting or provide required disclosures with respect to a variety of relatedparty transactions, including the Co-Borrowing Facilities pursuant to whichcertain subsidiaries of Adelphia and the Rigas Co-Borrowing Entities werejointly and severally liable and purchases of Adelphia securities by the RigasFamily Entities;

 

•                  engaging in sham transactions andrecord keeping and other financial manipulations in order to overstate revenue,understate expenses and manipulate other measures of our operating results,artificially reduce reported debt and increase reported equity, and meetfinancial covenants of debt facilities;

 

•                  otherwise misappropriating andimproperly using corporate assets; and

 

•                  covering up such misappropriations.

 

On July 8,2004, a jury returned a partial verdict related to the criminal charges broughtagainst certain members of the Rigas Family and an alleged co-conspirator. JohnJ. Rigas and Timothy J. Rigas were each found guilty of conspiracy (one count),bank fraud (two counts), and securities fraud (15 counts) and not guilty ofwire fraud (five counts). Michael C. Mulcahey was acquitted of all 23 countsagainst him. The jury found Michael J. Rigas not guilty of conspiracy and wirefraud but remained undecided on the securities fraud and bank fraud chargesagainst him. On July 9, 2004, the court declared a mistrial on theremaining charges. The bank fraud charges against Michael J. Rigas have sincebeen dismissed with prejudice, but the DoJ requested that a new trial date beset to retry Michael J. Rigas on the securities fraud charges. On November 1,2004, Michael J. Rigas’ post-trial motion for dismissal of all charges wasdenied. The post-trial motions of John J. and Timothy J. Rigas in which theysought to overturn the guilty verdicts were denied on November 15, 2004.On March 17, 2005, the District Court denied the motion of John J. Rigasand Timothy J. Rigas for a new trial. On June 20, 2005, the District Courtconvicted and sentenced John J. Rigas and Timothy J. Rigas to 15 years and 20years in prison, respectively. John J. Rigas and Timothy J. Rigas have appealedtheir convictions and sentences and remain free on bail pending resolution oftheir appeals. On November 23, 2005, Michael J. Rigas pled guilty to aviolation of Title 47,

 

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U.S.Code, Section 220(e) for making a false entry in a Company record (ina form required to be filed with the SEC), and on March 3, 2006, wassentenced to two years of probation, including 10 months of home confinement.

 

##### *Nasdaq Delisting, Dismissal of Deloitte andDetermination to Seek Chapter 11 Protection*

##### * *

In connection withour failure to timely file the 2001 Annual Report with the SEC, the Class ACommon Stock was delisted by the Nasdaq Stock Market on June 3, 2002,triggering obligations under certain indentures to repurchase certain of theNotes at 100% of their principal amount plus accrued and unpaid interest. On June 17,2002, we failed to make interest payments totaling approximately $55.4 millionunder certain of the Notes.

 

We dismissedDeloitte as our independent auditors on June 9, 2002. Based on ourdecision to restate certain of our historical consolidated financialstatements, Deloitte subsequently withdrew the audit report it had issued withrespect to our consolidated financial statements. As described below, in November 2002,we brought an action against Deloitte for professional negligence, breach ofcontract, fraud and other wrongful conduct in connection with its work auditingour consolidated financial statements during the time of the Rigas Family’swrongdoing (the “Deloitte Litigation”), and this action is currently pending.See Item 3, “Legal Proceedings — Adelphia’s Lawsuit Against Deloitte.”

 

As a consequenceof Rigas Management’s misrepresentations in our books, records and publicdisclosures, among other issues, we had no borrowing availability under ourvarious Credit Facilities and no access to traditional sources of liquidity inthe capital markets. In addition, our efforts to generate liquidity through thesale of certain of our assets were unsuccessful. Moreover, we facedgovernmental agency investigations (as more fully described below), mountinglitigation and the risk of collection and foreclosure actions by creditors.Accordingly, we determined that the continued viability of our businessesrequired immediate access to debtor-in-possession financing, a respite fromcreditors to resolve our financial reporting and related issues and therestructuring of our highly leveraged capital structure that would only beavailable through the filing of a voluntary petition for protection under theBankruptcy Code.

 

#### ***Events OccurringDuring the Pendency of the Chapter 11 Cases under Interim Management andCurrent Management***

 

##### *Chapter 11 Filing and Events in the Chapter 11 Cases*

##### * *

On June 25,2002 (the “Petition Date”), Adelphia and substantially all of its wholly owned,domestic subsidiaries each filed a voluntary petition to reorganize underChapter 11 of the Bankruptcy Code in the Bankruptcy Court. On October 6and November 15, 2005, certain additional subsidiaries filed voluntarypetitions to reorganize, at which time they became part of the Debtors andthe Chapter 11 Cases. Previously, on June 10, 2002, Century filed avoluntary petition to reorganize under Chapter 11 of the Bankruptcy Code in theBankruptcy Court. The Debtors, which include Century and the subsequent filers,are currently operating their businesses as debtors-in-possession under Chapter11. See Note 2, “Bankruptcy Proceedings and Sale of Assets of the Company,”to the accompanying consolidated financial statements.

 

On July 11,2002, the United States Trustee for the Southern District of New York (the “U.S.Trustee”) appointed a committee to represent the interests of unsecuredcreditors of the Debtors (the “Creditors’ Committee”). On July 31, 2002,the U.S. Trustee appointed a committee to represent the interests of equityholders of the Debtors (the “Equity Committee” and, together with the Creditors’Committee, the “Committees”).

 

Under theBankruptcy Code, actions to collect pre-petition indebtedness, as well as mostother pending litigation, are stayed and other contractual obligations againstthe Debtors generally may not be enforced. Substantially all pre-petitionliabilities are subject to settlement under a plan of reorganization to

 

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be votedupon by holders of claims against and equity interests in the Debtors andapproved by the Bankruptcy Court.

 

In connection withthe Chapter 11 filings, Adelphia and certain of its subsidiaries (the “LoanParties”) entered into a $1,500 million debtor-in-possession credit facility(as amended, the “DIP Facility”). On August 23, 2002, the Bankruptcy Courtapproved the DIP Facility, and on September 3, 2002, the Loan Partiesconsummated the DIP Facility. On May 10, 2004, the Loan Parties enteredinto a $1,000 million extended debtor-in-possession credit facility (the “FirstExtended DIP Facility”), which was approved by the Bankruptcy Court on May 6,2004 and which amended and restated the DIP Facility in its entirety. On February 25,2005, the Loan Parties entered into and closed on a further extendeddebtor-in-possession credit facility (the “Second Extended DIP Facility”),which was approved by the Bankruptcy Court on February 22, 2005, and whichamended and restated the First Extended DIP Facility in its entirety. On March 17,2006, the Loan Parties entered into and closed a $1,300 million furtherextended debtor-in-possession credit facility (the “Third Extended DIP Facility”),which was approved by the Bankruptcy Court on March 16, 2006, and whichamended and restated the Second Extended DIP Facility in its entirety. Theterms of the Third Extended DIP Facility provide for, among other things, theextension of the maturity date from March 31, 2006 to August 7, 2006.See Note 10, “Debt,” to the accompanying consolidated financial statements.

 

##### *Claims Process and Bar Dates*

##### * *

On July 31,2003, the Debtors each filed with the Bankruptcy Court their Schedules ofLiabilities, Schedules of Executory Contracts and Unexpired Leases andStatements of Financial Affairs. Amendments to Schedules of Liabilities andExecutory Contracts have since been filed by the Debtors from time to time.

 

The BankruptcyCourt established a bar date of January 9, 2004 (the “Bar Date”), forfiling proofs of claim against the Debtors’ estates. A bar date is the date bywhich proofs of claims must be filed if a claimant disagrees with how its claimappears on the Debtors’ Schedules of Liabilities, subject to certain limitedexceptions. As of the Bar Date, approximately 17,000 proofs of claim assertingapproximately $3.20 trillion in claims had been filed, and as of December 31,2005, approximately 18,000 proofs of claim asserting approximately $3.78trillion in claims had been filed, in each case including duplicative claimsbut excluding any estimated amounts for unliquidated claims. The Debtorscurrently are in the process of reviewing, analyzing and reconciling thescheduled and filed claims. The Debtorshave filed several omnibus objections that address approximately $3.68 trillionof such claims and anticipate filing additional omnibus objections addressing the remaining portion ofthe proofs of claims filed. The Debtors expect that the claims resolutionprocess will take significant time to complete and will continue followingconsummation of the Plan. As the amounts of the allowed claims are determined,adjustments will be recorded in liabilities subject to compromise andreorganization expenses due to bankruptcy.

 

##### *Rejection and Amendment of Executory Contracts andUnexpired Leases*

##### * *

As of thecommencement of the Chapter 11 Cases, the Debtors were party to approximately1,200 unexpired real property leases and approximately 17,000 executorycontracts. The Debtors are performing an extensive review and analysis of suchleases and executory contracts in order to reduce operating costs and expensesthrough the rejection of contracts and leases as authorized under theBankruptcy Code. Pursuant to the purchase agreements with TW NY and Comcast, TWNY and Comcast have the right to determine whether certain contracts and leaseswill be rejected in connection with the consummation of the Sale Transaction.

 

##### *Procedures for Settlement of Disputed Claims*

##### * *

With the review ofthe proofs of claim, the Debtors have commenced settlement discussions withcertain creditors in an effort to compromise and/or settle their claims inaccordance with the settlement procedures protocol authorized by order of theBankruptcy Court dated February 9, 2004 (the “Settlement Procedures Order”).

 

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The SettlementProcedures Order provides for the expedited claims settlement procedure basedon either the proposed settlement amount agreed upon by the Debtors and theclaimant (the “Settlement Amount”) and/or the difference between the allowedunsecured claim listed on the Debtors’ Schedules of Liabilities and the amountlisted on the claimant’s proof of claim (the “Claim Difference”).

 

If the SettlementAmount or Claim Difference is less than or equal to $1.5 million, the Debtors arerequired to provide written notice of the proposed settlement to the Debtors’key constituents pursuant to the terms of the Settlement Procedures Order. Ifno objections are received within ten days of sending such notice, the Debtorsare authorized to settle the claim without prior approval of the BankruptcyCourt. If the Settlement Amount or Claim Difference is greater than $1.5million but less than $5 million, the Settlement Procedures Order outlinesprocedures for providing notice to the Debtors’ key constituents through thefiling of a proposed order by the Debtors. The Bankruptcy Court may thenenter such an order approving the proposed settlement of the claim without ahearing, provided no objections are received. If objections are received, the BankruptcyCourt may require the Debtors to seek approval of the settlement by way ofa motion. If the Settlement Amount is equal to or greater than $5 million, theDebtors will also be required to seek Bankruptcy Court approval of thesettlement. In addition, for any compromise or settlement of claims by oragainst any former or current insider of the Debtors or any of the defendantsin the case *Adelphia Communications Corp., et al. v. Bank ofAmerica, N.A. et al.*, the Debtors must request the Bankruptcy Court’sapproval of such compromise and settlement by way of a motion. Except if otherauthority for immediate payment exists pursuant to other orders entered by theBankruptcy Court, amounts with respect to any of the claims that are settledwill be paid only in accordance with a confirmed plan of reorganization in theDebtors’ Chapter 11 Cases.

 

##### *Appointment of the Current Board*

##### * *

As discussedabove, prior to May 2002, the Rigas Family held a majority of thepositions on the Board. At that time, the Board consisted of John J. Rigas,Michael J. Rigas, Timothy J. Rigas, James P. Rigas, Peter L. Venetis and thefour Carryover Directors. In May 2002, John J., Michael J., Timothy J. andJames P. Rigas resigned from the Board and, in June 2002, Peter L. Venetisresigned from the Board. During the pendency of the Chapter 11 Cases, Adelphiahas appointed seven new directors, and all of the Carryover Directors haveresigned.

 

Adelphia’s sevennew directors, the first six of whom have been determined by the Board to be independentpursuant to the listing standards of Nasdaq, are E. Thayer Bigelow, formerPresident and CEO of Time Warner Cable Programming, Inc. and former ActingCEO of Courtroom Television Network LLC, Rodney Cornelius, a former cableindustry executive and investor, Anthony Kronman, Sterling Professor of Law andformer Dean of Yale Law School, Philip Lochner, former Senior Vice Presidentand Chief Administrative Officer of Time Warner, Inc. and a formerCommissioner of the SEC, Susan Ness, a former Commissioner of the FCC, KennethWolfe, former Chairman and CEO of Hershey Foods Corporation, and WilliamSchleyer, CEO of Adelphia.

 

##### *Appointment of Current Management*

##### * *

Effective March 18,2003, Adelphia appointed William T. Schleyer to serve as its new CEO and Chairmanand Ron Cooper to serve as its new President and COO. Mr. Schleyerreplaced Erland Kailbourne, the interim CEO since May 2002. On March 7,2003, the Bankruptcy Court entered an order approving the employment of Messrs. Schleyerand Cooper.

 

Shortlyafter the appointments of Messrs. Schleyer and Cooper, the Board and thesenew officers hired a new senior management team, including Vanessa A. Wittman,as Executive Vice President and Chief Financial Officer (“CFO”), BradSonnenberg, as Executive Vice President, General Counsel and Secretary, andScott D. Macdonald, as Chief Accounting Officer (“CAO”). Each of these officershas in turn hired new executives who report to them. These executives, amongother things, have implemented new internal controls and procedures designed toprevent a recurrence of the improper acts that occurred during the tenure ofRigas Management.

 

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##### *HeadquartersMove*

##### * *

The Board authorized therelocation of our corporate headquarters to Greenwood Village, Colorado inJanuary 2003, subject to confirmation of the appointments of Messrs. Schleyerand Cooper, to better enable us to attract and assemble a high-calibermanagement team with the strong cable experience needed to lead an effectiverestructuring effort. The Bankruptcy Court approved the relocation of thecorporate headquarters on March 28, 2003. Despite the relocation of ourcorporate headquarters, we maintain a significant portion of our corporateoperations in Coudersport, Pennsylvania.

 

##### *ThePlan of Reorganization and the Sale Transaction*

##### * *

On April 22, 2004,Adelphia announced that it intended to pursue a sale of the Company as an alternativeto a stand-alone plan of reorganization. On July 14, 2004, Adelphia announcedthat it had engaged UBS Securities LLC and Allen & Company LLC(collectively, the “M&A Advisors”) as financial advisors and Sullivan &Cromwell LLP as legal advisor in connection with a possible sale of theCompany.  On July 21, 2004 and September 14, 2004, the Bankruptcy Courtapproved Adelphia’s engagement of Sullivan & Cromwell LLP as legal advisorand the M&A Advisors as financial advisors, respectively.

 

On April 8, 2005, the Debtorsfiled a motion with the Bankruptcy Court (the “Modified Bid Procedures Motion”),which motion sought approval of certain modifications to the bidding proceduresinitially approved by the Bankruptcy Court on October 22, 2004. In the ModifiedBid Procedures Motion, the Debtors requested approval of revisions to certainprovisions of the “no-shop” requirement, expansion of the events that triggerthe award of a breakup fee and certain termination rights. The motion wasapproved by the Bankruptcy Court on April 20, 2005, and an order was entered tothis effect on April 21, 2005.

 

Following the approval ofthe Modified Bid Procedures Motion, Adelphia entered into an asset purchaseagreement, dated as of April 20, 2005, with TW NY (as may be amended, the “TWPurchase Agreement”) and an asset purchase agreement, dated as of April 20,2005, with Comcast (as may be amended, the “Comcast Purchase Agreement,” andtogether with the TW Purchase Agreement, the “Purchase Agreements”), pursuantto which TW NY and Comcast will purchase substantially all of our U.S. assetsand assume certain of our liabilities. Upon the closing of the SaleTransaction, Adelphia will receive an aggregate consideration of cash in theamount of approximately $12.7 billion plus shares of TWC Class A CommonStock, which are expected to represent 16% of the outstanding equity securitiesof TWC as of the closing. Such percentage is subject to adjustment forissuances pursuant to employee stock programs (subject to a cap) and issuancesof securities for fair consideration and assumes the redemption of Comcast’sinterest in TWC. The TWC Class A Common Stock is expected to be listed on theNYSE. Pursuant to a separate Parent Agreement, dated as of April 20, 2005, TWC,among other things, has guaranteed the obligations of TW NY under the TWPurchase Agreement. TWC and Comcast, and certain of their affiliates, have alsoagreed to swap certain cable systems and unwind Comcast’s investments in TWCand TWE. The Sale Transaction does not include Century/ML Cable, which Centuryand ML Media sold to San Juan Cable effective October 31, 2005.

 

The purchase pricepayable by TW NY and Comcast is subject to adjustments to reflect, with respectto each Specified Business (as the term is used in the Purchase Agreements), thenet liabilities as of and after giving effect to the closing of the SaleTransaction, any shortfall or surplus in eligible basic subscribers (as theterm is used in the Purchase Agreements), generally as of the closing of theSale Transaction as measured against the projections specified in the PurchaseAgreements, and any shortfall or, subject to TW NY’s or Comcast’s consent, asapplicable, any surplus in capital expenditures relative to budget during theperiod between December 31, 2004 and the closing of the Sale Transaction. Theinitial purchase price payable by TW NY and Comcast is also subject toreduction to reflect the exclusion from the Transferred Assets (as the term isused in the Purchase Agreements) of any cable systems that were nominally ownedby certain Rigas Co-Borrowing Entities and are managed by us (such RigasCo-Borrowing Entities, the “Managed Cable Entities”) that are not wholly ownedby Adelphia or its wholly owned subsidiaries or the liabilities of which havenot been discharged or, subject to TW NY’s and

 

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Comcast’s respective consent (such consent not to beunreasonably withheld), as applicable, have not been subject to an equivalenteffect pursuant to a governmental proceeding.

 

As part of the SaleTransaction, Adelphia has agreed to transfer to TW NY and Comcast the assetsrelated to the Managed Cable Entities. Pursuant to the Forfeiture Order, allright, title and interest of the Rigas Family and Rigas Family Entities in theManaged Cable Entities (other than Coudersport and Bucktail) have beenforfeited to the United States. Pursuant to the Government-Rigas SettlementAgreement and the Non-Prosecution Agreement, we expect to obtain ownership ofall of the Managed Cable Entities (other than Coudersport and Bucktail, twosmall cable systems with approximately 5,000 subscribers as of the date of theForfeiture Order). Upon obtaining ownership of such Managed Cable Entities, weexpect to file voluntary petitions to reorganize such entities in proceedingsjointly administered with the Debtors’ Chapter 11 Cases. Once these entitiesemerge from bankruptcy, we expect to be able to transfer to TW NY and Comcastthe assets of such Managed Cable Entities as part of the Sale Transaction. Wecannot, however, predict this with certainty, and such transfer may not occur untilafter the initial closing of the Sale Transaction, if at all.

 

Under the terms of thePurchase Agreements, if we are unable to transfer all of the assets of theManaged Cable Entities to Comcast and TW NY at the closing of the SaleTransaction, the initial purchase price payable by Comcast and by TW NY wouldbe reduced by an aggregate amount of up to $600 million and $390 million,respectively, but would become payable to the extent such assets aretransferred to TW NY and Comcast within 15 months of the closing. Adelphiabelieves that the failure to transfer the assets of Coudersport and Bucktail toTW NY and Comcast will result in an aggregate purchase price reduction ofapproximately $23 million, reflecting a reduction to the purchase price payableby TW NY of approximately $15 million and by Comcast of approximately $8million.

 

At the closing of theSale Transaction, 4% of the purchase price (after taking into account anyadjustments thereto), consisting, in the case of the TW Purchase Agreement, ofcash and TWC Class A Common Stock (approximately in proportion to the mixtureof cash and TWC Class A Common Stock delivered by TW NY at the closing of theSale Transaction, with 64.86% consisting of cash and 35.14% consisting of TWCClass A Common Stock), and, in the case of the Comcast Purchase Agreement,of cash, will be deposited into an escrow account to secure Adelphia’sobligations in respect of any post-closing adjustments to the purchase price,its indemnification obligations for breaches of its representations, warrantiesand covenants pursuant to the Purchase Agreements and its indemnificationobligations with respect to assets and liabilities that it retains.

 

Adelphia, TW NY andComcast have made customary representations, warranties and covenants in thePurchase Agreements, including, among others, covenants that, subject tocertain exceptions, prohibit Adelphia from soliciting, encouraging orresponding to proposals relating to alternative business transactions(including pursuing an alternate plan under Chapter 11 including a stand-aloneplan).

 

The Purchase Agreementscontain certain termination rights for Adelphia, TW NY and Comcast, and furtherprovide that, upon termination of the Purchase Agreements under specifiedcircumstances, Adelphia may be required to pay TW NY a termination fee ofapproximately $353 million and Comcast a termination fee of $87.5 million (or,under certain circumstances, the entire termination fee to TW NY).

 

Until a plan ofreorganization is confirmed by the Bankruptcy Court and becomes effective, theSale Transaction cannot be consummated. The closing of the Sale Transaction isalso subject to the satisfaction or waiver of conditions customary totransactions of this type, including, among others:

 

•                  receiptof applicable regulatory approvals, including the consent of the FCC to thetransfer of certain licenses and, subject to certain exceptions, any applicableapprovals of LFAs to the change in ownership of the cable systems operated by usto the extent not preempted by section 365 of the Bankruptcy Code;

 

•                  expirationor termination of the applicable waiting period under the Hart-Scott-RodinoAntitrust Improvements Act of 1976, as amended (the “HSR Act”);

 

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•                  theoffer and sale of the shares of TWC Class A Common Stock to be issued in theSale Transaction having been exempted from registration pursuant to an order ofthe Bankruptcy Court confirming the Plan or a no-action letter from the staffof the SEC, or a registration statement covering the offer and sale of suchshares having been declared effective;

 

•                  theTWC Class A Common Stock to be issued in the Sale Transaction being freelytradable and not subject to resale restrictions, except in certaincircumstances;

 

•                  approvalof the shares of TWC Class A Common Stock to be issued in the Sale Transactionfor listing on the NYSE;

 

•                  entryby the Bankruptcy Court of a final order confirming the Plan and,contemporaneously with the closing of the Sale Transaction, consummation of thePlan;

 

•                  satisfactorysettlement by us of the claims and causes of action brought by the SEC and theinvestigations by the DoJ;

 

•                  theabsence of any material adverse effect with respect to TWC’s business andcertain Specified Businesses or both Specified Businesses purchased by eitherTW NY or Comcast, as applicable (without taking into consideration any loss ofsubscribers by our business (or the results thereof) already reflected in theprojections specified in the Purchase Agreements or the related purchase priceadjustment);

 

•                  thenumber of eligible basic subscribers (as the term is used in the PurchaseAgreements) served by the Specified Businesses as of a specified date prior tothe closing of the Sale Transaction not being below an agreed upon threshold;

 

•                  theabsence of an actual change in law, or proposed change in law that has areasonable possibility of being enacted, that would adversely affect the taxtreatment accorded to the Sale Transaction with respect to TW NY;

 

•                  afiling of an election under section 754 of the Internal Revenue Code of 1986,as amended (the “Tax Code”), by each of Century-TCI California Communications,L.P., Parnassos Communications, L.P. and Western NY Cablevision L.P. (the “Century-TCI/ParnassosPartnerships”); and

 

•                  theprovision of certain audited and unaudited historical financial information by us.

 

Subject to the ExpandedTransaction (as defined below), the closing under each Purchase Agreement isalso conditioned on a contemporaneous closing under the other PurchaseAgreement. On January 31, 2006, the Federal Trade Commission (the “FTC”) closedits antitrust investigation under the HSR Act of the Sale Transaction. Inaddition, we believe that we have received the necessary applicable approvalsof LFAs to the change in ownership of the cable systems operated by us. Weexpect the closing to occur by July 31, 2006, the date under the PurchaseAgreements after which either party may terminate, subject to certainexceptions, the applicable Purchase Agreement if the closing has not alreadyoccurred.

 

Adelphiareceived a letter, dated March 24, 2006, from each of TWC and Comcast allegingthat Adelphia’s implementation of a system, required by the PurchaseAgreements to be implemented prior to the closing of the Sale Transaction, bywhich eligible basic subscribers (as such term is used in the PurchaseAgreements) can be tracked materially breaches the Purchase Agreementsinsofar as it does not include within it certain marketing promotionsutilized by Adelphia.  Adelphia, in letters to TW NY and Comcast,dated March 27, 2006, has denied that Adelphia’s actions constitutea material breach, but has determined, without prejudice to its position,to incorporate a methodof tracking such marketing promotions as part of its subscriber trackingsystem. Adelphia does not believe that such marketing promotions arerequired by the terms of the relevant Purchase Agreements to be tracked bya subscriber tracking system that, as required by the PurchaseAgreements, would be reasonably expected to accurately track eligiblebasic subscribers.  Under the Purchase Agreements, any breach that wouldpreclude Adelphia from providing a certificate at the closing of the SaleTransaction that each of the covenants in the Purchase Agreements (includingthe covenant to implement the tracking system) has been duly performed in allmaterial respects would constitute a failure of a condition to closing of theSale Transaction in favor of each of TW NY and Comcast, and if not cured, couldprovide TW NY and Comcast a basis for terminating their respective PurchaseAgreements.

 

Pursuant to the TWPurchase Agreement and the letter agreement, dated as of April 20, 2005 (the “ExpandedTransaction Letter Agreement”), if the Comcast Purchase Agreement is terminatedprior to closing of the Sale Transaction as a result of the failure to obtainFCC or applicable antitrust regulatory approvals, TW NY has agreed to alsoacquire the assets of Adelphia that Comcast would have acquired pursuant to theComcast Purchase Agreement and apply for FCC and other applicable antitrustregulatory approvals (the “Expanded Transaction”). In such event and assumingTW NY receives such approvals, TW NY will pay the $3.5 billion purchase priceto have been paid by Comcast, less Comcast’s allocable share of the liabilitiesof the Century-TCI/Parnassos Partnerships, which shall not be less than $549million nor more than $600 million (the “Comcast Discharge Amount”), andimmediately prior to the closing of the

 

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Sale Transaction, the Comcast subsidiaries that, as ofthe closing of the Sale Transaction, will hold direct interests in the Century-TCI/ParnassosPartnerships will contribute the Comcast Discharge Amount in cash to theCentury-TCI/Parnassos Partnerships. The Century-TCI/Parnassos Partnerships willdistribute their respective portions of the Comcast Discharge Amount to awholly owned subsidiary of our subsidiaries that hold a direct interest in suchCentury-TCI/Parnassos Partnerships. This purchase price may be satisfied, at TWNY’s election, in any combination of shares of TWC Class A Common Stock (at thevalue attributed thereto in the TW Purchase Agreement) and cash. In such event,the exchange pursuant to the Exchange Agreement described below would not takeplace. There is no assurance that TW NY would be able to obtain the requiredFCC or applicable antitrust regulatory approvals for the Expanded Transaction.

 

Pursuant to two separateredemption agreements, each dated as of April 20, 2005, as amended (the “RedemptionAgreements”), and subject to the terms and conditions thereof, Comcast and TWCexpect to redeem Comcast’s interests in TWC and TWE. In addition, TWC andComcast and certain of their affiliates entered into an exchange agreement,dated as of April 20, 2005, as amended (the “Exchange Agreement”), pursuant towhich, and subject to the terms and conditions thereof, TWC and Comcast or suchaffiliates expect to exchange certain cable systems, including certain systemsto be acquired by TW NY and Comcast pursuant to their respective purchaseagreements with Adelphia. Adelphia is not a party to either the RedemptionAgreements or the Exchange Agreement.

 

Certain fees are due to ourfinancial advisors upon successful completion of a sale, which are calculatedas a percentage (0.11% to 0.20%) of the sale value. Additional fees may bepayable depending on the outcome of the sales process. Such fees cannot bedetermined until the closing of the Sale Transaction.

 

On November 21, 2005, theDebtors filed the Plan and the Disclosure Statement with the Bankruptcy Court. ThePlan contemplates, among other things, consummation of the Sale Transaction anddistribution of the cash and common stock of TWC to the holders of claimsagainst and equity interests in the Debtors in accordance with the Plan.

 

For the Plan to beconfirmed and become effective, the Debtors must, among other things:

 

•                  obtainan order of the Bankruptcy Court approving the Disclosure Statement ascontaining “adequate information;”

 

•                  solicitacceptance of the Plan from the holders of claims and equity interests in eachclass that is impaired and not deemed by the Bankruptcy Court to have rejectedthe Plan;

 

•                  obtainan order from the Bankruptcy Court confirming the Plan; and

 

•                  consummatethe Plan.

 

By order dated November23, 2005, the Bankruptcy Court approved the Disclosure Statement as containing “adequateinformation.”  By December 12, 2005, theDebtors completed the mailing of the solicitation packages. Before it can issuea confirmation order, the Bankruptcy Court must find that either each class ofimpaired claims or equity interests has accepted the Plan or the Plan meets therequirements of the Bankruptcy Code to confirm the Plan over the objections ofdissenting classes. In addition, the Bankruptcy Court must find that the Planmeets certain other requirements specified in the Bankruptcy Code. Confirmationof the Plan would resolve, among other things, the Debtors’ pre-petitionobligations.

 

Substantial disputesexist between creditors of different Debtors that principally affect holders ofnotes issued by FrontierVision Holdings, L.P., an indirect subsidiary ofAdelphia (“FrontierVision”), and Arahova Communications Inc., a directsubsidiary of Adelphia (“Arahova”), and the creditors of Adelphia. The disputesinclude, but are not limited to, the character and treatment of intercompanyclaims, the allocation of post-petition reorganization expenses and operatingcosts, the appropriate plan consolidation structure, the alleged fraudulentconveyance claims associated with historical movements of subsidiaries

 

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within the corporate structure, the allocation of thevalue and form of consideration from the Sale Transaction to the variousDebtors, the allocation of the benefits and cost of the Government SettlementAgreements, the allocation of the tax liability and the tax reserves associatedwith the Sale Transaction and the allocation of the economic cost of the otherreserves established as part of the Plan (collectively, the “Inter-CreditorDispute”).

 

Recognizing that theexistence of the Inter-Creditor Dispute threatened the timely consummation ofthe Sale Transaction prior to July 31, 2006, the Debtors obtained BankruptcyCourt approval of a process (the “Resolution Process”) that channels the Inter-CreditorDispute into a structure that is intended to provide due process protectionwhile seeking to ensure that the resolution of such issues does not jeopardizethe substantial value to be achieved from the Sale Transaction. The BankruptcyCourt approval is embodied in an order of the Bankruptcy Court dated August 4, 2005.Starting on January 31, 2006, the Bankruptcy Court began holding extensiveevidentiary hearings on the Inter-Creditor Dispute, which are ongoing.

 

##### *ExitFinancing Facility*

##### * *

We received commitmentsfrom four financial institutions for an $8,800 million fully committed exitfinancing facility (the “Exit Financing Facility”) to be used to finance cashpayments to be made under the proposed stand-alone plan of reorganization. Thisproposed facility included $4,750 million of senior secured credit facilities,a $3,300 million bridge facility and a $750 million secured revolving creditfacility that would be available following our emergence from bankruptcy. Thesecommitments were terminated effective May 9, 2005 in light of the SaleTransaction.

 

##### *Restructuringof the Company’s Businesses*

##### * *

Following thecommencement of the Chapter 11 Cases, we implemented a process to assess andrestructure our businesses and assets. We, together with our financial andlegal advisors, have reviewed and analyzed our businesses, owned properties,contracts and leases to determine if any of these assets should be divestedduring the Chapter 11 Cases.

 

##### *OtherAsset Dispositions*

##### * *

We have conducted acomprehensive review of our non-core businesses and real estate holdings todetermine if any of our or our subsidiaries’ assets should be sold. Infurtherance thereof, we and our advisors have engaged in an asset dispositionprogram. On September 17, 2002, the Bankruptcy Court entered an order that,among other things, authorized and established procedures for the sale ofcertain property and interests free and clear of all liens, claims andencumbrances for a sale price in each case of up to $1 million. In addition,prior to effecting any such sale, the Debtors must provide prior notice of suchsale to certain specified parties.

 

###### Buffalo Sabres

######  

We made an aggregate ofapproximately $187 million in loans and advances, including accrued interest,to Niagara Frontier Hockey, L.P., a Delaware limited partnership owned by theRigas Family (“NFHLP”), which owned the Buffalo Sabres hockey team. See Item 3,“Legal Proceedings — NFHLP Claim.”

 

On January 13, 2003, theNFHLP Debtors filed voluntary petitions for relief under Chapter 11 of theBankruptcy Code in the United States Bankruptcy Court for the Western Districtof New York (the “NFHLP Bankruptcy Court”). Certain of the NFHLP Debtorsentered into an asset purchase agreement with Hockey Western New York LLC inMarch 2003 with respect to the sale of certain assets and the assumption ofcertain liabilities of the NFHLP Debtors. The sale was consummated on April 23,2003. In connection with this transaction and the joint plan of liquidation ofthe NFHLP Debtors, which was approved by the NFHLP Bankruptcy Court on October3, 2003, we are to receive, among other things, a

 

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distribution of certain causes of actions against theRigas Family, Deloitte and others, certain contingent residual interests inassets of the estates of the NFHLP Debtors and releases from certain financialobligations. We cannot predict what, if any, recovery we will receive fromthese interests at this time.

 

###### TelCove

######  

Prior to January 11,2002, we provided various telecommunications services through a majority-ownedsubsidiary, Adelphia Business Solutions, Inc. (“Adelphia Business Solutions”),which has since changed its name to TelCove. All references in this AnnualReport to “TelCove” refer to both TelCove and Adelphia Business Solutions. Priorto January 11, 2002, TelCove provided facilities-based integratedcommunications services to business, governmental and educational customers invarious markets within the United States. We previously owned approximately 78%of the outstanding common stock of TelCove and held approximately 96% of thetotal voting power in TelCove. On January 11, 2002, we distributed all of theshares of TelCove common stock owned by us to the holders of our Class A CommonStock and Class B Common Stock in the form of a dividend (the “TelCove Spin-off”).

 

On March 27, 2002,TelCove and its direct subsidiaries commenced cases under Chapter 11 of theBankruptcy Code, and on June 18, 2002 certain indirect subsidiaries of TelCovecommenced cases under Chapter 11 of the Bankruptcy Code. On December 19, 2003,the Court confirmed TelCove’s Modified Third Amended Joint Plan ofReorganization Under Chapter 11 of the Bankruptcy Code, dated December 18,2003 (the “TelCove Plan”). The effective date of the TelCove Plan occurred onApril 7, 2004.

 

On February 21, 2004, weand TelCove executed a global settlement agreement (the “Global Settlement”)that resolved, among other things, certain of the parties’ claims against eachother. On March 23, 2004, the Bankruptcy Court approved the GlobalSettlement. We recorded a liability of approximately $98 million during thefourth quarter of 2003 to provide for the estimated costs to be incurred by usin connection with the Global Settlement.

 

Pursuant to the GlobalSettlement, which was consummated on April 7, 2004, we transferred to TelCovecertain settlement consideration, including approximately $58 million in cash,as well as certain vehicles, real property and intellectual property licensesused in the operation of TelCove’s businesses. The Global Settlement alsoprovided for the transfer by us to TelCove of certain CLEC market assets,together with the various licenses, franchises and permits related to theoperation and ownership of such assets, and for the execution of variousannexes to the Global Settlement (the “Annex Agreements”), which provide, amongother things, for a five-year business commitment to TelCove by us, future useby TelCove of certain fiber capacity in assets owned by us, the mutual releaseby the parties from any and all liabilities, claims and causes of action whicheither party has or may have against the other party, and TelCove’s management,pending transfer, of our active CLEC markets pursuant to a master managementagreement that amended and superseded pre-existing management agreementsbetween us and TelCove.

 

On August 20, 2004, wepaid TelCove an additional $2.5 million pursuant to the Global Settlement inconnection with the resolution and release of certain claims. On August 21,2004, we transferred the CLEC market assets to TelCove.

 

###### Other

######  

On April 29, 2004, theBankruptcy Court approved the sale of our Buffalo, New York radio station,WNSA-FM, to Entercom Communications Corp. for $10.5 million. This sale closedon May 5, 2004. On December 15, 2004, the Bankruptcy Court approved thesale of our interests in our Venezuelan and Colombian cable systems to anindividual for $3.3 million. This sale closed on December 23, 2004. On January28, 2005, the Bankruptcy Court approved the sale of our assets in ourPennsylvania, Florida and New York security business to Devcon SecurityServices Corp, which closed on February 28, 2005. The adjusted purchase price wasapproximately $37.9 million. We are also considering the sale of our interestin our Brazilian cable systems and certain other non-core assets.

 

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By motion dated April 14,2005, the Debtors sought approval of a global settlement with TMCD. By orderdated May 11, 2005, the Bankruptcy Court approved the settlement, which closedon May 26, 2005. Among other things, the settlement agreement transferred TMCD’sownership interests in the Tele-Media Ventures to the Debtors, leaving theDebtors 100% ownership of the Tele-Media Ventures, resolved the pending motionof TMCD for an examiner, settled two pending avoidance actions, reconciled 691separate proofs of claim filed by TMCD and resolved numerous other complexissues and disputes between the Debtors and TMCD. See Item 3, “LegalProceedings — Tele-Media Examiner Motion” for additional information.

 

### **SEGMENT OPERATIONS AND CERTAIN FINANCIAL INFORMATION**

### ** **

Certain informationconcerning our segments is included in Note 15, “Segments,” to the accompanyingconsolidated financial statements. We do not have significant operations inforeign countries.

 

### **ITEM1A. RISK FACTORS**

### ** **

#### ***Risk Factors Relating tothe Sale Transaction***

#### *** ***

#### ***If the conditions toclosing the Sale Transaction are not satisfied, the Sale Transaction may beterminated, which would have a significant adverse impact on us and ourbankruptcy proceedings.***

#### *** ***

The Sale Transaction issubject to the satisfaction or waiver of various conditions, many of which aresubject to uncertainty. The conditions to the Sale Transaction include, amongothers:

 
| **Closing Condition**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | ** ** | **Primary Associated Risk**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| •    (a) the Bankruptcy Court must enter a  confirmation order, which order must (i) be a Final Order (as defined in the  applicable Purchase Agreement) in full force and effect and (ii) subject  to certain exceptions, include a finding that each of TW NY and Comcast is a  good faith purchaser, (b) the Plan must be effective in accordance with its  terms, and (c) the confirmation order and the Plan must, to the extent  related to certain matters, be satisfactory to each of TW NY and Comcast, as  applicable, in its reasonable discretion; |       | The confirmation  hearing with respect to the Plan is scheduled to commence on April 24, 2006.  There can be no assurances that the Bankruptcy Court will enter the  confirmation order or that, prior to the time either purchaser has the right  to terminate the applicable Purchase Agreement, (a) the confirmation order  will (i) be a Final Order that is in full force and effect and (ii) subject to certain  exceptions, include a finding that each of TW NY and Comcast is a good faith  purchaser, (b) the Plan will become effective in accordance with  its terms, and/or (c) the confirmation order and the Plan, to the extent  related to certain matters, will be satisfactory to each of TW NY and  Comcast, in its reasonable discretion. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| •    Receipt of certain regulatory approvals,  including the consent of  the FCC;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | On May 18, 2005,  Adelphia, Comcast and TWC applied to the FCC for the necessary approvals in  connection with the Sale Transaction. Various parties have argued that the  Sale Transaction should be blocked or approved only with conditions. For  example, in various proceedings pending before the FCC, parties have argued  for ownership caps and restrictions relating to vertical programming  distribution relationships. There can be no assurance that the FCC will grant  the necessary approvals or do so without conditions.                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| •    Expiration or termination of the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | On January 31, 2006,  the FTC closed its antitrust investigation under                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

 

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| **Closing Condition**                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **Primary Associated Risk**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                    |       | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| applicable  waiting period under the HSR Act;                                                                                                                                                                                                                                                                                                                                                 |       | the HSR Act of the Sale  Transaction without considering or being asked to consider the Expanded  Transaction. In the event that the Comcast Purchase Agreement is terminated  for failure to receive FCC approval, a notice and filing under the HSR Act  will be required with respect to the Expanded Transaction and the applicable  governmental agencies may object to the Expanded Transaction.                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| •    A registration statement covering the offer and  sale of the shares of TWC Class A Common Stock to be issued in the Sale Transaction  being declared effective, or the offer and sale of such shares having been  exempted from registration pursuant to an order of the Bankruptcy Court  confirming the Plan or a no-action letter from the staff of the SEC; |       | We and TWC intend for  the confirmation order to provide that TWC is our successor for purposes of  section 1145 of the Bankruptcy Code and to rely on the exemption from  registration under the Securities Act of 1933, as amended (the “Securities  Act”), provided thereby. If an exemption from registration is unavailable  either pursuant to such an order or a no-action letter from the staff of the  SEC, however, then TWC will have to file a registration statement under  the Securities Act and have such registration statement declared effective.  Such a registration statement may not be declared effective on a timely  basis, if at all.                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| •    Approval of the shares of TWC Class A Common  Stock to be issued in the Sale Transaction for listing on the NYSE;                                                                                                                                                                                                                                               |       | In order to list TWC  Class A Common Stock on the NYSE, TWC will have to submit a listing  application to the NYSE and file a registration statement under the Exchange  Act with the SEC. The parties intend that the TWC Class A Common Stock  qualify as the successor to our Class A Common Stock’s registration under  Section 12(g) of the Exchange Act pursuant to Rule 12g-3 promulgated  thereunder, and, accordingly, TWC would file a Form 8-A to register the  stock for trading on an exchange. Review of the NYSE listing application by  the NYSE may not be completed on a timely basis, if at all.                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                          |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| •    The absence of any material adverse effect with  respect to TWC’s business  (in the case of the TW Purchase Agreement) and with respect to certain  significant components of our business;                                                                                                                                                                     |       | We expect the closing  to occur by July 31, 2006, the date under the Purchase Agreements after  which either party may terminate, subject to certain exceptions, the  applicable Purchase Agreement if the closing has not already occurred. Prior  to the closing of the Sale Transaction, our businesses and the businesses of  TWC will be subject to a large number of factors, many of them outside the  control of their respective managements that could result in a material  adverse effect. These factors include competition, regulatory change,  technological innovation, changes in the business and economic climate in the  jurisdictions in which such businesses operate, acts of man and God and other  risks. |

 

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| **Closing Condition**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | ** ** | **Primary Associated Risk**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| •    In the case of the TW Purchase Agreement, the  absence of an actual change in law or proposed change in law that has a  reasonable possibility of being enacted that would adversely affect the tax treatment accorded to the Sale  Transaction with respect to TW NY, which adverse effects cannot be  avoided by accelerating or delaying the closing of the Sale Transaction or by  restructuring the Sale Transaction, in each case in a manner reasonably  satisfactory to TW NY and Adelphia (and that such acceleration, deferral or  restructuring is in fact implemented); |       | We expect the closing  to occur by July 31, 2006, the date under the Purchase Agreements after  which either party may terminate, subject to certain exceptions, the  applicable Purchase Agreement if the closing has not already occurred. During  the period of time between the signing of the Purchase Agreements and the  closing of the Sale Transaction, a change or proposed change in tax law may  occur that would adversely affect the tax treatment accorded to the Sale  Transaction with respect to TW NY.                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| •    Subject to certain limited exceptions, the filing  of certain tax elections with respect to the Century-TCI/Parnassos  Partnerships and delivery, in the case of the Comcast Purchase Agreement, to  Comcast, or, in the case of the Expanded Transaction pursuant to the TW  Purchase Agreement and the Expanded Transaction Letter Agreement, to TW NY,  of a related opinion of counsel regarding such tax elections; and                                                                                                                                                             |       | Subject to certain  limited exceptions, Comcast and TW NY do not have to consummate the Comcast  Purchase Agreement or the Expanded Transaction, respectively, if there has  not been a filing under section 754 of the Tax Code by each of the  Century-TCI/Parnassos Partnerships and a delivery, in the case of the Comcast  Purchase Agreement, to Comcast or, in the case of the Expanded Transaction,  to TW NY of a related opinion of counsel regarding such tax elections. In  order to make these elections, the 2005 income tax returns for these  partnerships must be filed. Before these returns may be filed, however, the  tax records for these partnerships will have to be substantially reviewed. We  may not be able to complete these reviews and file these tax returns before  the date on which the parties would otherwise close the Sale Transaction, and  we may not be able to procure the delivery of such an opinion of counsel. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| •    The provision of certain audited and unaudited  historical financial  information by Adelphia to TW NY and Comcast.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       | Our ability to provide  such financial information is limited, and we may not be able to satisfy this  condition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

 

See Item 1, “CertainBusiness and other Developments Relating to the Chapter 11 Cases — EventsOccurring During the Pendency of the Chapter 11 Cases under Interim Managementand Current Management — The Plan of Reorganization and the Sale Transaction”for a list of certain additional conditions to closing of the Sale Transaction.There can be no assurance that all of the various conditions will be satisfiedor waived.

 

***Failure to complete the Sale Transaction could negatively impact ourbusiness.***

 

If the Sale Transactionis not completed for any reason, we will be subject to several risks, includingthe following:

 

•                  havingto negotiate a stand-alone plan of reorganization or an alternative saletransaction, which may not create as much value as the Sale Transaction;

 

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•                  havingthe focus of senior management directed toward the proposed Sale Transactioninstead of on our stand-alone operations; and

 

•                  beingrequired, under certain circumstances, to pay TW NY a termination fee ofapproximately $353 million and Comcast a termination fee of $87.5 million (orbeing required, if the Expanded Transaction is terminated under certainspecified circumstances, to pay TW NY the termination fee of $87.5 million thatwould otherwise have been payable to Comcast).

 

If the Sale Transactionis not completed, these risks may materialize and have a material adverseeffect on our operations, business, financial results, financial condition andrecoveries under an alternate plan of reorganization.

 

#### ***Uncertainty related tothe Sale Transaction could have a material adverse effect on our business.***

#### *** ***

Uncertainty about whetherand when the Sale Transaction will be completed and expectations as to how thebusiness of Comcast and TWC will be operated after the consummation of the SaleTransaction could have a material adverse effect on our business, including throughemployee attrition (as discussed further in the risk factor below) andincreased attempts by competitors to persuade our subscribers to change serviceproviders. This could increase our rate of subscriber churn and the rate ofloss of subscribers. It also could have a negative impact on our revenue andresults of operations.

 

#### ***The pursuit of the SaleTransaction, the Chapter 11 Cases and pending litigation consume a substantialportion of the time and attention of management and certain aspects of the SaleTransaction will impact how our business is conducted, which may have anadverse effect on our business and results of operations.***

#### *** ***

Since April 2004, we havebeen proceeding with a potential sale of the Company and until April 2005, thepotential emergence from bankruptcy as a stand-alone company. The requirementsof this process, the Chapter 11 Cases and pending litigation consume asubstantial portion of management’s time and attention and leave them with lesstime to devote to the operations of our business. This diversion of management’sattention continued in 2005 and continues in 2006 and may have a materialadverse effect on the conduct of our business, and, as a result, on ourfinancial condition and results of operations. In addition, certain aspects ofthe Sale Transaction will impact how our business is conducted, which may havean adverse effect on our business and results of operations.

 

#### ***We are experiencing increasedlevels of employee attrition and our employees are facing considerabledistractions and uncertainty due to the impending Sale Transaction.***

#### *** ***

Because of the SaleTransaction, we are experiencing increased levels of employee attrition and ouremployees are facing considerable distractions and uncertainty. A loss of keypersonnel or a substantial reductionin our workforce or material erosion of employee morale could have a materialadverse effect on our business, including, but not limited to, our sales, marketing,customer care, product development and management. We have experienced difficulty in recruitingreplacement employees with appropriate qualifications in light of the Sale Transaction, and such difficulties are likely to continue. If we are unable toreplace employees quickly, we may be forced to hire contractors or consultantsat higher rates than the salaried employees whom they replace. The failure toreplace our departing workforce quickly or the loss of the services of anymembers of our senior management could impair our ability to execute ourbusiness operational strategy and, as a result, could have a material adverseeffect on our financial condition and results of operations.

 

39

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#### ***If the Sale Transactionis not consummated and we instead seek to emerge from the Chapter 11 Cases as astand-alone company, we may not be able to arrange for financing to permit usto fund our operations and to satisfy our obligations upon emergence frombankruptcy.***

#### *** ***

In light of the SaleTransaction, we terminated our $8.8 billion exit financing commitment effectiveMay 9, 2005. If the Sale Transaction is not consummated, we may seek to emergefrom bankruptcy as a stand-alone company. To enable us to do so, we mustarrange for a committed exit financing facility that will permit us to fund ouroperations and to satisfy our obligations upon emergence from bankruptcy. Wemay not be able to obtain adequate exit financing upon acceptable terms, if atall.

 

#### ***Our income and franchisetax liabilities in connection with the Sale Transaction could be materiallymore than estimated.***

#### *** ***

The Debtors will beliable for federal, state and local income and franchise taxes as a result ofthe Sale Transaction. The current estimated likely range of this tax liabilityis from $430 million to $790 million. This estimated range of the liability,however, is based on incomplete information as a result of deficiencies in theDebtors’ tax records. Accordingly, these estimates are subject to change, andby the time the Plan is consummated, the Debtors’ estimate of their income andfranchise tax liabilities, and their estimate of the potential range of suchliabilities, resulting from the Sale Transaction may be materially in excess ofthe current estimates. In addition, it is assumed for purposes of theseestimates that all elements of the Sale Transaction will occur during a singletaxable year. To the extent elements of the Sale Transaction were to occur inmore than one taxable year, the Debtors could have material additional incomeand franchise tax liability resulting from the Sale Transaction because the taxbasis in the property held by the Debtors at the end of the taxable year whichincludes the Effective Date (as defined in the Plan) would be subject toreduction as a result of the cancellation of debt income recognized by the Debtors.Furthermore, although the Debtors do not expect to hold material non-cashassets at such time and therefore do not expect to be subject to the attributereduction, there can be no assurance that the IRS will not seek to requirebasis reduction with respect to the assets then held by the Debtors or assertthat the Debtors actually or constructively hold additional assets subject tobasis reduction. If the IRS were successful in requiring such basis reduction,the Debtors could be subject to additional income and franchise tax liabilitypotentially in a material amount. Any such increase in the Debtors’ estimatedtax liabilities would reduce the amount available for distribution tostakeholders.

 

#### ***Risk Factors Relating tothe Chapter 11 Cases***

#### *** ***

***If the Plan is not confirmed on a timely basis, the value to theDebtors from the Sale Transaction may be lost or materially reduced.***

 

The Debtors believe thatthe value to the Debtors from the Sale Transaction materially exceeds the valueof the reorganized Debtors on a stand-alone basis. If the Plan is not confirmedby July 24, 2006 or, in the event of the Expanded Transaction, January 24, 2007,as applicable, so long as TW NY and Comcast have not breached in any materialrespect any of their representations, warranties or covenants in the PurchaseAgreements that have proximately contributed to such delay, TW NY and Comcasthave the right to terminate the applicable Purchase Agreement. In such event,the Debtors will not realize such excess value and, under certain circumstances,will be required to pay TW NY a termination fee of approximately $353 millionand Comcast a termination fee of $87.5 million. In addition, the SaleTransaction is subject to numerous closing conditions. If the closing of theSale Transaction is delayed, there is an increased risk of an unforeseen eventresulting in the failure of a condition to the closing of the Sale Transaction.Further, there can be no assurance that the Plan litigation process will beconcluded within the time frame set forth above.

 

In addition, the purchaseprice payable by TW NY and Comcast (or only TW NY in the event of the ExpandedTransaction) at the closing of the Sale Transaction is subject to customaryadjustments to reflect, with respect to each Specified Business (as the term isused in the Purchase Agreements), the net liabilities as of and after givingeffect to the closing of the Sale Transaction, any surplus or shortfallgenerally as of the closing of the Sale Transaction in eligible basicsubscribers (as the term is used in the

 

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Purchase Agreements) as measured against theprojections specified in the Purchase Agreements and any shortfall or, subjectto TW NY’s or Comcast’s consent, as applicable, any surplus in capitalexpenditure spending relative to budget during the period between December 31,2004 and the closing of the Sale Transaction. As a result of the uncertaintiesand challenges to the business arising out of the Chapter 11 Cases and thepending Sale Transaction, the Debtors believe that the probability andmagnitude of any such adjustments to the purchase price payable in the SaleTransaction increase the later the closing of the Sale Transaction occurs.

 

#### ***Adverse publicity and thestigma of the Chapter 11 Cases generally may negatively impact our business,financial condition and results of operations.***

#### *** ***

Adverse publicity andnews coverage relating to the wrongful conduct of the Rigas Family, thecriminal indictment of certain members of the Rigas Family, the guilty verdictsagainst John J. and Timothy J. Rigas and the other circumstances surroundingthe Debtors’ Chapter 11 filing as well as the pendency of the Chapter 11 Caseshas negatively impacted our efforts to maintain our existing customer base, obtainnew customers, maintain our relationships with vendors and retain employees, aswell as reestablish and promote name recognition and a positive image. Inaddition, the effect, if any, that reorganization proceedings under Chapter 11may have on our business, financial condition and results of operations cannotbe accurately predicted or quantified. If confirmation and consummation of aplan of reorganization do not occur expeditiously, the Chapter 11 Cases couldfurther adversely affect our relationships with our customers, employees andvendors.

 

#### ***Allowance of claims maysubstantially dilute the recovery to holders of claims and equity interestsunder the Plan.***

#### *** ***

As of the Bar Date,approximately 17,000 proofs of claim asserting approximately $3.20 trillion inclaims were filed, and as of December 31, 2005, approximately 18,000 proofs ofclaim asserting approximately $3.78 trillion in claims were filed, in each caseincluding duplicative claims but excluding any estimated amounts forunliquidated claims. The Debtors currently are in the process of reviewing,analyzing and reconciling the scheduled and filed claims and have filed severalomnibus objections that address approximately of $3.68 trillion of such claims.Additional omnibus objections may be filed as the claims resolution processcontinues. Although certain claims addressed in such omnibus objections havebeen disallowed and expunged, reduced and allowed or subordinated by orders ofthe Bankruptcy Court, the ultimate number and allowed amounts of such claimsare not determinable at present, and the Debtors expect that the claimsresolution process will take significant time to complete and will continuefollowing consummation of the Plan. The failure to obtain disallowance of asubstantial majority of these proofs of claims would substantially dilute therecoveries to the Debtors’ stakeholders.

 

#### ***Risk Factors Relating toLegal and Regulatory Matters***

#### *** ***

#### ***If court approval of theGovernment Settlement Agreements is overturned or vacated, we may not be ableto consummate the Sale Transaction, may not obtain title to the RigasCo-Borrowing Entities and may face other material adverse consequences.***

#### *** ***

The Government SettlementAgreements were subject to the approval of, and have been approved by, theBankruptcy Court. Our consent to the final judgment in the SEC Civil Action wassubject to the approval of, and has been approved by, both the Bankruptcy Courtand the District Court. Various parties have challenged and sought appellatereview or reconsideration of the orders of the Bankruptcy Court approving theGovernment Settlement Agreements. The District Court affirmed the BankruptcyCourt’s approval of the Non-Prosecution Agreement, Adelphia’s consent to thefinal judgment in the SEC Civil Action and the Adelphia-Rigas SettlementAgreement. On March 24, 2006, various parties appealed the DistrictCourt's order affirming the Bankruptcy Court's approval to the United StatesCourt of Appeals for the Second Circuit (the “Second Circuit”). The order ofthe District Court approving our consent to the final judgment in the SEC CivilAction has not been appealed. The appeals of the District Court’s approval ofthe Government-Rigas Settlement Agreement and the creation of the RestitutionFund have been denied by the Second Circuit. If the Bankruptcy Court order isoverturned or vacated, then the Government Settlement Agreements may not remaineffective and we may face the risk of

 

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indictment by the U.S. Attorney, and the SEC’s claimagainst us may be fixed by the District Court and allowed by the BankruptcyCourt, which could materially dilute the recoveries of other creditors. Moreover,in the absence of the Government Settlement Agreements, we may not be able toobtain title to the Rigas Co-Borrowing Entities forfeited by the Rigas Familyto the United States and the closing of the Sale Transaction may not occurbecause satisfactory settlement of the claims and causes of actions brought bythe SEC and the investigation by the DoJ is a condition to the closing of theSale Transaction.

 

#### ***Even if the GovernmentSettlement Agreements are effective, we may not be able to obtain title to theManaged Cable Entities.***

#### *** ***

For us to obtain title tothe Managed Cable Entities (other than Coudersport and Bucktail) pursuant tothe Non-Prosecution Agreement, the United States must first obtain title tosuch Managed Cable Entities free and clear of liens, claims, encumbrances oradverse interests of third parties and then transfer title to such ManagedCable Entities to us.

 

Pursuant to theGovernment-Rigas Settlement Agreement and the Non-Prosecution Agreement, weexpect to obtain ownership of all of the Managed Cable Entities (other thanCoudersport and Bucktail, two small cable systems with approximately 5,000subscribers as of the date of the Forfeiture Order). Upon obtaining ownershipof such Managed Cable Entities, we expect to file voluntary petitions toreorganize such entities in proceedings jointly administered with the Debtors’Chapter 11 Cases. Once these entities emerge from bankruptcy, we expect to beable to transfer to TW NY and Comcast the assets of such Managed Cable Entitiesas part of the Sale Transaction. Although we believe that title to such ManagedCable Entities will be transferred to us, there can be no assurance that theU.S. Attorney will be able to obtain and to transfer title to such ManagedCable Entities to us free and clear of liens, claims, encumbrances or adverseinterests of third parties. Under the terms of the Purchase Agreements, if weare unable to transfer all of the assets of the Managed Cable Entities toComcast and TW NY at the closing of the Sale Transaction, the initial purchaseprice payable by Comcast and TW NY would be reduced by an aggregate amount ofup to $600 million and $390 million, respectively, but would become payable tothe extent such assets are transferred to TW NY and Comcast within 15 months ofthe closing. Adelphia believes that the failure to transfer the assets ofCoudersport and Bucktail to TW NY and Comcast will result in an aggregatepurchase price reduction of approximately $23 million, reflecting a reductionto the purchase price payable by TW NY of approximately $15 million and byComcast of approximately $8 million.

 

#### ***We may not be able tomake the payments required under the Non-Prosecution Agreement if the Plan isnot effective by October 15, 2006.***

#### *** ***

Unless extended on consent of the U.S. Government, whichconsent may not be unreasonably withheld, we are required to contribute $715million in value to a fund to be established and administered by the UnitedStates Attorney General and the SEC for the benefit of investors harmed by theactivities of Rigas Management (the “Restitution Fund”) called for by theNon-Prosecution Agreement by October 15, 2006. If the Plan is notconsummated by October 15, 2006, we may not be able to make the payments to theRestitution Fund required under the Non-Prosecution Agreement. If title to theRigas Co-Borrowing Entities (other than Coudersport and Bucktail) is transferredto us, our failure to make the payments required under the Non-ProsecutionAgreement in a timely fashion may constitute a material breach of theNon-Prosecution Agreement and the final judgment in the SEC Civil Action. Undersuch circumstances, among other things, we may still face the risk ofindictment by the U.S. Attorney, the SEC’s claim against us may be fixed by theDistrict Court and allowed by the Bankruptcy Court, which could materiallydilute the recoveries of other creditors, and we may not be able to retaintitle to such Rigas Co-Borrowing Entities that we expect to be transferred tous (subject to completion of forfeiture proceedings before a federal judge todetermine if there are any superior claims).

 

#### ***There is uncertaintyregarding the amount of our tax attributes and our potential tax liabilities.***

#### *** ***

As a result of the fraud and other alleged improper actscommitted by Rigas Management (as explained in greater detail herein in Item 1,“Business — Certain Business and Other Developments

 

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Relating to the Chapter 11 Cases — Certain EventsLeading to the Installation of Interim Management and Commencement of theChapter 11 Cases in 2002”),we corrected our books and records for the years 1999-2004. We currently intendto file certain amended federal, state and local income and franchise taxreturns for 1999 through 2004 to conform to our corrected books and records. Thismay entail the preparation and filing of over 3,600 federal, state and localincome and franchise tax returns. Although we have begun the process ofpreparing these amended returns, this undertaking will take a substantialamount of time to complete. We expect that the amendment of these income tax andfranchise tax returns will result in substantial changes to the amount andlocation of our tax attributes (such as asset tax basis and net operating losscarryovers) for federal, state and local income and franchise tax purposes. Itis possible that the amended tax returns will reflect additional federal, stateand local income tax and franchise tax liabilities for these periods that werenot reflected on the original returns and that will become payable.

 

In addition, there is currently uncertainty related to ourtax attributes and historical tax liability. We recorded reserves to reflectthis uncertainty; however, our ultimate tax liability for these periods mayexceed such reserves by a material amount. In light of this uncertainty, weexpect to reserve a portion of proceeds from the Sale Transaction to fund theseand other contingent liabilities.

 

#### ***The tax consequences ofour settlements with the U.S. Attorney and the SEC, and our acquisition of theRigas Co-Borrowing Entities (other than Coudersport and Bucktail) andsubsequent sale of the assets of those entities, are uncertain.***

#### *** ***

The proper characterization for federal, state and localincome and franchise tax purposes of our settlements with the U.S. Attorney andthe SEC, and our acquisition of the Rigas Co-Borrowing Entities (other thanCoudersport and Bucktail) and subsequent sale of the assets of those entities,is uncertain. Accordingly, the amount of income, gain, loss or deductionresulting from these various transactions is not known with certainty. It ispossible that the acquisition of such Rigas Co-Borrowing Entities or theirassets, and the subsequent sale of the assets of those entities, may result inincome and franchise tax liability to us, which could be material. We expect toreserve a portion of the proceeds from the Sale Transaction to fund thispotential liability.

 

***Adelphia and several of its subsidiaries failed to fileperiodic reports for prior periods during which they had reporting obligations,which may create civil and criminal liability under federal securities law andhave a material adverse impact on the recovery contemplated by the Plan.***

 

Because of record keepingand financial reporting practices employed during the tenure of RigasManagement, Adelphia failed to file periodic reports with the SEC for certainprior periods and thus was not current in its periodic reporting obligationsunder the Exchange Act during such periods. Similarly, we cannot obtain thedata required to produce reliable financial statements for certain of oursubsidiaries that also are reporting companies under the Exchange Act. As aresult, certain of our subsidiaries failed to file and are unable to fileperiodic reports with the SEC for prior periods during which they had reportingobligations. The failure to file periodic reports with the SEC may create civiland criminal liability under federal securities law, the result of which couldhave a material adverse impact on the recovery to our creditors and to thecreditors of certain of our subsidiaries.

 

#### ***Risk Factors Relating toOur Business***

#### *** ***

#### ***The continued decline ofour basic cable subscribers could have a material adverse effect on ourbusiness, financial condition and results of operations.***

#### *** ***

We lost approximately 133,000basic cable subscribers in 2005, and we expect subscriber losses to continue in2006. This decline was driven primarily by competitive pressures from DBSproviders, brand impairment as a result of the Chapter 11 Cases and theactions of Rigas Management and ordinary course rate increases taken throughoutthe year. In addition, seasonality issues (college communities, warm/coldweather community migrations) can increase churn and subscriber loss. Also, asignificant portion of our subscribers on promotions disconnect their servicewhen the promotion expires. Increases in churn result

 

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in higher operating costs through increased servicecalls, higher customer call volume and added marketing expense. If oursubscriber losses are significantly greater than our projections, the loss ofsuch subscribers may result in a material adverse effect on our financialcondition and results of operations.

 

In addition, subscriberloss above specified projected levels would result in a reduction in the purchaseprice payable in the Sale Transaction by Comcast and/or TW NY and subscriberloss above a specified level greater than our projected levels could result inthe termination of the Sale Transaction at their option.

 

#### ***Our business is subjectto extensive governmental legislation and regulation, which could have amaterial adverse effect on our business by increasing our expenses or limitingour operational flexibility.***

#### *** ***

Various laws andregulations affect our business. Increased regulation or changes in existingregulation may require us to change our business practices and may increase thecosts of providing services to our customers, which could have a materialadverse effect on our financial condition and results of operations. See Item1, “Business — Regulation and Legislation.”  The key regulatory risks currently facing usare set forth below:

 

•                  Pricing.The Communications Act and the FCC’s regulations and policies limit the pricesthat cable systems may charge for basic service and equipment in communitiesthat are not subject to effective competition, as defined by federal law. Someparties have proposed imposing new regulations on the pricing and packaging ofcable services. The FCC has certain cable pricing matters under review. Wecannot now predict the outcome of these pricing-related initiatives.

 

•                  Must-Carry.Cable companies are currently subject to a requirement that they carry, withoutcompensation, the programming transmitted by most commercial and non-commerciallocal television stations that have not elected retransmission consent. InFebruary 2005, the FCC decided not to expand these must-carry obligations asbroadcasters transition from analog to digital transmission technologies. Specifically,the FCC decided not to require cable operators to carry both broadcasters’analog and digital signals during the transition or broadcasters’ digitalmulticast services during or after the transition. Various parties are seekingto reverse the FCC’s decision at the FCC, in federal court, and in Congress. Wecannot predict at this time whether these challenges to the FCC’s decision willsucceed and, if they do succeed, how they might affect our operations. We alsocannot predict whether any party will take any additional actions regarding theFCC’s decision or, if parties do take additional actions, how such actionsmight affect our operations.

 

•                  HSI.The FCC has classified high-speed cable Internet service as an “interstateinformation service,” which has historically meant that fewer regulations applyto the provision of this service. The FCC’s classification was recently upheldby the U.S. Supreme Court. The FCC is currently considering whether to imposeany federal regulations on high-speed cable Internet service, such as rulesrelating to customer service, and whether to permit LFAs to impose fees orother requirements on such service. It has also imposed obligations to assistin law enforcement monitoring. We cannot predict the outcome of these FCCdeliberations or how such outcome might affect our operations.

 

Cable operators are alsosubject to other requirements covering a variety of operational areas, such astechnical standards and customer service requirements. In addition, manyaspects of these regulations currently are the subject of judicial proceedingsand administrative or legislative proposals. There also are ongoing efforts toamend or expand the state and local regulation of some cable systems, which maycompound the regulatory risks we already face. We cannot predict whether inresponse to these efforts any of the states or localities in which we nowoperate will expand the regulation of our cable systems in the future or howthey will do so.

 

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In addition, we arerequired to obtain federal, state and local licenses and other authorizationsin connection with our offering of communications services. We may not be ableto obtain these licenses and authorizations in a timely manner, or at all, andconditions that are unfavorable to us could be imposed upon these licenses orauthorizations. To the extent that we decide to offer telephone services, wewill be subject to risks associated with the regulation of such communicationsservices by the FCC and state and/or local authorities, as well as the likelihoodof higher fees for pole attachments, which could have a material adverse effecton our financial condition and results of operations.

 

#### ***We may not be able topass increases in our programming costs on to our customers, which could have amaterial adverse effect on our financial condition and results of operations.***

#### *** ***

Programming costs havehistorically been, and are expected to continue to be, our largest singleexpense item. In recent years, the cable and satellite video industries haveexperienced a rapid escalation in the cost of programming, particularly sportsprogramming. This escalation may continue, and we may not be able to passprogramming cost increases on to our customers due to competitive constraints. Inaddition, as we upgrade our systems and continue to rollout advanced servicessuch as HD and VOD, we may face increased programming costs. This, inconjunction with the additional market constraints on our ability to passprogramming costs on to our customers, may have a material adverse effect onour financial condition and results of operations.

 

We are also party toretransmission consent agreements with broadcasters under which we are requiredto obtain the consent of the broadcasters prior to retransmitting broadcastprogramming to our subscribers. Broadcasters are increasingly making demandsfor financial and other concessions in order to obtain their consent, and wemay not be able to continue to reach agreements with these broadcasters toobtain retransmission consents on acceptable terms, if at all. We cannotpredict the magnitude of the financial effect should we fail to obtainretransmission consents on reasonable terms and be unable to provide certainbroadcast programming to our subscribers.

 

#### ***Competition fromprogramming distributors and other communications providers could adverselyaffect the future results of our operations.***

#### *** ***

The broadbandcommunications industry in which we operate is highly competitive. Our cablesystems’ video services compete with a number of different sources, principallyDBS providers that provide information, news and entertainment programming. Inaddition, several of the RBOCs have recently announced plans to upgrade theirnetworks and provide video services to consumers, and some have began to offervideo service. We also are facing increased competition from larger telephonecompany competitors as telephone companies, such as Verizon and MCI, SBC andAT&T and potentially AT&T and BellSouth Corporation, continue toconsolidate. Our HSI services compete with DSL services and dial-up servicesprovided by telephone companies and other providers. To the extent ourcompetitors are able to bundle the services they offer to consumers with otherservices, such as bundling video, HSI and/or wireless telephony services, itwill be more difficult for us to sell our services to consumers who arepurchasing these bundled services from our competitors, as well as retaincurrent customers to whom such competing bundles are available. Many of thecompanies with which we compete have better financial resources, greater accessto financing, more operational experience, better brand name recognition andless extensive regulatory obligations. This competition may adversely impactour ability to attract and retain subscribers, generate incremental revenuethrough upgrades and selling of advanced services and increase or maintainprices for our services, any of which could have a material adverse effect onour financial condition and results of operations.

 

#### ***Our cable systems areoperated under franchises that are subject to non-renewal or termination.***

#### *** ***

Our cable systemsgenerally operate pursuant to franchises that are typically granted by amunicipality or other state or local government that controls the publicrights-of-way. Many franchises establish comprehensive requirements, includingas to documentation, facilities and services, and specific customer servicestandards, and impose monetary penalties for non-compliance. At any given time,some of our franchises may be out of compliance with such requirements. In manycases, franchises are 

 

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terminable if the franchisee fails to comply withmaterial provisions set forth in the franchise agreement. Franchises generally aregranted for fixed terms and must be periodically renewed. LFAs may resistgranting or deny a renewal or transfer of a franchise if either pastperformance or compliance or the prospective operating proposal is consideredinadequate. LFAs often demand concessions or other commitments as a conditionto renewal or transfer, which concessions or other commitments have been andmay continue to be costly.

 

We have a number offranchises that are nearing expiration or have already expired. Although themajority of such franchises are entitled to the 1984 Cable Act formal renewalprocedures and protections and we will pursue such renewal procedures, a numberof such franchises are not entitled to 1984 Cable Act formal renewal procedures.As of December 31, 2005, we had approximately 173 franchises (representingapproximately 625,000 basic cable subscribers) that have expired, but for whichnotice of renewal was timely provided to the franchising authority and forwhich we intend to pursue the renewal protections and procedures of the 1984Cable Act. However, notice of renewal under the 1984 Cable Act was not timelyprovided for approximately 27 franchises (representing approximately 44,000 subscribers)that had expired and approximately 28 franchises (representing approximately 61,000subscribers) that had less than 30 months until expiration and, therefore, weredeemed not timely filed under the 1984 Cable Act. If a franchise is terminatedor is not renewed, it could have a material adverse effect on our business inthe affected market, and if multiple franchises are terminated or not renewed,this could have a material adverse effect on our financial condition andresults of operations.

 

#### ***We operate cable systemsunder franchises that are nonexclusive, which could lead to additionalfranchised competitors operating in areas where we hold franchises, reducingthe potential profitability of those markets.***

#### *** ***

Our cable systems areoperated under non-exclusive franchises granted by LFAs. Consequently, theseLFAs can grant additional franchises to competitors in the same geographic area.As a result, competitors, including the local telephone company, may buildsystems in areas in which we may hold franchises. In some cases municipalutilities may legally compete with us without obtaining a franchise from therelevant LFA. Some states, including Indiana, Texas and Virginia, have alreadypassed legislation allowing state-wide franchises for new video serviceproviders on terms less burdensome than existing local cable franchises,although the Texas law is currently subject to court challenge. Other statesare considering similar legislation. These overbuilds could have a materialadverse effect on our business in the affected market.

 

#### ***LFAs have the ability toimpose additional regulatory constraints on our business, which can furtherincrease our expenses.***

#### *** ***

In addition to therelevant franchise agreements, cable authorities in some jurisdictions haveadopted cable regulatory ordinances that further regulate the operation of cablesystems. These additional regulations have the effect of increasing ourexpenses in operating our business. LFAs may impose new and more restrictiverequirements on us. In addition, certain of our LFAs have certified with theFCC to regulate our basic service and equipment rates and have the ability toreduce certain rates and order refunds of basic service and associatedequipment rates based on a review of our rate filings and application ofapplicable FCC rules and guidelines.

 

#### ***We rely on the Third ExtendedDIP Facility to provide funding for our working capital needs, and the failureto maintain access to these funds or the failure to extend the Third ExtendedDIP Facility, if necessary, could have a material adverse effect on us.***

#### *** ***

#### ***We rely on the Third Extended DIP Facility to providefunding for our working capital needs, and, therefore, we must continue tocomply with the covenants specified in the Third Extended DIP Facility tomaintain access to such funds. Any failure to comply with such covenants wouldconstitute a default under the Third Extended DIP Facility and could have amaterial adverse effect on the Debtors. In addition, the obligation of thelenders to make loans under the Third Extended DIP Facility currently expireson August 7, 2006. If the consummation of the Sale Transaction and theeffective date of the Plan do not***

 

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#### ***occur prior to August 7, 2006, wewill need to seek an extension of the Third Extended DIP Facility. There can beno assurance that we will be successful in obtaining such an extension, ifnecessary, on terms that are acceptable to us, if at all, and the failure to doso would have a material adverse effect on our financial condition and resultsof operations.***

#### *** ***

#### ***We are defendants insignificant pending litigation, which could have a material adverse effect onus.***

#### *** ***

We are defendants incertain significant litigation, described in more detail in Item 3, “LegalProceedings.”  If any of theseproceedings is decided against us, we could be subject to substantial damages,other penalties or non-monetary remedies. These penalties and other effects oflitigation, including the significant legal fees and expenses we are incurringand will continue to incur, could have a material adverse effect on ourfinancial condition and results of operations. In addition, our participationin such proceedings require the use of a significant amount of managementresources, which is likely to continue as we seek to resolve these matters. Thecontinued failure to resolve such litigation could have a significant adverseimpact on the availability of our management resources.

 

***Ifthe Sale Transaction is not consummated and we continue doing business as astand-alone entity, we would expect to resume our efforts to launch VoIP in anincreasingly competitive and highly regulated market. Our failure tosuccessfully launch VoIP as a stand-alone entity could have a material adverseeffect on our business and results of operations.***

 

In 2005, we completed thetechnical and operational trials validating our network and operational abilityto provide residential phone services using VoIP technology over the hybridfiber coaxial (HFC) network. We have determined that it is not a good use of ourresources to launch VoIP service at this time, particularly in light of theimpending Sale Transaction. If the Sale Transaction is not consummated and wecontinue doing business as a stand-alone entity, we would expect to recommenceour efforts to launch our VoIP service. The regulatory status of VoIP, however,is uncertain due to continuing controversy among various parties, especiallytelephone companies, cable companies and federal and state regulators as towhether numerous telephone service regulations and obligations should apply toVoIP service. This regulatory uncertainty could pose several obstacles to anyfuture launch of our VoIP service. For example, incumbent telephone companiesmight deny us interconnection rights or make it difficult for us to obtaintelephone numbers for our customers. The extent to which these or otherobstacles could delay or complicate any future launch of our VoIP servicecannot be predicted at this time. In the event, however, the Sale Transactionis not consummated and we continue doing business as a stand-alone entity,failure to launch VoIP could have a material adverse effect on our business andresults of operations.

 

#### ***We may not be able tokeep pace with technological developments or customers’ demand for advancedservices, which would impair our ability to compete and adversely affect ourperformance and future prospects.***

#### *** ***

We may not be able tokeep pace with technological developments and may**not be able to successfullyanticipate the demand of customers for services requiring new technology. Thistype of rapid technological change could have a material adverse effect on ourbusiness. For example, our cable business may be adversely affected bycompetition from alternate technologies for delivering video, data and voiceservices, such as new and emerging wireless and IP-based distribution platforms.Our inability to upgrade, maintain and expand our systems and provide advancedservices in a timely manner or to anticipate the demands of the marketplacecould have a material adverse effect on our ability to compete effectively. Likewise,our business may be adversely affected if new equipment, such as digitalset-top boxes or DVRs, or new services, such as digital cable, HSI service orVOD, fail to appeal to enough consumers, are unavailable at prices consumersare willing to pay, do not function as expected or are not delivered in atimely fashion. In addition, if the Sale Transaction is not consummated and wecontinue doing business as a stand-alone entity, our business may be adverselyaffected by our delay in launching VoIP service. Further, the introduction ofVoIP or other new services would require substantial expansion in customer careservice and billing, which we may not be able to provide or which may provemore costly than anticipated. Finally, while we believe that providing bundledservice offerings will be increasingly important as new services are provided,we currently have limited ability to provide unified customer care

 

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and billing. Consequently, our financial condition andresults of operations could be materially and adversely affected.

 

#### ***We are exposed tophysical and economic events outside of our control that affect the regionswhich we serve.***

#### *** ***

#### ***We have significant operations in regions that arevulnerable to hurricanes and other natural disasters. Our financial conditionand results of operations can be adversely affected by physical and economicevents outside of our control that affect operations in these regions.***

#### *** ***

#### ***ITEM 1B. UNRESOLVED STAFF COMMENTS***

#### *** ***

#### ***None.***

#### *** ***

#### ***ITEM 2. PROPERTIES***

#### *** ***

Our principal physicalassets consist of cable television operating plant and equipment, includingsignal receiving, encoding and decoding devices, headends and distributionsystems and subscriber house drop equipment for each of our cable systems. Thesignal receiving apparatus typically includes a tower, antenna, ancillaryelectronic equipment and earth stations for reception of satellite signals. Headends,consisting of associated electronic equipment necessary for the reception,amplification and modulation of signals, are located near the receiving devices.Our distribution system consists primarily of coaxial and fiber optic cablesand related electronic equipment. Subscriber devices consist of decodingset-top boxes. The physical components of cable systems require maintenance andperiodic upgrading to keep pace with technological advances. Such properties donot lend themselves to description by character and location of principalunits.

 

Our cables and relatedequipment are attached in certain cases, to utility poles under pole rentalagreements with local public utilities or the distribution cable is buried inunderground ducts or trenches. See Item 1, “Business — Regulation andLegislation.”

 

We own or lease parcelsof real property for signal reception sites (antenna towers and headends),microwave facilities and business offices in each of our market areas, and ownapproximately half of our service vehicles.

 

We believe that ourproperties, both owned and leased, are in good operating condition and aresuitable and adequate for our business operations.

 

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## **ITEM3. LEGAL PROCEEDINGS**

## ** **

### **BANKRUPTCY PROCEEDINGS**

### ** **

On June 25, 2002,Adelphia and substantially all of its wholly owned, domestic subsidiaries filedvoluntary petitions to reorganize under Chapter 11 in the Bankruptcy Court. OnOctober 6 and November 15, 2005, certain additional subsidiaries filedvoluntary petitions to reorganize at which time they became part of the Debtorsand the Chapter 11 Cases. Previously, on June 10, 2002, Century filed avoluntary petition to reorganize under Chapter 11. These cases are beingjointly administered under the caption “In re: Adelphia Communications Corporation,et al., Case No. 02-41729.”  We arecurrently operating as debtors-in-possession.

 

Under the BankruptcyCode, actions to collect pre-petition indebtedness, as well as most otherpending litigation, are stayed and other contractual obligations against usgenerally may not be enforced. Absent an order of the Bankruptcy Court,substantially all pre-petition liabilities, including certain of theproceedings described below, will be settled under a plan of reorganization,which must be voted upon by holders of claims and equity interests and approvedby the Bankruptcy Court.

 

We cannot predict theoutcome of these proceedings or estimate the possible effects on our financialcondition or results of operations.

 

### **SEC CIVIL ACTION AND DOJ INVESTIGATION**

### ** **

On July 24, 2002,the SEC filed a civil enforcement action (the “SEC Civil Action”) againstAdelphia, certain members of the Rigas Family and others, alleging varioussecurities fraud and improper books and records claims arising out of actionsallegedly taken or directed by certain members of Rigas Management (none ofwhom remain with us).

 

On December 3, 2003,the SEC filed a proof of claim in the Chapter 11 Cases against Adelphia for,among other things, penalties, disgorgement and prejudgment interest in anunspecified amount. The staff of the SEC told our advisors that its assertedclaims for disgorgement and civil penalties under various legal theories couldamount to billions of dollars. On July 14, 2004, the Creditors’Committee initiated an adversary proceeding seeking, in effect, to subordinatethe SEC’s claims based on the SEC Civil Action.

 

On April 25, 2005,after extensive negotiations with the SEC and the U.S. Attorney, we enteredinto the Non-Prosecution Agreement pursuant to which we agreed, among otherthings to contribute $715 million in value to the Restitution Fund, to continueto cooperate with the U.S. Attorney until the later of April 25, 2007, orthe date upon which all prosecutions arising out of the conduct described inthe Rigas Criminal Action (as described below) and SEC Civil Action are finaland not to assert claims against the Rigas Family except for John J.Rigas, Timothy J. Rigas and Michael J. Rigas (together, the “ExcludedParties”), provided that Michael J. Rigas will cease to be an Excluded Party ifall currently pending criminal proceedings against him are resolved without afelony conviction on a charge involving fraud or false statements (other thanfalse statements to the U.S. Attorney or the SEC). On November 23, 2005, Michael J.Rigas pled guilty to a violation of Title 47, U.S. Code,Section 220(e) for making a false entry in a Company record (in aform required to be filed with the SEC), and on March 3, 2006, was sentenced totwo years of probation, including 10 months of home confinement.

 

Our contribution to theRestitution Fund will consist of stock, future proceeds of litigation and,assuming consummation of the Sale Transaction (or another sale generating cashof at least $10 billion), cash. In the event of a sale generating bothstock and at least $10 billion in cash, as contemplated in the SaleTransaction, the components of our contribution to the Restitution Fund willconsist of $600 million in cash and stock (with at least $200 million in cash)and 50% of the first $230 million of future proceeds, if any, from certainlitigation against third parties who injured us. If, however, the SaleTransaction (or another sale) is not consummated and instead we emerge frombankruptcy as an independent entity, the

 

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$600 million payment by us will consist entirely of stock in thereorganized Adelphia. Unless extended on consent of the U.S. Attorney and theSEC, which consent may not be unreasonably withheld, we must make thesepayments on or before the earlier of October 15, 2006, 120 daysafter confirmation of a stand-alone plan of reorganization, or seven daysafter the first distribution of stock or cash to creditors under any plan ofreorganization. We recorded charges of $425 million and $175 million during2004 and 2002, respectively, related to the Non-Prosecution Agreement.

 

The U.S. Attorneyagreed not to prosecute Adelphia or specified subsidiaries of Adelphia forany conduct (other than criminal tax violations) related to the Rigas CriminalAction (defined below) or the allegations contained in the SEC Civil Action, notto use information obtained through our cooperation with the U.S. Attorney tocriminally prosecute us for tax violations, and to transfer to us all of theRigas Co-Borrowing Entities forfeited by the Rigas Family and Rigas FamilyEntities, certain specified real estate forfeited by the Rigas Family and RigasFamily Entities and any of our securities that were directly or indirectlyowned by the Rigas Family and Rigas Family Entities prior to forfeiture. TheU.S. Attorney agreed with the Rigas Family not to require forfeiture ofCoudersport and Bucktail (which together served approximately 5,000 subscribersas of the date of the Forfeiture Order). A condition precedent to our obligationto make the contribution to the Restitution Fund described in the precedingparagraph is our receipt of title to the Rigas Co-Borrowing Entities, certainspecified real estate and any securities described above forfeited by the RigasFamily and Rigas Family Entities, free and clear of all liens, claims,encumbrances or adverse interests. The forfeited Rigas Co-Borrowing Entitiesanticipated to be transferred (subject to completion of forfeiture proceedingsbefore a federal judge to determine if there are any superior claims) to us representthe overwhelming majority of the Rigas Co-Borrowing Entities’ subscribers andvalue.

 

Also on April 25,2005, we consented to the entry of a final judgment in the SEC Civil Actionresolving the SEC’s claims against us. Pursuant to this agreement, we will bepermanently enjoined from violating various provisions of the federalsecurities laws, and the SEC has agreed that if we make the $715 million contributionto the Restitution Fund, then we will not be required to pay disgorgement or acivil monetary penalty to satisfy the SEC’s claims.

 

Pursuantto letter agreements with TW NY and Comcast, the U.S. Attorney has agreed,notwithstanding any failure by us to comply with the Non-Prosecution Agreement,that it will not criminally prosecute any of the joint venture entities ortheir subsidiaries purchased from us by TW NY or Comcast pursuant to thePurchase Agreements. Under such letter agreements, each of TW NY and Comcast have agreedthat following the closing of the Sale Transaction they will cooperate with therelevant governmental authorities’ requests for information about our operations,finances and corporate governance between 1997 and confirmation of the Plan.The sole and exclusive remedy against TW NY or Comcast for breach of anyobligation in the letter agreements is a civil action for breach of contractseeking specific performance of such obligations. In addition, TW NY andComcast entered into letter agreements with the SEC agreeing that upon andafter the closing of the Sale Transaction, TW NY, Comcast and their respectiveaffiliates (including the joint venture entities transferred pursuant to thePurchase Agreements) will not be subject to, or have any obligation under, thefinal judgment consented to by us in the SEC Civil Action.

 

The Non-ProsecutionAgreement was subject to the approval of, and has been approved by, theBankruptcy Court. Adelphia’s consent to the final judgment in the SEC CivilAction was subject to the approval of, and has been approved by, both theBankruptcy Court and the District Court. Various parties have challenged andsought appellate review or reconsideration of the orders of the BankruptcyCourt approving these settlements. The District Court affirmed the BankruptcyCourt’s approval of the Non-Prosecution Agreement, Adelphia’s consent to thefinal judgment in the SEC Civil Action and the Adelphia-Rigas SettlementAgreement. On March 24, 2006, various parties appealed the DistrictCourt's order affirming the Bankruptcy Court's approval to the Second Circuit. Theorder of the District Court approving Adelphia’s consent to the final judgmentin the SEC Civil Action has not been appealed. The appeals of the DistrictCourt’s approval of the Government-Rigas Settlement Agreement and the creationof the Restitution Fund have been denied by the Second Circuit.

 

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### **ADELPHIA’S LAWSUIT AGAINST THE RIGAS FAMILY**

### ** **

On July 24, 2002,Adelphia filed a complaint in the Bankruptcy Court against John J. Rigas,Michael J. Rigas, Timothy J. Rigas, James P. Rigas, James Brown, Michael C.Mulcahey, Peter L. Venetis, Doris Rigas, Ellen Rigas Venetis and the RigasFamily Entities (the “Rigas Civil Action”). This action generally alleged thedefendants misappropriated billions of dollars from us in breach of theirfiduciary duties to Adelphia. On November 15, 2002, Adelphia filed anamended complaint against the defendants that expanded upon the facts allegedin the original complaint and alleged violations of the Racketeering Influencedand Corrupt Organizations (“RICO”) Act, breach of fiduciary duty, securitiesfraud, fraudulent concealment, fraudulent misrepresentation, conversion, wasteof corporate assets, breach of contract, unjust enrichment, fraudulentconveyance, constructive trust, inducing breach of fiduciary duty, and arequest for an accounting (the “Amended Complaint”). The Amended Complaintsought relief in the form of, among other things, treble and punitive damages,disgorgement of monies and securities obtained as a consequence of the RigasFamily’s improper conduct and attorneys’ fees.

 

On April 25, 2005,Adelphia and the Rigas Family entered into the Adelphia-Rigas SettlementAgreement, pursuant to which Adelphia agreed, among other things, to pay $11.5million to a legal defense fund for the benefit of the Rigas Family, to providemanagement services to Coudersport and Bucktail for an interim period ending nolater than December 31, 2005 (“Interim Management Services”), to indemnifyCoudersport and Bucktail, and the Rigas Family’s (other than the ExcludedParties’) interest therein, against claims asserted by the lenders under theCo-Borrowing Facilities with respect to such indebtedness up to the fair marketvalue of those entities (without regard to their obligations with respect tosuch indebtedness), to provide certain members of the Rigas Family with certainindemnities, reimbursements or other protections in connection with certainthird-party claims arising out of Company litigation, and in connection withclaims against certain members of the Rigas Family by any of the Tele-MediaJoint Ventures or Century/ML Cable, and within 10 business days of thedate on which the consent order of forfeiture is entered, dismiss the RigasCivil Action, except for claims against the Excluded Parties. The Rigas Familyagreed to make certain tax elections, under certain circumstances, with respectto the Rigas Co-Borrowing Entities (other than Coudersport and Bucktail), topay Adelphia five percent of the gross operating revenue of Coudersport andBucktail for the Interim Management Services, and to offer employment tocertain Coudersport and Bucktail employees on terms and conditions that, in theaggregate, are no less favorable to such employees (other than any employeeswho were expressly excluded by written notice to Adelphia received byJuly 1, 2005) than their terms of employment with us.

 

Pursuant to theAdelphia-Rigas Settlement Agreement, on June 21, 2005, we filed a dismissalwith prejudice of all claims in this action except against the ExcludedParties.

 

This settlement wassubject to the approval of, and has been approved by, the Bankruptcy Court.Various parties have challenged and sought appellate review or reconsiderationof the order of the Bankruptcy Court approving this settlement. The appeals ofthe Bankruptcy Court’s approval remain pending.

 

In June 2005, we paid andexpensed the aforementioned $11.5 million for legal defense costs. SeeNote 6, “Transactions with the Rigas Family and Rigas Family Entities,” tothe accompanying consolidated financial statements. The Adelphia-RigasSettlement Agreement releases us from further obligation to provide funding forlegal defense costs for the Rigas Family.

 

### **RIGAS CRIMINAL ACTION**

### ** **

In connection with aninvestigation conducted by the DoJ, on July 24, 2002, certain members ofthe Rigas Family and certain alleged co-conspirators were arrested, and onSeptember 23, 2002, were indicted by a grand jury on charges including fraud,securities fraud, bank fraud and conspiracy to commit fraud (the “RigasCriminal Action”). On November 14, 2002, one of the Rigas Family’s allegedco-conspirators, James Brown, pleaded guilty to one count each of conspiracy,securities fraud and bank fraud.

 

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On January 10, 2003, another of the Rigas Family’s allegedco-conspirators, Timothy Werth, who had not been arrested with the others onJuly 24, 2002, pleaded guilty to one count each of securities fraud,conspiracy to commit securities fraud, wire fraud and bank fraud. The trial inthe Rigas Criminal Action began on February 23, 2004 in the DistrictCourt. On July 8, 2004, the jury returned a partial verdict in the RigasCriminal Action. John J. Rigas and Timothy J. Rigas were each found guilty ofconspiracy (one count), bank fraud (two counts), and securities fraud (15counts) and not guilty of wire fraud (five counts). Michael J. Mulcahey wasacquitted of all 23 counts against him. The jury found Michael J. Rigas notguilty of conspiracy and wire fraud, but remained undecided on the securitiesfraud and bank fraud charges against him. On July 9, 2004, the courtdeclared a mistrial on the remaining charges against Michael J. Rigas after thejurors were unable to reach a verdict as to those charges. The bank fraudcharges against Michael J. Rigas have since been dismissed with prejudice. OnMarch 17, 2005, the District Court denied the motion of John J. Rigas andTimothy J. Rigas for a new trial. On June 20, 2005, John J. Rigas andTimothy J. Rigas were convicted and sentenced to 15 years and20 years in prison, respectively. John J. Rigas and Timothy J. Rigas haveappealed their convictions and sentences and remain free on bail pendingresolution of their appeals. On November 23, 2005, Michael J. Rigas pledguilty to a violation of Title 47, U.S. Code, Section 220(e) formaking a false entry in a Company record (in a form required to be filed withthe SEC), and on March 3, 2006, was sentenced to two years of probation,including 10 months of home confinement.

 

 The indictmentagainst the Rigas Family included a request for entry of a money judgment in anamount exceeding $2.5 billion and for entry of an order of forfeiture of allinterests of the convicted Rigas defendants in the Rigas Family Entities. OnDecember 10, 2004, the DoJ filed an application for a preliminary order offorfeiture finding John J. Rigas and Timothy J. Rigas jointly and severallyliable for personal money judgments in the amount of $2.533 billion.

 

On April 25, 2005,the Rigas Family and the U.S. Attorney entered into the Government-RigasSettlement Agreement, pursuant to which the Rigas Family agreed toforfeit all of the Rigas Co-Borrowing Entities with the exception ofCoudersport and Bucktail, certain specified real estate, and all securities inthe Company directly or indirectly owned by the Rigas Family. The U.S. Attorneyagreed not to seek additional monetary penalties from the Rigas Family,including the request for a money judgment as noted above, from the proceeds ofcertain assets forfeited by the Rigas Family, to establish the Restitution Fundfor the purpose of providing restitution to holders of our publicly tradedsecurities, and to inform the District Court of this agreement at thesentencing of John J. Rigas and Timothy J. Rigas.

 

Pursuant to theForfeiture Order, all right, title and interest of the Rigas Family and RigasFamily Entities in the Rigas Co-Borrowing Entities (other than Coudersport andBucktail), certain specified real estate and any of our securities wereforfeited to the United States on or about June 8, 2005. Such assets andsecurities are expected to be transferred to us (subject to completion offorfeiture proceedings or about a federal judge to determine if there are anysuperior claims) in furtherance of the Non-Prosecution Agreement. OnAugust 19, 2005, we filed a petition with the District Court seeking anorder transferring title to these assets and securities to us. Since that time,petitions have been filed by three lending banks, each asserting an interest inthe Rigas Co-Borrowing Entities for the purpose, according to the petitions, ofprotecting against the contingency that the Bankruptcy Court approval ofcertain settlement agreements is overturned on appeal. In addition, petitions havebeen filed by two local franchising authorities with respect to two of theRigas Co-Borrowing Entities, by two mechanic’s lienholders with respect to twoof the forfeited real properties and by a school district with respect to oneof the forfeited real properties. Finally, our petition asserted claims to theforfeited properties on behalf of two subsidiaries, Century/ML Cable and SuperCable ALK International, A.A. (Venezuela), that are no longer owned by us. Thegovernment has requested that its next status report to the District Courtregarding the forfeiture proceedings be submitted on April 21, 2006. SeeNote 6, “Transactions with the Rigas Family and Rigas Family Entities,” tothe accompanying consolidated financial statements for additional information.

 

We were not a defendantin the Rigas Criminal Action, but were under investigation by the DoJ regardingmatters related to alleged wrongdoing by certain members of the Rigas Family.Upon approval of the Non-Prosecution Agreement, Adelphia and specifiedsubsidiaries are no longer subject to criminal prosecution (other than forcriminal tax violations) by the U.S. Attorney for any conduct related to the

 

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Rigas Criminal Action or the allegations contained in the SEC CivilAction, so long as we comply with our obligations under the Non-ProsecutionAgreement.

 

### **SECURITIES AND DERIVATIVE LITIGATION**

### ** **

Certain of the Debtorsand certain former officers, directors and advisors have been named asdefendants in a number of lawsuits alleging violations of federal and statesecurities laws and related claims. These actions generally allege that thedefendants made materially misleading statements understating our liabilitiesand exaggerating our financial results in violation of securities laws.

 

In particular, beginningon April 2, 2002, various groups of plaintiffs filed more than 30 classaction complaints, purportedly on behalf of certain of our shareholders andbondholders or classes thereof in federal court in Pennsylvania. Severalnon-class action lawsuits were brought on behalf of individuals or small groupsof security holders in federal courts in Pennsylvania, New York, South Carolinaand New Jersey, and in state courts in New York, Pennsylvania, California andTexas. Seven derivative suits were also filed in federal and state courts inPennsylvania, and four derivative suits were filed in state court in Delaware.On May 6, 2002, a notice and proposed order of dismissal without prejudicewas filed by the plaintiff in one of these four Delaware derivative actions.The remaining three Delaware derivative actions were consolidated onMay 22, 2002. On February 10, 2004, the parties stipulated and agreedto the dismissal of these consolidated actions with prejudice.

 

The complaints, whichnamed as defendants the Company, certain of our former officers and directorsand, in some cases, our former auditors, lawyers, as well as financialinstitutions who worked with us, generally allege that, among other improperstatements and omissions, defendants misled investors regarding our liabilitiesand earnings in our public filings. The majority of these actions assert claimsunder Sections 10(b) and 20(a) of the Exchange Act and SECRule 10b-5. Certain bondholder actions assert claims for violation ofSection 11 and/or Section 12(a)(2) of the Securities Act.Certain of the state court actions allege various state law claims.

 

On July 23, 2003,the Judicial Panel on Multidistrict Litigation issued an order transferringnumerous civil actions to the District Court for consolidated or coordinatedpre-trial proceedings (the “MDL Proceedings”).

 

On September 15,2003, proposed lead plaintiffs and proposed co-lead counsel in the consolidatedclass action were appointed in the MDL Proceedings. On December 22, 2003,lead plaintiffs filed a consolidated class action complaint. Motions to dismisshave been filed by various defendants. Beginning in the spring of 2005, thecourt in the MDL Proceedings granted in part various motions to dismissrelating to many of the actions, while granting leave to replead some claims. Theparties continue to brief pleading motions, and no answer to the consolidatedclass action complaint, or the other actions, has been filed. The consolidatedclass action complaint seeks monetary damages of an unspecified amount,rescission and reasonable costs and expenses and such other relief as the courtmay deem just and proper. The individual actions against us also seek damagesof an unspecified amount.

 

Pursuant tosection 362 of the Bankruptcy Code, all of the securities and derivativeclaims that were filed against us before the bankruptcy filings areautomatically stayed and not proceeding as to the Company.

 

We cannot predict theoutcome of these proceedings or estimate the possible effects on our financialcondition or results of operations.

 

### **ACQUISITION ACTIONS**

### ** **

After the allegedmisconduct of certain members of the Rigas Family was publicly disclosed, threeactions were filed in May and June 2002 against us by former shareholdersof companies that we acquired,

 

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in whole or in part, through stock transactions. These actions allegethat we improperly induced these former shareholders to enter into these stocktransactions through misrepresentations and omissions, and the plaintiffs seekmonetary damages and equitable relief through rescission of the underlyingacquisition transactions.

 

Two of these proceedingshave been filed with the American Arbitration Association alleging violationsof federal and state securities laws, breaches of representations andwarranties and fraud in the inducement. One of these proceedings seeksrescission, compensatory damages and pre-judgment relief, and the other seeksspecific performance. The third action alleges fraud and seeks rescission,damages and attorneys’ fees. This action was originally filed in a ColoradoState Court, and subsequently was removed by us to the United States DistrictCourt for the District of Colorado. The Colorado State Court action was closedadministratively on July 16, 2004, subject to reopening if and when theautomatic bankruptcy stay is lifted or for other good cause shown. Theseactions have been stayed pursuant to the automatic stay provisions ofsection 362 of the Bankruptcy Code.

 

We cannot predict theoutcome of these proceedings or estimate the possible effects on our financialcondition or results of operations.

 

### **EQUITY COMMITTEE SHAREHOLDER LITIGATION**

### ** **

Adelphia is a defendantin an adversary proceeding in the Bankruptcy Court consisting of a declaratoryjudgment action and a motion for a preliminary injunction brought onJanuary 9, 2003 by the Equity Committee, seeking, among other relief, adeclaration as to how the shares owned by the Rigas Family and Rigas FamilyEntities would be voted should a consent solicitation to elect members of theBoard be undertaken. Adelphia has opposed such requests for relief.

 

The claims of the EquityCommittee are based on shareholder rights that the Equity Committee assertsshould be recognized even in bankruptcy, coupled with continuing claims, as ofthe filing of the lawsuit, of historical connections between the Board and theRigas Family. Motions to dismiss filed by Adelphia and others are fully briefedin this action, but no argument date has been set. If this action survivesthese motions to dismiss, resolution of disputed fact issues will occur in twophases pursuant to a schedule set by the Bankruptcy Court. Determinationsregarding fact questions relating to the conduct of the Rigas Family will notoccur until, at a minimum, after the resolution of the Rigas Criminal Action.

 

No pleadings have beenfiled in the adversary proceeding since September 2003.

 

We cannot predict theoutcome of these proceedings or estimate the possible effects on our financialcondition or results of operations.

 

### **ML MEDIA LITIGATION**

### ** **

Adelphia and ML Mediahave been involved in a longstanding dispute concerning Century/ML Cable’smanagement, the buy/sell rights of ML Media and various other matters.

 

In March 2000, MLMedia brought suit against Century, Adelphia and Arahova, a direct subsidiaryof Adelphia and Century’s immediate parent, in the Supreme Court of the Stateof New York, seeking, among other things, the dissolution of Century/ML Cableand the appointment of a receiver to sell Century/ML Cable’s assets, if noreceiver was appointed, an order authorizing ML Media to conduct an auction forthe sale of Century/ML Cable’s assets to an unrelated third party and enjoiningAdelphia from interfering with or participating in that process, an orderdirecting the defendants to comply with the Century/ML Cable joint ventureagreement with respect to provisions relating to governance matters and thebudget process, and compensatory and punitive damages. The parties negotiated aconsent order that imposed various consultative and reporting requirements onAdelphia and Century as well as restrictions on

 

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Century’s ability to make capital expenditures without ML Media’sapproval. Adelphia and Century were held in contempt of that order in early2001.

 

In connection with theDecember 13, 2001 settlement of the above dispute, Adelphia, Century/MLCable, ML Media and Highland entered into a Leveraged RecapitalizationAgreement (the “Recap Agreement”), pursuant to which Century/ML Cable agreed toredeem ML Media’s 50% interest in Century/ML Cable (the “Redemption”) on orbefore September 30, 2002 for a purchase price between $275 million and$279.8 million depending on the timing of the Redemption, plus interest. Amongother things, the Recap Agreement provided that Highland would arrange debtfinancing for the Redemption, Highland, Adelphia and Century would jointly andseverally guarantee debt service on debt financing for the Redemption on andafter the closing of the Redemption, and Highland and Century would own 60% and40% interests, respectively, in the recapitalized Century/ML Cable. Under theterms of the Recap Agreement, Century’s 50% interest in Century/ML Cable waspledged to ML Media as collateral for our obligations.

 

On September 30,2002, Century/ML Cable filed a voluntary petition to reorganize underChapter 11 in the Bankruptcy Court. Century/ML Cable was operating itsbusiness as a debtor-in-possession.

 

By an order of theBankruptcy Court dated September 17, 2003, Adelphia and Century rejectedthe Recap Agreement, effective as of such date**.**If the Recap Agreement is enforceable, the effect of the rejection of the RecapAgreement is the same as a pre-petition breach of the Recap Agreement.Therefore, Adelphia and Century are potentially exposed to “rejection damages,”which may include the revival of ML Media’s claims under the state courtactions described above.

 

Adelphia, Century,Highland, Century/ML Cable and ML Media are engaged in litigation regarding theenforceability of the Recap Agreement. On April 15, 2004, the BankruptcyCourt indicated that it would dismiss all counts of Adelphia’s challenge to theenforceability of the Recap Agreement except for its allegation that ML Mediaaided and abetted a breach of fiduciary duty in connection with the executionof the Recap Agreement. The Bankruptcy Court also indicated that it would allowCentury/ML Cable’s counterclaim to avoid the Recap Agreement as a constructivefraudulent conveyance to proceed.

 

ML Media has alleged thatit is entitled to elect recovery of either $279.8 million plus costs andinterest in exchange for its interest in Century/ML Cable or up to thedifference between $279.8 million and the fair market value of its interest inCentury/ML Cable plus costs, interest and revival of the state court claimsdescribed above. Adelphia, Century and Century/ML Cable have disputed ML Media’sclaims, and the Plan contemplates that ML Media will receive no distributionuntil such dispute is resolved.

 

On June 3, 2005,Century entered into the IAA pursuant to which Century and ML Media agreed tosell their interests in Century/ML Cable for approximately $520 million(subject to potential purchase price adjustments as defined in the IAA) to SanJuan Cable. On August 9, 2005, Century/ML Cable filed the Century/ML Planand the Century/ML Disclosure Statement with the Bankruptcy Court. OnAugust 18, 2005, the Bankruptcy Court approved the Century/ML DisclosureStatement. On September 7, 2005, the Bankruptcy Court confirmed theCentury/ML Plan, which is designed to satisfy the conditions of the IAA withSan Juan Cable and provides that all third-party claims will either be paid infull or assumed by San Juan Cable under the terms set forth in the IAA. OnOctober 31, 2005, the Century/ML Sale was consummated and the Century/MLPlan became effective. Neither the Century/ML Sale nor the effectiveness of theCentury/ML Plan resolves the pending litigation among Adelphia, Century,Highland, Century/ML Cable and ML Media. Pursuant to the IAA and the Century/MLPlan, Adelphia was granted control over Century/ML Cable’s counterclaims in thelitigation. Adelphia has since withdrawn Century/ML Cable’s counterclaim toavoid the Recap Agreement as a constructive fraudulent conveyance. OnNovember 23, 2005, Adelphia and Century filed their first amended answer,affirmative defenses and counterclaims. On January 13, 2006, ML Media repliedto Adelphia’s and Century’s amended counterclaims and moved for summaryjudgment against Adelphia and Century on both Adelphia’s and Century’sremaining counterclaims and the issue of Adelphia’s and Century’s liability. Adelphiaand

 

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Century filed their response to ML Media’s summary judgment motion, aswell as cross-motions for summary judgment, on March 13, 2006.

 

On March 9, 2006,Highland filed a motion to withdraw the reference, which, if granted, wouldtransfer the litigation among Adelphia, Century, Highland, Century/ML Cable andML Media from the Bankruptcy Court to the District Court.

 

On March 16, 2006,the Bankruptcy Court stayed all discovery for 30 days (except for certainexpert depositions). Adelphia and Century have the right to seek to renew thestay.

 

The Bankruptcy Court hastentatively scheduled trial to begin on June 26, 2006.

 

We cannot predict theoutcome of these proceedings or estimate the possible effects on our financialcondition or results of operations.

 

### **THE X CLAUSE LITIGATION**

### ** **

On December 29,2003, the Ad Hoc Committee of holders of Adelphia’s 6% and 3.25% convertiblesubordinated notes (collectively, the “Subordinated Notes”), together with theBank of New York, the indenture trustee for the Subordinated Notes(collectively, the “X Clause Plaintiffs”), commenced an adversary proceedingagainst Adelphia in the Bankruptcy Court. The X Clause Plaintiffs’ complaintsought a judgment declaring that the subordination provisions in the indenturesfor the Subordinated Notes were not applicable to an Adelphia plan ofreorganization in which constituents receive common stock of Adelphia and thatthe Subordinated Notes are entitled to share *paripassu* in the distribution of any common stock of Adelphia given toholders of senior notes of Adelphia.

 

The basis for the XClause Plaintiffs’ claim is a provision in the applicable indentures, commonlyknown as the “X Clause,” which provides that any distributions under a plan ofreorganization comprised solely of “Permitted Junior Securities” are notsubject to the subordination provision of the Subordinated Notes indenture. TheX Clause Plaintiffs asserted that, under their interpretation of the applicableindentures, a distribution of a single class of new common stock of Adelphiawould meet the definition of “Permitted Junior Securities” set forth in theindentures, and therefore be exempt from subordination.

 

On February 6, 2004,Adelphia filed its answer to the complaint, denying all of its substantiveallegations. Thereafter, both the X Clause Plaintiffs and Adelphia cross-movedfor summary judgment with both parties arguing that their interpretation of theX Clause was correct as a matter of law. The indenture trustee for the Adelphiasenior notes also intervened in the action and, like Adelphia, moved forsummary judgment arguing that the X Clause Plaintiffs were subordinated toholders of senior notes with respect to any distribution of common stock undera plan of reorganization. In addition, the Creditors’ Committee also moved tointervene and, thereafter, moved to dismiss the X Clause Plaintiffs’ complainton the grounds, among others, that it did not present a justiciable case orcontroversy and therefore was not ripe for adjudication. In a written decision,dated April 12, 2004, the Bankruptcy Court granted the Creditors’Committee’s motion to dismiss without ruling on the merits of the variouscross-motions for summary judgment. The Bankruptcy Court’s dismissal of theaction was without prejudice to the X Clause Plaintiffs’ right to bring theaction at a later date, if appropriate.

 

Subsequent to enteringinto the Sale Transaction, the X Clause Plaintiffs asserted that thesubordination provisions in the indentures for the Subordinated Notes also arenot applicable to an Adelphia plan of reorganization in which constituentsreceive TWC Class A Common Stock and that the Subordinated Notes wouldtherefore be entitled to share *pari passu*in the distribution of any such TWC Class A Common Stock given to holdersof senior notes of Adelphia. The indenture trustee for the Adelphia seniornotes (the “Senior Notes Trustee”), together with certain other constituents,disputed this position.

 

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On December 6, 2005,the X Clause Plaintiffs and the Debtors jointly filed a motion seeking that theBankruptcy Court establish a pre-confirmation process for interested parties tolitigate the X Clause dispute (the “X Clause Litigation Motion”). By orderdated January 11, 2006, the Bankruptcy Court found that the X Clause disputewas ripe for adjudication and directed interested parties to litigate thedispute prior to plan confirmation (the “X Clause Pre-Confirmation Litigation”).A hearing on the X Clause Pre-Confirmation Litigation was held on March 9 and10, 2006. The matter is now under review by the Bankruptcy Court.

 

We cannot predict theoutcome of these proceedings or estimate the possible effects on our financialcondition or results of operations.

 

### **VERIZON FRANCHISE TRANSFER LITIGATION**

### ** **

On March 20, 2002, wecommenced an action (the “California Cablevision Action”) in the United StatesDistrict Court for the Central District of California, Western Division,seeking, among other things, declaratory and injunctive relief precluding theCity of Thousand Oaks, California (the “City”) from denying permits on thegrounds that we failed to seek the City’s prior approval of an asset purchaseagreement (the “Asset Purchase Agreement”), dated December 17, 2001,between the Company and Verizon Media Ventures, Inc. d/b/a VerizonAmericast (“Verizon Media Ventures”). Pursuant to the Asset Purchase Agreement,we acquired certain Verizon Media Ventures cable equipment and network systemassets (the “Verizon Cable Assets”) located in the City for use in theoperation of our cable business in the City.

 

On March 25, 2002,the City and Ventura County (the “County”) commenced an action (the “ThousandOaks Action”) against us and Verizon Media Ventures in California State Courtalleging that Verizon Media Ventures’ entry into the Asset Purchase Agreementand conveyance of the Verizon Cable Assets constituted a breach of VerizonMedia Ventures’ cable franchises and that our participation in the transactionamounted to actionable tortious interference with those franchises. The Cityand the County sought injunctive relief to halt the sale and transfer of theVerizon Cable Assets pursuant to the Asset Purchase Agreement and to compel usto treat the Verizon Cable Assets as a separate cable system.

 

On March 27, 2002,the Company and Verizon Media Ventures removed the Thousand Oaks Action to theUnited States District Court for the Central District of California, where itwas consolidated with the California Cablevision Action.

 

On April 12, 2002,the district court conducted a hearing on the City’s and County’s applicationfor a preliminary injunction and, on April 15, 2002, the district courtissued a temporary restraining order in part, pending entry of a further order.On May 14, 2002, the district court issued a preliminary injunction andentered findings of fact and conclusions of law in support thereof (the “May 14,2002 Order”). The May 14, 2002 Order, among other things, enjoined us fromintegrating the Company’s and Verizon Media Ventures’ system assets servingsubscribers in the City and the County, required us to return “ownership” ofthe Verizon Cable Assets to Verizon Media Ventures except that we were permittedto continue to “manage” the assets as Verizon Media Ventures’ agent to theextent necessary to avoid disruption in services until Verizon Media Ventureschose to reenter the market or sell the assets, prohibited us from eliminatingany programming options that had previously been selected by Verizon MediaVentures or from raising the rates charged by Verizon Media Ventures, andrequired the Company and Verizon Media Ventures to grant the City and/or theCounty access to system records, contracts, personnel and facilities for thepurpose of conducting an inspection of the then-current “state of the VerizonMedia Ventures and the Company systems” in the City and the County. We appealedthe May 14, 2002 Order and, on April 1, 2003, the U.S. Court ofAppeals for the Ninth Circuit reversed the May 14, 2002 Order, thusremoving any restrictions that had been imposed by the district court against ourintegration of the Verizon Cable Assets and remanded the actions back to thedistrict court for further proceedings.

 

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In September 2003,the City began refusing to grant our construction permit requests, claimingthat we could not integrate the acquired Verizon Cable Assets with our existingcable system assets because the City had not approved the transaction betweenthe Company and Verizon Media Ventures, as allegedly required under the City’scable ordinance.

 

Accordingly, onOctober 2, 2003, we filed a motion for a preliminary injunction in thedistrict court seeking to enjoin the City from refusing to grant our constructionpermit requests. On November 3, 2003, the district court granted our motionfor a preliminary injunction, finding that we had demonstrated “a stronglikelihood of success on the merits.” Thereafter, the parties agreed to informallystay the litigation pending negotiations between the Company and the City for ourrenewal of our cable franchise, with the intent that such negotiations wouldalso lead to a settlement of the pending litigation. However, onSeptember 16, 2004, at the City’s request, the court set certainprocedural dates, including a trial date of July 12, 2005, which haseffectively re-opened the case to active litigation. Subsequently, theJuly 12, 2005 trial date was vacated pursuant to a stipulation and order.On July 11, 2005, the district court referred the matter to a UnitedStates magistrate judge for settlement discussions. A settlement conference washeld on October 20, 2005, before the magistrate judge. OnFebruary 21, 2006, the Bankruptcy Court approved a settlement between theCompany and the City that resolves the pending litigation and all pastfranchise non-compliance issues. Pursuant to the settlement, the parties fileda stipulation that dismissed with prejudice the Thousand Oaks Action as itpertained to the City. On March 27, 2006, the Bankruptcy Court approved asettlement between the Company and the County that resolves the pendinglitigation and all past franchise non-compliance issues. Pursuant to thesettlement, the parties will file a stipulation that dismisses with prejudicethe Thousand Oaks Action as it pertains to the County.

 

### **DIBBERN ADVERSARY PROCEEDING**

### ** **

On or aboutAugust 30, 2002, Gerald Dibbern, individually and purportedly on behalf ofa class of similarly situated subscribers nationwide, commenced an adversaryproceeding in the Bankruptcy Court against Adelphia asserting claims forviolation of the Pennsylvania Consumer Protection Law, breach of contract,fraud, unjust enrichment, constructive trust, and an accounting. This complaintalleges that Adelphia charged, and continues to charge, subscribers for cableset-top box equipment, including set-top boxes and remote controls, that isunnecessary for subscribers that receive only basic cable service and havecable-ready televisions. The complaint further alleges that Adelphia failed toadequately notify affected subscribers that they no longer needed to rent thisequipment. The complaint seeks a number of remedies including treble moneydamages under the Pennsylvania Consumer Protection Law, declaratory andinjunctive relief, imposition of a constructive trust on Adelphia’s assets, andpunitive damages, together with costs and attorneys’ fees.

 

On or aboutDecember 13, 2002, Adelphia moved to dismiss the adversary proceeding onseveral bases, including that the complaint fails to state a claim for whichrelief can be granted and that the matters alleged therein should be resolvedin the claims process. The Bankruptcy Court granted Adelphia’s motion todismiss and dismissed the adversary proceeding on May 3, 2005. In theBankruptcy Court, Mr. Dibbern has also objected to the provisionaldisallowance of his proofs of claim, which comprised a portion of theBankruptcy Court’s May 3, 2005 order. Mr. Dibbern appealed theMay 3, 2005 order dismissing his adversary proceeding to the DistrictCourt. In an August 30, 2005 decision, the District Court affirmed thedismissal of Mr. Dibbern’s claims for violation of the PennsylvaniaConsumer Protection Law, a constructive trust and an accounting, but reversedthe dismissal of Mr. Dibbern’s breach of contract, fraud and unjustenrichment claims. These three claims will proceed in the Bankruptcy Court.Adelphia filed its answer on October 14, 2005 and discovery commenced. OnMarch 15, 2006, the Debtors moved the Bankruptcy Court for an order stayingdiscovery in several adversary proceedings, including the Dibbern adversaryproceeding. On March 16, 2006, the Bankruptcy Court granted the order stayingdiscovery in the Dibbern adversary proceeding.

 

On January 17, 2006, theDebtors filed their tenth omnibus claims objection to certain claims, includingclaims filed by Dibbern totaling more than $7.9 billion (including duplicativeclaims). Through the objections, the Debtors sought to disallow and expunge eachof the Dibbern claims. On February 23,

 

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2006, Dibbern responded to the Debtors’ objections and requested thatthe Bankruptcy Court require the Debtors to establish additional reserves forDibbern’s claims or to reclassify the claims as claims against the operatingcompanies.

 

We cannot predict theoutcome of these proceedings or estimate the possible effects on our financialcondition or results of operations.

 

**TELE-MEDIAEXAMINER MOTION**

 

Bymotion filed in the Bankruptcy Court on August 5, 2004, TMCD and certainof its affiliates sought the appointment of an examiner for the followingDebtors:  Tele-Media Company ofTri-States, L.P., CMA Cablevision Associates VII, L.P., CMA CablevisionAssociates XI, L.P., TMC Holdings Corporation, Adelphia Company of WesternConnecticut, TMC Holdings, LLC, Tele-Media Investment Limited Partnership,L.P., Eastern Virginia Cablevision, L.P., Tele-Media Company of Hopewell PrinceGeorge, and Eastern Virginia Cablevision Holdings, LLC (collectively, the “JVEntities”). Among other things, TMCD alleged that management and the Boardbreached their fiduciary obligations to the creditors and equity holders ofthose entities. Consequently, TMCD sought the appointment of an examiner toinvestigate and make recommendations to the Bankruptcy Court regarding variousissues related to such entities.

 

OnApril 14, 2005, the Debtors filed a motion with the Bankruptcy Courtseeking approval of a global settlement agreement (the “Tele-Media SettlementAgreement”) by and among the Debtors and TMCD and certain of its affiliates(the “Tele-Media Parties”), which, among other things, transfers the Tele-MediaParties’ ownership interests in the JV Entities to the Debtors, leaving theDebtors 100% ownership of the JV Entities, requires the Debtors to make asettlement payment to the Tele-Media Parties of $21.65 million, resolves theabove-mentioned examiner motion, settles two pending avoidance actions broughtby the Debtors against certain of the Tele-Media Parties, reconciles 691 separateproofs of claim filed by the Tele-Media Parties, thereby allowing claims worthapproximately $5.5 million and disallowing approximately $1.9 billion ofclaims, requires the Tele-Media Parties to make a $912,500 payment to theDebtors related to workers’ compensation policies and effectuates mutualreleases between the Debtors and the Tele-Media Parties. The Tele-MediaSettlement Agreement was approved by an order of the Bankruptcy Court datedMay 11, 2005 and closed on May 26, 2005.

 

### **CREDITORS’ COMMITTEE LAWSUIT AGAINST PRE-PETITION BANKS**

### ** **

Pursuant to theBankruptcy Court order approving the DIP Facility (the “Final DIP Order”), wemade certain acknowledgments (the “Acknowledgments”) with respect to the extentof our indebtedness under the pre-petition credit facilities, as well as thevalidity and extent of the liens and claims of the lenders under suchfacilities. However, given the circumstances surrounding the filing of theChapter 11 Cases, the Final DIP Order preserved the Debtors’ right toprosecute, among other things, avoidance actions and claims against thepre-petition lenders and to bring litigation against the pre-petition lendersbased on any wrongful conduct. The Final DIP Order also provided that anyofficial committee appointed in the Chapter 11 Cases would have the right torequest that it be granted standing by the Bankruptcy Court to challenge theAcknowledgments and to bring claims belonging to us and our estates against thepre-petition lenders.

 

Pursuant to a stipulationdated July 2, 2003, among the Debtors, the Creditors’ Committee and theEquity Committee, the parties agreed, subject to approval by the BankruptcyCourt, that the Creditors’ Committee would have derivative standing to file andprosecute claims against the pre-petition lenders, on behalf of the Debtors,and granted the Equity Committee leave to seek to intervene in any such action.This stipulation also preserves our ability to compromise and settle the claimsagainst the pre-petition lenders. By motion dated July 6, 2003, theCreditors’ Committee moved for Bankruptcy Court approval of this stipulationand simultaneously filed a complaint (the “Bank Complaint”) against the agentsand lenders under certain pre-petition credit facilities, and related entities,asserting, among other things, that these

 

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entities knew of, and participated in, the alleged improper actions bycertain members of the Rigas Family and Rigas Family Entities (the “Pre-petitionLender Litigation”). The Debtors are nominal plaintiffs in this action.

 

The Bank Complaintcontains 52 claims for relief to redress the claimed wrongs and abusescommitted by the agents, lenders and other entities. The Bank Complaint seeksto, among other things, recover as fraudulent transfers the principal andinterest paid by us to the defendants, avoid as fraudulent our obligations, ifany, to repay the defendants, recover damages for breaches of fiduciary dutiesto us and for aiding and abetting fraud and breaches of fiduciary duties by theRigas Family, equitably disallow, subordinate or recharacterize each of thedefendants’ claims in the Chapter 11 Cases, avoid and recover certain allegedlypreferential transfers made to certain defendants, and recover damages forviolations of the Bank Holding Company Act. Numerous motions seeking to defeatthe Pre-petition Lender Litigation were filed by the defendants and theBankruptcy Court held a hearing on such issues. The Equity Committee filed amotion seeking authority to bring an intervenor complaint (the “IntervenorComplaint”) against the defendants seeking to, among other things, assertadditional contract claims against the investment banking affiliates of theagent banks and claims under the RICO Act against various defendants (the “AdditionalClaims”).

 

On October 3 andNovember 7, 2003, certain of the defendants filed both objections toapproval of the stipulation and motions to dismiss the bulk of the claims forrelief contained in the Bank Complaint and the Intervenor Complaint. TheBankruptcy Court heard oral argument on these objections and motions onDecember 20 and 21, 2004. In a memorandum decision dated August 30,2005, the Bankruptcy Court granted the motion of the Creditors’ Committee forstanding to prosecute the claims asserted by the Creditors’ Committee. TheBankruptcy Court also granted a separate motion of the Equity Committee to fileand prosecute the Additional Claims on behalf of the Debtors. The motions todismiss are still pending. Subsequent to issuance of this decision, severaldefendants filed, among other things, motions to transfer the Pre-petitionLender Litigation from the Bankruptcy Court to the District Court. By orderdated February 9, 2006, the Pre-petition Lender Litigation was transferredto the District Court, except with respect to the pending motions to dismiss.

 

We cannot predict theoutcome of these proceedings or estimate the possible effects on our financialcondition or results of operations.

 

**NON-AGENTBANKS’ DECLARATORY JUDGMENT**

 

By complaint datedSeptember 29, 2005, certain non-agent pre-petition lenders of the Debtors soughta declaratory judgment against the Debtors in the Bankruptcy Court seeking,among other things, the enforcement of asserted indemnification rights andrights to fees and expenses. The non-agent pre-petition lenders subsequentlywithdrew their complaint.

 

### **DEVON MOBILE CLAIM**

### ** **

Pursuant to the Agreementof Limited Partnership of Devon Mobile Communications, L.P., a Delaware limitedpartnership (“Devon Mobile”), dated as of November 3, 1995, we owned a49.9% limited partnership interest in Devon Mobile, which, through itssubsidiaries, held licenses to operate regional wireless telephone businessesin several states. Devon Mobile had certain business and contractualrelationships with us and with our former subsidiaries or divisions that werespun off as TelCove in January 2002.

 

In late May 2002, wenotified Devon G.P., Inc. (“Devon G.P.”), the general partner of DevonMobile, that it would likely terminate certain discretionary operationalfunding to Devon Mobile. On August 19, 2002, Devon Mobile and certain ofits subsidiaries filed voluntary petitions for relief under Chapter 11 of theBankruptcy Code with the United States Bankruptcy Court for the District ofDelaware (the “Devon Mobile Bankruptcy Court”).

 

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On January 17, 2003,we filed proofs of claim and interest against Devon Mobile and its subsidiariesfor approximately $129 million in debt and equity claims, as well as anadditional claim of approximately $35 million relating to our guarantee ofcertain Devon Mobile obligations (collectively, the “Company Claims”). By orderdated October 1, 2003, the Devon Mobile Bankruptcy Court confirmed DevonMobile’s First Amended Joint Plan of Liquidation (the “Devon Plan”). The DevonPlan became effective on October 17, 2003, at which time our limitedpartnership interest in Devon Mobile was extinguished. Under the Devon Plan,the Devon Mobile Communications Liquidating Trust (the “Devon Liquidating Trust”)succeeded to all of the rights of Devon Mobile, including prosecution of causesof action against Adelphia.

 

On or aboutJanuary 8, 2004, the Devon Liquidating Trust filed proofs of claim in theChapter 11 Cases seeking, in the aggregate, approximately $100 million inrespect of, among other things, certain cash transfers alleged to be eitherpreferential or fraudulent and claims for deepening insolvency, alter egoliability and breach of an alleged duty to fund Devon Mobile operations, all ofwhich arose prior to the commencement of the Chapter 11 Cases (the “DevonClaims”). On June 21, 2004, the Devon Liquidating Trust commenced anadversary proceeding in the Chapter 11 Cases (the “Devon Adversary Proceeding”)through the filing of a complaint (the “Devon Complaint”), which incorporatesthe Devon Claims. On August 20, 2004, we filed an answer and counterclaimin response to the Devon Complaint denying the allegations made in the DevonComplaint and asserting various counterclaims against the Devon LiquidatingTrust, which encompassed the Company Claims. On November 22, 2004, wefiled a motion for leave (the “Motion for Leave”) to file a third-partycomplaint for contribution and indemnification against Devon G.P. and Lisa-GayeShearing Mead, the sole owner and President of Devon G.P. By endorsed orderentered January 12, 2005, Judge Robert E. Gerber, the judge presiding overthe Chapter 11 Cases and the Devon Adversary Proceeding, granted a recusalrequest made by counsel to Devon G.P. On January 21, 2005, the DevonAdversary Proceeding was reassigned from Judge Gerber to Judge Cecelia G.Morris. By an order dated April 5, 2005, Judge Morris denied the Motionfor Leave and a subsequent motion for reconsideration.

 

Discovery closed and theparties filed cross-motions for summary judgment. On March 6, 2006, theBankruptcy Court issued a memorandum decision granting Adelphia summaryjudgment on all counts of the Devon Complaint except for the fraudulentconveyance/breach of limited partnership claim. The Bankruptcy Court denied, inits entirety, the summary judgment motion filed by the Devon Liquidating Trust.Trial is scheduled to begin on April 17, 2006.

 

We cannot predict theoutcome of these proceedings or estimate the possible effects on our financialcondition or results of operations.

 

### **NFHLP CLAIM**

### ** **

On January 13, 2003,the NFHLP Debtors filed voluntary petitions to reorganize under Chapter 11 inthe NFHLP Bankruptcy Court seeking protection under the U. S. bankruptcy laws.Certain of the NFHLP Debtors entered into an agreement dated March 13,2003 for the sale of certain assets, including the Buffalo Sabres NationalHockey League team, and the assumption of certain liabilities. On October 3,2003, the NFHLP Bankruptcy Court approved the NFHLP joint plan of liquidation.The NFHLP Debtors filed a complaint, dated November 4, 2003, against,among others, Adelphia and the Creditors’ Committee seeking to enforce certainprior stipulations and orders of the NFHLP Bankruptcy Court against Adelphiaand the Creditors’ Committee related to the waiver of Adelphia’s right toparticipate in certain sale proceeds resulting from the sale of assets. Certainof the NFHLP Debtors’ pre-petition lenders, which are also defendants in theadversary proceeding, have filed cross-complaints against Adelphia and theCreditors’ Committee asking the NFHLP Bankruptcy Court to enjoin Adelphia andthe Creditors’ Committee from prosecuting their claims against those pre-petitionlenders. Although proceedings as to the complaint itself have been suspended,the parties have continued to litigate the cross-complaints. Discovery closedon November 1, 2005 and motions for summary judgment were filed onJanuary 24, 2006, with additional briefing on the motions to follow.

 

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We cannot predict theoutcome of these proceedings or estimate the possible effects on our financialcondition or results of operations.

 

### **ADELPHIA’S LAWSUIT AGAINST DELOITTE**

### ** **

On November 6, 2002,Adelphia sued Deloitte, Adelphia’s former independent auditors, in the Court ofCommon Pleas for Philadelphia County. The lawsuit seeks damages againstDeloitte based on Deloitte’s alleged failure to conduct an audit in compliancewith generally accepted auditing standards, and for providing an opinion thatAdelphia’s financial statements conformed with generally accepted accountingprinciples (“GAAP”) when Deloitte allegedly knew or should have known that theydid not conform. The complaint further alleges that Deloitte knew or shouldhave known of alleged misconduct and misappropriation by the Rigas Family, andother alleged acts of self-dealing, but failed to report these alleged misdeedsto the Board or others who could have and would have stopped the Rigas Family’smisconduct. The complaint raises claims of professional negligence, breach ofcontract, aiding and abetting breach of fiduciary duty, fraud, negligentmisrepresentation and contribution.

 

Deloitte filedpreliminary objections seeking to dismiss the complaint, which were overruledby the court by order dated June 11, 2003. On September 15, 2003,Deloitte filed an answer, a new matter and various counterclaims in response tothe complaint. In its counterclaims, Deloitte asserted causes of action againstAdelphia for breach of contract, fraud, negligent misrepresentation andcontribution. Also on September 15, 2003, Deloitte filed a relatedcomplaint naming as additional defendants John J. Rigas, Timothy J. Rigas,Michael J. Rigas, and James P. Rigas. In this complaint, Deloitte allegescauses of action for fraud, negligent misrepresentation and contribution. TheRigas defendants, in turn, have claimed a right to contribution and/orindemnity from Adelphia for any damages Deloitte may recover against the Rigasdefendants. On January 9, 2004, Adelphia answered Deloitte’scounterclaims. Deloitte moved to stay discovery in this action until completionof the Rigas Criminal Action, which Adelphia opposed. Following the motion,discovery was effectively stayed for 60 days but has now commenced.Deloitte and Adelphia have exchanged documents and have begun substantivediscovery. On December 6, 2005, the court extended the discovery deadlineto June 5, 2006 and ordered that the case be ready for trial byOctober 2, 2006.

 

We cannot predict theoutcome of these proceedings or estimate the possible effects on our financialcondition or results of operations.

 

**ARAHOVAMOTIONS**

 

Substantial disputesexist between creditors of different Debtors that principally affect therecoveries to the holders of certain notes due September 15, 2007 issuedby FrontierVision and the creditors of Arahova and Adelphia (the “Inter-CreditorDispute”). On November 7, 2005, the ad hoc committee of Arahovanoteholders (the “Arahova Noteholders’ Committee”) filed four emergency motionsfor relief with the Bankruptcy Court seeking, among other things, to appoint atrustee for Arahova and its subsidiaries (collectively, the “Arahova/CenturyDebtors”) who may not receive payment in full under the Plan or, alternatively,appoint independent officers and directors, with the assistance of separatelyretained counsel, to represent the Arahova/Century Debtors in connection withthe Inter-Creditor Dispute, disqualify Willkie Farr & Gallagher LLP (“WF&G”)from representing the Arahova/Century Debtors in the Chapter 11 Cases andthe balance of the Debtors with respect to the Inter-Creditor Dispute, terminatethe exclusive periods during which the Arahova/Century Debtors may file andsolicit acceptances of a Chapter 11 plan of reorganization and relateddisclosure statement (the previous three motions, the “Arahova EmergencyMotions”) and authorize the Arahova Noteholders’ Committee to file confidentialsupplements containing certain information. The Bankruptcy Court held a sealedhearing on the Arahova Emergency Motions on January 4, 5 and 6, 2006.

 

Pursuant to an orderdated January 26, 2006 (the “Arahova Order”), the Bankruptcy Court denied themotion to terminate the Arahova/Century Debtors’ exclusivity, denied the motionto appoint a trustee

 

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for the Arahova/Century Debtors, or, alternatively, to require theappointment of nonstatutory fiduciaries, and granted the motion for an orderdisqualifying WF&G from representing the Arahova/Century Debtors and any ofthe other Debtors in the Inter-Creditor Dispute; without finding that presentmanagement or WF&G have in any way acted inappropriately to date, the BankruptcyCourt found that WF&G’s voluntary neutrality in such disputes should bemandatory, except that the Bankruptcy Court stated that WF&G could continueto act as a facilitator privately to assist creditor groups that are parties tothe Inter-Creditor Dispute reach a settlement. The Bankruptcy Court issued anextensive written decision on these matters. The Arahova Noteholders’ Committeehas appealed the Arahova Order to the District Court.

 

We cannot predict theoutcome of these proceedings or estimate the possible effects on our financialcondition or results of operations.

 

### **SERIES E AND F PREFERRED STOCK CONVERSION POSTPONEMENTS**

### ** **

On October 29, 2004,Adelphia filed a motion to postpone the conversion of Adelphia’s 7.5%Series E Mandatory Convertible Preferred Stock (“Series E PreferredStock”) into shares of Class A Common Stock from November 15, 2004 toFebruary 1, 2005, to the extent such conversion was not already stayed bythe Debtors’ bankruptcy filing, in order to protect the Debtors’ net operating losscarryovers. On November 18, 2004, the Bankruptcy Court entered an orderapproving the postponement effective November 14, 2004.

 

Adelphia has subsequentlyentered into several stipulations further postponing, to the extent applicable,the conversion date of the Series E Preferred Stock. Adelphia has alsoentered into several stipulations postponing, to the extent applicable, theconversion date of the Adelphia 7.5% Series F Mandatory ConvertiblePreferred Stock, which was initially convertible into shares of Class ACommon Stock on February 1, 2005.

 

### **EPA SELF DISCLOSURE AND AUDIT**

### ** **

On June 2, 2004, we orallyself-disclosed potential violations of environmental laws to the United StatesEnvironmental Protection Agency (“EPA”) pursuant to EPA’s Audit Policy, andnotified EPA that we intended to conduct an audit of our operations to identifyand correct any such violations. The potential violations primarily concernreporting and record keeping requirements arising from our storage and use ofpetroleum and batteries to provide backup power for our cable operations. Basedon current facts, we do not anticipate that this matter will have a materialadverse effect on our results of operations or financial condition.

 

### **OTHER**

### ** **

We are subject to variousother legal proceedings and claims which arise in the ordinary course ofbusiness. Management believes, based on information currently available, thatthe amount of ultimate liability, if any, with respect to any of these otheractions will not materially affect our financial position or results ofoperations.

 

## **ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

## ** **

During the fourth quarterof the fiscal year ended December 31, 2005, the Debtors mailed the DisclosureStatement and related solicitation materials to creditors and equity holders,pursuant to which the holders of claims against or equity interests in Debtorswere asked to vote to accept the Plan. The mailing of the solicitation packagescommenced on December 5, 2005 and was completed by December 12, 2005. Thevoting deadline to accept or reject the Plan is April 6, 2006, and in the caseof securities held through an intermediary, the deadline for instructions to bereceived by the intermediary is April 3, 2006 or such other date asspecified by the applicable intermediary. The confirmation hearing with respectto the Plan is scheduled to commence on April 24, 2006.

 

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# **PARTII**

# ** **

## **ITEM 5.**               MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES

## ** **

TheClass A Common Stock trades in the over-the-counter market under thesymbol ADELQ. The Class B Common Stock is identical in all materialrespects to the Class A Common Stock except that the Class B CommonStock has no established public trading market, the Class B Common Stockhas ten votes per share, the Class A Common Stock, voting separately byclass, has the right to elect one director, in the event a cash dividend ispaid, each share of Class A Common Stock will be entitled to receive 105%of the amount payable per share for each share of Class B Common Stock;and upon the liquidation, dissolution or winding up of Adelphia, first, theholders of Class A Common Stock are entitled to a preference of $1.00 pershare and the amount of all unpaid declared dividends thereon from any fundsavailable after satisfying the liquidation preferences of preferred securities,debt instruments and other senior claims on Adelphia’s assets, then the holdersof Class B Common Stock are entitled to receive $1.00 per share and theamount of all unpaid declared dividends thereon and any remaining amount wouldbe shared ratably by both classes. Each share of the Class B Common Stockis convertible into a share of Class A Common Stock at the option of theholder.

 

As ofDecember 31, 2005, there were 228,692,414 shares of Class A Common Stockoutstanding and 25,055,365 shares of the Class B Common Stock outstanding.The following table sets forth the high and low sale prices for theClass A Common Stock, for the periods indicated, as reported on the PinkSheets Electronic Quotation Service maintained by Pink Sheets LLC. The stockprice information is based on published financial sources. Over-the-countermarket quotations reflect inter-dealer quotations and do not include retailmarkups, markdowns or commissions and may not necessarily represent actualtransactions.

 
| ** **     | ** ** | **Market** | ** ** | **High**   | ** ** | **Low**    | ** ** |
|----------------|------------|------------|------------|------------|------------|------------|------------|
| ** **     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **2004**       |       |       |       |       |       |       |       |
| First Quarter  |       | OTC        |       | $          | 1.72       |       | $          | 0.39 |   |
| Second Quarter |       | OTC        |       | 0.855      |       | 0.38       |       |
| Third Quarter  |       | OTC        |       | 0.55       |       | 0.26       |       |
| Fourth Quarter |       | OTC        |       | 0.45       |       | 0.20       |       |
|           |       |       |       |       |       |       |       |
| **2005**       |       |       |       |       |       |       |       |
| First Quarter  |       | OTC        |       | $          | 0.395      |       | $          | 0.14 |   |
| Second Quarter |       | OTC        |       | 0.28       |       | 0.065      |       |
| Third Quarter  |       | OTC        |       | 0.17       |       | 0.08563    |       |
| Fourth Quarter |       | OTC        |       | 0.095      |       | 0.036      |       |

 

As ofDecember 31, 2005, there were approximately 1,316 record holders of theClass A Common Stock. For information regarding the holders ofClass B Common Stock, see Item 12, “Security Ownership of CertainBeneficial Owners and Management and Related Stockholder Matters.”

 

Wehave never paid or declared any cash dividends on the Class A Common Stockor the Class B Common Stock, nor do we anticipate paying any suchdividends in the foreseeable future. Under the Plan, no cash or other dividendswould be paid to holders of Class A Common Stock or Class B CommonStock. The ability of Adelphia to pay cash dividends on the Class A CommonStock or Class B Common Stock is limited by the provisions of the ThirdExtended DIP Facility. See Item 7, “Management’s Discussion and Analysisof Financial Condition and Results of Operations — Liquidity and CapitalResources” and Note 11, “Debt,” to the accompanying consolidated financialstatements.

 

Thedata regarding securities authorized for issuance under our equity compensationplans are set forth in the discussion under the heading Item 12, “SecurityOwnership of Certain Beneficial Owners and

 

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Management and Related StockholderMatters — Securities Authorized for Issuance Under EquityCompensation Plans.”

 

SeeNote 11, “Redeemable Preferred Stock” and Note 12, “Stockholders’Deficit,” to the accompanying consolidated financial statements.

 

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## **ITEM 6. SELECTED FINANCIAL DATA**

## ** **

The selected financial data set forth below for eachof the three years in the period ended December 31, 2005 has been derivedfrom our accompanying audited consolidated financial statements. The selectedfinancial data set forth below for the years ended December 31, 2002 and 2001has been derived from audited financial statements for periods not includedherein. You should refer to Item 7, “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” of this Annual Report onForm 10-K and the notes to the accompanying consolidated financialstatements for additional information regarding the financial data presentedbelow, including matters that could cause this data not to be indicative of ourfuture results of operations or financial condition. In addition, readersshould note the following information regarding the selected financial datapresented below.

 

•       Thefinancial statements have been prepared assuming we will continue as a goingconcern, which contemplates the realization of assets and the liquidation ofliabilities in the normal course of business.

 

•       OnJune 25, 2002, we and substantially all of our domestic subsidiaries filedvoluntary petitions to reorganize under Chapter 11 of the Bankruptcy Code, andas such, are operating our business as debtors-in-possession. The RigasCo-Borrowing Entities did not file for bankruptcy protection. For periodssubsequent to the Chapter 11 filing, we have applied the provisions ofStatement of Position (“SOP”) 90-7, “*Financial Reporting byEntities in Reorganization Under the Bankruptcy Code*” (“SOP 90-7”).Although SOP 90-7 does not significantly change the application of GAAP, itdoes require that pre-petition liabilities that are subject to compromise orother treatment under a plan of reorganization be segregated in theconsolidated balance sheets as liabilities subject to compromise and thatrevenue, expenses, realized gains and losses, and provisions for lossesresulting directly from the reorganization due to the bankruptcy be reportedseparately as reorganization expenses in the consolidated statements ofoperations. We have reported liabilities subject to compromise at the amountsexpected to be allowed, even if they may be settled for lesser amounts. Forperiods subsequent to June 25, 2002, interest expense has been reported only tothe extent that it will be paid during the Chapter 11 proceedings. In addition,no preferred stock dividends have been accrued subsequent to the Petition Date.For additional information, see Note 2, “Bankruptcy Proceedings and Sale of Assets of the Company,”to our accompanying consolidated financial statements.

 

•       Thefinancial data below includes the accounts of Adelphia and all of itssubsidiaries that were directly or indirectly controlled by Adelphia prior tothe bankruptcy petition. Although we are operating as a debtor-in-possession inthe Chapter 11 Cases, our ability to control the activities and operations ofour subsidiaries, that are also Debtors, may be limited pursuant to theBankruptcy Code. However, because the bankruptcy proceedings for the Debtorsand our previously consolidated subsidiaries are consolidated foradministrative purposes in the same Bankruptcy Court and are being overseen bythe same judge, the financial statements of Adelphia and its subsidiaries havebeen presented on a combined basis, which is consistent with consolidatedfinancial statements (see Note 2, “Bankruptcy Proceedings and Sale of Assets of the Company,” to theaccompanying consolidated financial statements). All inter-entity transactionsbetween us, our subsidiaries and, beginning in 2004, the Rigas Co-BorrowingEntities have been eliminated in consolidation.

 

•       EffectiveJanuary 1, 2004, we adopted Financial Accounting Standards Board (“FASB”)Interpretation No. 46, “*Consolidation of VariableInterest Entities*” (as subsequently revised in December 2003, “FIN46-R”) and began consolidating the Rigas Co-Borrowing Entities. We haveconcluded that the Rigas Co-Borrowing Entities represent variable interestentities for which we are the primary beneficiary. For additional information,see Note 5, “Variable Interest Entities,” to the accompanying consolidatedfinancial statements.

 

•       Beginningin 2004, we began amortizing our customer relationships using the doubledeclining balance method. Customer relationships were amortized using thestraight-line method prior to 2004. The pro forma net income (loss) amountsshown have been adjusted for the retroactive effects of the change inamortization as if the new method of amortization had been in effect for allperiods presented. For additional information, see Note 3, “Summary ofSignificant Accounting Policies,” to the accompanying consolidated financialstatements.

 

66

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•       Wecompleted a number of acquisitions during 2001. The effects of theseacquisitions have been included in our accompanying consolidated financialstatements effective with the purchase date.

 

•       EffectiveJanuary 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”)No. 142, “*Goodwill and Other Intangible Assets*” (“SFASNo. 142”), whereby goodwill and indefinite-lived intangible assets are nolonger amortized. For additional information, see Note 3, “Summary ofSignificant Accounting Policies,” to the accompanying consolidated financialstatements.

 

•       Wehave never paid or declared any cash dividends on our Class A Common Stock orClass B Common Stock, nor do we anticipate paying any such dividends in theforeseeable future.

 

67

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| ** **                                                                                  | ** ** | **Year ended December 31,**                                      | ** ** |
|---------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **2005**                                                                        | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                                                                  | ** ** | **(amounts in thousands, except per share data)** | ** ** |
| **Statement  of Operations Data:**                                                          |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Revenue                                                                                     |       | $                                                                               | 4,364,570  |   | $ | 4,143,388 |   | $ | 3,569,017 |   | $ | 3,215,951 |   | $ | 2,896,908 |   |
|                                                                                        |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Impairment of  long-lived assets(a)                                                         |       | $                                                                               | 23,063     |   | $ | 83,349 |   | $ | 17,641 |   | $ | 2,031,757 |   | $ | 3,091,400 |   |
| Provision for uncollectible  amounts due from the Rigas Family and Rigas Family Entities(b) |       | $                                                                               | 13,338     |   | $ | — |   | $ | 5,497 |   | $ | 1,762,241 |   | $ | 222,931 |   |
| Operating income  (loss)                                                                    |       | $                                                                               | 282,829    |   | $ | (165,004 | ) | $ | (148,489 | ) | $ | (4,709,689 | ) | $ | (3,510,517 | ) |
| Other income (expense), net(c)                                                              |       | $                                                                               | 494,979    |   | $ | (425,789 | ) | $ | (963 | ) | $ | (148,765 | ) | $ | (25,262 | ) |
| Income (loss)  from continuing operations before cumulative effects of accounting changes   |       | $                                                                               | 34,663     |   | $ | (1,058,673 | ) | $ | (724,660 | ) | $ | (5,743,065 | ) | $ | (4,238,107 | ) |
| Loss from  discontinued operations(d)                                                       |       | $                                                                               | —     |   | $ | (571 | ) | $ | (107,952 | ) | $ | (39,457 | ) | $ | (1,874,320 | ) |
| Cumulative  effects of accounting changes, net of income tax benefit of $2,739 in 2001(e)   |       | $                                                                               | —     |   | $ | (851,629 | ) | $ | — |   | $ | (1,406,306 | ) | $ | (4,074 | ) |
| Net income (loss)                                                                           |       | $                                                                               | 34,663     |   | $ | (1,910,873 | ) | $ | (832,612 | ) | $ | (7,188,828 | ) | $ | (6,116,501 | ) |
| Net income (loss)  applicable to common stockholders                                        |       | $                                                                               | 34,080     |   | $ | (1,918,880 | ) | $ | (839,929 | ) | $ | (7,247,891 | ) | $ | (6,170,860 | ) |
| Pro forma net  income (loss) applicable to common stockholders                              |       | $                                                                               | 34,080     |   | $ | (1,656,033 | ) | $ | (849,546 | ) | $ | (7,449,917 | ) | $ | (6,064,295 | ) |
| **Amounts  per weighted average share of common stock:**                                    |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Basic income  (loss) applicable to Class A common stockholders:                             |       |                                                                            |       |   |   |   |   |   |   |   |   |
| From continuing  operations before cumulative effects of accounting changes                 |       | $                                                                               | 0.13       |   | $ | (4.20 | ) | $ | (2.88 | ) | $ | (23.11 | ) | $ | (35.05 | ) |
| Net income (loss)  applicable to Class A common stockholders                                |       | $                                                                               | 0.13       |   | $ | (7.56 | ) | $ | (3.31 | ) | $ | (28.87 | ) | $ | (35.07 | ) |
| Pro forma net  income (loss) applicable to Class A common stockholders                      |       | $                                                                               | 0.13       |   | $ | (6.53 | ) | $ | (3.35 | ) | $ | (29.68 | ) | $ | (34.47 | ) |
| Diluted income  (loss) applicable to Class A common stockholders:                           |       |                                                                            |       |   |   |   |   |   |   |   |   |
| From continuing  operations before cumulative effects of accounting changes                 |       | $                                                                               | 0.10       |   | $ | (4.20 | ) | $ | (2.88 | ) | $ | (23.11 | ) | $ | (35.05 | ) |
| Net income (loss)  applicable to Class A common stockholders                                |       | $                                                                               | 0.10       |   | $ | (7.56 | ) | $ | (3.31 | ) | $ | (28.87 | ) | $ | (35.07 | ) |
| Pro forma net  income (loss) applicable to Class A common stockholders                      |       | $                                                                               | 0.10       |   | $ | (6.53 | ) | $ | (3.35 | ) | $ | (29.68 | ) | $ | (34.47 | ) |
| Basic income  (loss) applicable to Class B common stockholders:                             |       |                                                                            |       |   |   |   |   |   |   |   |   |
| From continuing  operations before cumulative effects of accounting changes                 |       | $                                                                               | 0.13       |   | $ | (4.20 | ) | $ | (2.88 | ) | $ | (23.11 | ) | $ | (35.05 | ) |
| Net income (loss)  applicable to Class B common stockholders                                |       | $                                                                               | 0.13       |   | $ | (7.56 | ) | $ | (3.31 | ) | $ | (28.87 | ) | $ | (35.07 | ) |
| Pro forma net  income (loss) applicable to Class B common stockholders                      |       | $                                                                               | 0.13       |   | $ | (6.53 | ) | $ | (3.35 | ) | $ | (29.68 | ) | $ | (34.47 | ) |
| Diluted income  (loss) applicable to Class B common stockholders:                           |       |                                                                            |       |   |   |   |   |   |   |   |   |
| From continuing  operations before cumulative effects of accounting changes                 |       | $                                                                               | 0.10       |   | $ | (4.20 | ) | $ | (2.88 | ) | $ | (23.11 | ) | $ | (35.05 | ) |
| Net income (loss)  applicable to Class B common stockholders                                |       | $                                                                               | 0.10       |   | $ | (7.56 | ) | $ | (3.31 | ) | $ | (28.87 | ) | $ | (35.07 | ) |
| Pro forma net  income (loss) applicable to Class B common stockholders                      |       | $                                                                               | 0.10       |   | $ | (6.53 | ) | $ | (3.35 | ) | $ | (29.68 | ) | $ | (34.47 | ) |
|                                                                                        |       |                                                                            |       |   |   |   |   |   |   |   |   |
| **Balance  Sheet Data (end of period):**                                                    |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Total assets                                                                                |       | $                                                                               | 12,874,010 |   | $ | 13,098,188 |   | $ | 13,196,741 |   | $ | 13,602,406 |   | $ | 17,508,979 |   |
| Debt                                                                                        |       | $                                                                               | 869,184    |   | $ | 667,745 |   | $ | 347,119 |   | $ | 298,797 |   | $ | 17,417,044 |   |
| Liabilities  subject to compromise                                                          |       | $                                                                               | 18,415,158 |   | $ | 18,480,948 |   | $ | 18,184,226 |   | $ | 18,020,124 |   | $ | — |   |
| Redeemable  preferred stock(f)                                                              |       | $                                                                               | —     |   | $ | — |   | $ | — |   | $ | 148,794 |   | $ | 486,813 |   |
| Stockholders’ deficit                                                                  |       | $                                                                               | (8,145,843 | ) | $ | (8,215,826 | ) | $ | (7,074,674 | ) | $ | (6,284,062 | ) | $ | (3,088,682 | ) |
|                                                                                             |            |                                                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(a)           Werecorded impairment charges based upon our evaluation of the recoverability ofthe long-lived assets associated with our cable business, TelCove’s CLECbusiness (in 2001) and the CLEC markets retained by us. For additionalinformation, see Note 9, “Impairment of Long-Lived Assets,” to the accompanyingconsolidated financial statements.

 

(b)           Theseamounts represent our provision for uncollectible amounts due from the RigasFamily and Rigas Family Entities. For additional information, see Note 6, “Transactionswith the Rigas Family and Rigas Family Entities,” to the accompanyingconsolidated financial statements.

 

(c)           Werecognized a $458 million net benefit from the settlement with the Rigas Familyin 2005, and included such net benefit in other income (expense), net in theconsolidated statement of operations for the year ended December 31, 2005. SeeNote 6, “Transactions with the Rigas Family and Rigas Family Entities,” to theaccompanying consolidated financial statements.

 

We recorded chargesof $425 million and $175 million during 2004 and 2002, respectively, related tothe government settlement, and such charges are reflected in otherincome (expense), netin the accompanying consolidated statement of operations for the years endedDecember 31, 2004 and December 31, 2002. See Note 16, “Commitments andContingencies,” to the accompanying consolidated financial statements.

 

(d)           OnApril 7, 2004, we transferred the economic risks and benefits of the CLECmarket assets to TelCove pursuant to the terms of the Global Settlement. Revenueand expenses related to the CLEC Market Assets transferred under the GlobalSettlement have been included in loss from discontinued operations, for allyears presented in our consolidated statements of operations. OnJanuary 11, 2002, we completed the TelCove Spin-off. Revenue and expensesrelated to TelCove have been included in loss from discontinued operationsduring the year ended December 31, 2001. The information above does not includeTelCove’s results of operations or financial position subsequent toDecember 31, 2001. For additional information, see Note 7, “TelCove,” tothe accompanying consolidated financial statements.

 

(e)           Asa result of the adoption of FIN 46-R and the consolidation of the RigasCo-Borrowing Entities, we recorded a $589 million charge as a cumulative effectof an accounting change on January 1, 2004. See Note 5, “Variable InterestEntities,” to the accompanying consolidated financial statements for additionalinformation.

 

Beginning in 2004, we began amortizing our customer relationships usingthe double declining balance method. Customer relationships were amortizedusing the straight-line method prior to 2004. The application of the newamortization method to customer relationships acquired prior to 2004 resultedin an additional charge of $263 million which has been reflected in cumulativeeffects of accounting changes. For additional information, see Note 3, “Summaryof Significant Accounting Policies,” to the accompanying consolidated financialstatements.

 

On January 1, 2002, we recorded a $1,406 million cumulative effect ofaccounting change representing the transitional impairment loss that wasmeasured as of that date related to the adoption of SFAS No. 142.

 

(f)            Asa result of the adoption of SFAS No. 150, “*Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity*,” we have classified our redeemable preferred stock as aliability subject to compromise at December 31, 2005, 2004 and 2003 in theaccompanying consolidated balance sheets.

 

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# **ITEM7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

# ** **

The following discussion should be read in conjunctionwith our accompanying consolidated financial statements. Reference is also madeto “Cautionary Statements” at the beginning of this Annual Report for adescription of important factors that could cause actual results to differ fromexpected results.

 

# **OVERVIEW**

 

## ***General***

## ** **

We are the fifth largest operator of cable systems inthe United States. Our operations primarily consist of providing analog anddigital cable services, HSI services and other advanced services over our cablesystems. These services are generally provided to residential subscribers. AtDecember 31, 2005, our consolidated cable operations served approximately4,936,000 basic cable subscribers, of which approximately 2,008,000 alsoreceived digital cable service. Our consolidated cable systems also providedHSI services to approximately 1,714,000 subscribers at December 31, 2005.With the exception of approximately 55,000 basic cable subscribers that werelocated in Brazil, all of our consolidated basic cable subscribers atDecember 31, 2005 were located in the United States. Our domesticconsolidated cable operations are located in 31 states, with large clusters inLos Angeles, New England, Western New York, West Palm Beach, Cleveland, WesternPennsylvania, Northern Virginia and Colorado Springs.

 

Our only reportable operating segment is our “cable”segment. Historically, substantially all of our revenue comes from our cablesegment. The cable segment includes our cable system operations (includingconsolidated subsidiaries and equity method investments) that provide videoservices, HSI services and media services (advertising sales). Operatingsegments that are not included in the cable segment are aggregated together inthe “corporate and other” segment. For additional information, see Note 15, “Segments,”to the accompanying consolidated financial statements.

 

## ***Bankruptcy Proceedings***

## ** **

In June 2002, the Debtors filed voluntary petitionsto reorganize under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. TheDebtors are operating their business as debtors-in-possession under Chapter 11.The rights and claims of the Debtors’ various creditors and security holderswill be determined by a plan of reorganization that is ultimately subject toconfirmation by the Bankruptcy Court.

 

The Debtors most recently filed their Plan, andrelated Disclosure Statement with the Bankruptcy Court on November 21, 2005. Byorder dated November 23, 2005, the Bankruptcy Court approved the DisclosureStatement as containing “adequate information.” By December 12, 2005, the Debtors completed the mailing of thesolicitation packages. The voting deadline to accept or reject the Plan isApril 6, 2006, and in the case of securities held through an intermediary, thedeadline for instructions to be received by the intermediary is April 3, 2006or such other date as specified by the applicable intermediary. Theconfirmation hearing on the Plan is scheduled to commence on April 24, 2006. ThePlan contemplates, among other things, consummation of the Sale Transaction anddistribution of the cash and TWC Class A Common Stock received pursuant to theSale Transaction to the stakeholders of the Debtors in accordance with thePlan.

 

The financial statements have been prepared assumingwe will continue as a going concern, which contemplates the realization ofassets and the liquidation of liabilities in the normal course of business. Foradditional information, see Note 2, “Bankruptcy Proceedings and Sale ofAssets of the Company,” to the accompanying consolidated financial statements.

 

## ***Sale of Assets***

## ** **

Effective April 20, 2005, we entered into theSale Transaction. Under the terms of the Sale Transaction, TW NY and Comcastwill purchase substantially all of our U.S. assets and assume certain of ourliabilities. Upon the closing of the Sale Transaction, Adelphia will receive anaggregate consideration of cash in the amount of approximately $12.7 billionplus shares of TWC Class A Common Stock, which are expected to represent 16% ofthe outstanding equity securities of TWC as of the closing. Such percentage:(i) assumes the redemption of

 

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Comcast’s interest in TWC, the inclusion in the sale to TW NY of all ofthe cable systems owned by the Rigas Co-Borrowing Entities contemplated to bepurchased by TW NY pursuant to the Sale Transaction and that there is noExpanded Transaction; and (ii) is subject to adjustment for issuances pursuantto employee stock programs (subject to a cap) and issuances of securities forfair consideration. The TWC Class A Common Stock is expected to be listed onthe NYSE. The purchase price payable by TW NY and Comcast is subject to certainadjustments. TWC, Comcast and certain of their affiliates have also agreed toswap certain cable systems and unwind Comcast’s investments in TWC and TWE. Certainfees are due to our financial advisors upon successful completion of a sale,which are calculated as a percentage (0.11% to 0.20%) of the sale value. Additionalfees may be payable depending on the outcome of the sales process. Such feescannot be determined until the closing of the Sale Transaction. For additionalinformation regarding the Sale Transaction, see Note 2, “Bankruptcy Proceedingsand Sale of Assets of the Company,” to the accompanying consolidated financialstatements.

 

## ***Government Settlement Agreements***

## ** **

On April25, 2005, after extensive negotiations with the SEC and the U.S. Attorney, weentered into the Non-Prosecution Agreement with the U.S. Attorney, pursuant towhich we agreed, among other things: (i) to contribute $715 million invalue to the Restitution Fund; (ii) to continue to cooperate with the U.S.Attorney until the later of April 25, 2007, or the date upon which allprosecutions arising out of the conduct described in the Rigas Criminal Actionand SEC Civil Action are final; and (iii) not to assert claims against theRigas Family except for the Excluded Parties. We recorded a charge of$425 million during 2004 related to the Non-Prosecution Agreement. Such amountis reflected in other income (expense), net in the accompanying consolidatedstatements of operations. We previously recorded a charge of $175 millionrelated to the Non-Prosecution Agreement in 2002. The remaining amount will bepaid from future proceeds, if any, from certain litigation against thirdparties who injured the Company.

 

Also onApril 25, 2005, we consented to an entry of a final judgment in the SEC CivilAction resolving the SEC’s claims against us. Pursuant to this agreement, wewill be permanently enjoined from violating various provisions of federalsecurities laws, and the SEC has agreed that, if we make the $715 millionpayment to the Restitution Fund, we will not be required to pay disgorgement ora civil monetary penalty to satisfy the SEC’s claims.

 

On April 25, 2005, Adelphia and the Rigas Familyentered into an agreement to settle the lawsuit against the Rigas Family. TheAdelphia-Rigas Settlement Agreement includes, among other things, agreements topay $11.5 million to a legal defense fund for the benefit of the Rigas Family,which was expensed by the Company in June 2005, and to provide managementservices to Coudersport and Bucktail for an interim period ending no later thanDecember 31, 2005. We provided management services to Coudersport and Bucktailthrough November 6, 2005. Also, on April 25, 2005, the Rigas Family agreed toenter into a settlement agreement with the U.S. Attorney. The GovernmentSettlement Agreements release us from further obligation to provide funding forlegal defense costs for the Rigas Family.

 

In connection with the Government SettlementAgreements, all amounts owed between Adelphia (including the Rigas Co-BorrowingEntities) and the Rigas Family and Rigas Family Entities, other than the RigasCo-Borrowing Entities (the “Other Rigas Entities”), will not be collected orpaid. As a result, in June 2005, we derecognized a $460 million payable by theRigas Co-Borrowing Entities to the Rigas Family and Other Rigas Entities. Thisliability, which we recorded in connection with the January 1, 2004consolidation of the Rigas Co-Borrowing Entities, had no legal right of set-offagainst amounts due to the Rigas Co-Borrowing Entities from the Rigas Familyand Other Rigas Entities.

 

Also in connection with the Government SettlementAgreements, equity ownership of the Rigas Co-Borrowing Entities (other thanCoudersport and Bucktail), debt and equity securities of the Company, and certainreal estate were forfeited by the Rigas Family and Rigas Family Entities andare expected to be conveyed to the Company (subject to completion of forfeitureproceedings before a federal judge to determine if there are any superiorclaims). In conjunction with the June 2005 Forfeiture Order, we recorded thedebt and equity securities and real estate at their fair value of $34.6 million.We recognized additional impairments of $24.6 million in other income(expense), net in the accompanying consolidated statement of operations for theyear ended December 31, 2005 due to a decline in the fair value of thesecurities following the June 2005 forfeiture. The adjusted fair value of thedebt and equity securities and real estate of $10 million has been reflected asa current asset in the accompanying consolidated balance sheet as of December31, 2005. We have concluded that the equity interests we expect to

 

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receive in the Rigas Co-Borrowing Entities have nominalvalue as the liabilities of these entities significantly exceed the fair valueof their assets. The assets and liabilities of the Rigas Co-Borrowing Entitieshave been consolidated since January 1, 2004.

 

As of December 31, 2004, we had accrued $2.7 millionof severance for John J. Rigas pursuant to the terms of a May 23, 2002agreement with John J. Rigas, Timothy J. Rigas, James P. Rigas, and Michael J.Rigas. The Government Settlement Agreements release us from this severanceobligation. Accordingly, we derecognized the severance accrual and recognizedthe benefit of $2.7 million in June 2005.

 

We recognized a net benefit from the settlement withthe Rigas Family in June 2005 and have included such benefit in other income(expense), net in the consolidated statement of operations for the year endedDecember 31, 2005, as follows (amounts in thousands):

 
| Derecognition of amounts due to the Rigas  Family and Other Rigas Entities from the Rigas Co-Borrowing Entities |   | $       | 460,256 |   |
|-----------------------------------------------------------------------------------------------------------------|--------|---------|---------|--------|
| Derecognition of amounts due from Rigas  Family and Other Rigas Entities, net*                                  |   | (15,405 | )       |
| Estimated fair value of debt and equity  securities and real estate to be conveyed to the Company               |   | 34,629  |    |
| Deconsolidation of Coudersport and  Bucktail, net (Note 5)                                                      |   | (12,964 | )       |
| Legal defense costs for the Rigas Family                                                                        |   | (11,500 | )       |
| Derecognition of severance accrual for John  J. Rigas                                                           |   | 2,717   |    |
| Settlement with the Rigas Family, net                                                                           |   | $       | 457,733 |   |

 

----

*  Represents the December 31, 2004 amounts due from the Rigas Family andOther Rigas Entities of $28.7 million, less the provision for uncollectibleamounts of $13.3 million recognized by the Company for the period from January1, 2005 through June 8, 2005 (date of the Forfeiture Order) due to a decline inthe fair value of the underlying securities.

 

For additionalinformation about the Government Settlement Agreements, see Note 6, “Transactionswith the Rigas Family and Rigas Family Entities” and Note 16, “Commitments andContingencies,” to the accompanying consolidated financial statements.

 

## ***Variable Interest Entities***

## ** **

In January 2003, the FASB issued FIN 46-R, whichrequires variable interest entities, as defined by FIN 46-R, to be consolidatedby the primary beneficiary if certain criteria are met. We concluded that theRigas Co-Borrowing Entities represent variable interest entities for which weare the primary beneficiary and have included them in our consolidatedfinancial statements effective January 1, 2004. For additional information, seeNote 5, “Variable Interest Entities,” to the accompanying consolidatedfinancial statements. Due to the consolidation of the Rigas Co-BorrowingEntities effective January 1, 2004, direct comparisons of our results ofoperations for periods after January 1, 2004 to prior periods are notmeaningful without taking into account the effects of the Rigas Co-BorrowingEntities. Accordingly, the impacts of the operating results of the RigasCo-Borrowing Entities are identified, where material, in the “Results ofOperations” discussion below.

 

## ***Discontinued Operations***

## ** **

Revenue and expenses related to the CLEC marketassets, which were transferred to TelCove effective April 2004 as part of theGlobal Settlement, have been included in loss from discontinued operations for2004 and prior years presented in our consolidated statements of operations. Foradditional information, see Note 7, “TelCove,” to the accompanying consolidatedfinancial statements.

 

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## ***Trends***

## ** **

The following table summarizes our subscribers beforeconsolidation of the Rigas Co-Borrowing Entities, the subscribers of the RigasCo-Borrowing Entities and our subscribers after consolidation of the RigasCo-Borrowing Entities. Prior to January 1, 2004, we did not include the RigasCo-Borrowing Entities’ subscribers in our subscriber totals (amounts inthousands).

 
| ** **                                                            | ** ** | **December 31,** | ** ** | **% Increase  (decrease)** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------|------------|---------------------------------|------------|
| ** **                                                            | ** ** | **2005**              | ** ** | **2004**                        | ** ** | **2003** | ** ** | **2005 vs.  2004** | ** ** | **2004 vs.  2003** | ** ** |
| Subscribers  before consolidation of the Rigas Co-Borrowing Entities: |       |                  |       |                            |       |   |   |   |   |   |   |
| Basic                                                                 |       | 4,717                 |       | 4,841                           |       | 5,085 |   | (2.6 | )% | (4.8 | )% |
| Digital                                                               |       | 1,917                 |       | 1,857                           |       | 1,802 |   | 3.2 |   | 3.0 |   |
| HSI                                                                   |       | 1,626                 |       | 1,320                           |       | 954 |   | 23.2 |   | 38.4 |   |
|                                                                  |       |                  |       |                            |       |   |   |   |   |   |   |
| Subscribers  of the Rigas Co-Borrowing Entities:                      |       |                  |       |                            |       |   |   |   |   |   |   |
| Basic                                                                 |       | 219                   |       | 228                             |       | — |   | (3.9 | )% | nm |   |
| Digital                                                               |       | 91                    |       | 85                              |       | — |   | 7.1 |   | nm |   |
| HSI                                                                   |       | 88                    |       | 77                              |       | — |   | 14.3 |   | nm |   |
|                                                                  |       |                  |       |                            |       |   |   |   |   |   |   |
| Subscribers  after consolidation of the Rigas Co-Borrowing Entities:  |       |                  |       |                            |       |   |   |   |   |   |   |
| Basic                                                                 |       | 4,936                 |       | 5,069                           |       | 5,085 |   | (2.6 | )% | (0.3 | )% |
| Digital                                                               |       | 2,008                 |       | 1,942                           |       | 1,802 |   | 3.4 |   | 7.8 |   |
| HSI                                                                   |       | 1,714                 |       | 1,397                           |       | 954 |   | 22.7 |   | 46.4 |   |

 

----

nm – not meaningful

 

We face increasing competition for our video servicesprimarily from DBS operators and for our HSI services from local telephonecompanies. Competition has put downward pressure on the number of basicsubscribers and pricing for certain services. Basic cable subscribers decreased2.6% in 2005 when compared to 2004. In an effort to reverse the trend of basicsubscriber losses, we have increased our subscriber retention efforts and ouremphasis on enhancing and differentiating our video products and services withVOD, HDTV and DVRs. Despite these efforts, we expect to continue to experiencea loss of basic cable subscribers.

 

Digital cable subscribers increased 3.4% at December31, 2005 when compared to 2004. Growth of digital cable subscribers hasmoderated from that of prior periods. Future growth of our digital cablebusiness is dependent upon our ability to retain our basic subscribers and tosuccessfully market our digital cable services.

 

HSI subscribers increased 22.7% at December 31, 2005when compared to 2004. We anticipate continued demand for our HSI services. However,as the existing HSI subscriber base grows, we expect the rate of growth willcontinue to decline.

 

We use ARPU as a measure of performance for ourbusiness. ARPU represents total annual revenue, divided by twelve months,divided by an average of the number of monthly subscribers for the twelve monthperiod.

 

The following table summarizes ARPU for selectedrevenue components. The Rigas Co-Borrowing Entities are not included incalculations for years prior to 2004. The consolidation of the RigasCo-Borrowing Entities did not have a material impact on ARPU.

 

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| ** **                                                                        | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **Increase  (decrease)** | ** ** | **2004** | ** ** | **2003** | ** ** | **Increase  (decrease)** | ** ** |
| ARPU:                                                                             |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Video revenue (including digital cable and  media services), per basic subscriber |       | $                                          | 60.27      |   | $ | 56.76 |   | $ | 3.51 |   | $ | 56.76 |   | $ | 51.18 |   | $ | 5.58 |   |
| HSI revenue, per HSI subscriber                                                   |       | $                                          | 38.97      |   | $ | 37.60 |   | $ | 1.37 |   | $ | 37.60 |   | $ | 39.36 |   | $ | (1.76 | ) |
| Total revenue, per basic subscriber                                               |       | $                                          | 72.83      |   | $ | 66.21 |   | $ | 6.62 |   | $ | 66.21 |   | $ | 57.80 |   | $ | 8.41 |   |

 

ARPU for video revenue increased $3.51, or 6%, in 2005and $5.58, or 11%, in 2004 when compared to the prior year. ARPU for HSIrevenue increased $1.37, or 4%, in 2005 and decreased $1.76, or 4%, in 2004when compared to the prior year. HSI ARPU has been impacted primarily by thetiming and number of promotional offerings. In 2004, promotional offeringsnegatively impacted our HSI ARPU as we focused on obtaining subscribers in acompetitive pricing environment. Although we continue to face a competitivepricing environment, we were able to reduce the percentage of HSI subscribersreceiving promotional offerings in 2005, while still growing the number of HSIsubscribers. ARPU for total revenue increased $6.62 in 2005, or 10%, whencompared to 2004 and increased $8.41, or 15%, in 2004 when compared to 2003. Historically,ARPU for total revenue has been increasing and we expect this trend to continuethrough 2006, although the rate of increase is expected to continue to decline.

 

Programming costs increased 1% and 4% (excluding theeffect of the 2004 consolidation of the Rigas Co-Borrowing Entities) in 2005 and2004, respectively, when compared to prior years. Programming costs areexpected to continue to rise during the next several years, primarily due tothe expansion of service offerings and industry-wide programming cost increases(particularly with respect to sports programming), reflecting bothinflation-indexed and negotiated license fee increases. To offset theseincreased costs, we expect to continue to review and adjust, as necessary, thepricing for our services and to seek to create efficiencies in our operations. However,any cost increases that we are not able to pass on to our subscribers throughservice rate increases would reduce our operating margins unless offset byimproved operational efficiencies.

 

Certain expenses directly related to the Chapter 11filing are expensed and included in reorganization expenses due to bankruptcy. Wewill continue to incur significant reorganization expenses until we emerge frombankruptcy. For additional information, see Note 2, “BankruptcyProceedings and Sale of Assets of the Company,” to the accompanyingconsolidated financial statements.

 

We are attempting to improve our operating results byincreasing revenue while containing, and wherever possible, reducing expensesand capital expenditures. Future increases in revenue are dependent on ourability to: (i) increase the penetration of our digital and HSI services; (ii)launch new service offerings; (iii) implement rate increases; and (iv) curtailthe loss of basic cable subscribers. We expect to focus on availableopportunities to reduce or contain costs for the foreseeable future. Ourability to increase revenue and reduce or contain expenses and capitalexpenditures may be adversely affected by unfavorable developments in theChapter 11 proceedings, by the Sale Transaction and by competitive, regulatory,technological and other factors outside of our control. Accordingly, noassurance can be given that we will be able to maintain or improve ouroperating results in future periods.

 

74

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# **RESULTS OF OPERATIONS**

# ** **

## ***2005 Compared to 2004***

## ** **

The following table summarizes the results of operations for theperiods presented (dollars in thousands):

 
| ** **                                                                                                                                                                                          | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                                                                          | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| ** **                                                                                                                                                                                          | ** ** | **$**                                      | ** ** | **% of  Revenue** | ** ** | **$** | ** ** | **% of  Revenue** | ** ** |
| Revenue                                                                                                                                                                                             |       | $                                          | 4,364,570  |   | 100 | % | $ | 4,143,388 |   | 100 | % |
|                                                                                                                                                                                                |       |                                       |       |   |   |   |   |   |   |
| Costs and expenses:                                                                                                                                                                                 |       |                                       |       |   |   |   |   |   |   |
| Direct operating and programming                                                                                                                                                                    |       | 2,689,405                                  |       | 62 |   | 2,653,417 |   | 64 |   |
| Selling, general and administrative                                                                                                                                                                 |       | 350,520                                    |       | 8 |   | 329,427 |   | 8 |   |
| Investigation, re-audit and sale  transaction costs                                                                                                                                                 |       | 65,844                                     |       | 2 |   | 125,318 |   | 3 |   |
| Depreciation                                                                                                                                                                                        |       | 804,074                                    |       | 18 |   | 961,840 |   | 23 |   |
| Amortization                                                                                                                                                                                        |       | 141,264                                    |       | 3 |   | 159,682 |   | 4 |   |
| Impairment of long-lived assets                                                                                                                                                                     |       | 23,063                                     |       | 1 |   | 83,349 |   | 2 |   |
| Provision for uncollectible amounts due from  the Rigas Family and Rigas Family Entities                                                                                                            |       | 13,338                                     |       | — |   | — |   | — |   |
| Gain on disposition of long-lived assets                                                                                                                                                            |       | (5,767                                     | )          | — |   | (4,641 | ) | — |   |
| Total costs and expenses                                                                                                                                                                            |       | 4,081,741                                  |       | 94 |   | 4,308,392 |   | 104 |   |
|                                                                                                                                                                                                |       |                                       |       |   |   |   |   |   |   |
| Operating income (loss)                                                                                                                                                                             |       | 282,829                                    |       | 6 |   | (165,004 | ) | (4 | ) |
|                                                                                                                                                                                                |       |                                       |       |   |   |   |   |   |   |
| Other expense, net:                                                                                                                                                                                 |       |                                       |       |   |   |   |   |   |   |
| Interest expense, net of amounts  capitalized                                                                                                                                                       |       | (590,936                                   | )          | (13 | ) | (402,627 | ) | (10 | ) |
| Other income (expense), net                                                                                                                                                                         |       | 494,979                                    |       | 11 |   | (425,789 | ) | (10 | ) |
| Total other expense, net                                                                                                                                                                            |       | (95,957                                    | )          | (2 | ) | (828,416 | ) | (20 | ) |
| Income (loss) before reorganization  expenses, income taxes, share of losses of equity affiliates, minority’s  interest, discontinued operations and cumulative effects of accounting  changes |       | 186,872                                    |       | 4 |   | (993,420 | ) | (24 | ) |
| Reorganization expenses due to bankruptcy                                                                                                                                                           |       | (59,107                                    | )          | (1 | ) | (76,553 | ) | (2 | ) |
| Income tax (expense) benefit                                                                                                                                                                        |       | (100,349                                   | )          | (2 | ) | 2,843 |   | — |   |
| Share of losses of equity affiliates, net                                                                                                                                                           |       | (588                                       | )          | — |   | (7,926 | ) | — |   |
| Minority’s interest in loss of subsidiary                                                                                                                                                      |       | 7,835                                      |       | — |   | 16,383 |   | — |   |
| Income (loss) from continuing operations  before cumulative effects of accounting changes                                                                                                           |       | 34,663                                     |       | 1 |   | (1,058,673 | ) | (26 | ) |
| Loss from discontinued operations                                                                                                                                                                   |       | —                                     |       | — |   | (571 | ) | — |   |
| Cumulative effects of accounting changes                                                                                                                                                            |       | —                                     |       | — |   | (851,629 | ) | (20 | ) |
| Net income (loss)                                                                                                                                                                                   |       | $                                          | 34,663     |   | 1 | % | $ | (1,910,873 | ) | (46 | )% |

 

75

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The following is a discussion of our results ofoperations and includes an analysis of significant changes from historicaltrends in our results of operations for the year ended December 31, 2005 ascompared to the year ended December 31, 2004.

 

## ***Revenue***

## ** **

Revenue increased $221 million, or 5%, during the yearended December 31, 2005 as compared to 2004. The following table summarizesrevenue for the periods indicated (dollars in thousands, except ARPU amounts):

 
| ** **                | ** ** | **Year ended December 31,** | ** ** |
|---------------------------|------------|--------------------------------------------|------------|
| ** **                | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2005 vs. 2004** | ** ** |
| ** **                | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                | ** ** | **Revenue**                                | ** ** | **% of  Revenue** | ** ** | **Revenue** | ** ** | **% of  Revenue** | ** ** | **Increase (decrease)** | ** ** | **Increase (decrease)** | ** ** |
|                      |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Cable:                    |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Video (including digital) |       | $                                          | 3,372,344  |   | 77 | % | $ | 3,308,985 |   | 80 | % | $ | 63,359 |   | 2 | % |
| HSI                       |       | 726,433                                    |       | 17 |   | 552,161 |   | 13 |   | 174,272 |   | 32 |   |
| Media services            |       | 254,291                                    |       | 6 |   | 242,193 |   | 6 |   | 12,098 |   | 5 |   |
| Total cable               |       | 4,353,068                                  |       | 100 |   | 4,103,339 |   | 99 |   | 249,729 |   | 6 |   |
| Corporate and other       |       | 11,502                                     |       | — |   | 40,049 |   | 1 |   | (28,547 | ) | (71 | ) |
| Total                     |       | $                                          | 4,364,570  |   | 100 | % | $ | 4,143,388 |   | 100 | % | $ | 221,182 |   | 5 |   |
| ARPU                      |       | $                                          | 72.83      |   |   |   | $ | 66.21 |   |   |   | $ | 6.62 |   | 10 | % |

 

Cable revenue increased $250 million, or 6%,during the year ended December 31, 2005, as compared to 2004. The increase incable revenue was primarily attributable to increased revenue from HSIservices, higher rates for basic and expanded basic service tiers, new productofferings and media services. An increase in HSI subscribers accounted for themajority of the increase in HSI revenue. The positive impact of higher ratesfor basic and expanded basic service tiers was partially offset by a decreasein our basic subscriber base. The increase in media services revenue wasattributable to our ability to increase both the average rate received and thevolume of advertising sold as a result of an industry wide trend of viewersswitching from broadcast to cable, thereby increasing viewership and theadvertising population. Subscribers increased 22.7% for HSI and 3.4% fordigital cable and decreased 2.6% for basic cable when comparing 2005 to 2004.

 

Corporate and other revenue includes revenue from oursecurity monitoring business and our long-distance telephone resale business. Corporateand other revenue decreased primarily due to the February 2005 sale ofsubstantially all of our security monitoring business. A decrease in revenuerecognized by the Empire Sports Network as a result of the cancellation of the2004-2005 National Hockey League season also contributed to the decline.

 

## ***Direct operating and programming costs***

## ** **

Direct operating and programming costs increased$36 million, or 1%, during 2005, as compared to 2004. The following tablesummarizes direct operating and programming costs for the periods indicated(dollars in thousands):

 
| ** **          | ** ** | **Year ended December 31,** | ** ** |
|---------------------|------------|--------------------------------------------|------------|
| ** **          | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **$   Increase  (decrease)** | ** ** | **%  Increase  (decrease)** | ** ** |
|                |       |                                       |       |   |   |   |   |   |   |
| Cable:              |       |                                       |       |   |   |   |   |   |   |
| Programming         |       | $                                          | 1,166,156  |   | $ | 1,149,168 |   | $ | 16,988 |   | 1 | % |
| Other cable         |       | 1,511,747                                  |       | 1,480,292 |   | 31,455 |   | 2 |   |
| Total cable         |       | 2,677,903                                  |       | 2,629,460 |   | 48,443 |   | 2 |   |
| Corporate and other |       | 11,502                                     |       | 23,957 |   | (12,455 | ) | (52 | ) |
| Total               |       | $                                          | 2,689,405  |   | $ | 2,653,417 |   | $ | 35,988 |   | 1 | % |

 

Programming costs consist primarily of costs paid toprogrammers for the provision of analog, premium and digital channels andpay-per-view programs. Programming costs increased $17 million, or 1%. The2005

 

76

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programming cost increase was below historic trends due primarily tothe decrease in our basic subscriber base and one-time, fourth-quarterprogramming credits of $22 million.

 

Other cable operating costs consist of labor and othercosts associated with the provision of cable services to subscribers and theoperation and maintenance of our cable systems. Other cable operating costsincreased $31 million, or 2%, primarily due to increased maintenance costs,including related material and fuel cost increases, hurricane-related activityin our southeast region and franchise fees (resulting from revenue growth).

 

Corporate and other costs decreased $12 million, or52%, when comparing 2005 to 2004. The decline was primarily due to the February2005 sale of substantially all of our security monitoring business.

 

## ***Selling, general and administrative expenses (“SG&A”)***

## ** **

SG&A expenses consist of salaries and benefits,marketing expenses, professional fees, insurance and other general andadministrative expenses related to our operations. SG&A expenses increasedapproximately $21 million, or 6%, when comparing the year ended December 31,2005 to 2004. The increase in SG&A expenses is primarily attributable toincreased marketing expenses related to our subscriber retention efforts.

 

## ***Investigation, re-audit and sale transaction costs***

## ** **

We incurred costs that, although not directly relatedto the Chapter 11 filing, are related to the investigation of the allegedactions of Rigas Management, efforts to comply with applicable laws andregulations, and the Sale Transaction. These expenses include re-audit, legaland forensic consulting fees and employee retention costs, and aggregated $66million and $125 million for the years ended December 31, 2005 and 2004,respectively. The decrease in these expenses was primarily due to a $75 milliondecline in re-audit related fees, partially offset by a $21 million increase inemployee retention costs.

 

## ***Depreciation***

## ** **

Depreciation expense decreased by $158 million,or 16%, during 2005, as compared to 2004. The decrease reflects the net effectof a decrease in depreciation expense associated with an increase in propertyand equipment that has become fully depreciated or was retired, partiallyoffset by an increase in depreciation expense due to capital expenditures. Theincrease in fully depreciated property and equipment was primarily attributableto the 2004 reduction of the useful life used to depreciate standard definitiondigital set-top boxes. For additional information, see Note 3, “Summary ofSignificant Accounting Policies,” to the accompanying consolidated financialstatements.

 

## ***Impairment of long-lived assets***

## ** **

As a result of our annual impairment test, we recordedadditional impairments of $23 million and $83 million in the years endedDecember 31, 2005 and 2004, respectively, related to franchise rights. Asdiscussed in Note 9, “Impairment of Long-Lived Assets,” to the accompanyingconsolidated financial statements, the impairments were primarily driven bysubscriber losses.

 

## ***Interest expense, net of amounts capitalized***

## ** **

Interest expense, net of amounts capitalized, was$591 million in 2005, as compared to $403 million in 2004, anincrease of $188 million, or 47%. A portion of the increase was driven by$58 million in previously deferred financing costs written off as a result ofthe termination of the Company’s exit financing commitment in May 2005. Foradditional information, see Note 2, “Bankruptcy Proceedings and Sale of Assetsof the Company,” to the accompanying consolidated financial statements.

 

The remaining increase relates to higher averagemonthly outstanding debt balances and higher average interest rates, partiallyoffset by lower amortization of deferred financing costs in 2005, as comparedto 2004. Since the Petition Date, we have been paying or accruing interest onlyon amounts outstanding under the DIP facilities and the pre-petition creditagreements, including the entire principal balance outstanding under theCo-Borrowing Facilities.

 

77

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## ***Reorganization expenses due to bankruptcy***

## ** **

Certain expenses directly related to the Chapter 11filing are expensed and included in reorganization expenses due to bankruptcy. Suchexpenses aggregated $59 million and $77 million during 2005 and 2004,respectively. The $18 million decline was due to an increase in gains onsettlements of liabilities subject to compromise and interest earned duringreorganization, partially offset by an increase in professional fees. We willcontinue to incur significant reorganization expenses until we emerge frombankruptcy. For additional information, see Note 2, “Bankruptcy Proceedings andSale of Assets of the Company,” to the accompanying consolidated financialstatements.

 

## ***Other income (expense), net***

## ** **

We recorded other income, net of $495 millionduring 2005, as compared to other expense, net of $426 million during 2004.In connection with the Government Settlement Agreements, we recorded a $458million net benefit related to the settlement of, among other matters, netamounts payable from us (including the Rigas Co-Borrowing Entities) to theRigas Family and Other Rigas Entities during 2005. We also recorded a $47million gain from the sale of Century/ML Cable in 2005. Such gains werepartially offset by a $25 million impairment related to the receivable forsecurities. For additional information, see Note 6, “Transactions with theRigas Family and Rigas Family Entities” and Note 8, “Investments in EquityAffiliates and Related Receivables,” to the accompanying consolidated financialstatements. During 2004, we recorded a $425 million charge related to theNon-Prosecution Agreement. For additional information, see Note 16, “Commitmentsand Contingencies,” to the accompanying consolidated financial statements.

 

## ***Income tax (expense) benefit***

## ** **

We recorded income tax expense of $100 million for theyear ended December 31, 2005 and an income tax benefit of $3 million for theyear ended December 31, 2004. The 2005 income tax expense differs from theamount that would have resulted from the application of statutory tax rates dueprimarily to income attributable to the Rigas Co-Borrowing Entities (primarilydue to the settlement with the Rigas Family), a change in the valuationallowance for federal income tax purposes and expiration of certain NOLcarryforwards. The 2004 income tax benefit differs from the amount that wouldhave resulted from the application of statutory tax rates due primarily to achange in the valuation allowance for federal income tax purposes, thecumulative effect of the accounting change resulting from the adoption of FIN46-R and expiration of certain NOL carryforwards. For additional information,see Note 14, “Income Taxes,” to the accompanying consolidated financialstatements.

 

## ***Cumulative effects of accounting changes***

## ** **

As a result of the adoption of FIN 46-R and theconsolidation of the Rigas Co-Borrowing Entities, we recorded a charge of $589million as a cumulative effect of an accounting change on January 1, 2004. SeeNote 5, “Variable Interest Entities,” to the accompanying consolidatedfinancial statements for additional information. In addition, beginning in2004, we began amortizing our customer relationships using the double decliningbalance method. Customer relationships were amortized using the straight-linemethod prior to 2004. The application of the new amortization method tocustomer relationships acquired prior to 2004 resulted in an additional chargeof $263 million which has been reflected as a cumulative effect of a change inaccounting principle. See Note 3, “Summary of Significant Accounting Policies,”to the accompanying consolidated financial statements for additionalinformation.

 

78

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## ***2004 Compared to 2003***

## ** **

The following table summarizes the results ofoperations for the periods presented (dollars in thousands):

 
| ** **                                                                                                                                                                                | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                                                                | ** ** | **2004**                                   | ** ** | **2003** | ** ** |
| ** **                                                                                                                                                                                | ** ** | **$**                                      | ** ** | **% of  Revenue** | ** ** | **$** | ** ** | **% of  Revenue** | ** ** |
|                                                                                                                                                                                      |       |                                       |       |   |   |   |   |   |   |
| Revenue                                                                                                                                                                                   |       | $                                          | 4,143,388  |   | 100 | % | $ | 3,569,017 |   | 100 | % |
|                                                                                                                                                                                      |       |                                       |       |   |   |   |   |   |   |
| Costs and expenses:                                                                                                                                                                       |       |                                       |       |   |   |   |   |   |   |
| Direct operating and programming                                                                                                                                                          |       | 2,653,417                                  |       | 64 |   | 2,386,347 |   | 67 |   |
| Selling, general and administrative:                                                                                                                                                      |       |                                       |       |   |   |   |   |   |   |
| Third party                                                                                                                                                                               |       | 329,427                                    |       | 8 |   | 268,288 |   | 8 |   |
| Rigas Family Entities                                                                                                                                                                     |       | —                                     |       | — |   | (21,242 | ) | (1 | ) |
| Investigation, re-audit and sale  transaction costs                                                                                                                                       |       | 125,318                                    |       | 3 |   | 52,039 |   | 1 |   |
| Total selling, general and administrative                                                                                                                                                 |       | 454,745                                    |       | 11 |   | 299,085 |   | 8 |   |
|                                                                                                                                                                                      |       |                                       |       |   |   |   |   |   |   |
| Depreciation                                                                                                                                                                              |       | 961,840                                    |       | 23 |   | 846,097 |   | 24 |   |
| Amortization                                                                                                                                                                              |       | 159,682                                    |       | 4 |   | 162,839 |   | 5 |   |
| Impairment of long-lived assets                                                                                                                                                           |       | 83,349                                     |       | 2 |   | 17,641 |   | — |   |
| Provision for uncollectible amounts due  from the Rigas Family and Rigas Family Entities                                                                                                  |       | —                                     |       | — |   | 5,497 |   | — |   |
| Gain on disposition of long-lived assets                                                                                                                                                  |       | (4,641                                     | )          | — |   | — |   | — |   |
| Total costs and expenses                                                                                                                                                                  |       | 4,308,392                                  |       | 104 |   | 3,717,506 |   | 104 |   |
|                                                                                                                                                                                      |       |                                       |       |   |   |   |   |   |   |
| Operating loss                                                                                                                                                                            |       | (165,004                                   | )          | (4 | ) | (148,489 | ) | (4 | ) |
|                                                                                                                                                                                      |       |                                       |       |   |   |   |   |   |   |
| Other expense, net:                                                                                                                                                                       |       |                                       |       |   |   |   |   |   |   |
| Interest expense, net of amounts  capitalized                                                                                                                                             |       | (402,627                                   | )          | (10 | ) | (381,622 | ) | (11 | ) |
| Other expense, net                                                                                                                                                                        |       | (425,789                                   | )          | (10 | ) | (963 | ) | — |   |
| Total other expense, net                                                                                                                                                                  |       | (828,416                                   | )          | (20 | ) | (382,585 | ) | (11 | ) |
| Loss before reorganization expenses, income  taxes, share of losses of equity affiliates, minority’s interest,  discontinued operations and cumulative effects of accounting changes |       | (993,420                                   | )          | (24 | ) | (531,074 | ) | (15 | ) |
| Reorganization expenses due to bankruptcy                                                                                                                                                 |       | (76,553                                    | )          | (2 | ) | (98,812 | ) | (3 | ) |
| Income tax (expense) benefit                                                                                                                                                              |       | 2,843                                      |       | — |   | (117,378 | ) | (3 | ) |
| Share of losses of equity affiliates, net                                                                                                                                                 |       | (7,926                                     | )          | — |   | (2,826 | ) | — |   |
| Minority’s interest in loss of subsidiary                                                                                                                                            |       | 16,383                                     |       | — |   | 25,430 |   | 1 |   |
| Loss from continuing operations before  cumulative effects of accounting changes                                                                                                          |       | (1,058,673                                 | )          | (26 | ) | (724,660 | ) | (20 | ) |
| Loss from discontinued operations                                                                                                                                                         |       | (571                                       | )          | — |   | (107,952 | ) | (3 | ) |
| Cumulative effects of accounting changes                                                                                                                                                  |       | (851,629                                   | )          | (20 | ) | — |   | — |   |
| Net loss                                                                                                                                                                                  |       | $                                          | (1,910,873 | ) | (46 | )% | $ | (832,612 | ) | (23 | )% |

 

79

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Theconsolidation of the Rigas Co-Borrowing Entities resulted in the followingimpact to our consolidated statement of operations for the year ended December31, 2004 (amounts in thousands):

 
| Revenue                                             |   | $        | 194,089  |   |
|-----------------------------------------------------|--------|----------|----------|--------|
| Costs and expenses:                                 |   |     |     |
| Direct operating and programming                    |   | 114,846  |     |
| Selling, general and administrative:                |   |     |     |
| Third party                                         |   | 12,206   |     |
| Investigation, re-audit and sale  transaction costs |   | 17,233   |     |
| Depreciation                                        |   | 38,533   |     |
| Amortization                                        |   | 7,716    |     |
| Impairment of long-lived assets                     |   | 5,598    |     |
| Total costs and expenses                            |   | 196,132  |     |
| Operating loss                                      |   | (2,043   | )        |
| Other income                                        |   | 1,091    |     |
| Income tax expense                                  |   | (85      | )        |
| Loss before cumulative effect of accounting  change |   | (1,037   | )        |
| Cumulative effect of accounting change              |   | (588,782 | )        |
| Net loss                                            |   | $        | (589,819 | )      |

 

Thefollowing is a discussion of our results of operations and includes an analysisof significant changes from historical trends in our results of operations forthe year ended December 31, 2004 as compared to the year ended December 31,2003.

 

## ***Revenue***

## ** **

Revenue increased $574 million, or 16%, during theyear ended December 31, 2004 as compared to 2003, of which the consolidation ofthe Rigas Co-Borrowing Entities accounted for $194 million, or 5%. Thefollowing table summarizes revenue for the periods indicated (dollars inthousands, except ARPU amounts):

 
| ** **                | ** ** | **Year ended December 31,** | ** ** |
|---------------------------|------------|--------------------------------------------|------------|
| ** **                | ** ** | **2004**                                   | ** ** | **2003** | ** ** | **2004 vs. 2003** | ** ** |
| ** **                | ** ** | **Revenue**                                | ** ** | **% of  Revenue** | ** ** | **Revenue** | ** ** | **% of  Revenue** | ** ** | **$   Increase  (decrease)** | ** ** | **%  Increase  (decrease)** | ** ** |
|                      |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Cable:                    |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Video (including digital) |       | $                                          | 3,308,985  |   | 80 | % | $ | 2,942,602 |   | 82 | % | $ | 366,383 |   | 12 | % |
| HSI                       |       | 552,161                                    |       | 13 |   | 371,549 |   | 11 |   | 180,612 |   | 49 |   |
| Media services            |       | 242,193                                    |       | 6 |   | 209,870 |   | 6 |   | 32,323 |   | 15 |   |
| Total cable               |       | 4,103,339                                  |       | 99 |   | 3,524,021 |   | 99 |   | 579,318 |   | 16 |   |
| Corporate and other       |       | 40,049                                     |       | 1 |   | 44,996 |   | 1 |   | (4,947 | ) | (11 | ) |
| Total                     |       | $                                          | 4,143,388  |   | 100 | % | $ | 3,569,017 |   | 100 | % | $ | 574,371 |   | 16 | % |
| ARPU                      |       | $                                          | 66.21      |   |   |   | $ | 57.80 |   |   |   | $ | 8.41 |   | 15 | % |

 

Cable revenue increased $579 million, or 16%,during the year ended December 31, 2004, as compared to 2003, of which theRigas Co-Borrowing Entities accounted for $194 million, or 5% ($153 million ofvideo revenue, $32 million of HSI revenue and $9 million of media services revenue).The remaining increase in cable revenue was primarily attributable to increasedrevenue from HSI services, higher rates for basic and expanded basic servicetiers, increased revenue from digital cable services and higher media servicesrevenue. The positive impact of higher rates for basic and expanded basicservice tiers was partially offset by a decrease in our basic subscriber base. Anincrease in HSI and digital cable subscribers accounted for most of theincrease in revenue from these services. The increase in media services revenuewas attributable to our ability to increase both the average rate received andthe volume of advertising sold as a result of an industry wide trend of viewersswitching from broadcast to cable, thereby increasing viewership and theadvertising population. Year-end subscriber counts, excluding the RigasCo-Borrowing Entities, increased 38.4% for HSI and 3.0% for digital cable anddecreased 4.8% for basic cable when comparing 2004 to 2003.

 

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Corporate and other revenue includes revenue from oursecurity monitoring business, our sports programming network (Empire SportsNetwork) and our long-distance telephone resale business. Corporate and otherrevenue decreased $5 million when comparing the year ended December 31, 2004 to2003, due primarily to decreases in revenue related to both the Empire SportsNetwork and the long-distance telephone resale business.

 

## ***Direct operating and programming costs***

 

Direct operating and programming costs increased$267 million, or 11%, during 2004, as compared to 2003, of which theconsolidation of the Rigas Co-Borrowing Entities accounted for $115 million, or5%. The following table summarizes direct operating and programming costs for theperiods indicated (dollars in thousands):

 
| ** **          | ** ** | **Year ended December 31,** | ** ** |
|---------------------|------------|--------------------------------------------|------------|
| ** **          | ** ** | **2004**                                   | ** ** | **2003** | ** ** | **$   Increase  (decrease)** | ** ** | **%  Increase  (decrease)** | ** ** |
|                |       |                                       |       |   |   |   |   |   |   |
| Cable:              |       |                                       |       |   |   |   |   |   |   |
| Programming         |       | $                                          | 1,149,168  |   | $ | 1,056,820 |   | $ | 92,348 |   | 9 | % |
| Other cable         |       | 1,480,292                                  |       | 1,297,713 |   | 182,579 |   | 14 |   |
| Total cable         |       | 2,629,460                                  |       | 2,354,533 |   | 274,927 |   | 12 |   |
| Corporate and other |       | 23,957                                     |       | 31,814 |   | (7,857 | ) | (25 | ) |
| Total               |       | $                                          | 2,653,417  |   | $ | 2,386,347 |   | $ | 267,070 |   | 11 | % |

 

Programming costs increased $92 million, or 9%,of which the consolidation of the Rigas Co-Borrowing Entities accounted for $51million, or 5%. The remaining increase was primarily attributable to anincrease in the rates paid to programming providers and an increase in thenumber of programming services offered. Excluding the consolidation of theRigas Co-Borrowing Entities, the 2004 programming cost increase was belowhistoric trends due primarily to the decrease in our basic subscriber base.

 

Other cable operating costs increased$183 million, or 14%, of which the consolidation of the Rigas Co-BorrowingEntities accounted for $64 million, or 5%. The remaining increase was primarilythe result of annual wage increases, costs associated with increased customerservice call activities and costs incurred to repair damage to our cablesystems caused by the hurricanes in the southeastern United States in 2004.

 

## ***Selling, general and administrative expenses***

## ** **

SG&A expenses increased $82 million, or 33%,during 2004, as compared to 2003, of which the consolidation of the Rigas Co-BorrowingEntities accounted for $12 million, or 5%. In addition to theconsolidation of the Rigas Co-Borrowing Entities, the increase in SG&Aexpenses was primarily due to increases in contracted professional fees,maintenance and repair expenses, employee expenses and insurance expenses. Theseincreases include, among other items, expenses associated with compliance withthe Sarbanes-Oxley Act, higher hardware and software maintenance expenses, andhigher directors’ and officers’ liability insurance premiums incurred during2004, as compared to 2003. Marketing expenses also increased, primarily as aresult of our efforts to retain our basic subscriber base and continue to growthe number of HSI subscribers.

 

## ***Investigation, re-audit and sale transaction costs***

## ** **

We incurred investigation, re-audit and saletransaction costs that aggregated $125 million and $52 million for the yearsending December 31, 2004 and 2003, respectively. During 2004, re-audit relatedfees increased $50 million. The consolidation of the Rigas Co-BorrowingEntities accounted for an additional $17 million of the increase, all of whichrelates to legal defense costs of the Rigas Family.

 

## ***Depreciation***

## ** **

Depreciation expense increased by $116 million,or 14%, during 2004, as compared to 2003, of which the consolidation of theRigas Co-Borrowing Entities accounted for $39 million, or 5%. The remainingincrease was primarily attributable to a reduction in the useful life used todepreciate standard definition digital set-top boxes from five years to fouryears (for additional information, see Note 3, “Summary of SignificantAccounting Policies,” to the accompanying consolidated financial statements). Offsettingthese increases was the net effect of a decrease

 

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in depreciation expense associated with property and equipment that hasbecome fully depreciated or retired and increases in depreciation expense dueto capital expenditures.

 

## ***Impairment of long-lived assets***

## ** **

Impairment charges were $83 million in 2004, ascompared to $18 million in 2003. During 2004, we recognized impairmentcharges related to our cable franchise rights**.**During2003, we evaluated the recoverability of our long-lived assets in Brazil andrecognized impairment charges of $17 million. In addition, impairmentcharges of $1 million were recognized in 2003 related to our cablefranchise rights. For additional information, see Note 9, “Impairment ofLong-Lived Assets,” to the accompanying consolidated financial statements.

 

## ***Interest expense, net of amounts capitalized***

## ** **

Interest expense, net of amounts capitalized, was$403 million in 2004, as compared to $382 million in 2003, anincrease of $21 million, or 6%. The increase relates to higher averagemonthly outstanding debt balances, higher average interest rates and lowercapitalized interest in 2004, as compared to 2003. Since the Petition Date, wehave been paying or accruing interest only on amounts outstanding under the DIPfacilities and the pre-petition credit agreements, including the entireprincipal balance outstanding under the Co-Borrowing Facilities.

 

## ***Other expense, net***

## ** **

We recorded other expenses, net of $426 millionand $1 million during 2004 and 2003, respectively. During 2004, werecorded a $425 million charge related to the Non-Prosecution Agreement. Foradditional information, see Note 16, “Commitments and Contingencies,” to theaccompanying consolidated financial statements.

 

### ***Income tax(expense) benefit***

### ** **

Our income tax benefit was $3 million during 2004 andour income tax expense was $117 million during 2003. The 2004 income taxbenefit differs from the amount that would have resulted from the applicationof statutory tax rates due primarily to a change in the valuation allowance forfederal income tax purposes, the cumulative effect of the accounting changeresulting from the adoption of FIN 46-R and expiration of certain NOLcarryforwards. The 2003 income tax expense differs from the amount that wouldhave resulted from the application of statutory tax rates due primarily to achange in the valuation allowance for federal income tax purposes andexpiration of certain NOL carryforwards. For additional information, see Note14, “Income Taxes,” to the accompanying consolidated financial statements.

 

## ***Cumulative effects of accounting changes***

## ** **

As a result of the adoption of FIN 46-R and theconsolidation of the Rigas Co-Borrowing Entities, we recorded a charge of $589million as a cumulative effect of an accounting change on January 1, 2004. SeeNote 5, “Variable Interest Entities,” to the accompanying consolidatedfinancial statements for additional information. In addition, beginning in2004, we began amortizing our customer relationships using the double decliningbalance method. Customer relationships were amortized using the straight-linemethod prior to 2004. The application of the new amortization method tocustomer relationships acquired prior to 2004 resulted in an additional chargeof $263 million which has been reflected as a cumulative effect of a change inaccounting principle. See Note 3, “Summary of Significant Accounting Policies,”to the accompanying consolidated financial statements for additionalinformation.

 

# **LIQUIDITYAND CAPITAL RESOURCES**

# ** **

## ***Historical Sources and Uses of Cash***

## ** **

The following table summarizes net cash provided byoperating activities, net cash used in investing activities and net cashprovided by financing activities during the indicated periods (amounts inthousands):

 

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| ** **                                       | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                       | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                             |       |                                       |       |   |   |   |   |
| Operating activities                             |       | $                                          | 634,011    |   | $ | 511,692 |   | $ | 507,857 |   |
|                                             |       |                                       |       |   |   |   |   |
| Investing activities:                            |       |                                       |       |   |   |   |   |
| Capital expenditures for property and  equipment |       | $                                          | (734,538   | ) | $ | (820,913 | ) | $ | (723,521 | ) |
| Other investing activities                       |       | (799                                       | )          | 83,249 |   | 197,626 |   |
| Total investing activities                       |       | $                                          | (735,337   | ) | $ | (737,664 | ) | $ | (525,895 | ) |
|                                             |       |                                       |       |   |   |   |   |   |   |   |
| Financing activities                             |       | $                                          | 152,256    |   | $ | 312,220 |   | $ | 47,069 |   |

* *

*Operating Activities.*Net cashprovided by operating activities for the years ended December 31, 2005,2004 and 2003 was $634 million, $512 million and $508 million,respectively. The $122****millionincrease in net cash provided by operating activities during 2005 as comparedto 2004 was primarily attributable to a $176 million reduction in cashsettlements, partially offset by a decrease in cash generated by our operationsin 2005. In 2004, we settled $131 million of accounts payable and accruedliabilities which were classified as liabilities subject to compromise atDecember 31, 2003. In addition, we paid $60 million to TelCove in 2004 as partof the Global Settlement.

 

The $4 million increase in net cash provided byoperating activities during 2004 as compared to 2003 was primarily attributableto increased cash generated by our operations in 2004, offset by theaforementioned cash settlements.

* *

*Investing Activities.*Net cash used in investing activitiesdecreased to $735 million for 2005 compared to $738 million for 2004. In bothyears, we continued to make significant capital expenditures to upgrade andrebuild our cable systems and to support the launch of new services. Ourcapital expenditures for property and equipment declined 11% to $734 million in2005 compared to $821 million for 2004. Investingactivities, other than capital expenditures for property and equipment,generated a $1 million net use of cash for the year ended December 31, 2005. Anincrease in restricted cash of $279 million, primarily related to our sale of Century/MLCable, and our $22 million purchase of the remaining ownershipinterests in the Tele-Media JV Entities, wereoffset by $269 million of cash received from the sale of Century/MLCable and $36 million of cash received from the sale ofour security monitoring business. Conversely, $83 million of net cash was providedby other investing activities during 2004, primarily due to an $80 milliondecrease in restricted cash.

 

The $212 million increase in net cash used ininvesting activities in 2004 compared to 2003 was partially attributable toincreased capital spending, which increased13% to $821 million in 2004 compared to $724 million for 2003. In 2004, cashprovided by other investing activities decreased by $114 million as compared to2003. A reduction in restricted cash and net cash advances from the RigasFamily and Rigas Family Entities were the primary reasons for this decline. Thechange in net cash received from the Rigas Family and Rigas Family Entities wasprimarily due to the consolidation of the Rigas Co-Borrowing Entities effectiveJanuary 1, 2004.

 

*Financing Activities.*For 2005, net cash provided by financing activities wascomprised of $918 million of borrowings made pursuant to the DIP facilities,repayments of debt totaling $716 million and payments of bank financing costsof $49 million. Financing activities for 2004 consisted of $805 million ofborrowings made pursuant to the DIP facilities, repayments of debt totaling$478 million and payments of bank financing costs of $14 million. The $160million decrease in net cash provided by financing activities in 2005, ascompared to 2004, resulted primarily from an increase in net cash provided byoperating activities and reduced capital expenditures for property andequipment. Both 2005 and 2004 activities included refinancing of the DIPfacilities.

 

Net cash provided by financing activities increased by$265 million in 2004, as compared to 2003, primarily due to increasedborrowings made pursuant to the DIP facilities, net of repayments. Theincreased borrowings were used to fund the increase in capital expenditures forproperty and equipment, cash settlements of certain liabilities subject tocompromise and the Global Settlement discussed above.

 

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# **CURRENTAND FUTURE SOURCES OF LIQUIDITY**

# ** **

## ***General***

## ** **

Since the Petition Date, we have utilized net cashprovided by operating activities and borrowings under the DIP facilities tofund capital expenditures and other liquidity requirements. As discussed ingreater detail below, our restricted cash balances do not represent sources ofshort-term liquidity.

 

## ***Second Extended****Dip**Facility*

## ** **

On February 25, 2005, the Loan Parties entered intothe $1,300 million Second Extended DIP Facility, which supersedes and replacesin its entirety the First Extended DIP Facility. The Second Extended DIPFacility was approved by the Bankruptcy Court on February 22, 2005 and closedon February 25, 2005.

 

The Second Extended DIP Facility was to mature uponthe earlier of March 31, 2006 or the occurrence of certain other events,as described in the Second Extended DIP Facility. The Second Extended DIPFacility was comprised of an $800 million Tranche A Loan (including a $500million letter of credit subfacility) and a $500 million Tranche B Loan. Theproceeds from borrowings under the Second Extended DIP Facility were permittedto be used for general corporate purposes and investments, as defined in theSecond Extended DIP Facility. The Second Extended DIP Facility was secured witha first priority lien on all of the Loan Parties’ unencumbered assets, apriming first priority lien on all assets of the Loan Parties securing theirpre-petition bank debt and a junior lien on all other assets of the LoanParties. The applicable margin on loans extended under the Second Extended DIPFacility was 1.25% per annum in the case of Alternate Base Rate loans and 2.25%per annum in the case of Adjusted London interbank offered rate (“LIBOR”) loans.In addition, under the Second Extended DIP Facility, the commitment fee withrespect to the unused portion of the Tranche A Loan was 0.50% per annum.

 

In connection with the closing of the Second ExtendedDIP Facility, on February 25, 2005, the Loan Parties borrowed an aggregate of$578 million thereunder, and used all such proceeds and a portion of availablecash and cash equivalents to repay all of the indebtedness, including accruedand unpaid interest and certain fees and expenses, outstanding under the FirstExtended DIP Facility. In addition, all of the participations in the letters ofcredit outstanding under the First Extended DIP Facility were transferred tocertain lenders under the Second Extended DIP Facility.

 

The terms of the Second Extended DIP Facility containedcertain restrictive covenants, which included limitations on the ability of theLoan Parties to (i) incur additional guarantees, liens and indebtedness, (ii)sell or otherwise dispose of certain assets and (iii) pay dividends or makeother distributions or payments with respect to any shares of capital stock,subject to certain exceptions set forth in the Second Extended DIP Facility. TheSecond Extended DIP Facility also required compliance with certain financialcovenants with respect to operating results and capital expenditures.

 

From time to time, the Loan Parties and the DIPlenders entered into certain amendments to the terms of the Second Extended DIPFacility. In addition, from time to time, the Company received waivers toprevent or cure certain defaults under the Second Extended DIP Facility. Thesewaivers and amendments were effective through the maturity date of the SecondExtended DIP Facility.

 

On March 9, 2005, certain Loan Parties cashcollateralized certain letters of credit outstanding under the Second ExtendedDIP Facility in connection with the consummation of certain asset sales. On May27, 2005 and July 6, 2005, certain Loan Parties made mandatory prepayments ofprincipal on the Second Extended DIP Facility in connection with theconsummation of certain asset sales. As a result, the total commitment of theentire Second Extended DIP Facility was reduced to $1,271 million, with thetotal commitment of the Tranche A Loan being reduced to $772 million. As ofDecember 31, 2005, $352 million under the Tranche A Loan has been drawn andletters of credit totaling $82 million have been issued under the Tranche ALoan, leaving availability of $338 million under the Tranche A Loan. Furthermore,as of December 31, 2005, the entire $499 million under the Tranche B Loan hasbeen drawn.

 

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## ***Third Extended****Dip**Facility*

## ** **

OnMarch 17, 2006, the Loan Parties entered into the $1,300 million Third ExtendedDIP Facility, which supersedes and replaces in its entirety the Second ExtendedDIP Facility. The Third Extended DIP Facility was approved by the BankruptcyCourt on March 16, 2006, and closed on March 17, 2006. Except as set forthbelow, the material terms and conditions of the Third Extended DIP Facility aresubstantially identical to the material terms and conditions of the SecondExtended DIP Facility, including the covenants and collateral securing theThird Extended DIP Facility.

 

TheThird Extended DIP Facility generally matures upon the earlier of August 7,2006 or the occurrence of certain other events, as described in the ThirdExtended DIP Facility. The Third Extended DIP Facility is comprised of an $800million Tranche A Loan (including a $500 million letter of credit subfacility)and a $500 million Tranche B Loan. The proceeds from borrowings under the ThirdExtended DIP Facility are permitted to be used for general corporate purposesand investments, as defined in the Third Extended DIP Facility. The ThirdExtended DIP Facility is secured with a first priority lien on all of the LoanParties’ unencumbered assets, a priming first priority lien on all assets ofthe Loan Parties securing their pre-petition bank debt and a junior lien on allother assets of the Loan Parties. The applicable margin on loans extended underthe Third Extended DIP Facility was reduced (when compared to the Second ExtendedDIP Facility) to 1.00% per annum in the case of Alternate Base Rate loans and2.00% per annum in the case of Adjusted LIBOR rate loans, and the commitmentfee with respect to the unused portion of the Tranche A Loan is 0.50% per annum(which is the same fee that was charged under the Second Extended DIPFacility).

 

The terms of the Third Extended DIP Facility contain certainrestrictive covenants, which include limitations on the ability of the LoanParties to (i) incur additional guarantees, liens and indebtedness, (ii) sellor otherwise dispose of certain assets and (iii) pay dividends or make otherdistributions or payments with respect to any shares of capital stock, subjectto certain exceptions set forth in the Third Extended DIP Facility. The ThirdExtended DIP Facility also requires compliance with certain financial covenantswith respect to operating results and capital expenditures.

 

In connection with the closing of the Third ExtendedDIP Facility, on March 17, 2006, the Loan Parties borrowed an aggregate of $916million thereunder, and used all such proceeds and a portion of available cashand cash equivalents to repay all of the indebtedness, including accrued andunpaid interest and certain fees and expenses, outstanding under the SecondExtended DIP Facility. In addition, all of the participations in the letters ofcredit outstanding under the Second Extended DIP Facility were transferred tocertain lenders under the Third Extended DIP Facility.

 

## ***Cash Provided by Operating Activities***

## ** **

Consistent with our historical experience, we expectthat net cash provided by operating activities will continue to represent animportant source of liquidity for us in future periods. We consider bothtraditional GAAP and alternative measures of cash generated by our operationswhen evaluating this source of liquidity. One important alternative measure,free cash flow, is defined by us as net cash provided by operating activitiesless capital expenditures for property and equipment and is used by us as a measureof liquidity. Our definition of free cash flow may differ from similar cashflow measurements used by other public companies, including other publiccompanies offering similar services. We believe that free cash flow provides auseful means of evaluating our liquidity by enabling us to focus on our abilityto service debt and make strategic investments, after giving effect to capitalexpenditures for property and equipment, which is a significant and ongoingobligation for us. See “Current and Future Uses of Liquidity—CapitalExpenditures” below. However, free cash flow is not intended to replace orsupersede any information presented in accordance with GAAP. The followingtable presents the non-GAAP measure, free cash flow deficit, together with areconciliation of such alternative measure to the corresponding GAAP measure,net cash provided by operating activities, for the indicated periods (amountsin thousands):

 

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| ** **                                                                                     | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                     | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Free cash flow deficit                                                                         |       | $                                          | (100,527   | ) | $ | (309,221 | ) | $ | (215,664 | ) |
| Adjustments to reconcile free cash flow  deficit to net cash provided by operating activities: |       |                                       |       |   |   |   |   |
| Capital expenditures for property and  equipment                                               |       | 734,538                                    |       | 820,913 |   | 723,521 |   |
| Net cash provided by operating activities                                                      |       | $                                          | 634,011    |   | $ | 511,692 |   | $ | 507,857 |   |

 

Net cash provided by operating activities is largely afunction of the revenue generated and cash expenses incurred during the period.Accordingly, the future reliability of net cash provided by operatingactivities is dependent on our ability to maintain or increase our revenuewhile controlling the corresponding cash expenses. Future increases in revenueare dependent on our ability to increase the penetration of our digital and HSIservices, launch new service offerings, implement rate increases and curtailthe loss of basic cable subscribers. Although we believe that we can continueto increase our revenue and control our cash expenses, factors outside of ourcontrol such as adverse changes in the competitive, regulatory, economic,technological, or political environment, or in consumer trends and/ordemographics could adversely affect our ability to do so. Although we havegenerated free cash flow deficits in recent years, we plan to manage ouroperations, debt structure and capital expenditures with the objective ofachieving positive free cash flow in future periods. However, due touncertainties relating to the timing of the Sale Transaction and/or ouremergence from bankruptcy and other matters, we cannot predict when, or if, wewill achieve positive free cash flow. For additional information concerning ourplanned capital expenditures, see “Current and Future Uses of Liquidity—CapitalExpenditures” below.

 

## ***Adequacy of Current Sources of Liquidity***

## ** **

Althoughno assurance can be given, we believe that net cash provided by operatingactivities, along with the financing provided by the Third Extended DIPFacility, should provide us with sufficient liquidity to fund our operationsthrough the expiration date of the Third Extended DIP Facility. As noted above,the Third Extended DIP Facility expires on August 7, 2006 or earlier upon theoccurrence of certain events. If it appears likely that the Third Extended DIPFacility will expire prior to the effective date of a plan of reorganization,we expect to request an amendment of the Third Extended DIP Facility topostpone the expiration thereof to a date that would allow sufficient time fora plan of reorganization to become effective. It is uncertain whether the ThirdExtended DIP Facility lenders would agree to such an amendment and what termsmight be imposed by such lenders in connection with such an amendment. If wewere not successful in postponing the expiration of the Third Extended DIPFacility, we would seek alternative debtor-in-possession financing. Noassurance can be given that alternative debtor-in-possession financing would beavailable on terms acceptable to us, if at all.

 

Ourability to obtain sufficient liquidity to fund our operations during the termof the Third Extended DIP Facility is dependent upon our ability to maintaincompliance with the covenants under the Third Extended DIP Facility and uponour ability to generate sufficient cash from operating activities and financingactivities to meet our obligations as they become due.

 

## ***Current and Future Uses of Liquidity***

## ** **

*Contractual Obligations.*The followingtable summarizes the timing of our required payments due under variouscontractual obligations as of December 31, 2005. The amounts reflected inthe table include significant contractual payments due under the Debtors’pre-petition obligations that are included in liabilities subject to compromisein the accompanying consolidated balance sheets. For additional information,see Note 2, “Bankruptcy Proceedings and Sale of Assets of the Company,” tothe accompanying consolidated financial statements. The actual amounts to bepaid are subject to adjustment depending on Bankruptcy Court actions,completion of the reconciliation process with respect to disputed claims,determinations of the secured status of certain claims, the value of anycollateral securing such claims, or other events. Such adjustments may bematerial relative to the amounts reported in the table. Accordingly, thecontractual obligations detailed in the following table may vary significantlyfrom actual cash outlays in future periods. With respect to the contracts andleases that have been rejected by the Debtors, the contractual obligations setforth in the table include (i) the estimated damage claims relating tothose rejected leases and contracts for which rejection was approved by theBankruptcy Court on or before December 31, 2005 and (ii) theremaining contractual payments due at December 31, 2005 for those rejected

 

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leasesand contracts for which rejection was approved by the Bankruptcy Courtsubsequent to December 31, 2005 (amounts in thousands).

 
| ** **                                                                                                        | ** ** | **Payments due by period** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                        | ** ** | **2006**                                  | ** ** | **2007-2008** | ** ** | **2009-2010** | ** ** | **After 2010** | ** ** | **Total** | ** ** |
| Debt(a)                                                                                                           |       | $                                         | 7,698,024  |   | $ | 3,747,883 |   | $ | 4,913,225 |   | $ | 1,075,000 |   | $ | 17,434,132 |   |
| Capital lease obligations(a)                                                                                      |       | 16,167                                    |       | 1,379 |   | — |   | — |   | 17,546 |   |
| Operating leases                                                                                                  |       | 20,118                                    |       | 29,723 |   | 18,772 |   | 30,493 |   | 99,106 |   |
| Purchase obligations(b)                                                                                           |       | 19,125                                    |       | — |   | — |   | — |   | 19,125 |   |
| Series B 13% Cumulative Exchangeable  Preferred Stock due July 15, 2009 (“Series B Preferred Stock”)(c) |       | —                                    |       | — |   | 150,000 |   | — |   | 150,000 |   |
| Other firm commitments(d)                                                                                         |       | 35,686                                    |       | 16,109 |   | 11,129 |   | 6,717 |   | 69,641 |   |
| Total contractual obligations                                                                                     |       | $                                         | 7,789,120  |   | $ | 3,795,094 |   | $ | 5,093,126 |   | $ | 1,112,210 |   | $ | 17,789,550 |   |

 

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(a)           Representsthe contractual maturities, without consideration for default provisions, ofprincipal due under the Debtors’ pre-petition and post-petition debt andcapital lease obligations. Such amounts do not include interest payments. Foradditional information, see Note 2, “Bankruptcy Proceedings and Sale of Assets of the Company,” and Note 10, “Debt,”to the accompanying consolidated financial statements.

 

(b)           Purchaseobligations consist of obligations associated with agreements to purchase goodsand services that are enforceable and legally binding on us, and that specifyall significant terms including fixed or minimum quantities to be purchased,fixed, minimum or variable price provisions and the approximate timing of thetransaction. Future paymentsunder programming agreements have not been included in the table because ourobligations under these agreements are contingent upon the provision of cableservice to subscribers. Accordingly, in the event we were to terminate cableservice to a portion of our subscribers or dispose of a portion of our cablesystems, none of our programming contracts at December 31, 2005 wouldrequire us to make minimum or guaranteed payments to our programming vendorswith respect to any such reduction in our subscribers. Notwithstanding theforegoing, payments to programming vendors have in the past represented, andare expected to continue to represent, a significant portion of our operatingcosts. During 2005, 2004 and 2003, our programming costs were $1,166 million,$1,149 million and $1,057 million, respectively. In general, weexpect that existing programming contracts will be renewed or replaced suchthat the annual amounts paid to our programming vendors in future years will beequal to or greater than our 2005 programming expense.

 

(c)           Representsfuture payments to stockholders with respect to the original liquidation valueof the pre-petition mandatorily redeemable Series B Preferred Stock. Theamount reflected in the table does not include dividends on the Series BPreferred Stock. Our annual contractual dividends with respect to theSeries B Preferred Stock are $19.5 million. No preferred stockdividends have been paid or accrued since the Petition Date. For additionalinformation, see Note 2, “Bankruptcy Proceedingsand Sale of Assets of the Company,” and Note 11, “Redeemable PreferredStock,” to the accompanying consolidated financial statements.

 

(d)           Includescommitments to rebuild or upgrade cable systems and to extend the broadbandnetwork to new developments and other fixed minimum contractual commitmentsassociated with our agreements with franchise authorities. The amount andtiming of the payments included in the table with respect to our rebuild,upgrade and network extension commitments are based on the requirements of theapplicable franchise agreement. In this regard, each rebuild, upgrade andnetwork extension obligation was calculated by estimating the remaining capitalrequired as of December 31, 2005 to bring the broadband network intocompliance with the specifications stipulated in the relevant franchiseagreements. In addition to the amounts set forth in the table, we are alsoobligated to make variable payments for franchise fees and public educationgovernmental access channels to franchise authorities that are dependent on theamount of revenue generated or the number of subscribers served within theapplicable franchise area. Such variable payments aggregated $134 million,$130 million and $115 million during 2005, 2004, and 2003,respectively.

 

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*Off-Balance Sheet Arrangements.*Wehave issued standby letters of credit for the benefit of franchise authoritiesand other parties, most of which have been issued to an intermediary suretybonding company. The letters of credit are collateralized by either cash or theundrawn portion of the Second Extended DIP Facility. At December 31, 2005, the aggregateprincipal amount of letters of credit issued by us was $83 million, of which$82 million was issued under the Second Extended DIP Facility and $1 millionwas collateralized by cash. Letters of credit issued under the DIP facilitiesreduce the amount that may be borrowed under the DIP facilities. We do not haveany other off-balance sheet arrangements.

 

*Capital expendituresfor property and equipment.*The cabletelevision industry is capital intensive and our ability to offer new servicesand increase revenue in future periods is largely dependent on our ability toupgrade the capacity and other technical capabilities of our cable systems. Inaddition, we deploy capital to: (i) support the launch of new services; (ii)extend our services to new and existing residential developments; and (iii)improve or maintain the quality of our cable distribution systems in order toretain subscribers and reduce the costs associated with service calls andmaintenance activities. In general, our deployment of capital is designed tomaximize the return on capital while taking into account relevant factors suchas: (i) available sources of liquidity; (ii) debt covenants; (iii) franchiserequirements; and (iv) availability of skilled labor.

 

We expect the closing of the Sale Transaction to occurby July 31, 2006, the date under the Purchase Agreements after whicheither party may terminate, subject to certain exceptions, the applicablePurchase Agreement if the closing has not already occurred, and we expect thatour total capital expenditures for property and equipment for the first sevenmonths of 2006 will range from $350 million to $375 million. The Sale Transaction also requires us to use commercially reasonable efforts tomaintain capital expenditures in accordance with our long range plan.

 

*Liquidation of Debt and Other Liabilities.*AtDecember 31, 2005, our liabilities totaled $20,949 million including $18,415million representing pre-petition liabilities that are subject to compromise. Wecurrently cannot predict the amount of cash that will be required to settlepre-petition liabilities subject to compromise, as the rights and claims of theDebtors’ various creditors will be determined by a plan of reorganization thatis ultimately subject to confirmation by the Bankruptcy Court.

 

# **CRITICALACCOUNTING POLICIES**

# ** **

Our management developed and reviewed the followingdisclosure of critical accounting policies with our Audit Committee. We believethe following accounting policies are critical in that they are important tothe determination of our results of operations and/or financial condition andthey require significant judgment and estimates. For additional information,see Note 3, “Summary of Significant Accounting Policies,” to theaccompanying consolidated financial statements.

 

## ***Impairment of Property and Equipment and Intangible Assets***

## ** **

Pursuant to SFAS No. 144, “*Accountingfor the Impairment or Disposal of Long-Lived Assets*” (“SFASNo. 144”)*,* we evaluateproperty and equipment and amortizable intangible assets for impairmentwhenever current events and circumstances indicate their carrying amounts maynot be recoverable. If the carrying amount is greater than the expected futureundiscounted cash flows to be generated, we recognize an impairment loss equalto the excess, if any, of the carrying value over the fair value of the asset. Wegenerally measure fair value based upon the present value of estimated futurenet cash flows of an asset group over its remaining useful life. We utilize anindependent third party valuation firm to assist in the determination of fairvalue. With respect to long-lived assets associated with cable systems, wegroup systems at a level which represents the lowest level of cash flows thatare largely independent of other assets and liabilities. Our asset groups underthis methodology consist of seven major metropolitan markets and numerous otherasset groups in our geographically dispersed operations.

 

Pursuant to SFAS No. 142, we evaluate ourgoodwill and franchise rights for impairment, at least annually on July 1,and whenever other facts and circumstances indicate that the carrying amountsof goodwill and franchise rights may not be recoverable. We evaluate therecoverability of the carrying amount of goodwill at our operating regions. Theseoperating regions make up our cable operating segment determined pursuant toSFAS No. 131, “*Disclosures about Segmentsof an Enterprise and Related Information*,” as further discussed inNote 15, “Segments,” to the accompanying consolidated financial statements. Forpurposes of this evaluation, we compare

 

88

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the fair value of the assets of each of our operating regions to theirrespective carrying amounts. We estimate the fair value of our goodwill andfranchise rights primarily based on discounted cash flows, current markettransactions and industry trends. If the carrying value of an operating regionwere to exceed its fair value, we would then compare the implied fair value ofthe operating region’s goodwill to its carrying amount, and any excess of thecarrying amount over the fair value would be charged to operations as animpairment loss. The fair value of goodwill represents the excess of theoperating region’s fair value over the fair value of its identifiable netassets. We evaluate the recoverability of the carrying amount of our franchiserights based on the same asset groupings used to evaluate our long-lived assetsunder SFAS No. 144 because the franchise rights are inseparable from theother assets in the asset group. These groupings are consistent with theguidance in Emerging Issues Task Force Issue No. 02-7, “*Unit of Measure for Testing Impairment of Indefinite-Lived IntangibleAssets*.”  Any excess of thecarrying value over the fair value for franchise rights is charged tooperations as an impairment loss.

 

The evaluation of long-lived assets for impairmentrequires a high degree of judgment and involves the use of significantestimates and assumptions. For additional information regarding our impairmentlosses, see Note 9, “Impairment of Long-Lived Assets,” to the accompanyingconsolidated financial statements.

 

## ***Capitalization of Construction and Installation Costs***

## ** **

In accordance with SFAS No. 51, “*Financial Reporting by Cable Television Companies*,” wecapitalize costs associated with the construction of new cable transmission anddistribution facilities and the installation of new cable services. Capitalizedconstruction costs include materials, labor, applicable indirect costs andinterest. Capitalized installation costs include labor, material and overheadcosts related to: (i) the initial connection (or “drop”) from our cable plantto a customer location; (ii) the replacement of a drop; and (iii) theinstallation of equipment for additional services, such as digital cable or HSI.We use standard costing models based on actual costs to capitalize installationactivities and costs related to internal construction labor. Indirect costs arecapitalized if we determine that such costs are clearly related to ourconstruction or installation functions. Materials and external labor costsassociated with construction activities are capitalized based on amountsinvoiced by third parties. Periodically, we review and adjust, if necessary,the amount of costs capitalized using standard costing models based oncomparisons to actual costs incurred. Significant judgment is involved in thedevelopment of costing models and in the determination of the nature and amountof indirect costs to be capitalized.

 

Costs associated with disconnecting and reconnectingexisting cable subscribers are expensed as incurred. Improvements that extendasset lives are capitalized and other repairs and maintenance expenditures areexpensed as incurred.

 

## ***Carrying Amounts of Liabilities Subject to Compromise***

## ** **

The ultimate amount of the Debtors’ liabilities willbe determined during the Debtors’ claims resolution process. The BankruptcyCourt established a bar date of January 9, 2004 for filing proofs of claimagainst the Debtors’ estates. A bar date is the date by which proofs of claimmust be filed if a claimant disagrees with how its claim appears on the Debtors’Schedules of Liabilities. However, under certain limited circumstances,claimants may file proofs of claims after the bar date. The aggregate amount ofclaims filed with the Bankruptcy Court far exceeds the Debtors’ estimate ofultimate liability. The Debtors currently are in the process of reviewing,analyzing and reconciling the scheduled and filed claims. The Debtors expectthat the claims resolution process will take significant time to complete.

 

The Debtors have filed numerous omnibus objectionsthat address $3.68 trillion in claims, consisting primarily of duplicativeclaims. Certain claims addressed in such objections were either: (i) reducedand allowed; (ii) disallowed and expunged; or (iii) subordinated by orders ofthe Bankruptcy Court. Hearings on certain claims objections are ongoing. Certainother objections have been adjourned to allow the parties to continue toreconcile such claims. Additional omnibus objections may be filed as the claimsresolution process continues.

 

Accordingly, the amounts presented as liabilitiessubject to compromise may be subject to future adjustments depending onBankruptcy Court actions, completion of the reconciliation process with respectto disputed claims, determinations of the secured status of certain claims, thevalues of any collateral securing such claims or other events. Such adjustmentsmay be material to the amounts reported as liabilities subject to compromise.

 

89

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## ***IncomeTaxes***

## * *

We account for income taxes using the asset andliability method. Under the asset and liability method, deferred tax assets andliabilities are recognized for the estimated future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases. In addition,deferred tax assets are also recorded with respect to net operating losses andother tax attribute carryforwards. Deferred tax assets and liabilities aremeasured using enacted tax rates in effect for the year in which thosetemporary differences are expected to be recovered or settled. Valuationallowances are established when realization of the benefit of deferred taxassets is not deemed to be more likely than not. The effect on deferred taxassets and liabilities of a change in tax rates is recognized in income in theperiod that includes the enactment date. For additional information, see Note14, “Income Taxes,” to the accompanying consolidated financial statements.

 

Certain of our deferred tax assets are comprised ofnet operating loss carryforwards for federal and state income tax filingpurposes for which recovery is dependent on the amount and timing of taxableincome that we will ultimately generate in the future and other factors. A highdegree of judgment is required to determine the extent that valuationallowances should be provided against deferred tax assets.

 

## ***Assessmentof Loss Contingencies***

## * *

We have legal and other contingencies that couldresult in significant losses upon the ultimate resolution of such contingencies.We have provided for losses in situations where we have concluded that it isprobable that a loss has been or will be incurred and the amount of the loss isreasonably estimable. A significant amount of judgment is involved indetermining whether a loss is probable and reasonably estimable due to theuncertainty involved in determining the likelihood of future events andestimating the financial statement impact of such events. Accordingly, it ispossible that upon the further development or resolution of a contingentmatter, a significant charge could be recorded in a future period related to anexisting contingent matter. For additional information, see Note 16, “Commitmentsand Contingencies,” to the accompanying consolidated financial statements.

 

## ***VariableInterest Entities***

## * *

The determination of whether or not an entity is avariable interest entity is detailed and complex and requires significantjudgment in the application of the rules set out in FIN 46-R. In determining ifan entity is a variable interest entity, FIN 46-R requires an evaluation as towhether the equity of the entity is sufficient to absorb the expected losses ofthat entity. This evaluation requires the consideration of qualitative factorsand various assumptions, including expected future cash flows and funding needs.Even if the entity’s equity is determined to be sufficient to absorb expectedlosses, FIN 46-R provides that in certain circumstances there needs to be aqualitative assessment as to whether “substantially all” the benefits of theentity are for the benefit of one of the variable interest holders. In suchcircumstances, the entity would be deemed to be a variable interest entity.

 

Similarly, identifying the primary beneficiaryrequires the application of judgment and the evaluation of various assumptionsas to the fair value of all variable interests. Specifically, theidentification of variable interests requires (i) an economic analysis ofthe rights and obligations of an entity’s assets, liabilities, equity and othercontracts, and (ii) the determination of who holds the majority of thevariable interests.

 

We have concluded that the Rigas Co-Borrowing Entitiesrepresent variable interest entities for which we are the primary beneficiary,as contemplated by FIN 46-R. Accordingly, effective January 1, 2004, we beganconsolidating the Rigas Co-Borrowing Entities on a prospective basis and, assuch, have not restated previously issued financial statements. As a result ofthe Government Settlement Agreements, as of June 8, 2005, the Company is nolonger the primary beneficiary of Coudersport and Bucktail. Accordingly, theCompany ceased to consolidate Coudersport and Bucktail under FIN 46-R. Foradditional information, see Note 5, “Variable Interest Entities,” to theaccompanying consolidated financial statements.

 

In addition to the Rigas Co-Borrowing Entities, theRigas Family owned, prior to forfeiture to the United States on June 8, 2005,at least 16 additional entities in which the Company held a variable interest. TheCompany did not apply the provisions of FIN 46-R to the Other Rigas Entitiesbecause the Company did not have sufficient financial information to performthe required evaluations. As a result of the Government Settlement Agreements,as of June 8, 2005, the Company no longer holds a variable interest in theseentities.

 

90

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**ITEM 7A. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Our exposure to market risk associated with changes ininterest rates relates primarily to our debt obligations. As all of ouroutstanding debt and preferred securities, other than the DIP facilities, aresubject to compromise, we do not believe that these instruments subject us tosignificant market risk. We do continue to pay or accrue interest on our DIPfacilities and pre-petition bank debt, all of which bears interest at variablerates and subjects us to interest rate risk. We had $7,668 million and$7,444 million outstanding variable rate debt (for which we continue topay interest) at December 31, 2005 and 2004, respectively. Assuming ahypothetical 100 basis point increase (or decrease) in interest rates, there wouldhave been an increase or decrease in our interest expense and cash provided byoperating activities of approximately $77 million and $75 million for theyears ended December 31, 2005 and 2004, respectively.

 

As of December 31, 2005, our short-terminvestments consist of money market funds and U.S. Government obligations withmaturities of three months or less. Therefore, we do not believe there issignificant market risk related to interest rates or credit risk associatedwith non-performance. The carrying value of cash and cash equivalents of$390 million approximates the fair value as of December 31, 2005.

 

91

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**ITEM 8.CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

 
| Report of Independent  Registered Public Accounting Firm                                                      |   |
|---------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                          |   |
| Consolidated Balance Sheets at  December 31, 2005 and 2004                                                    |   |
|                                                                                                          |   |
| Consolidated Statements of  Operations for the years ended December 31, 2005, 2004 and 2003                   |   |
|                                                                                                          |   |
| Consolidated Statements of  Comprehensive Income (Loss) for the years ended December 31, 2005, 2004 and  2003 |   |
|                                                                                                          |   |
| Consolidated Statements of  Stockholders’ Deficit for the years ended December 31, 2005, 2004 and 2003   |   |
|                                                                                                          |   |
| Consolidated Statements of  Cash Flows for the years ended December 31, 2005, 2004 and 2003                   |   |
|                                                                                                          |   |
| Notes to Consolidated  Financial Statements                                                                   |   |
|                                                                                                          |   |
| Supplemental  Financial Schedules:                                                                            |   |
|                                                                                                          |   |
| Schedule  I – Condensed Financial Information of Registrant                                              |   |
|                                                                                                          |   |
| Schedule  II – Valuation and Qualifying Accounts                                                         |   |

 

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### **REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

###  

To the Board of Directors and Stockholders of

Adelphia Communications Corporation:

 

In our opinion, the consolidated financial statementslisted in the accompanying index present fairly, in all material respects, thefinancial position of Adelphia Communications Corporation (“Adelphia”) and itssubsidiaries and other consolidated entities (Debtors-in-Possession from June25, 2002), collectively, the “Company,” at December 31, 2005 and 2004, and theresults of their operations and their cash flows for each of the three years inthe period ended December 31, 2005 in conformity with accounting principlesgenerally accepted in the United States of America. In addition, in ouropinion, the financial statement schedules listed in the accompanying indexpresent fairly, in all material respects, the information set forth thereinwhen read in conjunction with the related consolidated financial statements. Theseconsolidated financial statements and financial statement schedules are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements and financial statementschedules based on our audits. We conducted our audits of these statements inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion.

 

The consolidated financial statements listed in theaccompanying index have been prepared assuming that the Company will continueas a going concern. As discussed in Note 2 to the consolidated financialstatements, on June 25, 2002, Adelphia and substantially all of its domesticsubsidiaries filed a voluntary petition for reorganization under Chapter 11 ofthe United States Bankruptcy Code. In addition, the Company is involved inmaterial litigation, the ultimate outcome of which is not presentlydeterminable. The uncertainties inherent in the bankruptcy and litigationprocess, the Company’s net capital deficiency and the expiration of the Company’sextended debtor-in-possession credit facility on August 7, 2006 raisesubstantial doubt about its ability to continue as a going concern. The financialstatements do not include any adjustments to reflect the possible futureeffects on the recoverability and classification of assets or the amount andclassification of liabilities that may result from the outcome of theseuncertainties.

 

As discussed in Notes 1 and 5 to the consolidatedfinancial statements listed in the accompanying index, effective January 1,2004, the Company adopted Financial Accounting Standards Board InterpretationNo. 46-R, *Consolidation of Variable Interest Entities*.As discussed in Note 3 to the consolidated financial statements listed in theaccompanying index, the Company changed its method of computing amortization oncustomer relationship intangible assets as of January 1, 2004.

 

/s/ PricewaterhouseCoopers LLP

 

PricewaterhouseCoopers LLP

 

McLean, Virginia

March 28, 2006

 

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**CONSOLIDATEDBALANCE SHEETS**

**(amountsin thousands, except share data)**

 
| ** **                                                                                                                            | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                            | ** ** | **2005**              | ** ** | **2004** | ** ** |
| ASSETS                                                                                                                                |       |                  |       |   |   |
| Current assets:                                                                                                                       |       |                  |       |   |   |
| Cash and cash equivalents                                                                                                             |       | $                     | 389,839    |   | $ | 338,909 |   |
| Restricted cash (Note 3)                                                                                                              |       | 25,783                |       | 6,300 |   |
| Accounts receivable, net (Note 3)                                                                                                     |       | 119,512               |       | 116,613 |   |
| Receivable for securities (Note 6)                                                                                                    |       | 10,029                |       | — |   |
| Other current assets                                                                                                                  |       | 74,399                |       | 82,710 |   |
| Total current assets                                                                                                                  |       | 619,562               |       | 544,532 |   |
|                                                                                                                                  |       |                  |       |   |   |
| Noncurrent assets:                                                                                                                    |       |                  |       |   |   |
| Restricted cash (Note 3)                                                                                                              |       | 262,393               |       | 3,035 |   |
| Investments in equity affiliates and  related receivables (Note 8)                                                                    |       | 6,937                 |       | 252,237 |   |
| Property and equipment, net (Notes 3 and 9)                                                                                           |       | 4,334,651             |       | 4,469,943 |   |
| Intangible assets, net (Notes 3 and 9):                                                                                               |       |                  |       |   |   |
| Franchise rights                                                                                                                      |       | 5,440,173             |       | 5,464,420 |   |
| Goodwill                                                                                                                              |       | 1,634,385             |       | 1,628,519 |   |
| Customer relationships and other                                                                                                      |       | 454,606               |       | 579,916 |   |
| Other noncurrent assets, net (Notes 2 and  3)                                                                                         |       | 121,303               |       | 155,586 |   |
| Total assets                                                                                                                          |       | $                     | 12,874,010 |   | $ | 13,098,188 |   |
|                                                                                                                                  |       |                  |       |   |   |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                            |       |                  |       |   |   |
| Current liabilities:                                                                                                                  |       |                  |       |   |   |
| Accounts payable                                                                                                                      |       | $                     | 130,157    |   | $ | 173,654 |   |
| Subscriber advance payments and deposits                                                                                              |       | 34,543                |       | 33,159 |   |
| Accrued liabilities (Note 17)                                                                                                         |       | 551,599               |       | 535,924 |   |
| Deferred revenue (Note 3)                                                                                                             |       | 21,376                |       | 33,296 |   |
| Parent and subsidiary debt (Note 10)                                                                                                  |       | 869,184               |       | 667,745 |   |
| Amounts due to the Rigas Family and Other  Rigas Entities from Rigas Co-Borrowing Entities (Note 6)                                   |       | —                |       | 460,256 |   |
| Total current liabilities                                                                                                             |       | 1,606,859             |       | 1,904,034 |   |
|                                                                                                                                  |       |                  |       |   |   |
| Noncurrent liabilities:                                                                                                               |       |                  |       |   |   |
| Other liabilities                                                                                                                     |       | 31,929                |       | 35,012 |   |
| Deferred revenue (Note 3)                                                                                                             |       | 61,065                |       | 85,397 |   |
| Deferred income taxes (Note 14)                                                                                                       |       | 833,535               |       | 729,481 |   |
| Total noncurrent liabilities                                                                                                          |       | 926,529               |       | 849,890 |   |
|                                                                                                                                  |       |                  |       |   |   |
| Liabilities subject to compromise (Note 2)                                                                                            |       | 18,415,158            |       | 18,480,948 |   |
| Total liabilities                                                                                                                     |       | 20,948,546            |       | 21,234,872 |   |
|                                                                                                                                  |       |                  |       |   |   |
| Commitments and contingencies (Notes 2 and  16)                                                                                       |       |                  |       |   |   |
|                                                                                                                                  |       |                  |       |   |   |
| Minority’s interest in equity of subsidiary                                                                                      |       | 71,307                |       | 79,142 |   |
|                                                                                                                                  |       |                  |       |   |   |
| Stockholders’ deficit (Note 12):                                                                                                 |       |                  |       |   |   |
| Series preferred stock                                                                                                                |       | 397                   |       | 397 |   |
| Class A Common Stock, $.01 par value,  1,200,000,000 shares authorized, 229,787,271 shares issued and 228,692,414  shares outstanding |       | 2,297                 |       | 2,297 |   |
| Convertible Class B Common Stock, $.01 par  value, 300,000,000 shares authorized, 25,055,365 shares issued and  outstanding           |       | 251                   |       | 251 |   |
| Additional paid-in capital                                                                                                            |       | 12,071,165            |       | 12,071,165 |   |
| Accumulated other comprehensive loss, net                                                                                             |       | (4,988                | )          | (11,565 | ) |
| Accumulated deficit                                                                                                                   |       | (20,187,028           | )          | (20,221,691 | ) |
| Treasury stock, at cost, 1,094,857 shares  of Class A Common Stock                                                                    |       | (27,937               | )          | (27,937 | ) |
|                                                                                                                                  |       | (8,145,843            | )          | (8,187,083 | ) |
| Amounts due from the Rigas Family and Other  Rigas Entities, net (Note 6)                                                             |       | —                |       | (28,743 | ) |
| Total stockholders’ deficit                                                                                                      |       | (8,145,843            | )          | (8,215,826 | ) |
| Total liabilities and stockholders’ deficit                                                                                      |       | $                     | 12,874,010 |   | $ | 13,098,188 |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

 

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(amountsin thousands, except share and per share amounts)**

 
| ** **                                                                                                                                                                                          | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                                                                                                          | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenue                                                                                                                                                                                             |       | $                                          | 4,364,570  |   | $ | 4,143,388 |   | $ | 3,569,017 |   |
|                                                                                                                                                                                                |       |                                       |       |   |   |   |   |
| Costs and expenses:                                                                                                                                                                                 |       |                                       |       |   |   |   |   |
| Direct operating and programming                                                                                                                                                                    |       | 2,689,405                                  |       | 2,653,417 |   | 2,386,347 |   |
| Selling, general and administrative:                                                                                                                                                                |       |                                       |       |   |   |   |   |
| Third party                                                                                                                                                                                         |       | 350,520                                    |       | 329,427 |   | 268,288 |   |
| Rigas Family Entities (Note 6)                                                                                                                                                                      |       | —                                     |       | — |   | (21,242 | ) |
| Investigation, re-audit and sale  transaction costs (Note 2)                                                                                                                                        |       | 65,844                                     |       | 125,318 |   | 52,039 |   |
| Depreciation (Note 3)                                                                                                                                                                               |       | 804,074                                    |       | 961,840 |   | 846,097 |   |
| Amortization (Note 3)                                                                                                                                                                               |       | 141,264                                    |       | 159,682 |   | 162,839 |   |
| Impairment of long-lived assets (Note 9)                                                                                                                                                            |       | 23,063                                     |       | 83,349 |   | 17,641 |   |
| Provision for uncollectible amounts due  from the Rigas Family and Rigas Family Entities (Note 6)                                                                                                   |       | 13,338                                     |       | — |   | 5,497 |   |
| Gains on dispositions of long-lived assets                                                                                                                                                          |       | (5,767                                     | )          | (4,641 | ) | — |   |
| Total costs and expenses                                                                                                                                                                            |       | 4,081,741                                  |       | 4,308,392 |   | 3,717,506 |   |
| Operating income (loss)                                                                                                                                                                             |       | 282,829                                    |       | (165,004 | ) | (148,489 | ) |
|                                                                                                                                                                                                |       |                                       |       |   |   |   |   |
| Other expense, net:                                                                                                                                                                                 |       |                                       |       |   |   |   |   |
| Interest expense, net of amounts capitalized  (contractual interest was $1,341,082, $1,188,036 and $1,156,116 during 2005,  2004 and 2003, respectively) (Notes 2 and 3)                            |       | (590,936                                   | )          | (402,627 | ) | (381,622 | ) |
| Other income (expense), net (2005 includes  a $457,733 net benefit from the settlement with the Rigas Family and 2004  includes a $425,000 provision for government settlement) (Notes 6 and 16)    |       | 494,979                                    |       | (425,789 | ) | (963 | ) |
| Total other expense, net                                                                                                                                                                            |       | (95,957                                    | )          | (828,416 | ) | (382,585 | ) |
| Income (loss) before reorganization  expenses, income taxes, share of losses of equity affiliates, minority’s  interest, discontinued operations and cumulative effects of accounting  changes |       | 186,872                                    |       | (993,420 | ) | (531,074 | ) |
| Reorganization expenses due to bankruptcy  (Note 2)                                                                                                                                                 |       | (59,107                                    | )          | (76,553 | ) | (98,812 | ) |
| Income (loss) before income taxes, share of  losses of equity affiliates, minority’s interest, discontinued operations and  cumulative effects of accounting changes                           |       | 127,765                                    |       | (1,069,973 | ) | (629,886 | ) |
| Income tax (expense) benefit (Note 14)                                                                                                                                                              |       | (100,349                                   | )          | 2,843 |   | (117,378 | ) |
| Share of losses of equity affiliates, net  (Note 8)                                                                                                                                                 |       | (588                                       | )          | (7,926 | ) | (2,826 | ) |
| Minority’s interest in loss of subsidiary                                                                                                                                                      |       | 7,835                                      |       | 16,383 |   | 25,430 |   |
| Income (loss) from continuing operations  before cumulative effects of accounting changes                                                                                                           |       | 34,663                                     |       | (1,058,673 | ) | (724,660 | ) |
| Loss from discontinued operations (Note 7)                                                                                                                                                          |       | —                                     |       | (571 | ) | (107,952 | ) |
| Income (loss) before cumulative effects of  accounting changes                                                                                                                                      |       | 34,663                                     |       | (1,059,244 | ) | (832,612 | ) |
| Cumulative effects of accounting changes:                                                                                                                                                           |       |                                       |       |   |   |   |   |
| Due to new accounting pronouncement (Notes  1 and 5)                                                                                                                                                |       | —                                     |       | (588,782 | ) | — |   |
| Due to new method of amortization (Note 3)                                                                                                                                                          |       | —                                     |       | (262,847 | ) | — |   |
| Net income (loss)                                                                                                                                                                                   |       | 34,663                                     |       | (1,910,873 | ) | (832,612 | ) |
| Dividend requirements applicable to  preferred stock (contractual dividends were $120,125 during 2005, 2004 and  2003 (Note 12)):                                                                   |       |                                       |       |   |   |   |   |
| Beneficial conversion feature                                                                                                                                                                       |       | (583                                       | )          | (8,007 | ) | (7,317 | ) |
| Net income (loss) applicable to common  stockholders                                                                                                                                                |       | $                                          | 34,080     |   | $ | (1,918,880 | ) | $ | (839,929 | ) |

 

The accompanying notes are an integral partof the consolidated financial statements.

 

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**ADELPHIA COMMUNICATIONSCORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**CONSOLIDATED STATEMENTS OFOPERATIONS - Continued**

**(amounts in thousands,except share and per share amounts)**

 
| ** **                                                                  | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                  | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                        |       |                                       |       |   |   |   |   |
| Amounts per weighted average share of  common stock (Note 3):               |       |                                       |       |   |   |   |   |
| Basic income (loss) applicable to Class A  common stockholders:             |       |                                       |       |   |   |   |   |   |   |   |
| From continuing operations before cumulative  effects of accounting changes |       | $                                          | 0.13       |   | $ | (4.20 | ) | $ | (2.88 | ) |
| Loss from discontinued operations                                           |       | —                                     |       | — |   | (0.43 | ) |
| Cumulative effects of accounting changes                                    |       | —                                     |       | (3.36 | ) | — |   |
| Net income (loss) applicable to Class A  common stockholders                |       | $                                          | 0.13       |   | $ | (7.56 | ) | $ | (3.31 | ) |
| Diluted income (loss) applicable to Class A  common stockholders:           |       |                                       |       |   |   |   |   |
| From continuing operations before  cumulative effects of accounting changes |       | $                                          | 0.10       |   | $ | (4.20 | ) | $ | (2.88 | ) |
| Loss from discontinued operations                                           |       | —                                     |       | — |   | (0.43 | ) |
| Cumulative effects of accounting changes                                    |       | —                                     |       | (3.36 | ) | — |   |
| Net income (loss) applicable to Class A  common stockholders                |       | $                                          | 0.10       |   | $ | (7.56 | ) | $ | (3.31 | ) |
|                                                                        |       |                                       |       |   |   |   |   |
| Basic weighted average shares of Class A  Common Stock outstanding          |       | 228,692,414                                |       | 228,692,414 |   | 228,692,273 |   |
| Diluted weighted average shares of Class A  Common Stock outstanding        |       | 303,300,746                                |       | 228,692,414 |   | 228,692,273 |   |
|                                                                        |       |                                       |       |   |   |   |   |
| Basic income (loss) applicable to Class B  common stockholders:             |       |                                       |       |   |   |   |   |
| From continuing operations before  cumulative effects of accounting changes |       | $                                          | 0.13       |   | $ | (4.20 | ) | $ | (2.88 | ) |
| Loss from discontinued operations                                           |       | —                                     |       | — |   | (0.43 | ) |
| Cumulative effects of accounting changes                                    |       | —                                     |       | (3.36 | ) | — |   |
| Net income (loss) applicable to Class B  common stockholders                |       | $                                          | 0.13       |   | $ | (7.56 | ) | $ | (3.31 | ) |
| Diluted income (loss) applicable to Class B  common stockholders:           |       |                                       |       |   |   |   |   |
| From continuing operations before  cumulative effects of accounting changes |       | $                                          | 0.10       |   | $ | (4.20 | ) | $ | (2.88 | ) |
| Loss from discontinued operations                                           |       | —                                     |       | — |   | (0.43 | ) |
| Cumulative effects of accounting changes                                    |       | —                                     |       | (3.36 | ) | — |   |
| Net income (loss) applicable to Class B  common stockholders                |       | $                                          | 0.10       |   | $ | (7.56 | ) | $ | (3.31 | ) |
|                                                                        |       |                                       |       |   |   |   |   |
| Basic weighted average shares of Class B  Common Stock outstanding          |       | 25,055,365                                 |       | 25,055,365 |   | 25,055,365 |   |
| Diluted weighted average shares of Class B  Common Stock outstanding        |       | 37,215,133                                 |       | 25,055,365 |   | 25,055,365 |   |

 

The accompanying notes are an integral partof the consolidated financial statements.

 

96

----

 

**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**CONSOLIDATED STATEMENTS OF OPERATIONS - Continued**

**(amounts in thousands, except share and per share amounts)**

 
| ** **                                                                        | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                              |       |                                       |       |   |   |   |   |
| Pro forma amounts assuming the new  amortization method is applied retroactively: |       |                                       |       |   |   |   |   |
| Income (loss) before cumulative effects of  accounting changes                    |       | $                                          | 34,663     |   | $ | (1,059,244 | ) | $ | (842,229 | ) |
| Net income (loss) applicable to common  stockholders                              |       | $                                          | 34,080     |   | $ | (1,656,033 | ) | $ | (849,546 | ) |
| Pro forma amounts per weighted average  share of common stock:                    |       |                                       |       |   |   |   |   |
| Basic income (loss) applicable to Class A  common stockholders:                   |       |                                       |       |   |   |   |   |
| Before cumulative effects of accounting  changes                                  |       | $                                          | 0.13       |   | $ | (4.20 | ) | $ | (3.35 | ) |
| Net income (loss) applicable to Class A  common stockholders                      |       | $                                          | 0.13       |   | $ | (6.53 | ) | $ | (3.35 | ) |
| Diluted income (loss) applicable to Class A  common stockholders:                 |       |                                       |       |   |   |   |   |
| Before cumulative effects of accounting  changes                                  |       | $                                          | 0.10       |   | $ | (4.20 | ) | $ | (3.35 | ) |
| Net income (loss) applicable to Class A  common stockholders                      |       | $                                          | 0.10       |   | $ | (6.53 | ) | $ | (3.35 | ) |
|                                                                              |       |                                       |       |   |   |   |   |
| Basic weighted average shares of Class A  Common Stock outstanding                |       | 228,692,414                                |       | 228,692,414 |   | 228,692,273 |   |
| Diluted weighted average shares of Class A  Common Stock outstanding              |       | 303,300,746                                |       | 228,692,414 |   | 228,692,273 |   |
|                                                                              |       |                                       |       |   |   |   |   |
| Basic income (loss) applicable to Class B  common stockholders:                   |       |                                       |       |   |   |   |   |
| Before cumulative effects of accounting  changes                                  |       | $                                          | 0.13       |   | $ | (4.20 | ) | $ | (3.35 | ) |
| Net income (loss) applicable to Class B  common stockholders                      |       | $                                          | 0.13       |   | $ | (6.53 | ) | $ | (3.35 | ) |
| Diluted income (loss) applicable to Class B  common stockholders:                 |       |                                       |       |   |   |   |   |
| Before cumulative effects of accounting  changes                                  |       | $                                          | 0.10       |   | $ | (4.20 | ) | $ | (3.35 | ) |
| Net income (loss) applicable to Class B  common stockholders                      |       | $                                          | 0.10       |   | $ | (6.53 | ) | $ | (3.35 | ) |
|                                                                              |       |                                       |       |   |   |   |   |
| Basic weighted average shares of Class B  Common Stock outstanding                |       | 25,055,365                                 |       | 25,055,365 |   | 25,055,365 |   |
| Diluted weighted average shares of Class B  Common Stock outstanding              |       | 37,215,133                                 |       | 25,055,365 |   | 25,055,365 |   |

 

The accompanying notes are an integral partof the consolidated financial statements.

 

97

----

 

**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**

**(amounts in thousands)**

 
| ** **                                                                        | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                              |       |                                       |       |   |   |   |   |
| Net income (loss)                                                                 |       | $                                          | 34,663     |   | $ | (1,910,873 | ) | $ | (832,612 | ) |
| Other comprehensive income (loss), before  tax:                                   |       |                                       |       |   |   |   |   |
| Foreign currency translation adjustment                                           |       | 7,325                                      |       | (1,821 | ) | 8,193 |   |
| Unrealized gains (losses) on securities:                                          |       |                                       |       |   |   |   |   |
| Unrealized holding gains arising during the  period                               |       | 43                                         |       | 163 |   | 1,483 |   |
| Less: reclassification adjustments for  gains included in net income (loss)       |       | (1,346                                     | )          | (270 | ) | (10 | ) |
| Other comprehensive income (loss), before  tax                                    |       | 6,022                                      |       | (1,928 | ) | 9,666 |   |
| Income tax benefit (expense) related to  each item of other comprehensive income: |       |                                       |       |   |   |   |   |
| Unrealized holding gains arising during the  period                               |       | —                                     |       | (65 | ) | (596 | ) |
| Less: reclassification adjustments for  gains included in net income (loss)       |       | 555                                        |       | 108 |   | 4 |   |
| Other comprehensive income (loss), net                                            |       | 6,577                                      |       | (1,885 | ) | 9,074 |   |
|                                                                              |       |                                       |       |   |   |   |   |
| Comprehensive income (loss), net                                                  |       | $                                          | 41,240     |   | $ | (1,912,758 | ) | $ | (823,538 | ) |

 

The accompanying notes are an integral partof the consolidated financial statements.

 

98

----

 

**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT**

**(amounts in thousands)**

 
| ** **                                                                           | ** ** | **Series  preferred  stock** | ** ** | **Common  stock** | ** ** | **Additional  paid-in  capital** | ** ** | **Accumulated  other  comprehensive  income (loss)** | ** ** | **Accumulated  deficit** | ** ** | **Treasury  stock** | ** ** | **Amounts  due from  the Rigas  Family and  Other Rigas  Entities, net** | ** **  | **Total**  | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------------|------------|-------------------|------------|----------------------------------|------------|-----------------------------------------------------------|------------|--------------------------|------------|---------------------|------------|---------------------------------------------------------------------------------------------------|-------------|------------|------------|
|                                                                                 |       |                         |       |              |       |                             |       |                                                      |       |                     |       |                |       |                                                                                              |        |       |       |
| **Balance,  January 1, 2003**                                                        |       | $                            | 397        |              | $          | 2,548                            |       | $                                                         | 12,071,165 |                     | $          | (18,754             | )          | $                                                                                                 | (17,478,206 | )          | $          | (27,937 | ) | $ | (833,275 | ) | $ | (6,284,062 | ) |
| Net loss                                                                             |       | —                       |       | —            |       | —                           |       | —                                                    |       | (832,612                 | )          | —              |       | —                                                                                            |        | (832,612   | )          |
| Other  comprehensive income, net (Note 17)                                           |       | —                       |       | —            |       | —                           |       | 9,074                                                     |       | —                   |       | —              |       | —                                                                                            |        | 9,074      |       |
| Change in amounts  due from the Rigas Family and Rigas Family Entities, net (Note 6) |       | —                       |       | —            |       | —                           |       | —                                                    |       | —                   |       | —              |       | 32,926                                                                                            |        | 32,926     |       |
| **Balance,  December 31, 2003**                                                      |       | 397                          |       | 2,548             |       | 12,071,165                       |       | (9,680                                                    | )          | (18,310,818              | )          | (27,937             | )          | (800,349                                                                                          | )           | (7,074,674 | )          |
| Net loss                                                                             |       | —                       |       | —            |       | —                           |       | —                                                    |       | (1,910,873               | )          | —              |       | —                                                                                            |        | (1,910,873 | )          |
| Other  comprehensive loss, net (Note 17)                                             |       | —                       |       | —            |       | —                           |       | (1,885                                                    | )          | —                   |       | —              |       | —                                                                                            |        | (1,885     | )          |
| Consolidation of  Rigas Co-Borrowing Entities (Note 5)                               |       | —                       |       | —            |       | —                           |       | —                                                    |       | —                   |       | —              |       | 771,606                                                                                           |        | 771,606    |       |
| **Balance,  December 31, 2004**                                                      |       | 397                          |       | 2,548             |       | 12,071,165                       |       | (11,565                                                   | )          | (20,221,691              | )          | (27,937             | )          | (28,743                                                                                           | )           | (8,215,826 | )          |
| Net income                                                                           |       | —                       |       | —            |       | —                           |       | —                                                    |       | 34,663                   |       | —              |       | —                                                                                            |        | 34,663     |       |
| Other  comprehensive income, net (Note 17)                                           |       | —                       |       | —            |       | —                           |       | 6,577                                                     |       | —                   |       | —              |       | —                                                                                            |        | 6,577      |       |
| Settlement of  amounts due from the Rigas Family and Other Rigas Entities  (Note 6)  |       | —                       |       | —            |       | —                           |       | —                                                    |       | —                   |       | —              |       | 28,743                                                                                            |        | 28,743     |       |
| **Balance,  December 31, 2005**                                                      |       | $                            | 397        |              | $          | 2,548                            |       | $                                                         | 12,071,165 |                     | $          | (4,988              | )          | $                                                                                                 | (20,187,028 | )          | $          | (27,937 | ) | $ | — |   | $ | (8,145,843 | ) |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

 

99

----

 

**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors****-In-Possession)**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(amounts in thousands)**

 
| ** **                                                                                    | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                    | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Operating Activities:**                                                                     | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income (loss)                                                                             |       | $                                          | 34,663     |   | $ | (1,910,873 | ) | $ | (832,612 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities:     |       |                                       |       |   |   |   |   |
| Depreciation                                                                                  |       | 804,074                                    |       | 961,840 |   | 846,097 |   |
| Amortization                                                                                  |       | 141,264                                    |       | 159,682 |   | 162,839 |   |
| Impairment of long-lived assets                                                               |       | 23,063                                     |       | 83,349 |   | 17,641 |   |
| Provision for uncollectible amounts due  from the Rigas Family and Rigas Family Entities      |       | 13,338                                     |       | — |   | 5,497 |   |
| Gains on disposition of long-lived assets                                                     |       | (5,767                                     | )          | (4,641 | ) | — |   |
| Gain on the sale of investment in  Century/ML Cable                                           |       | (47,234                                    | )          | — |   | — |   |
| Amortization/write-off of deferred  financing costs                                           |       | 61,523                                     |       | 14,113 |   | 24,386 |   |
| Impairment of cost and available-for-sale  investments                                        |       | —                                     |       | 3,801 |   | 8,544 |   |
| Impairment of receivable for securities                                                       |       | 24,600                                     |       | — |   | — |   |
| Cost allocations and charges to Rigas  Family Entities, net                                   |       | —                                     |       | — |   | (30,986 | ) |
| Settlement with the Rigas Family, net                                                         |       | (457,733                                   | )          | — |   | — |   |
| Provision for government settlement                                                           |       | —                                     |       | 425,000 |   | — |   |
| Other noncash charges (gains), net                                                            |       | 3,787                                      |       | 3,757 |   | (1,931 | ) |
| Reorganization expenses due to bankruptcy                                                     |       | 59,107                                     |       | 76,553 |   | 98,812 |   |
| Deferred income tax expense                                                                   |       | 108,011                                    |       | 5,996 |   | 125,254 |   |
| Share of losses of equity affiliates, net                                                     |       | 588                                        |       | 7,926 |   | 2,826 |   |
| Minority’s interest in loss of subsidiary                                                |       | (7,835                                     | )          | (16,383 | ) | (25,430 | ) |
| Depreciation, amortization and other  noncash charges related to discontinued operations      |       | —                                     |       | 1,575 |   | 108,426 |   |
| Cumulative effects of accounting changes                                                      |       | —                                     |       | 851,629 |   | — |   |
| Change in operating assets and liabilities,  net of effects of acquisitions and divestitures: |       |                                       |       |   |   |   |   |
| Accounts receivable                                                                           |       | (4,429                                     | )          | 25,959 |   | (2,440 | ) |
| Other current and other noncurrent assets                                                     |       | 38,413                                     |       | 43,506 |   | (12,804 | ) |
| Accounts payable                                                                              |       | (42,691                                    | )          | (115,449 | ) | 33,821 |   |
| Subscriber advance payments and deposits                                                      |       | 3,919                                      |       | (1,761 | ) | 2,360 |   |
| Accrued liabilities                                                                           |       | 10,007                                     |       | (546 | ) | 95,847 |   |
| Deferred revenue                                                                              |       | (33,669                                    | )          | (26,447 | ) | (21,375 | ) |
| Net cash provided by operating activities  before payment of reorganization expenses          |       | 726,999                                    |       | 588,586 |   | 604,772 |   |
| Reorganization expenses paid during the  period                                               |       | (92,988                                    | )          | (76,894 | ) | (96,915 | ) |
| Net cash provided by operating activities                                                     |       | 634,011                                    |       | 511,692 |   | 507,857 |   |
|                                                                                          |       |                                       |       |   |   |   |   |
| **Investing Activities:**                                                                     |       |                                       |       |   |   |   |   |
| Capital expenditures for property and  equipment                                              |       | (734,538                                   | )          | (820,913 | ) | (723,521 | ) |
| Acquisition of remaining interests in  Tele-Media JV Entities                                 |       | (21,650                                    | )          | — |   | — |   |
| Capital expenditures for other intangibles                                                    |       | (7,325                                     | )          | (5,047 | ) | (7,830 | ) |
| Investment in and advances to affiliates                                                      |       | (2,322                                     | )          | (5,667 | ) | (8,034 | ) |
| Proceeds from sale of assets                                                                  |       | 40,569                                     |       | 14,161 |   | 3,712 |   |
| Proceeds from sale of Century/ML Cable                                                        |       | 268,770                                    |       | — |   | — |   |
| Change in restricted cash                                                                     |       | (278,841                                   | )          | 79,802 |   | 148,345 |   |
| Cash advances to the Rigas Family and Rigas  Family Entities                                  |       | —                                     |       | — |   | (106,860 | ) |
| Cash received from the Rigas Family and  Rigas Family Entities                                |       | —                                     |       | — |   | 168,293 |   |
| Net cash used in investing activities                                                         |       | (735,337                                   | )          | (737,664 | ) | (525,895 | ) |
|                                                                                          |       |                                       |       |   |   |   |   |
| **Financing Activities:**                                                                     |       |                                       |       |   |   |   |   |
| Proceeds from debt                                                                            |       | 918,000                                    |       | 804,851 |   | 77,000 |   |
| Repayments of debt                                                                            |       | (716,304                                   | )          | (478,363 | ) | (28,678 | ) |
| Payment of deferred financing costs                                                           |       | (49,440                                    | )          | (14,268 | ) | (1,253 | ) |
| Net cash provided by financing activities                                                     |       | 152,256                                    |       | 312,220 |   | 47,069 |   |
|                                                                                          |       |                                       |       |   |   |   |   |
| **Increase in cash and cash equivalents**                                                     |       | 50,930                                     |       | 86,248 |   | 29,031 |   |
| **Cash and cash equivalents at beginning of  year**                                           |       | 338,909                                    |       | 252,661 |   | 223,630 |   |
| **Cash and cash equivalents at end of year**                                                  |       | $                                          | 389,839    |   | $ | 338,909 |   | $ | 252,661 |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

 

100

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

# **Note 1:  Background and Basis of Presentation**

# ** **

Adelphia Communications Corporation (“Adelphia”), itsconsolidated subsidiaries and other consolidated entities (collectively, the “Company”)are engaged primarily in the cable television business. The cable systems ownedby the Company are located in 31 states and Brazil. In June 2002, Adelphia andsubstantially all of its domestic subsidiaries (the “Debtors”), filed voluntarypetitions to reorganize (the “Chapter 11 Cases”) under Chapter 11 of Title 11 (“Chapter11”) of the United States Code (the “Bankruptcy Code”) in the United StatesBankruptcy Court for the Southern District of New York (the “Bankruptcy Court”).On October 6 and November 15, 2005, certain additional subsidiaries filedvoluntary petitions to reorganize, at which time they became part of theDebtors and the Chapter 11 Cases. Effective April 20, 2005, Adelphia enteredinto definitive agreements (the “Purchase Agreements”) with Time Warner NYCable LLC (“TW NY”) and Comcast Corporation (“Comcast”) which provide for thesale of substantially all of the Company’s U.S. assets (the “Sale Transaction”).For additional information, see Note 2.

 

Effective January 1, 2004, the Company adoptedFinancial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46, *Consolidation of Variable Interest Entities* (as subsequentlyrevised in December 2003, “FIN 46-R”) and began consolidating certain cabletelevision entities formerly owned by members of John J. Rigas’ family(collectively, the “Rigas Family”) that are subject to co-borrowing arrangementswith the Company (the “Rigas Co-Borrowing Entities”). The Company has concludedthat the Rigas Co-Borrowing Entities represent variable interest entities forwhich the Company is the primary beneficiary. Accordingly, all references tothe Company prior to January 1, 2004 exclude the Rigas Co-Borrowing Entitiesand all references to the Company subsequent to January 1, 2004 include theRigas Co-Borrowing Entities. As a result of the consolidation of the RigasCo-Borrowing Entities for periods commencing in 2004, the Company’s results ofoperations, financial position and cash flows are not comparable to priorperiods. The Rigas Co-Borrowing Entities have not filed for bankruptcyprotection. For additional information, see Note 5.

 

Prior to January 1, 2004, these consolidated financialstatements do not include the accounts of any of the entities in which membersof the Rigas Family directly or indirectly held controlling interests(collectively, the “Rigas Family Entities”). The Rigas Family Entities includethe Rigas Co-Borrowing Entities, as well as other Rigas Family entities (the “OtherRigas Entities”). The Company believes that under the guidelines which existedfor periods prior to January 1, 2004, the Company did not have a controllingfinancial interest, including majority voting interest, control by contract orotherwise in any of the Rigas Family Entities. Accordingly, the Company did notmeet the criteria for consolidation of any of the Rigas Family Entities.

 

These consolidated financial statements have beenprepared on a going concern basis, which assumes continuity of operations,realization of assets and satisfaction of liabilities in the ordinary course ofbusiness, and do not purport to show, reflect or provide for the consequencesof the Debtors’ Chapter 11 reorganization proceedings. In particular, theseconsolidated financial statements do not purport to show: (i) as to assets, theamount that may be realized upon their sale or their availability to satisfyliabilities; (ii) as to pre-petition liabilities, the amounts at which claimsor contingencies may be settled, or the status and priority thereof; (iii) asto stockholders’ equity accounts, the effect of any changes that may be made inthe capitalization of the Company; or (iv) as to operations, the effect of anychanges that may be made in its business.

 

In May 2002, certain RigasFamily members resigned from their positions as directors and executiveofficers of the Company. In addition, the Rigas Family owned Adelphia $0.01 parvalue Class A common stock (“Class A Common Stock”) and Adelphia $0.01 parvalue Class B common stock (“Class B Common Stock”) with a majority of thevoting power in Adelphia, and was not able to exercise such voting power sincethe Debtors filed for protection under the Bankruptcy Code in June 2002. Pursuantto the Consent Order of Forfeiture entered by the United States District Courtfor the Southern District of New York (the “District Court”) on June 8, 2005(the “Forfeiture Order”), all right, title and interest of the Rigas Family andRigas Family Entities in the Rigas Co-Borrowing Entities (other thanCoudersport Television Cable Co. (“Coudersport”) and Bucktail BroadcastingCorporation (“Bucktail”)), certain specified real estate and any securities ofthe Company were forfeited to the United States on or about June 8, 2005and such assets and securities are expected to be conveyed to the Company(subject to completion of forfeiture proceedings before a federal judge todetermine if there are any superior claims) in furtherance of the agreementbetween the Company and the United States Attorney’s Office for the SouthernDistrict of New York (the “U.S. Attorney”) dated April 25, 2005 (the “Non-ProsecutionAgreement”), as discussed in Note 16.

 

101

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

Although the Company is operating as adebtor-in-possession in the Chapter 11 Cases, the Company’s ability to controlthe activities and operations of its subsidiaries that are also Debtors may belimited pursuant to the Bankruptcy Code. However, because the bankruptcyproceedings for the Debtors are consolidated for administrative purposes in thesame Bankruptcy Court and will be overseen by the same judge, the financialstatements of Adelphia and its subsidiaries have been presented on a combinedbasis, which is consistent with consolidated financial statements (see Note 2).All inter-entity transactions between Adelphia, its subsidiaries and, beginningin 2004, the Rigas Co-Borrowing Entities have been eliminated in consolidation.

 

# **Note 2:  Bankruptcy Proceedings and Sale of Assets ofthe Company**

# ** **

## *Overview*

## * *

On June 25, 2002 (“Petition Date”), the Debtors filedvoluntary petitions to reorganize under Chapter 11 of the Bankruptcy Code inthe Bankruptcy Court. On June 10, 2002, Century Communications Corporation (“Century”),an indirect wholly-owned subsidiary of Adelphia, filed a voluntary petition toreorganize under Chapter 11. On October 6 and November 15, 2005, certainadditional subsidiaries of Adelphia filed voluntary petitions to reorganizeunder Chapter 11. The Debtors, which include Century and the subsequent filers,are currently operating their business as debtors-in-possession under Chapter11. Included in the accompanying consolidated financial statements aresubsidiaries that have not filed voluntary petitions under the Bankruptcy Code,including the Rigas Co-Borrowing Entities.

 

On July 11, 2002, a statutory committee of unsecuredcreditors (the “Creditors’ Committee”) was appointed, and on July 31, 2002, astatutory committee of equity holders (the “Equity Committee” and, togetherwith the Creditors’ Committee, the “Committees”) was appointed. The Committeeshave the right to, among other things, review and object to certain businesstransactions and may participate in the formulation of the Debtors’ plan ofreorganization. Under the Bankruptcy Code, the Debtors were provided with specifiedperiods during which only the Debtors could propose and file a plan ofreorganization (the “Exclusive Period”) and solicit acceptances thereto (the “SolicitationPeriod”). The Debtors received several extensions of the Exclusive Period andthe Solicitation Period from the Bankruptcy Court with the latest extension ofthe Exclusive Period and the Solicitation Period being through February 17,2004 and April 20, 2004, respectively. In early 2004, the Debtors filed amotion requesting an additional extension of the Exclusive Period and theSolicitation Period. However, in 2004, the Equity Committee filed a motion toterminate the Exclusive Period and the Solicitation Period and other objectionswere filed regarding the Debtors’ request. The Bankruptcy Court has extendedthe Exclusive Period and the Solicitation Period until the hearing on themotions is held and a determination by the Bankruptcy Court is made. No hearinghas been scheduled. For additional information, see Note 16.

 

## *Confirmation of Plan of Reorganization*

## * *

The Debtors have filed several proposed joint plans ofreorganization and related disclosure statements with the Bankruptcy Court. TheDebtors most recently filed their Fourth Amended Joint Plan of Reorganization(the “Plan”) and related Fourth Amended Disclosure Statement (the “DisclosureStatement”) with the Bankruptcy Court on November 21, 2005. The Plancontemplates, among other things, consummation of the Sale Transaction anddistribution of the cash and Time Warner Cable Inc. (“TWC”) Class A commonstock (the “TWC Class A Common Stock”) received pursuant to the SaleTransaction to the stakeholders of the Debtors in accordance with the Plan. ThePlan and Disclosure Statement also include disclosures and modifications toreflect rulings of the Bankruptcy Court or settlements with certain partiesobjecting to approval of the Disclosure Statement.

 

For the Plan to be confirmed and become effective, theDebtors must, among other things:

 

•      obtain an order of the Bankruptcy Courtapproving the Disclosure Statement as containing “adequate information”;

 

•      solicit acceptance of the Plan from theholders of claims and equity interests in each class that is impaired and notdeemed by the Bankruptcy Court to have rejected the Plan;

 

•      obtain an order from the Bankruptcy Courtconfirming the Plan; and

 

•      consummate the Plan.

 

By order dated November 23, 2005, the Bankruptcy Courtapproved the Disclosure Statement as containing “adequate information.”  By December 12, 2005, the Debtors completedthe mailing of the solicitation packages. The voting deadline to accept

 

102

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

or reject the Plan is April 6, 2006, and in the caseof securities held through an intermediary, the deadline for instructions to bereceived by the intermediary is April 3, 2006 or such other date as specifiedby the applicable intermediary. The confirmation hearing on the Plan isscheduled to commence on April 24, 2006. Before it can issue a confirmationorder, the Bankruptcy Court must find that either each class of impaired claimsor equity interests has accepted the Plan or the Plan meets the requirements ofthe Bankruptcy Code to confirm the Plan over the objections of dissentingclasses. In addition, the Bankruptcy Court must find that the Plan meetscertain other requirements specified in the Bankruptcy Code.

 

## *Sale of Assets*

## * *

Effective April 20, 2005, Adelphia entered intothe Sale Transaction. Upon the closing of the Sale Transaction, Adelphia willreceive an aggregate consideration of cash in the amount of approximately $12.7billion plus shares of TWC Class A Common Stock, which are expected to represent16% of the outstanding equity securities of TWC as of the closing. Suchpercentage: (i) assumes the redemption of Comcast’s interest in TWC, theinclusion in the sale to TW NY of all of the cable systems owned by the RigasCo-Borrowing Entities contemplated to be purchased by TW NY pursuant to theSale Transaction and that there is no Expanded Transaction (as defined below);and (ii) is subject to adjustment for issuances pursuant to employee stockprograms (subject to a cap) and issuances of securities for fair consideration.The TWC Class A Common Stock is expected to be listed on The New YorkStock Exchange. The purchase price payable by TW NY and Comcast is subject tocertain adjustments. TWC, Comcast and certain of their affiliates have also agreedto swap certain cable systems and unwind Comcast’s investments in TWC and TimeWarner Entertainment Company, L.P., a subsidiary of TWC (“TWE”). The SaleTransaction does not include the Company’s interest in Century/ML Cable Venture(“Century/ML Cable”), a joint venture that owns and operates cable systems inPuerto Rico, which Century and ML Media Partners, L.P. (“ML Media”) sold to SanJuan Cable, LLC (“San Juan Cable”) effective October 31, 2005. For additionalinformation, see Notes 8 and 16.

 

As part of the Sale Transaction, Adelphia has agreedto transfer to TW NY and Comcast the assets related to the cable systems thatare nominally owned by certain of the Rigas Co-Borrowing Entities and aremanaged by the Company (those Rigas Co-Borrowing Entities are herein referredto as the “Managed Cable Entities”). Pursuant to the Forfeiture Order, allright, title and interest of the Rigas Family and Rigas Family Entities in theRigas Co-Borrowing Entities (other than Coudersport and Bucktail) have beenforfeited to the United States. In furtherance of the Non-ProsecutionAgreement, the Company expects to obtain ownership (subject to completion offorfeiture proceedings before a federal judge to determine if there are anysuperior claims) of all of the Rigas Co-Borrowing Entities other than two smallentities (Coudersport and Bucktail). Upon obtaining ownership of such RigasCo-Borrowing Entities, the Company expects to file voluntary petitions toreorganize such entities in proceedings jointly administered with the Debtors’Chapter 11 Cases. Once these entities emerge from bankruptcy, Adelphia expectsto be able to transfer to TW NY and Comcast the assets of the Managed CableEntities (other than Coudersport and Bucktail) as part of the Sale Transaction.If the Company is unable to transfer all of the assets of the Managed CableEntities to Comcast and TW NY at the closingof the Sale Transaction, the initial purchase price payable by Comcast and byTW NY would be reduced by an aggregate amount of up to $600,000,000 and$390,000,000, respectively, but would become payable to the extent such assetsare transferred to Comcast or TW NY within 15 months of the closing. Adelphia believes that the failureto transfer the assets of Coudersport and Bucktail to TW NY and Comcast willresult in an aggregate purchase price reduction of approximately $23,000,000,reflecting a reduction to the purchase price payable by TW NY of approximately$15,000,000 and by Comcast of approximately $8,000,000.

 

Pursuant to a separate agreement, dated as of April20, 2005, TWC, among other things, has guaranteed the obligations of TW NYunder the asset purchase agreement between TW NY and Adelphia.

 

Until a plan of reorganization is confirmed by theBankruptcy Court and becomes effective, the Sale Transaction cannot beconsummated. The closing of the Sale Transaction is also subject to thesatisfaction or waiver of conditions customary to transactions of this type,including, among others: (i) receipt of applicable regulatory approvals,including the consent of the Federal Communications Commission (the “FCC”) tothe transfer of certain licenses, and, subject to certain exceptions, anyapplicable approvals of local franchising authorities (“LFAs”) to the change inownership of the cable systems operated by the Company to the extent notpreempted by section 365 of the Bankruptcy Code; (ii) expiration ortermination of the applicable waiting period under the Hart-Scott-RodinoAntitrust Improvements Act of 1976, as amended (“HSR Act”); (iii) the offer andsale of the shares of TWC Class A Common Stock to be issued in the SaleTransaction having been exempted from registration pursuant to an order of theBankruptcy Court confirming the Plan or a no-action letter from the staff ofthe Securities and Exchange Commission (the “SEC”), or a registration statementcovering the offer and sale of such shares having been declared effective;(iv) the TWC Class A Common Stock to be issued in the Sale Transactionbeing freely tradable and not subject to resale restrictions, except in certaincircumstances; (v) approval of the shares of TWC Class A Common Stock tobe issued in the Sale Transaction for listing on the New York Stock 

 

103

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

Exchange; (vi) entry by the Bankruptcy Court of afinal order confirming the Plan and, contemporaneously with the closing of theSale Transaction, consummation of the Plan; (vii) satisfactory settlement byAdelphia of the claims and causes of action brought by the SEC and theinvestigations by the United States Department of Justice (the “DoJ”);(viii)  the absence of any material adverse effect with respect to TWC’sbusiness and certain significant components of the Company’s business (withouttaking into consideration any loss of subscribers by the Company’s business (orresults thereof) already reflected in the projections specified in the assetpurchase agreements or the purchase price adjustments); (ix) the number ofeligible basic subscribers (as the term is used in the purchase agreements)served by the Company’s cable systems as of a specified date prior to theclosing of the Sale Transaction not being below an agreed upon threshold; (x)the absence of an actual change in law, or proposed change in law that has areasonable possibility of being enacted, that would adversely affect the taxtreatment accorded to the Sale Transaction with respect to TW NY; (xi) a filingof an election under Section 754 of the Internal Revenue Code of 1986, asamended (the “Internal Revenue Code”), by each of Century-TCI California Communications,L.P., Parnassos Communications, L.P. and Western NY Cablevision L.P. (the “Century-TCI/ParnassosPartnerships”); and (xii) the provision of certain audited and unauditedfinancial information by Adelphia.

 

Subject to the Expanded Transaction (as defined below),the closing under each Purchase Agreement is also conditioned on a contemporaneousclosing under the other Purchase Agreement.  On January 31, 2006, theFederal Trade Commission closed its antitrust investigation under the HSR Actof the Sale Transaction.  In addition, the Company believes that it hasreceived the necessary applicable approvals of LFAs to the change in ownershipof the cable systems operated by the Company.  The Company expects theclosing of the Sale Transaction to occur by July 31, 2006, the date under the PurchaseAgreements after which either party may terminate, subject to certainexceptions, the applicable Purchase Agreement if the closing has not alreadyoccurred.

 

Adelphia received a letter,dated March 24, 2006, from each of TWC and Comcast alleging thatAdelphia’s implementation of a system, required by the PurchaseAgreements to be implemented prior to the closing of the Sale Transaction, bywhich eligible basic subscribers (as such term is used in the PurchaseAgreements) can be tracked materially breaches the Purchase Agreementsinsofar as it does not include within it certain marketing promotionsutilized by Adelphia.  Adelphia, in letters to TW NY and Comcast,dated March 27, 2006, has denied that Adelphia’s actions constitutea material breach, but has determined, without prejudice to its position,to incorporate a method of tracking such marketing promotions as part of itssubscriber tracking system. Adelphia does not believe that such marketingpromotions are required by the terms of the relevant Purchase Agreementsto be tracked by a subscriber tracking system that, as required bythe Purchase Agreements, would be reasonably expected to accuratelytrack eligible basic subscribers.  Under the Purchase Agreements, anybreach that would preclude Adelphia from providing a certificate at the closingof the Sale Transaction that each of the covenants in the Purchase Agreements(including the covenant to implement the tracking system) has been dulyperformed in all material respects would constitute a failure of a condition toclosing of the Sale Transaction in favor of each of TW NY and Comcast, and ifnot cured, could provide TW NY and Comcast a basis for terminating theirrespective Purchase Agreements.

 

Pursuant to a letter agreement dated as of April 20,2005, and the asset purchase agreement between Adelphia and TW NY, TW NY hasagreed to purchase the cable operations of Adelphia that Comcast would haveacquired if Comcast’s purchase agreement is terminated prior to closing as aresult of the failure to obtain FCC or applicable antitrust approvals (the “ExpandedTransaction”). In such event, and assuming TW NY received such approvals, TW NYwill pay the $3.5 billion purchase price to have been paid by Comcast, lessComcast’s allocable share of the liabilities of the Century-TCI/ParnassosPartnerships, which shall not be less than $549,000,000 or more than$600,000,000. Consummation of the Sale Transaction, however, is not subject tothe consummation of the agreement by TWC, Comcast and certain of theiraffiliates to swap certain cable systems and unwind Comcast’s investments inTWC and TWE, as described above. There is no assurance that TW NY would be ableto obtain the required FCC or applicable antitrust approvals for the ExpandedTransaction.

 

The Purchase Agreements with TW NY and Comcast containcertain termination rights for Adelphia, TW NY and Comcast, and further providethat, upon termination of the Purchase Agreements under specifiedcircumstances, Adelphia may be required to pay TW NY a termination fee ofapproximately $353,000,000 and Comcast a termination fee of $87,500,000.

 

Certain fees are due to the Company’s financialadvisors upon successful completion of a sale, which are calculated as apercentage (0.11% to 0.20%) of the sale value. Additional fees may be payabledepending on the outcome of the sales process. Such fees cannot be determineduntil the closing of the Sale Transaction.

 

## *Pre-petition Obligations*

## * *

Pre-petition and post-petition obligations of theDebtors are treated differently under the Bankruptcy Code. Due to the commencementof the Chapter 11 Cases and the Debtors’ failure to comply with certainfinancial and other covenants, the Debtors are in default on substantially allof their pre-petition debt obligations. As a result of the Chapter 11 filing,all actions to collect the payment of pre-petition indebtedness are subject tocompromise or other treatment under a plan of reorganization. Generally,actions to enforce or otherwise effect payment of pre-petition liabilities arestayed against the Debtors. The Bankruptcy Court has approved the Debtors’motions to pay certain pre-petition obligations including, but not limited to,employee wages, salaries, commissions, incentive compensation and other relatedbenefits. The Debtors have been paying and intend to continue to pay undisputedpost-petition claims in the ordinary course of business. In addition, theDebtors may assume or reject pre-petition executory contracts and unexpiredleases with the approval of the Bankruptcy Court. Any damages resulting fromthe rejection of executory contracts and unexpired leases are treated asgeneral unsecured claims and will be classified as liabilities subject tocompromise. For additional information concerning liabilities subject tocompromise, see below.

 

The ultimate amount of the Debtors’ liabilities willbe determined during the Debtors’ claims resolution process. The BankruptcyCourt established a bar date of January 9, 2004 (the “Bar Date”) for filingproofs of claim against the Debtors’ estates. A bar date is the date by whichproofs of claim must be filed if a claimant disagrees with how its claimappears on the Debtors’

 

104

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

Schedules of Liabilities. However, under certainlimited circumstances, claimants may file proofs of claims after the bar date. Asof the Bar Date, approximately 17,000 proofs of claim asserting in excess of$3.20 trillion in claims were filed and, as of December 31, 2005, approximately18,000 proofs of claim asserting approximately $3.78 trillion in claims werefiled, in each case including duplicative claims, but excluding any estimatedamounts for unliquidated claims. The aggregate amount of claims filed with theBankruptcy Court far exceeds the Debtors’ estimate of ultimate liability. TheDebtors currently are in the process of reviewing, analyzing and reconcilingthe scheduled and filed claims. The Debtors expect that the claims resolutionprocess will take significant time to complete following the consummation ofthe Plan. As the amounts of the allowed claims are determined, adjustments willbe recorded in liabilities subject to compromise and reorganization expensesdue to bankruptcy.

 

The Debtors have filed numerous omnibus objectionsthat address $3.68 trillion in claims, consisting primarily of duplicativeclaims. Certain claims addressed in such objections were either: (i) reducedand allowed; (ii) disallowed and expunged; or (iii) subordinated by orders ofthe Bankruptcy Court. Hearings on certain claims objections are ongoing. Certainother objections have been adjourned to allow the parties to continue toreconcile such claims. Additional omnibus objections may be filed as the claimsresolution process continues.

 

## *Debtor-in-Possession (“DIP”) Credit Facility*

## * *

In order to provide liquidity following thecommencement of the Chapter 11 Cases, the Debtors entered into a $1,500,000,000debtor-in-possession credit facility (as amended, the “DIP Facility”).  OnMay 10, 2004, the Debtors entered into a $1,000,000,000 extendeddebtor-in-possession credit facility (the “First Extended DIP Facility”), whichamended and restated the DIP Facility in its entirety.  On February 25,2005, the Debtors entered into a $1,300,000,000 further extendeddebtor-in-possession credit facility (the “Second Extended DIP Facility”),which amended and restated the First Extended DIP Facility in itsentirety.  On March 17, 2006, the Debtors entered into a $1,300,000,000further extended debtor-in-possession credit facility (the “Third Extended DIPFacility”), which amended and restated the Second Extended DIP Facility in itsentirety. For additional information, see Note 10.

 

## *Exit Financing Commitment*

## * *

On February 25, 2004, Adelphia executed a commitmentletter and certain related documents pursuant to which a syndicate of financialinstitutions committed to provide to the Debtors up to $8,800,000,000 in exitfinancing (the “Exit Financing Facility”).  Following the Bankruptcy Court’sapproval on June 30, 2004 of the exit financing commitment, the Company paidthe exit lenders a nonrefundable fee of $10,000,000 and reimbursed the exitlenders for certain expenses they had incurred through the date of such approval,including certain legal expenses.  In light of the agreements with TW NYand Comcast, on April 25, 2005, the Company informed the exit lenders of itselection to terminate the exit financing commitment, which termination becameeffective on May 9, 2005.  As a result of the termination, the Companyrecorded a charge of $58,267,000 during 2005, which represents previouslyunpaid commitment fees of $45,428,000, the nonrefundable fee of $10,000,000 andcertain other expenses.  Such charge is reflected in interest expense inthe accompanying consolidated statement of operations for the year endedDecember 31, 2005. As of December 31, 2004, $39,267,000 of such fees andexpenses were included in other noncurrent assets, net.

 

## *Going Concern*

## * *

As a result of the Company’s filing of the bankruptcypetition and the other matters described in the following paragraphs, there issubstantial doubt about the Company’s ability to continue as a going concern. Theaccompanying consolidated financial statements have been prepared on a goingconcern basis, which assumes continuity of operations and realization of assetsand satisfaction of liabilities in the ordinary course of business, and inaccordance with Statement of Position 90-7, *Financial Reporting byEntities in Reorganization Under the Bankruptcy Code*(“SOP 90-7”). Theconsolidated financial statements do not include any adjustments that might berequired should the Company be unable to continue to operate as a going concern.In accordance with SOP 90-7, all pre-petition liabilities subject to compromisehave been segregated in the consolidated balance sheets and classified asliabilities subject to compromise, at the estimated amount of allowable claims.Interest expense related to pre-petition liabilities subject to compromise hasbeen reported only to the extent that it will be paid during the Chapter 11proceedings. In addition, no preferred stock dividends have been accruedsubsequent to the Petition Date. Liabilities not subject to compromise areseparately classified as current or noncurrent. Revenue, expenses, realizedgains and losses, and provisions for losses resulting from reorganization arereported separately as reorganization expenses due to bankruptcy. Cash used forreorganization items is disclosed in the consolidated statements of cash flows.

 

105

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

The ability of the Debtors to continue as a goingconcern is predicated upon numerous matters, including:

 

•      having a plan of reorganization confirmedby the Bankruptcy Court and it becoming effective;

 

•      obtaining substantial exit financing ifthe Sale Transaction is not consummated and the Company is to emerge frombankruptcy under a stand-alone plan, including working capital financing, whichthe Company may not be able to obtain on favorable terms, or at all. A failureto obtain necessary financing would result in the delay, modification orabandonment of the Company’s development and expansion plans and would have amaterial adverse effect on the Company;

 

•      extending the Third Extended DIP Facilitythrough the effective date of a plan of reorganization in the event the Sale Transactionis not consummated before the maturity date of the Third Extended DIP Facilityand remaining in compliance with the financial covenants thereunder. A failureto obtain an extension to the Third Extended DIP Facility would result in thedelay, modification or abandonment of the Company’s development and expansionplans and would have a material adverse effect on the Company;

 

•      being able to successfully implement theCompany’s business plans, decrease basic subscriber losses, renew franchisesand offset the negative effects that the Chapter 11 filing has had on theCompany’s business, including the impairment of customer and vendorrelationships; failure to do so will result in reduced operating results andpotential impairment of assets;

 

•      resolving material litigation;

 

•      achieving positive operating results,increasing net cash provided by operating activities and maintainingsatisfactory levels of capital and liquidity considering its history of netlosses and capital expenditure requirements and the expected near-termcontinuation thereof; and

 

•      motivating and retaining key executivesand employees.

 

## *Presentation*

## * *

For periods subsequent to the Petition Date, theCompany has applied the provisions of SOP 90-7. SOP 90-7 requires thatpre-petition liabilities that are subject to compromise be segregated in theconsolidated balance sheets as liabilities subject to compromise and thatrevenue, expenses, realized gains and losses, and provisions for lossesresulting directly from the reorganization due to the bankruptcy be reportedseparately as reorganization expenses in the consolidated statements ofoperations. Liabilities subject to compromise are reported at the amountsexpected to be allowed, even if they may be settled for lesser amounts. Liabilitiessubject to compromise consist of the following (amounts in thousands):

 

| ** **                                                       | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                       | ** ** | **2005**              | ** ** | **2004** | ** ** |
|                                                             |       |                  |       |   |   |
| Parent and subsidiary debt                                       |       | $                     | 11,560,585 |   | $ | 11,560,684 |   |
| Parent and subsidiary debt under  co-borrowing credit facilities |       | 4,576,375             |       | 4,576,375 |   |
| Accounts payable                                                 |       | 926,794               |       | 954,858 |   |
| Accrued liabilities                                              |       | 1,202,610             |       | 1,240,237 |   |
| Series B Preferred Stock                                         |       | 148,794               |       | 148,794 |   |
| Liabilities subject to compromise                                |       | $                     | 18,415,158 |   | $ | 18,480,948 |   |

 

The Rigas Co-Borrowing Entities are jointly andseverally obligated with certain of the Debtors to the lenders with respect toborrowings under certain co-borrowing facilities (“Co-Borrowing Facilities”). Borrowingsunder the Co-Borrowing Facilities have been presented as liabilities subject tocompromise in the accompanying consolidated balance sheets as collection ofsuch borrowings from the Debtors is stayed. Collection of such borrowings fromthe Rigas Co-Borrowing Entities has not been stayed 

 

106

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

and actions may be taken to collect such borrowingsfrom the Rigas Co-Borrowing Entities. However, the Rigas Co-Borrowing Entitieswould not have sufficient assets to satisfy claims for all liabilities underthe Co-Borrowing Facilities.

 

Following is a reconciliation of the changes inliabilities subject to compromise for the period from January 1, 2003 throughDecember 31, 2005 (amounts in thousands):

 

| Balance at January 1, 2003                               |   | $          | 18,020,124 |   |
|----------------------------------------------------------|--------|------------|------------|--------|
| Series B Preferred Stock                                 |   | 148,794    |       |
| Contract rejections                                      |   | 18,308     |       |
| Settlements                                              |   | (3,000     | )          |
|                                                     |   |       |       |
| Balance at December 31, 2003                             |   | 18,184,226 |       |
| Increase in government settlement reserve  (see Note 16) |   | 425,000    |       |
| Contract rejections                                      |   | 3,156      |       |
| Settlements                                              |   | (131,434   | )          |
|                                                     |   |       |       |
| Balance at December 31, 2004                             |   | 18,480,948 |       |
| Contract rejections                                      |   | 3,769      |       |
| Settlements                                              |   | (69,559    | )          |
|                                                     |   |       |       |
| Balance at December 31, 2005                             |   | $          | 18,415,158 |   |

 

The amounts presented as liabilities subject tocompromise may be subject to future adjustments depending on Bankruptcy Courtactions, completion of the reconciliation process with respect to disputedclaims, determinations of the secured status of certain claims, the value ofany collateral securing such claims or other events. Such adjustments may bematerial to the amounts reported as liabilities subject to compromise.

 

Amortization of deferred financing fees related topre-petition debt obligations was terminated effective on the Petition Date andthe unamortized amount at the Petition Date ($134,208,000) has been included asan offset to liabilities subject to compromise as an adjustment of the netcarrying value of the related pre-petition debt. Similarly, amortization of thedeferred issuance costs for the Company’s redeemable preferred stock was alsoterminated at the Petition Date. For periods subsequent to the Petition Date,interest expense has been reported only to the extent that it will be paidduring the Chapter 11 proceedings. In addition, no preferred stock dividendshave been accrued subsequent to the Petition Date.

 

## *Reorganization Expenses Due to Bankruptcy and Investigation, Re-auditand Sale Transaction Costs*

## * *

Only those fees directly related to the Chapter 11filings are included in reorganization expenses due to bankruptcy. Theseexpenses are offset by the interest earned during reorganization. Certainreorganization expenses are contingent upon the approval of a plan ofreorganization by the Bankruptcy Court and include cure costs, financing feesand success fees. The Company iscurrently aware of certain success fees that potentially could be paid upon theCompany’s emergence from bankruptcy to third party financial advisors retainedby the Company and the Committees in connection with the Chapter 11 Cases. Currently,these success fees are estimated to be between $6,500,000 and $19,950,000 inthe aggregate. In addition, pursuant to their employment agreements, the ChiefExecutive Officer (“CEO”) and the Chief Operating Officer (“COO”) of the Company are eligible to receiveequity awards of Adelphia stock with a minimum aggregate fair value of$17,000,000 upon the Debtors’ emergence from bankruptcy. Under theemployment agreements, the value of such equity awards will be determined basedon the average trading price of the post-emergence common stock of Adelphiaduring the 15 trading days immediately preceding the 90th dayfollowing the date of emergence. Pursuant to the employment agreements, theseequity awards, which will be subject to vesting and trading restrictions, maybe increased up to a maximum aggregate value of $25,500,000 at the discretionof the board of directors of Adelphia (the “Board”). As no plan of reorganization has been confirmed by the BankruptcyCourt, no accrual for such contingent payments or equity awards has beenrecorded in the accompanying consolidated financial statements. See Note16 for additional information. The following table sets forth certaincomponents of reorganization expenses for the indicated periods (amounts inthousands):

 

107

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 
| ** **                                | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                      |       |                                       |       |   |   |   |   |
| Professional fees                         |       | $                                          | 101,206    |   | $ | 78,308 |   | $ | 81,948 |   |
| Contract rejections                       |       | 3,769                                      |       | 3,156 |   | 18,308 |   |
| Interest earned during reorganization     |       | (11,025                                    | )          | (3,457 | ) | (4,390 | ) |
| Settlements and other                     |       | (34,843                                    | )          | (1,454 | ) | 2,946 |   |
| Reorganization expenses due to bankruptcy |       | $                                          | 59,107     |   | $ | 76,553 |   | $ | 98,812 |   |

 

In addition to the costsshown above, the Company has incurred certain professional fees and other coststhat, although not directly related to the Chapter 11 filing, relate to theinvestigation of the actions of certain members of the Rigas Family management,related efforts to comply with applicable laws and regulations and theSale Transaction. These expensesinclude the additional audit fees incurred for the years ended December 31,2001 and prior, as well as legal fees, forensic consultant fees, legal defensecosts paid on behalf of the Rigas Family and employee retention costs. These expenses have been included ininvestigation, re-audit and sale transaction costs in the accompanyingconsolidated statements of operations.

 

## *Condensed Financial Statements of Debtors*

## * *

The Debtors’ condensed consolidated balance sheets asof the indicated dates are as follows (amounts in thousands):

 

| ** **                                                        | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                        | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Assets:                                                           |       |                  |       |   |   |
| Total current assets                                              |       | $                     | 709,769    |   | $ | 624,572 |   |
| Property and equipment, net                                       |       | 4,200,142             |       | 4,323,142 |   |
| Intangible assets, net                                            |       | 7,050,368             |       | 7,174,967 |   |
| Other noncurrent assets                                           |       | 1,111,462             |       | 406,414 |   |
| Total assets                                                      |       | $                     | 13,071,741 |   | $ | 12,529,095 |   |
|                                                              |       |                  |       |   |   |
| Liabilities and Stockholders’ Deficit:                       |       |                  |       |   |   |
| Liabilities:                                                      |       |                  |       |   |   |
| Other current liabilities                                         |       | $                     | 717,673    |   | $ | 755,512 |   |
| Current portion of parent and subsidiary  debt                    |       | 868,902               |       | 667,605 |   |
| Total noncurrent liabilities                                      |       | 920,858               |       | 843,274 |   |
| Liabilities subject to compromise                                 |       | 18,415,158            |       | 18,480,948 |   |
| Total liabilities                                                 |       | 20,922,591            |       | 20,747,339 |   |
|                                                              |       |                  |       |   |   |
| Minority’s interest                                          |       | 71,307                |       | 79,142 |   |
|                                                              |       |                  |       |   |   |
| Stockholders’ deficit:                                       |       |                  |       |   |   |
| Series preferred stock                                            |       | 397                   |       | 397 |   |
| Common stock                                                      |       | 2,548                 |       | 2,548 |   |
| Additional paid-in capital                                        |       | 9,567,154             |       | 9,566,968 |   |
| Accumulated other comprehensive income, net                       |       | 78                    |       | 826 |   |
| Accumulated deficit                                               |       | (17,464,397           | )          | (17,059,560 | ) |
| Treasury stock, at cost                                           |       | (27,937               | )          | (27,937 | ) |
|                                                              |       | (7,922,157            | )          | (7,516,758 | ) |
| Amounts due from the Rigas Family and Rigas  Family Entities, net |       | —                |       | (780,628 | ) |
| Total stockholders’ deficit                                  |       | (7,922,157            | )          | (8,297,386 | ) |
| Total liabilities and stockholders’ deficit                  |       | $                     | 13,071,741 |   | $ | 12,529,095 |   |

 

108

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

The Debtors’ condensed consolidated statements ofoperations for the indicated periods are as follows (amounts in thousands):

 
| ** **                                                                               | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                               | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenue                                                                                  |       | $                                          | 4,141,676  |   | $ | 3,934,732 |   | $ | 3,557,730 |   |
|                                                                                     |       |                                       |       |   |   |   |   |
| Costs and expenses:                                                                      |       |                                       |       |   |   |   |   |
| Direct operating and programming                                                         |       | 2,565,261                                  |       | 2,532,193 |   | 2,375,205 |   |
| Selling, general and administrative                                                      |       | 327,024                                    |       | 310,060 |   | 246,786 |   |
| Investigation, re-audit and sale  transaction costs                                      |       | 63,506                                     |       | 108,065 |   | 52,039 |   |
| Depreciation                                                                             |       | 764,355                                    |       | 920,343 |   | 843,388 |   |
| Amortization                                                                             |       | 135,136                                    |       | 151,966 |   | 162,839 |   |
| Impairment of long-lived assets                                                          |       | 12,426                                     |       | 77,751 |   | 641 |   |
| Provision for uncollectible amounts due  from the Rigas Family and Rigas Family Entities |       | 13,338                                     |       | — |   | 5,497 |   |
| Gains on dispositions of long-lived assets                                               |       | (4,538                                     | )          | (4,641 | ) | — |   |
| Total costs and expenses                                                                 |       | 3,876,508                                  |       | 4,095,737 |   | 3,686,395 |   |
|                                                                                     |       |                                       |       |   |   |   |   |
| Operating income (loss)                                                                  |       | 265,168                                    |       | (161,005 | ) | (128,665 | ) |
|                                                                                     |       |                                       |       |   |   |   |   |
| Interest expense, net of amounts  capitalized                                            |       | (578,726                                   | )          | (385,137 | ) | (370,692 | ) |
| Other income (expense), net                                                              |       | 60,432                                     |       | (427,047 | ) | (1,192 | ) |
| Reorganization expenses due to bankruptcy                                                |       | (59,107                                    | )          | (76,553 | ) | (98,812 | ) |
| Income tax (expense) benefit                                                             |       | (99,857                                    | )          | 3,483 |   | (117,378 | ) |
| Share of losses of equity affiliates, net                                                |       | (582                                       | )          | (7,926 | ) | (2,826 | ) |
| Minority’s interest in loss of subsidiary                                           |       | 7,835                                      |       | 16,383 |   | 25,430 |   |
| Loss from continuing operations                                                          |       | (404,837                                   | )          | (1,037,802 | ) | (694,135 | ) |
| Loss from discontinued operations                                                        |       | —                                     |       | (571 | ) | (107,952 | ) |
| Loss before cumulative effects of  accounting changes                                    |       | (404,837                                   | )          | (1,038,373 | ) | (802,087 | ) |
| Cumulative effects of accounting changes                                                 |       | —                                     |       | (262,847 | ) | — |   |
| Net loss                                                                                 |       | $                                          | (404,837   | ) | $ | (1,301,220 | ) | $ | (802,087 | ) |

# ** **

Following is condensed consolidated cash flow data forthe Debtors for the indicated periods (amounts in thousands):

 
| ** **                      | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------|------------|--------------------------------------------|------------|
| ** **                      | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net cash provided by (used in): |       |                                       |       |   |   |   |   |
| Operating activities            |       | $                                          | 603,235    |   | $ | 462,012 |   | $ | 499,790 |   |
| Investing activities            |       | $                                          | (706,378   | ) | $ | (687,713 | ) | $ | (518,045 | ) |
| Financing activities            |       | $                                          | 152,256    |   | $ | 312,220 |   | $ | 47,069 |   |

 

# **Note 3:  Summary of Significant Accounting Policies**

# ** **

## *Bankruptcy*

## * *

As a result of the Debtors’ Chapter 11 filings, theseconsolidated financial statements have been prepared in accordance with SOP90-7. For additional information, see Note 2.

 

## *Cash Equivalents*

## * *

Cash equivalents consist primarily of money marketfunds and United States Government obligations****with maturities of three months or less when purchased. The carryingamounts of cash equivalents approximate their fair values.

 

109

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

## *Restricted Cash*

## * *

Details of restricted cash are presented below(amounts in thousands):

 
| ** **                         | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Current restricted cash:           |       |                  |       |   |   |
| DIP facilities (a)                 |       | $                     | 25,783     |   | $ | 2,682 |   |
| Dispute related to acquisition (b) |       | —                |       | 3,618 |   |
| Current restricted cash            |       | $                     | 25,783     |   | $ | 6,300 |   |
|                               |       |                  |       |   |   |
| Noncurrent restricted cash:        |       |                  |       |   |   |
| Century/ML Cable sale proceeds (c) |       | $                     | 259,645    |   | $ | — |   |
| Other                              |       | 2,748                 |       | 3,035 |   |
| Noncurrent restricted cash         |       | $                     | 262,393    |   | $ | 3,035 |   |

 

----

(a)   Amountsthat are collateralized on letters of credit outstanding or restricted as touse under the DIP facilities.

(b)   Cashreceipts from customers that were placed in trust as a result of a disputearising from the acquisition of a cable system.

(c)   Proceedsfrom the sale of Century/ML Cable that are being held in escrow pending theresolution of the litigation between Adelphia, Century, Highland Holdings, aRigas Family entity (“Highland”), Century/ML Cable and ML Media. See Note 16for a description of this litigation.

 

## *Accounts Receivable*

## * *

Trade accounts receivable are recorded at the invoicedamount and do not bear interest. Accounts receivable are reflected net of anallowance for doubtful accounts. Such allowance was $15,912,000 and $37,954,000at December 31, 2005 and 2004, respectively. The allowance for doubtfulaccounts is established through a charge to direct operating and programmingcosts and expenses. The Company assesses the adequacy of this reserveperiodically, evaluating general factors such as the length of time individualreceivables are past due, historical collection experience, and the economicand competitive environment.

 

## *Investments*

## * *

All publicly traded marketable securities held by theCompany are classified as available-for-sale securities and are recorded atfair value. Unrealized gains and losses resulting from changes in fair valuebetween measurement dates for available-for-sale securities are recorded net oftaxes as a component of other comprehensive income (loss). Unrealized lossesthat are deemed to be other-than-temporary are recognized currently. Investmentsin privately held entities in which the Company does not have the ability toexercise significant influence over their operating and financial policies areaccounted for at cost, subject to other-than-temporary impairment. The Company’savailable-for-sale securities and cost investments are included in othernoncurrent assets, net in the accompanying consolidated balance sheets.

 

Investments in entities in which the Company has theability to exercise significant influence over the operating and financialpolicies of the investee are accounted for under the equity method. Equitymethod investments are recorded at original cost, subject toother-than-temporary impairment, and adjusted quarterly to recognize theCompany’s proportionate share of the investees’ net income or loss after thedate of investment, additional contributions or advances made, and dividendsreceived. The equity method ofaccounting is suspended when the Company no longer has significant influence,for example, during the period that investees are undergoing corporatereorganization or bankruptcy proceedings. The Company’s share of losses isgenerally limited to the extent of the Company’s investment unless the Companyis committed to provide further financial support to the investee. The excessof the Company’s investment over its share of the net assets of each of theCompany’s investees has been attributed to the franchise rights and customerrelationship intangibles of the investee. Pursuant to Statement of FinancialAccounting Standards (“SFAS”) No. 142, *Goodwilland Other Intangible Assets* (“SFAS No. 142”), the Company does notamortize the excess basis to the extent it has been attributed to goodwill andfranchise rights. As discussed below under “*Intangible Assets,”*the Company has determined that franchise rights have an indefinite life, andtherefore are not subject to amortization.

 

110

----

 

**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

Changes in the Company’s proportionate share of theunderlying equity of an equity method investee, which result from the issuanceof additional equity securities of the equity investee, are reflected asincreases or decreases to the Company’s additional paid-in capital.

 

On a quarterly basis, the Company reviews itsinvestments to determine whether a decline in fair value below the cost basisis other-than-temporary. The Company considers a number of factors in itsdetermination including: (i) the financial condition, operating performance andnear term prospects of the investee; (ii) the reason for the decline in fairvalue, be it general market, industry specific or investee specific conditions;(iii) the length of time that the fair value of the investment is below theCompany’s carrying value; and (iv) changes in value subsequent to the balancesheet date. If the decline in estimated fair value is deemed to beother-than-temporary, a new cost basis is established at the then estimatedfair value. In situations where the fair value of an investment is not evidentdue to a lack of public market price or other factors, the Company uses itsbest estimates and assumptions to arrive at the estimated fair value of such aninvestment. The Company’s assessment of the foregoing factors involves a highdegree of judgment, and the use of significant estimates and assumptions.

 

## *Derivative and Other Financial Instruments*

## * *

SFAS No. 133, *Accounting for DerivativeInstruments and Hedging Activities,*as amended (“SFAS No. 133”),requires that all derivative instruments be recognized in the balance sheet atfair value. In addition, SFAS No. 133 provides that for derivative instrumentsthat qualify for hedge accounting, changes in fair value will either be offsetagainst the change in fair value of the hedged assets, liabilities or firmcommitments through earnings or recognized in stockholders’ equity as acomponent of accumulated other comprehensive income (loss) until the hedgeditem is recognized in earnings, depending on whether the derivative hedgeschanges in fair value or cash flows. The ineffective portion of a derivative’schange in fair value will be immediately recognized in earnings.

 

The Company has entered into interest rate exchangeagreements, interest rate cap agreements and interest rate collar agreementswith the objective of managing its exposure to fluctuations in interest rates. However,the Company has not designated these agreements as hedging instruments pursuantto the provisions of SFAS No. 133. Accordingly, changes in the fair value ofthese agreements were recognized currently and included in other income(expense), net through the Petition Date. Changes in the fair value of theseagreements subsequent to the Petition Date have not been recognized, as theamount to be received or paid in connection with these agreements will bedetermined by the Bankruptcy Court. For additional information, see Note 10.

 

## *Business Combinations*

## * *

The Company accounts for business combinations usingthe purchase method of accounting. The results of operations of an acquiredbusiness are included in the Company’s consolidated results from the date ofthe acquisition. The cost to acquire companies, including transaction costs, isallocated to the underlying net assets of the acquired company based on theirrespective fair values. Any excess of the purchase price over the estimatedfair values of the identifiable net assets acquired is recorded as goodwill.The value assigned to the Class A Common Stock, issued by Adelphia asconsideration for acquisitions is generally based on the average market pricefor a period of a few days before and after the date that the respective termsare agreed to and announced. The application of purchase accounting requires ahigh degree of judgment and involves the use of significant estimates andassumptions.

 

## *Property and Equipment*

## * *

The details of property and equipment and the relatedaccumulated depreciation are set forth below for the indicated periods (amountsin thousands):

 
| ** **                      | ** ** | **December 31,** | ** ** |
|---------------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2005**              | ** ** | **2004** | ** ** |
|                            |       |                  |       |   |   |
| Cable distribution systems      |       | $                     | 7,906,918  |   | $ | 7,357,896 |   |
| Support equipment and buildings |       | 583,594               |       | 556,203 |   |
| Land                            |       | 52,418                |       | 54,091 |   |
|                            |       | 8,542,930             |       | 7,968,190 |   |
| Accumulated depreciation        |       | (4,208,279            | )          | (3,498,247 | ) |
| Property and equipment, net     |       | $                     | 4,334,651  |   | $ | 4,469,943 |   |

 

111

----

 

**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

Property and equipment is stated at cost, lessaccumulated depreciation. In accordance with SFAS No. 51, *FinancialReporting by Cable Television Companies* (“SFAS No. 51”), the Companycapitalizes costs associated with the construction of new cable transmissionand distribution facilities and the installation of new cable services. Capitalizedconstruction costs include materials, labor, applicable indirect costs andinterest. Capitalized installation costs include labor, material and overheadcosts related to: (i) the initial connection (or “drop”) from the Company’scable plant to a customer location; (ii) the replacement of a drop; and (iii)the installation of equipment for additional services, such as digital cable orhigh-speed Internet (“HSI”). The costs of other customer-facing activities,such as reconnecting customer locations where a drop already exists, disconnectingcustomer locations and repairing or maintaining drops, are expensed as incurred.The Company’s methodology for capitalization of internal construction labor andinternal and contracted third party installation costs (including materials)utilizes standard costing models based on actual costs. Materials and externallabor costs associated with construction activities are capitalized based onamounts invoiced to the Company by third parties.

 

The Company captures data from its billing, customercare and engineering records to determine the number of occurrences for eachcapitalizable activity, applies the appropriate standard and capitalizes theresult on a monthly basis. Periodically, the Company reviews and adjusts, ifnecessary, the amount of costs capitalized utilizing the methodology describedabove, based on comparisons to actual costs incurred. Significant judgment isinvolved in the development of costing models and in the determination of thenature and amount of indirect costs to be capitalized.

 

Improvements that extend asset lives are capitalizedand other repairs and maintenance expenditures are expensed as incurred.

 

Subject to the change noted below for set-top boxes,depreciation is computed on the straight-line method using the following usefullives:

 

| **Classification**                | ** ** | **Useful Lives**    |
|-----------------------------------|------------|--------------------------|
|                              |       |                     |
| Cable distribution systems:       |       |                     |
| Construction equipment            |       | 12 years                 |
| Cable plant                       |       | 9 to 12 years            |
| Set-top boxes, remotes and modems |       | 3 to 5 years (see below) |
| Studio equipment                  |       | 7 years                  |
| Advertising equipment             |       | 5 years                  |
| Tools and test equipment          |       | 5 years                  |
|                              |       |                     |
| Support equipment and buildings:  |       |                     |
| Buildings and improvements        |       | 10 to 20 years           |
| Office furniture                  |       | 10 years                 |
| Aircraft                          |       | 10 years                 |
| Computer equipment                |       | 3 to 7 years             |
| Office equipment                  |       | 5 years                  |
| Vehicles                          |       | 5 years                  |

 

The Company periodically evaluates the useful lives ofits property and equipment. Effective January 1, 2004, the Company changedthe useful life used to calculate the depreciation of standard definitiondigital set-top boxes from five years to four years due to the introduction ofadvanced digital set-top boxes which provide high definition television (“HDTV”)and digital video recording capabilities, and the expected migration of new andexisting customers to these advanced digital set-top boxes. In addition,consumer electronics manufacturers continue to include advanced technologynecessary to receive digital and HDTV signals within television sets, which theCompany expects to further contribute to the reduction in the useful life ofits set-top boxes. The impact of this change in useful life on the Company’soperating results for the year ended December 31, 2004 was an $111,849,000increase to the Company’s net loss and a $0.44 increase to the Company’s netloss per common share.

 

The useful lives used to depreciate cable plant thatis undergoing rebuilds are adjusted such that property and equipment to beretired will be fully depreciated by the time the rebuild is completed. Inaddition, the useful lives assigned to property and equipment of acquired companiesare based on the expected remaining useful lives of such acquired property andequipment. Upon the sale of cable systems, the related cost and accumulateddepreciation is removed from the respective accounts and any resulting gain orloss is reflected in earnings.

 

112

----

 

**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

## *Intangible Assets*

## * *

Franchise rights represent the value attributed toagreements with local authorities that allow access to homes in cable serviceareas acquired in connection with a business combination. Pursuant to SFAS No.142, the Company does not amortize acquired franchise rights as the Company hasdetermined that such rights have an indefinite life. Costs to extend andmaintain the Company’s franchise rights are expensed as incurred.

 

Goodwill represents the excess of the acquisition costof an acquired entity over the fair value of the identifiable net assetsacquired. Pursuant to SFAS No. 142, the Company does not amortize goodwill.

 

Following is a reconciliation of the changes in thecarrying amount of goodwill for the indicated periods (amounts in thousands): 

 

| ** **                                                    | ** ** | **Cable** | ** ** | **Corporate  and Other** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------|------------|-----------|------------|-------------------------------|------------|-----------|------------|
| Balance at January 1, 2004                                    |       | $         | 1,508,029  |                          | $          | 3,846     |       | $ | 1,511,875 |   |
| Consolidation of Rigas Co-Borrowing  Entities (Note 5)        |       | 116,844   |       | —                        |       | 116,844   |       |
| Other                                                         |       | —    |       | (200                          | )          | (200      | )          |
| Balance at December 31, 2004                                  |       | 1,624,873 |       | 3,646                         |       | 1,628,519 |       |
| Acquisition of remaining interests in  Tele-Media JV Entities |       | 9,761     |       | —                        |       | 9,761     |       |
| Sale of security monitoring businesses                        |       | —    |       | (3,646                        | )          | (3,646    | )          |
| Other                                                         |       | (249      | )          | —                        |       | (249      | )          |
| Balance at December 31, 2005                                  |       | $         | 1,634,385  |                          | $          | —    |       | $ | 1,634,385 |   |

 

Customer relationships represent the value attributedto customer relationships acquired in business combinations and are amortizedover a 10-year period. Beginning in 2004, the Company began amortizing itscustomer relationships using the double declining balance method. Theapplication of the new amortization method to customer relationships acquiredprior to 2004 resulted in an additional charge of $262,847,000 which has beenreflected as a cumulative effect of a change in accounting principle in theaccompanying consolidated statements of operations. The proforma amounts shownin the consolidated statements of operations have been adjusted for the effectof retroactive application on amortization, changes in impairment of long-livedassets and minority’s interest in loss of subsidiary which would have been madehad the new method been in effect. Amortization of customer relationships andother aggregated $117,305,000, $145,357,000 and $157,019,000 during 2005, 2004and 2003, respectively. Based solely on the Company’s current amortizable intangibleassets, the Company expects that amortization expense of amortizable intangibleassets will be approximately $107,000,000, $104,000,000, $101,000,000,$83,000,000 and $34,000,000 during 2006, 2007, 2008, 2009 and 2010,respectively. The details of customer relationships and other are set forthbelow for the indicated periods (amounts in thousands):

 
| ** **                            | ** ** | **December 31,** | ** ** |
|---------------------------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **2005**              | ** ** | **2004** | ** ** |
|                                  |       |                  |       |   |   |
| Gross carrying value                  |       | $                     | 1,641,146  |   | $ | 1,674,138 |   |
| Accumulated amortization              |       | (1,186,540            | )          | (1,094,222 | ) |
| Customer relationships and other, net |       | $                     | 454,606    |   | $ | 579,916 |   |

## * *

## *Impairment of Long-Lived Assets*

## * *

Pursuant to SFAS No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets* (“SFAS No. 144”),the Company evaluates property and equipment and amortizable intangible assetsfor impairment whenever current events and circumstances indicate the carryingamounts may not be recoverable. If the carrying amount is greater than theexpected future undiscounted cash flows to be generated, the Company recognizesan impairment loss equal to the excess, if any, of the carrying value over thefair value of the asset. The Company generally measures fair value based uponthe present value of estimated future net cash flows of an asset group over itsremaining useful life. The Company utilizes an independent third partyvaluation firm to assist in the determination of fair value for the cableassets. With respect to long-lived assets associated with cable systems, theCompany groups systems at a level which represents the lowest level of cashflows that are largely independent of other assets and 

 

113

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

liabilities. The Company’s asset groups under thismethodology consist of seven major metropolitan markets and numerous otherasset groups in the Company’s geographically dispersed operations.

 

Pursuant to SFAS No. 142, the Company evaluates itsgoodwill and franchise rights for impairment, at least annually on July 1, andwhenever other facts and circumstances indicate that the carrying amounts ofgoodwill and franchise rights may not be recoverable. The Company evaluates therecoverability of the carrying amount of goodwill at its operating regions. Theseoperating regions make up the Company’s cable operating segment determinedpursuant to SFAS No. 131, *Disclosures about Segmentsof an Enterprise and Related Information*, as further discussed inNote 15. For purposes of this evaluation, the Company compares the fair valueof the assets of each of the Company’s operating regions to their respectivecarrying amounts. The Company estimates the fair value of its goodwill andfranchise rights primarily based on discounted cash flows, current markettransactions and industry trends. If the carrying value of an operating regionwere to exceed its fair value, the Company would then compare the implied fairvalue of the operating region’s goodwill to its carrying amount, and any excessof the carrying amount over the fair value would be charged to operations as animpairment loss. The fair value of goodwill represents the excess of theoperating region’s fair value over the fair value of its identifiable netassets. The Company evaluates the recoverability of the carrying amount of itsfranchise rights based on the same asset groupings used to evaluate itslong-lived assets under SFAS No. 144 because the franchise rights areinseparable from the other assets in the asset group. These groupings areconsistent with the guidance in Emerging Issues Task Force (“EITF”) Issue No.02-7, *Unit of Measure for Testing Impairment ofIndefinite-Lived Intangible Assets*. Any excess of the carrying valueover the fair value for franchise rights is charged to operations as animpairment loss.

 

The evaluation of long-lived assets for impairmentrequires a high degree of judgment and involves the use of significantestimates and assumptions. For additional information, see Note 9.

 

## *Internal-Use Software*

## * *

The Company capitalizes certain direct developmentcosts associated with internal-use software, including external direct costs ofmaterial and services, and payroll and related benefit costs for employeesdevoting time to the software projects. Such costs are amortized over anestimated useful life of three years, beginning when the assets aresubstantially ready for use. Amounts capitalized for internal-use software were$24,054,000, $22,502,000 and $14,882,000 during 2005, 2004 and 2003,respectively. Amortization of internal-use software costs was $23,959,000,$14,325,000 and $5,820,000 for 2005, 2004 and 2003, respectively. The net bookvalue of internal-use software at December 31, 2005 and 2004 was $42,460,000and $42,059,000, respectively. Internal-use software costs are included inother noncurrent assets, net in the accompanying consolidated balance sheets.

 

## *Deferred Financing Fees*

## * *

In general, costs associated with the issuance andrefinancing of debt are deferred and amortized to interest expense using theeffective interest method over the term of the related debt agreement. However,in the case of deferred financing costs related to pre-petition debtobligations, amortization was terminated effective on the Petition Date and theunamortized amount at the Petition Date ($134,208,000) is included as an offsetto liabilities subject to compromise at the Petition Date and at December 31,2005 and 2004 as an adjustment of the net carrying value of the relatedpre-petition debt. At December 31, 2005 and 2004, deferred financing fees of$7,656,000 and $46,589,000, respectively, are included in other noncurrentassets, net in the accompanying consolidated balance sheets.

 

## *Minority’s Interest*

## * *

Recognition of minority’s interest share of losses ofconsolidated subsidiaries was limited to the amount of such minority’sallocable share of the common equity of those consolidated subsidiaries.

 

## *Foreign Currency Translation*

## * *

Assets and liabilities of the Company’s cableoperations in Brazil, where the functional currency is the local currency, aretranslated into U.S. dollars at the exchange rate as of the balance sheet date,and the related translation adjustments are recorded as a component of othercomprehensive income (loss). Revenue and expenses are translated using averageexchange rates prevailing during the period.

 

114

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

## *Transactions with theRigas Family and Rigas Family Entities*

## * *

As discussed in Note 5,effective January 1, 2004, the Company began consolidating the RigasCo-Borrowing Entities. In addition to the Rigas Co-Borrowing Entities, theCompany had significant involvement, directly or indirectly, with the RigasFamily and Other Rigas Entities prior to the Petition Date. The following is adiscussion of the Company’s significant accounting policies related totransactions with the Rigas Family and Rigas Family Entities. On April 25,2005, Adelphia and the Rigas Family entered into an agreement to settleAdelphia’s lawsuit against the Rigas Family. For additional information, seeNote 16.

 

The Company continues tofund the cash needs for the payment of interest on co-borrowing debt for theRigas Co-Borrowing Entities. Generally, amounts funded to or on behalf of theRigas Family and Rigas Family Entities were recorded by the Company as advancesto those entities. Effective January 1, 2004, advances to the RigasCo-Borrowing Entities are eliminated in consolidation. Advances to the RigasFamily and Other Rigas Entities are included as amounts due from the RigasFamily and Other Rigas Entities, net in the accompanying consolidated balancesheet as of December 31, 2004. No amounts have been funded on behalf ofthe Rigas Family and Other Rigas Entities since 2002.

 

Amounts due from theRigas Family and Other Rigas Entities, net was presented as an addition tostockholders’ deficit in the accompanying December 31, 2004 consolidatedbalance sheet because: (i) approximately half of the advances were used bythose entities to acquire Adelphia securities; (ii) these advancesoccurred frequently; (iii) there were no definitive debt instruments thatspecified repayment terms or interest rates; and (iv) there was nodemonstrated repayment history.

 

Prior to the ForfeitureOrder, where a contractual agreement or similar arrangement existed formanagement services to the Managed Cable Entities, the fees charged were basedon the contractually specified terms. Such management agreements generallyprovided for a management fee based on a percentage of revenue plusreimbursements for expenses incurred by the Company on behalf of the ManagedCable Entities. In the absence of such agreements and following the ForfeitureOrder, the fees charged by the Company to the Managed Cable Entities are basedon the actual costs incurred by the Company. Such charges are generally basedon the Managed Cable Entities’ share of revenue or subscribers, as appropriate.Management believes that the amounts charged to the Managed Cable Entities andreflected in the accompanying consolidated statements of operations withrespect to management fees are reasonable. Amounts charged subsequent to January 1,2004 have been eliminated in consolidation. All other transactions prior to January 1,2004 between the Company and the Rigas Family Entities have been reflected inthe Company’s consolidated financial statements based on the actual cost of therelated goods or services.

 

The Company followed theprinciples outlined in SFAS No. 114, *Accounting by Creditorsfor Impairment of a Loan*, and SFAS No. 118, *Accounting by Creditors for Impairments of a Loan - Income Recognitionand Disclosures*, to determine impairment of advances to the RigasFamily and Other Rigas Entities prior to the Forfeiture Order and to establishits policies related to both the determination of impairment of advances to theRigas Co-Borrowing Entities and the recognition of interest due from them forperiods prior to January 1, 2004. The Company evaluated impairment ofamounts due from the Rigas Family and Rigas Family Entities quarterly andwhenever other facts and circumstances indicated the carrying value may havebeen impaired, on an entity-by-entity basis, which considers the legalstructure of each entity to which advances were made. The Company was unable toevaluate impairment based on the present value of expected future cash flowsfrom repayment because the advances generally did not have supporting loandocuments, interest rates, repayment terms or history of repayment. The Companyconsidered such advances as collateral-backed loans and measured the expectedrepayments based on the estimated fair value of the underlying assets of eachrespective entity at the balance sheet dates. The evaluation was based on anorderly liquidation of the underlying assets and did not apply current changesin circumstances to prior periods. For example, the most significant impairmentrecognition occurred when the Debtors filed for bankruptcy protection in June 2002due to the dramatic effect that the filing had on the value of the underlyingassets available for repayment of the advances. No increases in underlyingasset values were recognized following bankruptcy.

 

## *Revenue Recognition*

 

Revenue from video andHSI service is recognized as services are provided. Credit risk is managed bydisconnecting services to customers whose accounts are delinquent for aspecified number of days. Consistent with SFAS No. 51, installationrevenue obtained from the connection of subscribers to the cable system isrecognized in the period installation services are provided to the extent ofrelated direct selling costs. Any remaining amount is deferred and recognizedover the estimated average period that customers are expected to remainconnected to the cable system. Installation revenue was less than relateddirect selling costs for all periods presented. The Company classifies feescollected from cable subscribers for reimbursement of fees paid to localfranchise authorities as a component of service revenue because the Company isthe primary obligor to the local franchise authority. Revenue from advertisingsales associated with the Company’s media services business is recognized asthe advertising is aired. Certain fees

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

and commissions relatedto advertising sales are recognized as costs and expenses in the accompanyingconsolidated financial statements.

 

## *Programming Launch Feesand Incentives*

 

From time to time, theCompany enters into binding agreements with programming networks whereby theCompany is to receive cash, warrants to purchase common stock or otherconsideration in exchange for launch, channel placement or other considerationswith respect to the carriage of programming services on the Company’s cablesystems. Amounts received or to be received under such arrangements arerecorded as deferred revenue and amortized, generally on a straight-line basis,over the contract term, provided that it is probable that the Company willsatisfy the carriage obligations and that the amounts to be received arereasonably estimable. Where it is not probable that the Company will satisfythe carriage obligations, or where the amounts to be received are notestimable, recognition is deferred until the specific carriage obligations aremet and the consideration to be received is reasonably estimable. The amountsrecognized under these arrangements generally are reflected as reductions ofcosts and expenses. However, amounts recognized with respect to paymentsreceived from shopping and other programming networks for which the Companydoes not pay license fees and consideration received in connection withinteractive services are reflected as revenue. At the time that the Company’slaunch, carriage or other obligations are terminated, any remaining deferredrevenue associated with such terminated obligations is recognized and includedin other income (expense), net in the accompanying consolidated statements ofoperations.

 

## *Advertising Costs*

 

Advertising costs areexpensed as incurred. The Company’s advertising expense was $114,673,000,$96,842,000 and $88,379,000 during 2005, 2004 and 2003, respectively.

 

## *Stock-Based Compensation*

 

The Company applies theintrinsic value-based method of accounting prescribed by Accounting PrinciplesBoard (“APB”) Opinion No. 25, *Accounting for StockIssued to Employees* (“APB Opinion No. 25”), and relatedinterpretations to account for the Company’s fixed plan stock options. Underthis method, compensation expense for stock options or awards that are fixed isrequired to be recognized over the vesting period only if the current marketprice of the underlying stock exceeds the exercise price on the date of grant. Alloutstanding stock options became fully vested in February 2005. SFAS No. 123,*Accounting for Stock-Based Compensation*(“SFAS No. 123”), established accounting for stock-based employeecompensation plans. As allowed by SFAS No. 123, the Company has elected tocontinue to apply the intrinsic value-based method of accounting prescribed byAPB Opinion No. 25, and has adopted the disclosure requirements of SFAS No. 123,as amended by SFAS No. 148, *Accounting for Stock-BasedCompensation – Transition and Disclosure – an Amendment of FASB Statement No. 123*and by SFAS No. 123-R,*Share-Based Payment*.The following table illustrates the effects on net loss and loss per commonshare as if the Company had applied the fair value recognition provisions ofSFAS No. 123 to stock-based employee compensation (amounts in thousands,except per share amounts):

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 
| ** **                                                                              | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                              | ** ** | **2005**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                    |       |                             |       |   |   |   |   |
| Net income  (loss), as reported                                                         |       | $                                | 34,663     |   | $ | (1,910,873 | ) | $ | (832,612 | ) |
| Compensation  expense determined under fair value method, net of $0 taxes for all years |       | (13                              | )          | (167 | ) | (1,077 | ) |
| Pro forma  net income (loss)                                                            |       | $                                | 34,650     |   | $ | (1,911,040 | ) | $ | (833,689 | ) |
|                                                                                    |       |                             |       |   |   |   |   |
| Income  (loss) per Class A common share:                                           |       |                             |       |   |   |   |   |
| Basic – as  reported                                                               |       | $                                | 0.13       |   | $ | (7.56 | ) | $ | (3.31 | ) |
| Diluted – as  reported                                                             |       | $                                | 0.10       |   | $ | (7.56 | ) | $ | (3.31 | ) |
| Basic – pro  forma                                                                 |       | $                                | 0.13       |   | $ | (7.56 | ) | $ | (3.31 | ) |
| Diluted –  pro forma                                                               |       | $                                | 0.10       |   | $ | (7.56 | ) | $ | (3.31 | ) |
| Income  (loss) per Class B common share:                                           |       |                             |       |   |   |   |   |
| Basic – as  reported                                                               |       | $                                | 0.13       |   | $ | (7.56 | ) | $ | (3.31 | ) |
| Diluted – as  reported                                                             |       | $                                | 0.10       |   | $ | (7.56 | ) | $ | (3.31 | ) |
| Basic – pro  forma                                                                 |       | $                                | 0.13       |   | $ | (7.56 | ) | $ | (3.31 | ) |
| Diluted —  pro forma                                                               |       | $                                | 0.10       |   | $ | (7.56 | ) | $ | (3.31 | ) |

 

The grant-date fairvalues underlying the foregoing calculations are based on the Black-Scholesoption-pricing model. Adelphia has not granted stock options since 2001. Withrespect to stock options granted by Adelphia in 2001, the key assumptions usedin the model for purpose of these calculations were as follows:

 
| Risk-free  interest rate  |   | 4.17 | %      |
|---------------------------|--------|------|--------|
| Volatility                |   | 54.8 | %      |
| Expected  life (in years) |   | 3.77 |   |
| Dividend  yield           |   | 0    | %      |

 

## *Income Taxes*

 

The Company accounts forits income taxes using the asset and liability method. Under the asset andliability method, deferred tax assets and liabilities are recognized for theestimated future tax consequences attributable to differences between thefinancial statement carrying amounts of existing assets and liabilities andtheir respective tax bases. In addition, deferred tax assets are also recordedwith respect to net operating loss and other tax attribute carryforwards. Deferredtax assets and liabilities are measured using enacted tax rates in effect forthe year in which those temporary differences are expected to be recovered orsettled. Valuation allowances are established when realization of the benefitof deferred tax assets is not deemed to be more likely than not. The effect ondeferred tax assets and liabilities of a change in tax rates is recognized inincome in the period that includes the enactment date.

 

## *Earnings (Loss) PerCommon Share (“EPS”)*

 

The Company uses the two-class methodfor computing basic and diluted EPS. Basic and diluted EPS for the Class ACommon Stock and the Class B Common Stock was computed by allocating theincome applicable to common stockholders to Class A common stockholdersand Class B common stockholders as if all of the earnings for the periodhad been distributed. This allocation, and the calculation of the basic anddiluted net income (loss) applicable to Class A common stockholders and Class Bcommon stockholders, do not reflect any adjustment for interest on theconvertible subordinated notes and do not reflect any declared or accumulateddividends on the convertible preferred stock, as neither has been recognizedsince the Petition Date. For the year ended December 31, 2005, incomeapplicable to common stockholders for computing basic EPS of $30,860,000 and$3,220,000 has been allocated to the Class A Common Stock and Class BCommon Stock, respectively, and income applicable to common stockholders forcomputing diluted EPS of $30,514,000 and $3,566,000 has been allocated to the Class ACommon Stock and Class B Common Stock, respectively. Under the two-class methodfor computing basic and diluted EPS, losses have not been allocated to each class ofcommon stock, as security holders are not obligated to fund such losses.

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

Diluted EPS of Class Aand Class B Common Stock considers the potential impact of dilutivesecurities. For the year ended December 31, 2005, 144,992 of potentialcommon shares subject to stock options have been excluded from the diluted EPScalculation as the option exercise price is greater than the average marketprice of the Class A Common Stock. For the years ended December 31,2004 and 2003, the inclusion of potential common shares would have had ananti-dilutive effect. Accordingly, potential common shares of 87,072,964 and87,082,474 have been excluded from the diluted EPS calculations in 2004 and2003, respectively.

 

The potential commonshares at December 31, 2005, 2004 and 2003 consist of Adelphia’s 5 1/2% Series DConvertible Preferred Stock (“Series D Preferred Stock”), 7 1/2% Series EMandatory Convertible Preferred Stock (“Series E Preferred Stock”), 7 1/2%Series F Mandatory Convertible Preferred Stock (“Series F PreferredStock”), 6% subordinated convertible notes, 3.25% subordinated convertiblenotes and stock options. As a result of the filing of the Debtors’ Chapter 11Cases, Adelphia, as of the Petition Date, discontinued accruing dividends onall of its outstanding preferred stock and has excluded those dividends fromthe diluted EPS calculations. The debt instruments are convertible into sharesof Class A and Class B Common Stock. The preferred securities andstock options are convertible into Class A Common Stock. The basic anddiluted weighted average shares outstanding used for EPS computations for theperiods presented are as follows:

 
| ** **                                                    | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                    | ** ** | **2005**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
| Basic  weighted average shares of Class A Common Stock   |       | 228,692,414                      |       | 228,692,414 |   | 228,692,273 |   |
| Potential  common shares:                                     |       |                             |       |   |   |   |   |
| Convertible  preferred stock                                  |       | 45,924,486                       |       | — |   | — |   |
| Convertible  subordinated notes                               |       | 28,683,846                       |       | — |   | — |   |
| Diluted  weighted average shares of Class A Common Stock |       | 303,300,746                      |       | 228,692,414 |   | 228,692,273 |   |
|                                                          |       |                             |       |   |   |   |   |
| Basic  weighted average shares of Class B Common Stock   |       | 25,055,365                       |       | 25,055,365 |   | 25,055,365 |   |
| Potential  common shares:                                     |       |                             |       |   |   |   |   |
| Convertible  subordinated notes                               |       | 12,159,768                       |       | — |   | — |   |
| Diluted  weighted average shares of Class B Common Stock |       | 37,215,133                       |       | 25,055,365 |   | 25,055,365 |   |

 

## *Use of Estimates*

 

The preparation ofconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States (“GAAP”) requires management to makeestimates and assumptions that affect the reported amounts of assets,liabilities, revenue and expenses. Significant estimates are involved in thedetermination of: (i) asset impairments; (ii) the recorded provisionsfor contingent liabilities; (iii) the carrying amounts of liabilitiessubject to compromise; (iv) estimated useful lives of tangible andintangible assets; (v) internal costs capitalized in connection withconstruction and installation activities; (vi) the recorded amount ofdeferred tax assets and liabilities; (vii) the allowances provided foruncollectible amounts with respect to the amounts due from the Rigas Family andRigas Family Entities and accounts receivable; (viii) the allocation ofthe purchase price in business combinations; and (ix) the fair value ofderivative financial instruments. Actual amounts, particularly with respect tomatters impacted by proceedings under Chapter 11, could vary significantly fromsuch estimates.

 

# **Note4:  Recent Accounting Pronouncements**

 

In March 2005, theFASB issued FASB Interpretation No. 47, *Accountingfor Conditional Asset Retirement Obligations, an interpretation of FASB StatementNo. 143*(“FIN 47”), which addresses the financial accountingand reporting obligations associated with the conditional retirement oftangible long-lived assets and the associated asset retirement costs. FIN 47requires that, when the obligation to perform an asset retirement activityis unconditional, and the timing and/or the method of settlement of theobligation is conditional on a future event, companies must recognize aliability for the fair value of the conditional asset retirement if the fair valueof the liability can be reasonably estimated. The requirements of FIN 47 areeffective for fiscal periods ending after December 15, 2005.

 

The Company has certainequipment, the disposal of which may be subject to environmentalregulations. The Company’s asset retirement obligations associated withenvironmental regulations for the disposition of its equipment are not material.The Company also owns certain buildings containing asbestos whereby the Companyis legally obligated to remediate the asbestos under

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

certain circumstances,such as if the buildings undergo renovations or are demolished. The Companydoes not have sufficient information to estimate the fair value of its assetretirement obligation for asbestos remediation because the range of time overwhich the Company may settle the obligation is unknown and cannot bereasonably estimated.

 

In June 2005, theEITF reached a consensus on Issue No. 04-5, *DeterminingWhether a General Partner, or the General Partners as a Group, Controls aLimited Partnership or Similar Entity When the Limited Partners Have Certain Rights*(“EITF 04-5”). EITF 04-5 provides guidance in assessing when a general partnercontrols and consolidates its investment in a limited partnership or similarentity. The general partner is assumed to control the limited partnershipunless the limited partners have substantive kick-out or participating rights. Theprovisions of EITF 04-5 were required to be applied beginning June 30,2005 for partnerships formed or modified subsequent to June 30, 2005, andare effective for general partners in all other limited partnerships beginning January 1,2006. EITF 04-5 had no impact on the Company’s financial position or results ofoperation for the year ended December 31, 2005. The Company is currentlyevaluating the impact of the adoption of EITF 04-5 in 2006.

 

# **Note5:  Variable Interest Entities**

 

FIN 46-R requiresvariable interest entities, as defined by FIN 46-R, to be consolidated by theprimary beneficiary if certain criteria are met. The Company concluded that theRigas Co-Borrowing Entities are variable interest entities for which theCompany is the primary beneficiary, as contemplated by FIN 46-R. Accordingly,effective January 1, 2004, the Company began consolidating the RigasCo-Borrowing Entities on a prospective basis. The assets and liabilities of theRigas Co-Borrowing Entities are included in the Company’s consolidatedfinancial statements at the Rigas Family’s historical cost because theseentities first became variable interest entities and Adelphia became theprimary beneficiary when Adelphia and these entities were under the commoncontrol of the Rigas Family. As a result of the adoption of FIN 46-R, theCompany recorded a $588,782,000 charge as a cumulative effect of a change inaccounting principle as of January 1, 2004. The Company is reporting theoperating results of the Rigas Co-Borrowing Entities in the “cable” segment. SeeNote 15 for further discussion of the Company’s business segments.

 

The April 2005agreements entered into by the District Court in the SEC civil enforcement action(the “SEC Civil Action”), including: (i) the Non-ProsecutionAgreement; (ii) the Adelphia-Rigas Settlement Agreement (defined in Note16); (iii) the Government-Rigas Settlement Agreement (also defined in Note16); and (iv) the final judgment as to Adelphia (collectively, the “GovernmentSettlement Agreements”), provide, among other things, for the forfeiture ofcertain assets by the Rigas Family and Rigas Family Entities. Pursuant to theForfeiture Order, all right, title and interest of the Rigas Family and RigasFamily Entities in the Rigas Co-Borrowing Entities (other than Coudersport andBucktail), certain specified real estate and any securities of the Company wereforfeited to the United States on or about June 8, 2005 and such assetsand securities are expected to be conveyed to the Company (subject tocompletion of forfeiture proceedings before a federal judge to determine ifthere are any superior claims) in furtherance of the Non-Prosecution Agreement.See Note 16 for additional information.

 

As of June 8, 2005,the Company was no longer the primary beneficiary of Coudersport and Bucktail. Accordingly,the Company ceased to consolidate Coudersport and Bucktail under FIN 46-R andrecorded a net charge of $12,964,000 in the accompanying consolidated statementof operations for the year ended December 31, 2005. Such charge isincluded as a component of the net benefit from the settlement with the RigasFamily (see Note 6).

 

In addition to the RigasCo-Borrowing Entities, the Rigas Family owned, prior to forfeiture to theUnited States on June 8, 2005, at least 16 additional entities in whichthe Company held a variable interest. The Company did not apply the provisionsof FIN 46-R to the Other Rigas Entities because the Company did not havesufficient financial information to perform the required evaluations. As aresult of the Government Settlement Agreements, as of June 8, 2005, theCompany no longer held a variable interest in these entities.

 

In addition to the RigasFamily Entities, the Company performed an evaluation under FIN 46-R of otherentities in which the Company has a financial interest. The Company concludedthat no further adjustments to its consolidated financial statements wererequired as a result of these evaluations and the adoption of FIN 46-R.

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

The consolidation of theRigas Co-Borrowing Entities resulted in the following impact to the Company’sconsolidated financial statements for the indicated periods (amounts inthousands):

 
| ** **                                                                                 | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                 | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| Revenue                                                                                    |       | $                                | 203,551    |   | $ | 194,089 |   |
| Operating  income (loss)                                                                   |       | $                                | 19,870     |   | $ | (2,043 | ) |
| Other income,  net                                                                         |       | $                                | 434,144    |   | $ | 1,091 |   |
| Income  (loss) from continuing operations before cumulative effects of accounting  changes |       | $                                | 455,387    |   | $ | (1,037 | ) |
| Cumulative  effects of accounting changes                                                  |       | $                                | —     |   | $ | (588,782 | ) |
| Net income  (loss) applicable to common stockholders                                       |       | $                                | 455,387    |   | $ | (589,819 | ) |

 
| ** **              | ** ** | **December 31,** | ** ** |
|-------------------------|------------|-----------------------|------------|
| ** **              | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Current  assets         |       | $                     | 3,383      |   | $ | 4,266 |   |
| Noncurrent  assets      |       | $                     | 612,065    |   | $ | 642,110 |   |
| Current  liabilities    |       | $                     | 15,602     |   | $ | 477,070 |   |
| Noncurrent  liabilities |       | $                     | 5,660      |   | $ | 6,617 |   |

 

# **Note6:  Transactions with the Rigas Familyand Rigas Family Entities**

 

In addition to the RigasCo-Borrowing Entities discussed in Note 5, prior to May 2002, the Company hadsignificant involvement, directly or indirectly, with the Rigas Family andOther Rigas Entities. The following table shows the amounts duefrom the Rigas Family and Other Rigas Entities, net of the allowance foruncollectible amounts, at December 31, 2004 (amounts in thousands):

 
| Amounts due  from the Rigas Family and Other Rigas Entities before allowance for  uncollectible amounts |   | $          | 2,630,770 |   |
|---------------------------------------------------------------------------------------------------------|--------|------------|-----------|--------|
| Allowance  for uncollectible amounts                                                                    |   | (2,602,027 | )         |
| Amounts due  from the Rigas Family and Other Rigas Entities, net                                        |   | $          | 28,743    |   |

 

For purposes of assessingcollectibility, the Company considered the amounts due from the Rigas Familyand Other Rigas Entities to be collateral-backed loans and used the estimatedvalues of the underlying debt and equity securities of Adelphia, which wereforfeited to the United States on or about June 8, 2005, to determineexpected repayments. Amounts due from the Rigas Family and Other RigasEntities, net was presented as an addition to stockholders’ deficit in theaccompanying December 31, 2004 consolidated balance sheet because: (i) approximatelyhalf of the advances were used by those entities to acquire Adelphiasecurities; (ii) these advances occurred frequently; (iii) there wereno definitive debt instruments that specified repayment terms or interestrates; and (iv) there was no demonstrated repayment history.

 

In connection with theGovernment Settlement Agreements, all amounts owed between Adelphia (includingthe Rigas Co-Borrowing Entities) and the Rigas Family and Other Rigas Entitieswill not be collected or paid. As a result, in June 2005, the Companyderecognized a $460,256,000 payable by the Rigas Co-Borrowing Entities to theRigas Family and Other Rigas Entities. This liability, which was recorded bythe Company in connection with the January 1, 2004 consolidation of theRigas Co-Borrowing Entities, had no legal right of set-off against amounts dueto the Rigas Co-Borrowing Entities from the Rigas Family and Other RigasEntities.

 

Also, in connection withthe Government Settlement Agreements, equity ownership of the RigasCo-Borrowing Entities (other than Coudersport and Bucktail), debt and equitysecurities of the Company, and certain real estate were forfeited by the RigasFamily and the Rigas Family Entities and are expected to be conveyed to theCompany (subject to completion of forfeiture proceedings before a federal judgeto determine if there are any superior claims). In conjunction with theForfeiture Order, the Company recorded the debt and equity securities and realestate at their fair value of $34,629,000. Additional impairment of $24,600,000was recognized by the Company following the June 2005 forfeiture due tofurther decline in the fair value of the securities. Such impairment isincluded in other income (expense), net in the accompanying consolidatedstatement of operations for

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

the year ended December 31,2005. The adjusted fair value of the debt and equity securities and real estateof $10,029,000****has been reflected as a currentasset in the accompanying consolidated balance sheet as of December 31,2005. The Company has concluded that the equity interests it expects to receivein the Rigas Co-Borrowing Entities have nominal value as the liabilities ofthese entities significantly exceed the fair value of their assets. Asdiscussed in Note 5, the assets and liabilities of the Rigas Co-BorrowingEntities have been included in the Company’s consolidated financial statementssince January 1, 2004.

 

The Government SettlementAgreements also required the Company to pay the Rigas Family an additional$11,500,000 for legal defense costs, which was paid by the Company in June 2005.The Government Settlement Agreements release the Company from furtherobligation to provide funding for legal defense costs for the Rigas Family.

 

During 2004 and 2003,various stipulations and orders were approved by the Bankruptcy Court thatcaused the Managed Cable Entities to pay approximately $28,000,000 of legaldefense costs on behalf of certain members of the Rigas Family. During the yearended December 31, 2004 and 2003, $17,000,000 and $11,000,000,respectively, of such defense costs have been included in investigation,re-audit and sale transaction costs in the accompanying consolidated statementsof operations.

 

As of December 31,2004, the Company had accrued $2,717,000 of severance for John J. Rigaspursuant to the terms of a May 23, 2002 agreement with John J. Rigas,Timothy J. Rigas, James P. Rigas and Michael J. Rigas. The GovernmentSettlement Agreements release the Company from this severance obligation. Accordingly,the Company derecognized the severance accrual and recognized the benefit of$2,717,000 in June 2005.

 

The Company recognized anet benefit from the settlement with the Rigas Family in June 2005 and hasincluded such benefit in other income (expense), net in the consolidatedstatement of operations for the year ended December 31, 2005, as follows(amounts in thousands):

 
| Derecognition  of amounts due to the Rigas Family and Other Rigas Entities from the Rigas  Co-Borrowing Entities |   | $       | 460,256 |   |
|------------------------------------------------------------------------------------------------------------------|--------|---------|---------|--------|
| Derecognition  of amounts due from the Rigas Family and Other Rigas Entities, net*                               |   | (15,405 | )       |
| Estimated  fair value of debt and equity securities and real estate to be conveyed to  the Company               |   | 34,629  |    |
| Deconsolidation  of Coudersport and Bucktail, net (Note 5)                                                       |   | (12,964 | )       |
| Legal  defense costs for the Rigas Family                                                                        |   | (11,500 | )       |
| Derecognition  of severance accrual for John J. Rigas                                                            |   | 2,717   |    |
| Settlement with  the Rigas Family, net                                                                           |   | $       | 457,733 |   |

 

----

*                 Represents the December 31,2004 amounts due from the Rigas Family and Other Rigas Entities of $28,743,000,less a provision for uncollectible amounts of $13,338,000 recognized by theCompany for the period from January 1, 2005 through June 8, 2005(date of the Forfeiture Order) due to a decline in the fair value of theunderlying securities.

 

## *Impact of Transactionswith the Rigas Family and Rigas Family Entities on Consolidated Statements ofOperations*

 

Transactions occurring onor after January 1, 2004 between the Company and the Rigas Co-BorrowingEntities are eliminated in consolidation. The effects of various transactionsbetween the Company and the Rigas Family and Rigas Family Entities on certainline items included in the accompanying consolidated statement of operationsfor the year ended December 31, 2003 are summarized below (amounts inthousands):

 
| Selling,  general and administrative expenses:                                                            |   |   |    |
|-----------------------------------------------------------------------------------------------------------|--------|--------|---------|
| Management  fees and other costs charged by the Company to the Managed Cable Entities (a)                 |   | $      | (22,217 | ) |
| Management  fees and other costs charged by the Rigas Family and Other Rigas Entities to  the Company (b) |   | 975    |    |
| Total  included in selling, general and administrative expenses                                           |   | $      | (21,242 | ) |

 

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(a)          *Management Fees and Other Costs Charged by the Company to the ManagedCable Entities*. The Company provided management and administrativeservices, under written and unwritten enforceable agreements, to the ManagedCable Entities.

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

The management fees actually paid by the Managed CableEntities were generally limited by the terms of the applicable Co-BorrowingFacility. The amounts charged to the Managed Cable Entities pursuant to thesearrangements were included in management fees and other charges to the ManagedCable Entities in the foregoing table and have been reflected as a reduction ofselling, general and administrative expenses in the accompanying consolidatedstatement of operations for the year ended December 31, 2003. Effective January 1,2004, these fees and cost allocations have been eliminated upon consolidationof the Rigas Co-Borrowing Entities.

 

(b)         *Management Fees and Other Costs Charged by the Rigas Family and OtherRigas Entities to the Company.*Certain Other Rigas Entities providedmanagement services to the Company in exchange for consideration that may ormay not have been equal to the fair value of such services during the yearended December 31, 2003.

 

Charges for services arose from Adelphia’s 99.5%limited partnership interest in Praxis Capital Ventures, L.P. (“Praxis”), aconsolidated subsidiary of Adelphia. Praxis was primarily engaged in makingprivate equity investments in the telecommunications market. The Rigas Familyowns membership interests in both the Praxis general partner and the companythat manages Praxis. The Praxis management company charged a management fee toAdelphia at an annual rate equal to 2% of the capital committed by Adelphia. Adelphiarecorded an expense for management fees of $975,000 for the year ended December 31,2003. During 2004 and 2003, the Company recorded reserves of $800,000 and$300,000, respectively, against the remaining carrying value of the Praxisinvestments.

 

By order dated October 20, 2003, the Debtorsrejected the Praxis partnership agreement under applicable bankruptcy law. Rejectionmay give rise to pre-bankruptcy unsecured damage claims that are includedin liabilities subject to compromise at the amounts expected to be allowed. As of December 31, 2005 and 2004, theCompany had accrued $1,300,000 in management fees due under the Praxispartnership agreement as a liability subject to compromise for the periodsprior to rejection of the partnership agreement.

 

## *Other Transactions withthe Rigas Family and Rigas Family Entities*

 

*Rigas Co-Borrowing Entities.*TheCompany performs all of the cash management functions for the RigasCo-Borrowing Entities. As such, positive cash flows of the Rigas Co-BorrowingEntities are generally deposited into the Company’s cash accounts. Negativecash flows, which include the payment of interest on co-borrowing debt for theRigas Co-Borrowing Entities, are generally deducted from the Company’s cashaccounts. In addition, the personnel of the Rigas Co-Borrowing Entities areemployees of the Company, and all of the cash operating expenses and capitalexpenditures of the Rigas Co-Borrowing Entities are paid by the Company onbehalf of the Rigas Co-Borrowing Entities. Charges to the Rigas Co-BorrowingEntities for such expenditures are determined by reference to the terms of theapplicable third party invoices or vendor agreements. Although this activityaffects the amounts due from the Rigas Co-Borrowing Entities, prior to theconsolidation of the Rigas Co-Borrowing Entities, the Company did not includeany of these charges as related party transactions to be separately reported inits consolidated statements of operations. Effective January 1, 2004, suchamounts are included in the Company’s consolidated statements of operations. Themost significant of these expenditures incurred by the Company on behalf of theRigas Co-Borrowing Entities during 2003 include third party programmingcharges, employee related charges and third party billing service charges whichare shown in the following table (amounts in thousands):

 
| Programming  charges from third party vendors |   | $      | 48,228 |   |
|-----------------------------------------------|--------|--------|--------|--------|
| Employee related charges                      |   | 20,543 |   |
| Billing charges from third party vendors      |   | 3,009  |   |
|                                          |   | $      | 71,780 |   |

 

*Century/ML Cable.*Inconnection with the December 13, 2001 settlement of a dispute, Adelphia,Century, Century/ML Cable, ML Media and Highland, entered into a LeveragedRecapitalization Agreement (the “Recap Agreement”) pursuant to which Century/MLCable agreed to redeem ML Media’s 50% interest in Century/ML Cable (the “Redemption”)on or before September 30, 2002 for a purchase price between $275,000,000and $279,800,000, depending on the timing of the Redemption, plus interest. Amongother things, the Recap Agreement provided that: (i) Highland wouldarrange debt financing for the Redemption; (ii) Highland, Adelphia andCentury would jointly and severally guarantee debt service on debt financingfor the Redemption on and after the closing of the Redemption; and (iii) Highlandand Century would own 60% and 40% interests, respectively, in the recapitalizedCentury/ML Cable. Under the terms of the Recap Agreement, Century’s 50% interestin Century/ML Cable was pledged to ML Media as collateral for Adelphia’sobligations. On or about December 18, 2001, Adelphia placed $10,000,000 ondeposit on behalf of Highland as earnest funds for the transaction. During June of2002, ML Media withdrew the $10,000,000 from

 

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

escrow following theBankruptcy Court’s approval of the release of these funds to ML Media. Simultaneouslywith the execution of the Recap Agreement, ML Media, Adelphia and certain ofits subsidiaries entered into a stipulation of settlement, pursuant to whichcertain litigation between them was stayed pending the Redemption. By orderdated September 17, 2003, Adelphia and Century rejected the RecapAgreement under applicable bankruptcy law. Adelphia has not accrued anyliability for damage claims related to the rejection of the Recap Agreement. Adelphiaand Century/ML Cable have challenged the Recap Agreement and the Redemption asunenforceable on fraudulent transfer and other grounds, and Adelphia, Century,Highland, Century/ML and ML Media are engaged in litigation regarding theenforceability of the Recap Agreement. In this regard, ML Media filed anamended complaint against Adelphia on July 3, 2002 in the Bankruptcy Court.On April 15, 2004, the Bankruptcy Court dismissed all counts of Adelphia’schallenge of the Recap Agreement except for its allegation that ML Media aidedand abetted a breach of fiduciary duties in connection with its execution. Thecourt also allowed Century/ML Cable’s action to avoid the Recap Agreement as afraudulent conveyance to proceed.

 

On June 3, 2005,Century entered into an interest acquisition agreement with ML Media,Century/ML Cable, Century-ML Cable Corporation (a subsidiary of Century/MLCable) and San Juan Cable (the “IAA”) pursuant to which Century and ML Mediaagreed to sell their interests in Century/ML Cable for $520,000,000 (subject topotential purchase price adjustments as defined in the IAA) to San Juan Cable. OnAugust 9, 2005, Century/ML Cable filed its plan of reorganization (the “Century/MLPlan”) and its related disclosure statement (the “Century/ML DisclosureStatement”) with the Bankruptcy Court. On August 18, 2005, the BankruptcyCourt approved the Century/ML Disclosure Statement. On September 7, 2005,the Bankruptcy Court confirmed the Century/ML Plan, which is designed tosatisfy the conditions of the IAA with San Juan Cable and provides that allthird party claims will either be paid in full or assumed by San Juan Cableunder the terms set forth in the IAA. On October 31, 2005, the sale ofCentury/ML Cable to San Juan Cable was consummated (the “Century/ML Sale”) andthe Century/ML Plan became effective. Neither the Century/ML Cable Sale nor theeffectiveness of the Century/ML Plan resolves the pending litigation amongAdelphia, Century, Highland, Century/ML Cable and ML Media. For additionalinformation concerning this litigation, see Note 16. For additional informationconcerning the Century/ML Sale, see Note 8.

 

# **Note7:  TelCove**

 

## *Global SettlementAgreement*

 

Telcove, Inc. (“Telcove”)owned, operated and managed entities that provided competitive local exchangecarrier (“CLEC”) telecommunications services. On January 11, 2002, theCompany completed a transaction whereby all of the shares of common stock ofTelcove owned by Adelphia were distributed in the form of a dividend toholders of Class A Common Stock and Class B Common Stock. On February 21,2004, the Debtors and TelCove executed a global settlement agreement (the “GlobalSettlement”) that resolved, among other things, certain claims put forth byboth TelCove and Adelphia. The Global Settlement provided that, on the closingdate, the Company would transfer to TelCove certain settlement consideration,including approximately $60,000,000 in cash plus an additional payment of up to$2,500,000 related to certain outstanding payables, as well as certainvehicles, real property and intellectual property licenses used in theoperation of TelCove’s businesses. Additionally, the parties executed variousannexes to the Global Settlement (collectively, the “Annex Agreements”) thatprovided, among other things, for: (i) a five-year business commitment toTelCove for telecommunication services by the Company; (ii) future use byTelCove of certain fiber capacity in assets owned by the Company; and (iii) themutual release by the parties from any and all liabilities, claims and causesof action that either party had or may have had against the other party. Finally,the Global Settlement provided for the transfer by the Company to TelCove ofcertain CLEC systems (“CLEC Market Assets”) together with the various licenses,franchises and permits related to the operation and ownership of such assets. OnMarch 23, 2004, the Bankruptcy Court approved the Global Settlement. TheCompany recorded a $97,902,000 liability during the fourth quarter of 2003 toprovide for the Global Settlement. The Annex Agreements became effective inaccordance with their terms on April 7, 2004.

 

On April 7, 2004,the Company paid $57,941,000 to TelCove, transferred the economic risks andbenefits of the CLEC Market Assets to TelCove pursuant to the terms of theGlobal Settlement and entered into a management agreement which provided forthe management of the CLEC Market Assets from April 7, 2004 through thedate of transfer to TelCove.

 

On August 20, 2004,the Company paid TelCove an additional $2,464,000 pursuant to the GlobalSettlement in connection with the resolution and release of certain claims. On August 21,2004, the CLEC Market Assets were transferred to TelCove.

 

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**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

## *Discontinued CLECOperations*

 

As a result of the GlobalSettlement discussed above, the Company transferred the CLEC Market Assetstogether with the various licenses, franchises and permits related to theoperation and ownership of such assets to TelCove. The Company has presentedthe CLEC Market Assets, including the cost of the Global Settlement, asdiscontinued operations in the accompanying consolidated financial statements. Thefollowing table presents the summarized results of operations of the CLECMarket Assets included in discontinued operations for the indicated periods(amounts in thousands):

 
| ** **                               | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|
| ** **                               | ** ** | **2004**                         | ** ** | **2003** | ** ** |
| Revenue                                  |       | $                                | 9,057      |   | $ | 37,026 |   |
| Costs and  expenses:                     |       |                             |       |   |   |
| Direct  operating and programming        |       | 7,074                            |       | 33,431 |   |
| Selling,  general and administrative     |       | 828                              |       | 2,354 |   |
| Depreciation  and amortization           |       | 1,271                            |       | 10,465 |   |
| Other                                    |       | 455                              |       | 826 |   |
| Total costs  and expenses                |       | 9,628                            |       | 47,076 |   |
| Provision  for cost of Global Settlement |       | —                           |       | 97,902 |   |
| Loss from  discontinued operations       |       | $                                | (571       | ) | $ | (107,952 | ) |

 

# **Note8:  Investments in Equity Affiliates andRelated Receivables**

 

The Company has variousinvestments accounted for under the equity method. The following table includesthe Company’s percentage ownership interest and the carrying value of itsinvestments and related receivables as of the indicated dates (dollars inthousands):

 
| ** **                                                | ** ** | **Percentage ownership as of** | ** ** | ** **            | ** ** | ** ** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------|------------|-----------------------|------------|------------|------------|
| ** **                                                | ** ** | **December 31,**          | ** ** | **December 31,** | ** ** |
| ** **                                                | ** ** | **2005**                       | ** ** | **2004**              | ** ** | **2005**   | ** ** | **2004** | ** ** |
|                                                      |       |                           |       |                  |       |       |       |   |   |
| Century/ML  Cable                                         |       | 0                              | %          | 50                    | %          | $          | —     |   | $ | 243,896 |   |
| Other                                                     |       | various                        |       | various               |       | 6,937      |       | 8,341 |   |
| Investments  in equity affiliates and related receivables |       |                           |       |                  |       | $          | 6,937      |   | $ | 252,237 |   |

 

The Company’s share oflosses of its equity affiliates, including excess basis amortization andwrite-downs to reflect other-than-temporary declines in value, was $588,000,$7,926,000 and $2,826,000 for the years ended December 31, 2005, 2004 and2003, respectively.

 

## *Century/ML Cable*

 

Century/ML Cable ownedand operated cable systems located in Puerto Rico. Century/ML Cable was a jointventure between ML Media and Century. As both Century and ML Media hadsubstantial participatory rights in the management of Century/ML Cable, theCompany used the equity method to account for its investment in Century/MLCable until September 30, 2002, when Century/ML Cable filed a voluntarypetition to reorganize under Chapter 11 of the Bankruptcy Code. This bankruptcyproceeding is administered separately from that of the Debtors. Following theChapter 11 filing, the Company suspended the use of the equity method and beganto carry its investment in Century/ML Cable at cost. The Company evaluated itsinvestment in Century/ML Cable for an other-than-temporary decline in fairvalue below the cost basis in accordance with its policy and concluded that theestimated fair value exceeded its cost basis.

 

On June 3, 2005,Century entered into the IAA, pursuant to which Century and ML Media agreed tosell their interests in Century/ML Cable for $520,000,000 (subject to potentialpurchase price adjustments as defined in the IAA) to San Juan Cable. On August 9,2005, Century/ML Cable filed the Century/ML Plan and the related Century/MLDisclosure Statement with the Bankruptcy Court. On August 18, 2005, theBankruptcy Court approved the Century/ML Disclosure Statement. On September 7,2005, the Bankruptcy Court confirmed the Century/ML Plan, which is designed tosatisfy the conditions of the IAA with San Juan

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

Cable and provides thatall third party claims will either be paid in full or assumed by San Juan Cableunder the terms set forth in the IAA. On October 31, 2005, the Century/MLSale was consummated and the Century/ML Plan became effective.

 

The preliminary purchaseprice paid by San Juan Cable in connection with the Century/ML Sale wasapproximately $519,000,000 plus a working capital adjustment of $82,735,000. Thepurchase price is subject to certain adjustments, including a review of theworking capital adjustment, the Operating Cash Flow (as defined in the IAA) forthe twelve months prior to the Century/ML Sale and the number of basicsubscribers. In connection with the Century/ML Sale, $25,000,000 of thepurchase price was deposited into an indemnity escrow account to indemnify SanJuan Cable against any misrepresentation or breach of warranty, covenant oragreement by Century/ML Cable and $13,500,000 of the purchase price wasdeferred and is subject to offset to the extent of any additional taxliabilities owed by Century/ML Cable for periods prior to the Century/ML Sale. Inaddition, $35,626,000 of the purchase price was deposited into an accountjointly held in the name of Century and ML Media to fund the obligations ofCentury/ML Cable that were not assumed by San Juan Cable (the “Century/ML CableAccount”). Century and ML Media have each received proceeds of $263,770,000from the Century/ML Sale that were placed in escrow for the benefit of eachparty pending the resolution of the litigation among Adelphia, Century,Highland, Century/ML Cable and ML Media. Subsequent to the closing of theCentury/ML Sale, Century and ML Media each received $5,000,000 of proceeds fromthe Century/ML Cable Account which were placed in their respective escrowaccounts. ML Media may elect to receive a distribution of up to $70,000,000from the proceeds of the Century/ML Sale. In the event that ML Media elects toreceive a distribution, Century is entitled to receive a distribution of thesame amount from its escrow. As of December 31, 2005, ML Media and Centuryhad each received a distribution of $10,000,000 from their respective escrowaccounts. The Company recognized a gain of $47,234,000 on the Century/ML Sale. Suchgain is included in other income (expense), net in the accompanyingconsolidated statement of operations for the year ended December 31, 2005.

 

On January 14, 2006,Century and ML Media submitted an adjustment certificate to San Juan Cableseeking additional proceeds of $4,321,000. On February 13, 2006, Centuryand ML Media received a notice from San Juan Cable rejecting the adjustmentcertificate and requesting additional proceeds of $50,000,000 from Century andML Media. The parties are in discussions regarding the various proposedadjustments. The Company does not believe that the resolution of this matterwill have a material impact to the Company’s financial condition or results ofoperations.

 

The Company providedmanagement, programming and record keeping services to Century/ML Cable throughOctober 31, 2005. In connection with the December 2001 execution ofthe Recap Agreement among Century/ML Cable, ML Media and one of the RigasFamily Entities, the parties agreed to increase the management fees from 5% to10% of Century/ML Cable’s revenue plus reimbursable expenses. In June 2003,the management fees charged to Century/ML Cable were reduced to 5% ofCentury/ML Cable’s revenue plus reimbursable expenses in connection with theDebtors’ rejection of the Recap Agreement. The Company has provided reservesagainst any management fees charged in excess of 5%. After deducting reserves,the net Century/ML Cable management fees included as a reduction of selling,general and administrative expenses in the Company’s accompanying statements ofoperations were $3,687,000, $4,200,000 and $4,053,000 during 2005, 2004 and2003, respectively. At December 31, 2004, the Company had a $23,442,000receivable from Century/ML Cable for management fees, programming costs andother amounts paid on behalf of Century/ML Cable which was included with theCompany’s investment in Century/ML Cable in the foregoing table.

 

As further described inNote 16, ML Media and Adelphia are engaged in litigation regarding the RecapAgreement and other matters. Neither the Century/ML Sale nor the effectivenessof the Century/ML Plan resolves the pending litigation among Adelphia, Century,Highland, Century/ML Cable and ML Media.

 

# **Note9:  Impairment of Long-Lived Assets**

 

A summary of impairmentcharges for long-lived assets is set forth below (amounts in thousands):

 
| ** **                                | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|
| ** **                                | ** ** | **2005**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Property and  equipment (a)               |       | $                                | —     |   | $ | — |   | $ | 17,000 |   |
| Intangible  assets - Franchise rights (b) |       | 23,063                           |       | 83,349 |   | 641 |   |
| Impairment  of long-lived assets          |       | $                                | 23,063     |   | $ | 83,349 |   | $ | 17,641 |   |

 

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**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

----

## *(a)*       Property and Equipment

 

In light of the decliningvalues associated with cable systems in Brazil, as evidenced by the sale ofother Brazilian cable entities during 2003, the Company performed an evaluationof its Brazilian cable operations during 2003. As a result of this evaluation,the Company recorded an impairment charge to write-down the assets of thisoperation to their estimated fair market value.

 

## *(b)*       Intangible Assets –Franchise Rights

 

Pursuant to SFAS No. 142,the Company, as a result of its annual impairment test, recorded additionalimpairments of $23,063,000, $83,349,000 and $641,000 in 2005, 2004 and 2003, respectively,related to franchise rights. These impairments were primarily driven bysubscriber losses. No events occurred during 2005, 2004 or 2003 that wouldrequire additional impairment tests to be performed.

 

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**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

# **Note10:  Debt**

 

The carrying value of theCompany’s debt is summarized below for the indicated periods (amounts inthousands):

 
| ** **                                                          | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                          | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Parent and  subsidiary debt:                                        |       |                  |       |   |   |
| Secured:                                                            |       |                  |       |   |   |
| Second  Extended DIP Facility (a)                                   |       | $                     | 851,352    |   | $ | 627,176 |   |
| Capital  lease obligations                                          |       | 17,546                |       | 39,657 |   |
| Unsecured  other subsidiary debt                                    |       | 286                   |       | 912 |   |
| Parent and  subsidiary debt                                         |       | $                     | 869,184    |   | $ | 667,745 |   |
|                                                                |       |                  |       |   |   |
| Liabilities  subject to compromise:                                 |       |                  |       |   |   |
| Parent debt  — unsecured: (b)                                  |       |                  |       |   |   |
| Senior notes                                                        |       | $                     | 4,767,565  |   | $ | 4,767,565 |   |
| Convertible  subordinated notes (c)                                 |       | 1,992,022             |       | 1,992,022 |   |
| Senior  debentures                                                  |       | 129,247               |       | 129,247 |   |
| Pay-in-kind  notes                                                  |       | 31,847                |       | 31,847 |   |
| Total parent  debt                                                  |       | 6,920,681             |       | 6,920,681 |   |
|                                                                |       |                  |       |   |   |
| Subsidiary  debt:                                                   |       |                  |       |   |   |
| Secured:                                                            |       |                  |       |   |   |
| Notes  payable to banks                                             |       | 2,240,313             |       | 2,240,313 |   |
| Unsecured:                                                          |       |                  |       |   |   |
| Senior notes                                                        |       | 1,105,538             |       | 1,105,538 |   |
| Senior  discount notes                                              |       | 342,830               |       | 342,830 |   |
| Zero coupon  senior discount notes                                  |       | 755,031               |       | 755,031 |   |
| Senior  subordinated notes                                          |       | 208,976               |       | 208,976 |   |
| Other  subsidiary debt                                              |       | 121,424               |       | 121,523 |   |
| Total  subsidiary debt                                              |       | 4,774,112             |       | 4,774,211 |   |
|                                                                |       |                  |       |   |   |
| Deferred  financing fees (d)                                        |       | (134,208              | )          | (134,208 | ) |
|                                                                |       |                  |       |   |   |
| Parent and  subsidiary debt before Co-Borrowing Facilities (Note 2) |       | $                     | 11,560,585 |   | $ | 11,560,684 |   |
|                                                                |       |                  |       |   |   |
| Co-Borrowing  Facilities (e) (Note 2)                          |       | $                     | 4,576,375  |   | $ | 4,576,375 |   |

 

## *Due to the commencement of theChapter 11 proceedings and the Company’s failure to comply with certainfinancial covenants, the Company is in default on substantially all of itspre-petition debt obligations. Except as otherwise may be determined bythe Bankruptcy Court, the automatic stay protection afforded by the Chapter 11proceedings prevents any action from being taken against any of the Debtorswith regard to any of the defaults under the pre-petition debt obligations. Withthe exception of the Company’s capital lease obligations and a portion of othersubsidiary debt, all of the pre-petition obligations are classified asliabilities subject to compromise in the accompanying consolidated balancesheets. For additional information, see Note 2.*

 

## *(a) Second ExtendedDIP Facility*

 

In connection with theChapter 11 filings, Adelphia and certain of its subsidiaries (the “Loan Parties”)entered into the $1,500,000,000 DIP Facility. On May 10, 2004, the LoanParties entered into the $1,000,000,000 First Extended DIP Facility, whichsuperseded and replaced, in its entirety, the DIP Facility. On February 25,2005, the Loan Parties entered into the $1,300,000,000 Second Extended DIPFacility, which superseded and replaced in its entirety the First Extended DIPFacility. The Second Extended DIP Facility was approved by the Bankruptcy Courton February 22, 2005 and closed on February 25, 2005.

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

The Second Extended DIPFacility was to mature upon the earlier of March 31, 2006 or theoccurrence of certain other events, as described in the Second Extended DIPFacility. The Second Extended DIP Facility consisted of an $800,000,000Tranche A Loan (including a $500,000,000 letter of credit subfacility) anda $500,000,000 Tranche B Loan. The proceeds from the borrowings under theSecond Extended DIP Facility were permitted to be used for general corporate purposesand investments, as defined in the Second Extended DIP Facility. The SecondExtended DIP Facility was secured with a first priority lien on all of the LoanParties’ unencumbered assets, a priming first priority lien on all assets ofthe Loan Parties securing their pre-petition bank debt and a junior lien on allother assets of the Loan Parties. The applicable margin on loans extended underthe Second Extended DIP Facility was 1.25% per annum (1.50% under the FirstExtended DIP Facility) in the case of Alternate Base Rate loans and 2.25% perannum (2.50% under the First Extended DIP Facility) in the case of AdjustedLondon interbank offered rate (“LIBOR”) loans. In addition, under the SecondExtended DIP Facility, the commitment fee with respect to the unused portion ofthe Tranche A Loan was 0.50% per annum (a range of 0.50% to 0.75%,depending upon the unused balance of the Tranche A Loan under the FirstExtended DIP Facility).

 

In connection with theclosing of the Second Extended DIP Facility, on February 25, 2005, theLoan Parties borrowed an aggregate of $578,000,000 thereunder, and used allsuch proceeds and a portion of available cash and cash equivalents to repay allof the indebtedness outstanding under the First Extended DIP Facility, includingaccrued and unpaid interest and certain fees and expenses. In addition, all ofthe participations in the letters of credit outstanding under the FirstExtended DIP Facility were transferred to certain lenders under the SecondExtended DIP Facility.

 

The terms of the SecondExtended DIP Facility contained certain restrictive covenants, which includedlimitations on the ability of the Loan Parties to: (i) incur additionalguarantees, liens and indebtedness; (ii) sell or otherwise dispose ofcertain assets; and (iii) pay dividends or make other distributions orpayments with respect to any shares of capital stock, subject to certainexceptions set forth in the Second Extended DIP Facility. The Second ExtendedDIP Facility also required compliance with certain financial covenants withrespect to operating results and capital expenditures.

 

From time to time, theLoan Parties and the DIP lenders entered into certain amendments to the termsof the Second Extended DIP Facility. In addition, from time to time, the Companyreceived waivers to prevent or cure certain defaults under the Second ExtendedDIP Facility. These waivers and amendments were effective through the maturitydate of the Second Extended DIP Facility.

 

On March 9, 2005 andDecember 30, 2005, certain Loan Parties cash collateralized certainletters of credit outstanding under the Second Extended DIP Facility inconnection with the consummation of certain asset sales. On May 27, 2005 and July 6, 2005, certain Loan Partiesmade mandatory prepayments of principal on the Second Extended DIP Facility inconnection with the consummation of certain asset sales. As a result, the totalcommitment of the entire Second Extended DIP Facility was reduced to$1,271,220,000, with the total commitment of the Tranche A Loan being reducedto $771,888,000. As of December 31, 2005, $352,020,000 under the Tranche ALoan has been drawn and letters of credit totaling $81,605,000 have been issuedunder the Tranche A Loan, leaving availability of $338,263,000 under theTranche A Loan. Furthermore, as of December 31, 2005, the entire$499,332,000 under the Tranche B Loan has been drawn.

 

*Third Extended DIP Facility*

 

OnMarch 17, 2006, the Loan Parties entered into the $1,300,000,000 ThirdExtended DIP Facility, which supersedes and replaces in its entirety the SecondExtended DIP Facility. The Third Extended DIP Facility was approved by theBankruptcy Court on March 16, 2006, and closed on March 17, 2006. Exceptas set forth below, the material terms and conditions of the Third Extended DIPFacility are substantially identical to the material terms and conditions ofthe Second Extended DIP Facility, including the covenants and collateralsecuring the Third Extended DIP Facility.

 

TheThird Extended DIP Facility generally matures upon the earlier of August 7,2006 or the occurrence of certain other events, as described in the ThirdExtended DIP Facility. The Third Extended DIP Facility is comprised of an$800,000,000 Tranche A Loan (including a $500,000,000 letter of creditsubfacility) and a $500,000,000 Tranche B Loan. The proceeds from borrowingsunder the Third Extended DIP Facility are permitted to be used for generalcorporate purposes and investments, as defined in the Third Extended DIPFacility. The Third Extended DIP Facility is secured with a first priority lienon all of the Loan Parties’ unencumbered assets, a priming first priority lienon all assets of the Loan Parties securing their pre-petition bank debt and ajunior lien on all other assets of the Loan Parties. The applicable margin onloans extended under the Third Extended DIP Facility was reduced (when comparedto the Second Extended DIP Facility) to 1.00% per annum in the case ofAlternate Base Rate loans and 2.00% per annum in the case of Adjusted LIBORrate loans, and the commitment fee with respect to the unused portion of theTranche A Loan is 0.50% per annum (which is the same fee that was charged underthe Second Extended DIP Facility).

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

In connection with theclosing of the Third Extended DIP Facility, on March 17, 2006, the LoanParties borrowed an aggregate of $916,000,000 thereunder, and used all suchproceeds and a portion of available cash and cash equivalents to repay all ofthe indebtedness, including accrued and unpaid interest and certain fees andexpenses, outstanding under the Second Extended DIP Facility. In addition, allof the participations in the letters of credit outstanding under the SecondExtended DIP Facility were transferred to certain lenders under the ThirdExtended DIP Facility.

 

## * (b) Parent Debt*

 

All debt of Adelphia isstructurally subordinated to the debt of its subsidiaries such that the assetsof an indebted subsidiary are used to satisfy the applicable subsidiary debtbefore being applied to the payment of parent debt.

 

## *(c) ConvertibleSubordinated Notes*

 

The convertiblesubordinated notes include: (i) $1,029,876,000 aggregate principal amountof 6% convertible subordinated notes; (ii) $975,000,000 aggregateprincipal amount of 3.25% convertible subordinated notes; and (iii) unamortizeddiscounts aggregating $12,854,000. Prior to the Forfeiture Order, the OtherRigas Entities held $167,376,000 aggregate principal amount of the 6% notes and$400,000,000 aggregate principal amount of the 3.25% notes. The terms of the 6%notes and 3.25% notes provide for the conversion of such notes into Class ACommon Stock (Class B Common Stock in the case of notes held by the OtherRigas Entities) at the option of the holder any time prior to maturity at aninitial conversion price of $55.49 per share and $43.76 per share,respectively.

 

Pursuant to theForfeiture Order, all right, title and interest of the Rigas Family and RigasFamily Entities in any securities of the Company were forfeited to the UnitedStates on or about June 8, 2005, and such securities are expected to beconveyed to the Company (subject to completion of forfeiture proceedings beforea federal judge to determine if there are any superior claims) in furtheranceof the Non-Prosecution Agreement. The Company will recognize the benefits ofsuch conveyance when it occurs. For additional information, see Note 16.

 

## * (d)  Deferred Financing Fees*

 

Pursuant to therequirements of SOP 90-7, deferred financing fees related to pre-petition debthave been included in liabilities subject to compromise as an adjustment of thenet carrying value of the related pre-petition debt and are no longer beingamortized. Amortization of deferred financing fees related to pre-petition debtobligations was terminated effective on the Petition Date.

 

## *(e) Co-BorrowingFacilities*

 

The Co-BorrowingFacilities represent the aggregate amount outstanding pursuant to threeseparate Co-Borrowing Facilities dated May 6, 1999, April 14, 2000and September 28, 2001. Each co-borrower is jointly and severally liablefor the entire amount of the indebtedness under the applicable Co-Borrowing Facilityregardless of whether that co-borrower actually borrowed that amount under suchCo-Borrowing Facility. All amounts outstanding under Co-Borrowing Facilities atDecember 31, 2005 and December 31, 2004 represent pre-petitionliabilities that have been classified as liabilities subject to compromise inthe accompanying consolidated balance sheets. Collection of amounts outstandingunder the Co-Borrowing Facilities from the Rigas Co-Borrowing Entities has notbeen stayed and actions may be taken to collect such borrowings from theRigas Co-Borrowing Entities.

 

The table below setsforth amounts outstanding for the Co-Borrowing Facilities at December 31,2005 and December 31, 2004 (amounts in thousands):

 
| ** **                                       | ** ** | **Co-Borrowing** | ** ** |
|--------------------------------------------------|------------|------------------|------------|
| ** **                                       | ** ** | **Facilities**   | ** ** |
| Attributable to Rigas Co-Borrowing Entities      |       | $                | 2,846,156  |   |
| Attributable to non-Rigas Co-Borrowing  Entities |       | 1,730,219        |       |
| Total included as debt of the Company            |       | $                | 4,576,375  |   |

 

129

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

## *Other Debt Matters*

 

The fair value, asdetermined using third party quoted market prices or rates available for debtwith similar terms and maturities, and weighted average interest rate of theCompany’s debt, including the Company’s pre-petition debt, is summarized belowas of the indicated periods (dollars in thousands):

 
| ** **                     | ** ** | **2005** | ** ** | **2004** | ** ** | **2003**   | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|------------|------------|
|                           |       |     |       |     |       |       |       |
| Fair value                     |       | $        | 12,965,446 |     | $          | 15,585,467 |       | $ | 14,611,503 |   |
|                           |       |     |       |     |       |       |       |
| Weighted average interest rate |       | 8.33     | %          | 7.49     | %          | 7.02       | %          |
|                                |            |          |            |          |            |            |            |  |  |  |

 

The table below setsforth the contractual principal maturities, without consideration for defaultprovisions, of the Company’s debt. Such maturities exclude net discounts of$311,326,000 and deferred financing fees of $134,208,000 (amounts inthousands):

 

| 2006 and  prior years |   | $ | 7,714,191 |   |
|-----------------------|--------|---|-----------|--------|
| 2007                  |   | $ | 2,131,712 |   |
| 2008                  |   | $ | 1,617,550 |   |
| 2009                  |   | $ | 2,598,925 |   |
| 2010                  |   | $ | 2,314,300 |   |
| 2011 and thereafter   |   | $ | 1,075,000 |   |

 

The foregoing maturitiesand interest rates include significant pre-petition obligations, which asdiscussed below, are stayed and any action taken with regard to defaults underthe pre-petition debt obligations is prevented. Therefore, these commitments donot reflect actual cash outlays in future periods.

 

## *Interest Rate DerivativeAgreements*

 

At the Petition Date, allof the Company’s derivative financial instruments had been settled or havesince been settled except for one fixed rate swap, one variable rate swap andone interest rate collar. As the settlement of the remaining derivativefinancial instruments will be determined by the Bankruptcy Court, the$3,486,000 fair value of the liability associated with the derivative financialinstruments at the Petition Date has been classified as a liability subject tocompromise in the accompanying consolidated balance sheets.

 

# **Note 11:  Redeemable PreferredStock**

 

## *13% CumulativeExchangeable Preferred Stock*

 

On July 7, 1997,Adelphia issued 1,500,000 shares of Series A 13% Cumulative Exchangeable PreferredStock due July 15, 2009 (“Series A Preferred Stock”). The Series APreferred Stock, which was exchanged in November 1997for Series B 13% Cumulative Exchangeable Preferred Stock due July 15,2009 (“Series B Preferred Stock”), had an aggregate liquidation preferenceof $150,000,000 on the date of issuance and was recorded net of issuance costsof $2,025,000. Upon exchange, the shares of Series A Preferred Stock werereturned to their original status of authorized but unissued preferred stock. Dividendsare payable semi-annually at 13% of the liquidation preference of theoutstanding Series B Preferred Stock. Dividends are payable in cash withany accumulated unpaid dividends bearing interest at 13% per annum. The Series BPreferred Stock ranks junior in right of payment to all indebtedness ofAdelphia. Adelphia has the right to redeem, at its option, all or a portion ofthe Series B Preferred Stock at redemption prices that begin at 106.5% ofthe liquidation preference thereof on July 15, 2002 and decline to 100% ofthe liquidation preference thereof on July 15, 2008. Adelphia is requiredto redeem all of the shares of the Series B Preferred Stock outstanding onJuly 15, 2009 at a redemption price equal to 100% of the liquidationpreference thereof. Any redemption of the Series B Preferred Stock wouldrequire the payment, without duplication, of all accumulated and unpaiddividends and interest to the date of redemption. The Series B PreferredStock provides for voting rights in certain circumstances and containsrestrictions and limitations

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

on: (i) dividendsand certain other payments and investments; (ii) indebtedness; (iii) mergersand consolidations; and (iv) transactions with affiliates.

 

Adelphia may, at itsoption, on any dividend payment date, exchange in whole or in part (subjectto certain restrictions), the then outstanding shares of Series BPreferred Stock for 13% Senior Subordinated Exchange Debentures due July 15,2009 which have provisions consistent with the provisions of the preferredstock. As a result of the filing of the Debtor’s Chapter 11 Cases, the Company,as of the Petition Date, discontinued accruing dividends on all of itspreferred stock issuances**.**For additional information, see Note 2.The Series B Preferred Stock and the related accrued dividends areclassified as a liability subject to compromise in the accompanyingconsolidated balance sheets.

 

# **Note12:  Stockholders’ Deficit**

 

## *Common Stock*

 

The Certificate ofIncorporation of Adelphia authorizes two classes of $0.01 par value commonstock, Class A Common Stock and Class B Common Stock. Holders of Class ACommon Stock and Class B Common Stock vote as a single class on allmatters submitted to a vote of the stockholders, with each share of Class ACommon Stock entitled to one vote and each share of Class B Common Stockentitled to ten votes, except as described below with respect to the electionof one director by the holders of Class A Common Stock, and as otherwiseprovided by law. In the annual election of directors, the holders of Class ACommon Stock voting as a separate class are entitled to elect one ofAdelphia’s directors. In addition, each share of Class B Common Stock isconvertible into a share of Class A Common Stock at the option of theholder. In the event a cash dividend is paid, the holders of Class ACommon Stock will be paid 105% of the amount payable per share for each shareof Class B Common Stock. Upon liquidation, dissolution or winding up ofAdelphia, the holders of Class A Common Stock are entitled to a preferenceof $1.00 per share and the amount of all unpaid declared dividends thereon fromany funds available after satisfying the liquidation preferences of preferredsecurities, debt instruments and other senior claims on Adelphia’s assets. Aftersuch amount is paid, holders of Class B Common Stock are entitled toreceive $1.00 per share and the amount of all unpaid declared dividends thereon.Any remaining amount would then be shared ratably by both classes. As of December 31,2005, there were 74,635,728 shares of Class A Common Stock and 12,159,768shares of Class B Common Stock reserved for issuance pursuant toconversion rights of certain of the Company’s debt and preferred stockinstruments and exercise privileges under outstanding stock options. Inaddition, one share of Class A Common Stock is reserved for each share of Class BCommon Stock.

 

Outstanding shares ofcommon stock are as follows for the indicated periods:

 
| ** **                                  | ** ** | **Class A  Common Stock** | ** ** | **Class B  Common Stock** | ** ** |
|---------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
|                                        |       |                           |       |                           |       |
| Outstanding  shares, January 1, 2003   |       | 228,692,239                    |       | 25,055,365                     |       |
| Issuances                                   |       | 175                            |       | —                         |       |
| Outstanding  shares, December 31, 2003 |       | 228,692,414                    |       | 25,055,365                     |       |
| Outstanding  shares, December 31, 2004 |       | 228,692,414                    |       | 25,055,365                     |       |
| Outstanding  shares, December 31, 2005 |       | 228,692,414                    |       | 25,055,365                     |       |

 

## *Preferred Stock*

 

*General.*Adelphia was authorized to issue 50,000,000 shares of $0.01par value preferred stock at December 31, 2005, including: (i) 1,500,000shares of Series A Preferred Stock, all of which were exchanged for Series BPreferred Stock in 1997; (ii) 1,500,000 shares of Series B PreferredStock, all of which were issued and outstanding at December 31, 2005; (iii) 20,000shares of 8 1/8% Series C Cumulative Convertible Preferred Stock (“Series CPreferred Stock”), none of which were outstanding at December 31, 2005; (iv) 2,875,000shares of Series D Preferred Stock, all of which were issued andoutstanding at December 31, 2005; (v) 15,800,000 shares of Series EPreferred Stock, 13,800,000 of which were issued and outstanding at December 31,2005; and (vi) 23,000,000 shares of Series F Preferred Stock, all ofwhich were issued and outstanding at December 31, 2005.

 

With respect to dividenddistributions and distributions upon liquidation: (i) all series ofAdelphia’s preferred stock rank junior to debt instruments and other claims onAdelphia’s assets; (ii) the Series B Preferred Stock ranks senior tothe Series D Preferred Stock; (iii) the Series D Preferred Stockranks senior to the Series E Preferred Stock and Series F PreferredStock; (iv) the Series E Preferred Stock ranks equally with the Series FPreferred Stock; and (v) all series of preferred stock rank senior tothe Class A Common Stock and Class B Common Stock. Although thecertificate of designation relating to the Series D Preferred Stock

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

indicates that the Series DPreferred Stock ranks equally with the Series B Preferred Stock, theCompany has not been able to locate the consent that would have been requiredto have been obtained from the holders of the Series B Preferred Stock forthis to be the case.

 

As a result of the filingof the Debtors’ Chapter 11 Cases, Adelphia, as of the Petition Date,discontinued accruing dividends on all of its outstanding preferred stock. Hadthe Debtors not filed voluntary petitions under Chapter 11, the total annualdividends that Adelphia would have accrued on all series of its preferredstock during each of 2005, 2004 and 2003 would have been $120,125,000.

 

The certificates ofdesignation relating to the Series B Preferred Stock, Series DPreferred Stock, Series E Preferred Stock and Series F PreferredStock provide for voting rights in certain limited circumstances.

 

The terms of the Series BPreferred Stock are discussed in Note 11, and the terms of the Series D, Series Eand Series F Preferred Stock are discussed below.

 

*Series DPreferred Stock.*TheSeries D Preferred Stock accrues dividends at a rate of 5 1/2% per annum,has an aggregate liquidation preference of $575,000,000 and is convertible atany time into 7,059,546 shares of Class A Common Stock. The conversionratio is subject to adjustment in certain circumstances.

 

*Series EPreferred Stock.*The Series E Preferred Stock accruesdividends at a rate of 7 1/2% per annum, has an aggregate liquidationpreference of $345,000,000, subject to adjustment, and is convertible at anytime into shares of the Company’s Class A Common Stock at $25.37 per shareor 13,598,700 shares. All outstanding shares of Series E Preferred Stockwere scheduled to be converted into shares of Class A Common Stock on November 15,2004, at the then applicable conversion ratio. The conversion ratio is basedupon the prior 20-day average market price of the Company’s Class A CommonStock, subject to a minimum of 13,598,700 shares and a maximum of 16,046,500shares at average market prices above $25.37 per share or below $21.50 pershare, respectively. Adelphia has entered into several stipulations postponing,to the extent applicable, the conversion date of both the Series EPreferred Stock and the Series F Preferred Stock. As a result of thecontinuing impact of the June 2002 bankruptcy filing on the Company’scommon stock price, the Company expects that the Series E Preferred Stockwould convert into the maximum number of Class A Common Stock shares intowhich the Series E Preferred Stock may be converted, to the extentsuch conversion was not stayed by the commencement of the Chapter 11 Cases. Accordingly,the Company recognized a beneficial conversion feature of $2,553,500 based uponthe expected $21.50 per share conversion price on its Series E PreferredStock. Such deemed dividend has been allocated from the preferred stockcarrying value to additional paid-in capital and has been accreted, on theinterest method, through February 1, 2005. The accretion of the beneficialconversion feature was $77,000, $1,059,000, $960,000 in 2005, 2004 and 2003,respectively, and has been recorded as part of net loss applicable tocommon stockholders in the accompanying consolidated statements of operations.

 

*Series F Preferred Stock.*OnJanuary 22, 2002, and in a related transaction on February 7, 2002,Adelphia issued 23,000,000 shares of Series F Preferred Stock with a liquidationpreference of $575,000,000, subject to adjustment. The Series F PreferredStock accrues dividends at a rate of 7 1/2% per annum and is convertible at anytime into shares of the Company’s Class A Common Stock at $29.99 per shareor 19,172,800 shares. All outstanding shares of Series F Preferred Stockwere scheduled to be converted into shares of Class A Common Stock on February 1,2005, at the then applicable conversion ratio. The conversion ratio is basedupon the prior 20-day average market price of the Company’s Class A CommonStock, subject to a minimum of 19,172,800 shares and a maximum of 22,818,300shares at average market prices above $29.99 per share or below $25.20 pershare, respectively. Adelphia has entered into several stipulations postponing,to the extent applicable, the conversion date of both the Series EPreferred Stock and the Series F Preferred Stock. As a result of thecontinuing impact of the June 2002 bankruptcy filing on the Company’scommon stock price, the Company expects that the Series F Preferred Stockwould convert into the maximum number of Class A Common Stock shares intowhich the Series F Preferred Stock is convertible. Accordingly, theCompany recognized a beneficial conversion feature of $16,866,000 based upon theexpected $25.20 per share conversion price on its Series F PreferredStock. Such deemed dividend has been allocated from the preferred stockcarrying value to additional paid-in capital and is being accreted, on theinterest method, through February 1, 2005. The accretion of the beneficialconversion feature was $506,000, $6,948,000 and $6,357,000 in 2005, 2004 and2003, respectively, and has been recorded as part of net loss applicableto common stockholders in the accompanying consolidated statements ofoperations.

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

# **Note 13:  Stock Compensation andEmployee Benefit Plans**

 

## *1998 Adelphia Long-TermIncentive Compensation Plan*

 

During October 1998,Adelphia adopted its 1998 Long-Term Incentive Compensation Plan (the “1998 Plan”).The 1998 Plan, which was approved by the Adelphia stockholders, provides forthe granting of: (i) options which qualify as “incentive stock options”within the meaning of Section 422 of the Internal Revenue Code; (ii) optionswhich do not so qualify; (iii) share awards (with or without restrictionon vesting); (iv) stock appreciation rights; and (v) stock equivalentawards or phantom units. The number of shares of Class A Common Stockauthorized for issuance under the 1998 Plan is 7,500,000. Options, awards andunits may be granted under the 1998 Plan to directors, officers, employeesand consultants of the Company. The 1998 Plan provides that incentive stockoptions must be granted with an exercise price of not less than the fair marketvalue of the underlying Class A Common Stock on the date of grant. Optionsoutstanding under the 1998 Plan may be exercised by paying the exerciseprice per share through various alternative settlement methods. Certain optionsgranted under the 1998 Plan vested immediately and others vest over periods ofup to four years. Generally, options were granted with a purchase price equalto the fair value of the shares to be purchased as of the date of grant and theoptions had a maximum term of ten years. Since 2001, no awards have beengranted pursuant to the 1998 Plan and the Company does not intend to grant anynew awards pursuant to the 1998 Plan.

 

The following tablesummarizes the Company’s stock option activity:

 
| ** **                              | ** ** | **2005**    | ** ** | **2004**  | ** ** | **2003**    | ** ** |
|-----------------------------------------|------------|-------------|------------|-----------|------------|-------------|------------|
| ** **                              | ** ** | **Options** | ** ** | **WAEP*** | ** ** | **Options** | ** ** | **WAEP*** | ** ** | **Options** | ** ** | **WAEP*** | ** ** |
|                                    |       |        |       |      |       |        |       |   |   |   |   |   |   |
| Options  outstanding, beginning of year |       | 304,646     |       | $         | 42.90      |        | 314,374    |   | $ | 42.83 |   | 696,663 |   | $ | 48.28 |   |
| Exercised                               |       | —      |       | —    |       | —      |       | — |   | — |   | — |   |
| Cancelled                               |       | (277,250    | )          | 43.30     |       | (9,728      | )          | 40.51 |   | (382,289 | ) | 52.77 |   |
| Options  outstanding, end of year       |       | 27,396      |       | $         | 38.89      |        | 304,646    |   | $ | 42.90 |   | 314,374 |   | $ | 42.83 |   |
| Exercisable  at end of year             |       | 27,396      |       | $         | 38.89      |        | 292,646    |   | $ | 42.85 |   | 278,587 |   | $ | 42.65 |   |

 

----

*WAEP represents weightedaverage exercise price.

 

The following tablesummarizes information about the Company’s outstanding stock options at December 31,2005:

 

| ** **                    | ** ** | **Options outstanding and exercisable** | ** ** |
|-------------------------------|------------|-----------------------------------------|------------|
| **Exercise price  per share** | ** ** | **Number  of shares**                   | ** ** | **Weighted average  remaining  contractual  life (years)** | ** ** | **WAEP*  per share** | ** ** |
|                          |       |                                    |       |   |   |   |   |
| $                             | 8.68       |                                    | 4,146      |   | 3.5 |   | $ | 8.68 |   |
| 44.25                         |       | 23,250                                  |       | 5.1 |   | 44.25 |   |
|                          |       | 27,396                                  |       | 4.8 |   | $ | 38.89 |   |
|                               |            |                                         |            |  |  |  |  |  |  |

 

----

*WAEP represents weightedaverage exercise price.

 

## *401(k) Employee SavingsPlan*

 

The Company sponsors atax-qualified retirement plan governed by Section 401(k) of the InternalRevenue Code, which provides that eligible full-time employees may contributeup to 25% of their pre-tax compensation subject to certain limitations. For2003, the Company made matching contributions not exceeding the lesser of $750or 1.5% of each participant’s pre-tax compensation. Effective January 1,2004, the Company’s matching contribution was increased to 100% of the first 3%and 50% of the next 2% of each participant’s pre-tax compensation. The Companyrecognized expense of $13,940,000, $13,941,000 and $4,294,000 during 2005, 2004and 2003, respectively related to these contributions.

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

## *Short-Term Incentive Plan*

 

The Company maintains ashort-term incentive plan (the “STIP”), which is a calendar-year program thatprovides for the payment of annual bonuses to certain employees of the Companybased upon the satisfaction of qualitative and quantitative metrics, asapproved by the Compensation Committee of the Board. In general, in addition tocertain general/area managers, full-time employees with a title of director andabove, including certain of the Company’s named executive officers, areeligible to participate in the STIP. For 2005, 2004 and 2003, approximately320, 350 and 300 employees, respectively, participated in the STIP. Targetawards under the STIP are based on a percentage of each participant’s base pay.Subject to the execution of a general release, in the event that an employee’semployment with the Company is terminated by the Company for any reason otherthan for cause (as determined by the plan administrator), such employee will beentitled to a pro rata portion paid at target of his or her STIP award for theyear in which the termination occurs. The Company recognized expense of$12,291,000, $9,614,000 and $7,353,000 during 2005, 2004 and 2003,respectively, related to the STIP.

 

## *Performance RetentionPlan*

 

The Company maintains theamended and restated Performance Retention Plan (the “PRP”), which serves toreplace equity-based long-term incentive plans previously maintained by theCompany and to encourage key employees to remain with the Company by providingannual cash incentive awards based on the Company’s performance during aparticular year. Adelphia’s CEO and COO do not participate in the PRP. Targetawards range from 25% to 200% of a participant’s base salary, and the amount ofeach award is dependent on the Company’s achievement of certain financialtargets. Initial awards vest in 36 monthly installments starting at the end ofeach month one year following the month in which the participant beginsparticipation in the PRP. Subsequent awards vest in 36 monthly installmentsstarting as of January 31 of the year immediately following the plan yearin which the award was granted. The PRP provides that, in the event of a Changein Control (as defined in the PRP), all awards (both vested and unvested) willbe paid in cash on the date of such consummation of the Change in Control. Followinga change in control, the unvested portion of all awards will be paid based oneither the value established for each annual grant based on performance or 100%achievement of any unvalued grants. The Company recognized expense of$9,752,000, $6,499,000 and $2,323,000 during 2005, 2004 and 2003, respectively,related to the PRP.

 

## *Key Employee RetentionPrograms*

 

On September 21,2004, the Bankruptcy Court entered orders authorizing the Debtors to implementand adopt the Adelphia Communications Corporation Key Employee ContinuityProgram (as amended, the “Stay Plan”) and the Adelphia CommunicationsCorporation Sale Bonus Program (as amended, the “Sale Plan”). On April 20,2005, the Bankruptcy Court entered an order authorizing the Debtors toimplement and adopt the Adelphia Communications Corporation Executive VicePresident Continuity Program (the “EVP Stay Plan” and, together with the StayPlan and the Sale Plan, the “Continuity Program”), and authorized the ExecutiveVice Presidents’ participation in the Sale Plan (the “EVP KERP Order”). TheContinuity Program is designed to motivate certain employees (including ournamed executive officers, other than the CEO and COO) to remain with theCompany.

 

With respect to theContinuity Program, in the event that a Change in Control (as defined in theEVP Stay Plan, the Stay Plan and the Sale Plan) occurs and all of the bonusesunder the Continuity Program are paid, the total cost of the Continuity Programcould be approximately $33,700,000 (including approximately $1,400,000 payableunder the EVP Stay Plan, $9,400,000 paid under the Stay Plan during 2005,$19,900,000 payable under the Sale Plan (including $1,850,000 payable tocertain Executive Vice Presidents under the Sale Plan pursuant to the EVP KERPOrder) and a $3,000,000 pool from which the CEO of Adelphia may grantadditional stay or sale bonuses, of which $761,000 was paid as stay bonusesduring 2005).

 

*EVP Stay Plan*. Subjectto the terms of the EVP Stay Plan, certain employees of the Company with thetitle of Executive Vice President are participants in the EVP Stay Plan and areeligible to receive a cash payment in the form of a bonus if, subject tocertain limited exceptions, the participants continue their active employmentwith the Company from the date such participants are notified in writing thatthey have been selected for coverage under the EVP Stay Plan until immediatelyprior to the date on which a Change in Control (as defined in the EVP StayPlan) occurs. The CEO establishes the amount of each participant’s stay bonus,subject to the approval of the Compensation Committee of the Board. During theyear ended December 31, 2005, the Company recognized expense of $1,026,000related to the EVP Stay Plan.

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

*Stay Plan.*Subjectto the terms of the Stay Plan, certain employees of the Company (other thanemployees who participate in the EVP Stay Plan) received cash payments in 2005in the form of bonuses for their continued active employment with theCompany. The CEO establishes the amount of each participant’s stay bonus,subject to the approval of the Compensation Committee of the Board. The Companyrecognized expense of $6,891,000 and $3,302,000 during 2005 and 2004,respectively, related to the Stay Plan and additional stay bonuses.

 

*Sale Plan.*Underthe terms of the Sale Plan, certain employees of the Company may beeligible to receive cash payments in the form of a bonus if, subject tocertain limited exceptions, the participants continue their active employmentwith the Company or its successors until, and following, a Change in Control(as defined in the Sale Plan). Generally, 50% of the bonus amount will be paidto eligible participants within 10 business days of the effective date of theChange in Control and the remaining 50% of the bonus amount will be paid toeligible participants upon a date that is within 10 business days of thesix-month anniversary of such effective date. The CEO of Adelphia has selectedthe participants and has established the amount of each participant’s salebonus, and the Compensation Committee has approved such amounts. During theyear ended December 31, 2005, the Company recognized expense of$16,003,000 related to the Sale Plan and additional sale bonuses.

 

## *Amended and RestatedSeverance Program*

 

Certain employees of theCompany are currently afforded severance benefits either pursuant to Adelphia’sexisting severance plan, the Amended and Restated Adelphia CommunicationsCorporation Severance Plan (the “Severance Plan”), or pursuant to an existingemployment agreement with the Company (each an “Existing Employment Agreement”).Except for certain limited exceptions, all full-time employees of Adelphia andcertain affiliates that do not have Existing Employment Agreements are coveredby the Severance Plan, which provides for severance pay in the event of certaininvoluntary employment terminations without “Cause” (as defined in theSeverance Plan). The severance benefits pursuant to the Severance Plan and theExisting Employment Agreements could cost the Company a maximum of $9,973,000,consisting of severance benefits, healthcare continuation and relocationreimbursement expenses), if each Director-level employee, vice president (“VP”)and senior vice president (“SVP”) were to be involuntarily separated from theCompany and all eligible VPs and SVPs qualified for the maximum amount ofrelocation reimbursement. Adelphia’s CEO, COO and EVPs are not eligible toparticipate in the Severance Plan. During the year ended December 31,2005, the Company recognized expense of $5,043,000 related to the SeverancePlan.

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

# **Note 14:  Income Taxes**

 

The Company files aconsolidated federal income tax return with all of its 80%-or-more-ownedsubsidiaries. Consolidated subsidiaries in which the Company owns less than 80%each file a separate income tax return. The components of income tax (expense)benefit are as follows (amounts in thousands):

 
| ** **                    | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------|------------|----------------------------------|------------|
| ** **                    | ** ** | **2005**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
| Current:                      |       |                             |       |   |   |   |   |
| Federal                       |       | $                                | 1,346      |   | $ | — |   | $ | — |   |
| State                         |       | 6,316                            |       | 8,796 |   | 8,468 |   |
| Deferred:                     |       |                             |       |   |   |   |   |
| Federal                       |       | (93,843                          | )          | (5,146 | ) | (110,889 | ) |
| State                         |       | (13,613                          | )          | (764 | ) | (15,549 | ) |
| Income tax  (expense) benefit |       | $                                | (99,794    | ) | $ | 2,886 |   | $ | (117,970 | ) |

 

The income tax expense ofcertain of the Rigas Co-Borrowing Entities which are subject to income tax hasbeen included above. All other Rigas Co-Borrowing Entities are flow-throughentities for tax purposes and the items of income and expense are included inthe taxable income of unrelated parties. Also, no deferred tax assets orliabilities are recorded for these entities.

 

Income tax (expense)benefit is attributed to the following (amounts in thousands):

 
| ** **                                                                                | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                | ** ** | **2005**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                      |       |                             |       |   |   |   |   |
| Income (loss)  from continuing operations before cumulative effects of accounting changes |       | $                                | (100,349   | ) | $ | 2,843 |   | $ | (117,378 | ) |
| Other  comprehensive income (loss)                                                        |       | 555                              |       | 43 |   | (592 | ) |
| Income tax  (expense) benefit                                                             |       | $                                | (99,794    | ) | $ | 2,886 |   | $ | (117,970 | ) |

 

136

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

Significant components ofthe Company’s net deferred tax liability are as follows (amounts in thousands):

 
| ** **                                                                               | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                               | ** ** | **2005**              | ** ** | **2004** | ** ** |
|                                                                                     |       |                  |       |   |   |
| Deferred tax  liabilities:                                                               |       |                  |       |   |   |
| Property and  equipment                                                                  |       | $                     | (251,117   | ) | $ | (433,035 | ) |
| Intangible  assets other than goodwill                                                   |       | (834,858              | )          | (702,013 | ) |
| Interest  expense not accrued due to bankruptcy filing                                   |       | (1,085,043            | )          | (705,322 | ) |
| Investments                                                                              |       | —                |       | (39,962 | ) |
|                                                                                     |       | (2,171,018            | )          | (1,880,332 | ) |
|                                                                                     |       |                  |       |   |   |
| Deferred tax  assets:                                                                    |       |                  |       |   |   |
| Net  operating loss (“NOL”) carryforwards                                      |       | 4,458,634             |       | 4,187,286 |   |
| Provision  for uncollectible amounts due from the Rigas Family and Rigas Family Entities |       | 896,917               |       | 891,174 |   |
| Reorganization  expenses due to bankruptcy                                               |       | 103,439               |       | 62,289 |   |
| Deferred  programming launch incentives                                                  |       | 29,363                |       | 42,341 |   |
| Goodwill  with tax basis                                                                 |       | 321,007               |       | 356,562 |   |
| Capital loss  carryforward                                                               |       | —                |       | 54,660 |   |
| Government  settlement                                                                   |       | 245,747               |       | 247,361 |   |
| Investments                                                                              |       | 19,139                |       | — |   |
| Other                                                                                    |       | 14,123                |       | 28,846 |   |
|                                                                                     |       | 6,088,369             |       | 5,870,519 |   |
| Valuation  allowance                                                                     |       | (4,747,892            | )          | (4,715,603 | ) |
|                                                                                     |       | 1,340,477             |       | 1,154,916 |   |
| Net deferred tax liability                                                               |       | $                     | (830,541   | ) | $ | (725,416 | ) |
| Current portion of net deferred tax  liability                                           |       | 2,994                 |       | 4,065 |   |
| Noncurrent portion of net deferred tax  liability                                        |       | (833,535              | )          | (729,481 | ) |
| Net deferred tax liability                                                               |       | $                     | (830,541   | ) | $ | (725,416 | ) |

 

The net change in thevaluation allowance for deferred tax assets is as follows (amounts inthousands):

 
| ** **                                                    | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                    | ** ** | **2005**              | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                          |       |                  |       |   |   |   |   |
| Change in  valuation allowance included in income tax expense |       | $                     | (33,334    | ) | $ | (438,602 | ) | $ | (291,168 | ) |
| Rigas  Co-Borrowing Entities                                  |       | 1,045                 |       | (1,247 | ) | — |   |
| Total change  in valuation allowance                          |       | $                     | (32,289    | ) | $ | (439,849 | ) | $ | (291,168 | ) |
|                                                               |            |                       |            |  |  |  |  |  |  |  |  |

 

Due to a lack of earningshistory, current bankruptcy situation, and impairment charges recognized withrespect to franchise costs and goodwill, the Company cannot rely on forecastsof future earnings as a means to realize its deferred tax assets. The Companyhas determined that it is more likely than not that it will not realize certaindeferred tax assets and, accordingly, has recorded valuation allowancesassociated with these deferred tax assets.

 

During 2004, the Companyre-evaluated the impact on its valuation allowance due to the timing of itsreversing temporary differences, including its policy of netting the effect ofreversing temporary differences associated with customer relationship intangibleassets with intangible assets that have indefinite lives. As a result of thisevaluation, the Company changed the expectations for scheduling the expectedreversal of its deferred tax liabilities associated with these intangibleassets and included in its income tax benefit for 2004 a $166,000,000 reductionin the valuation allowances on deferred tax assets related to currentexpectations for the reversal of its deferred tax liabilities.

 

SFAS No. 109, *Accounting for Income Taxes,* requires that any valuationallowance established for an acquired entity’s deductible temporary differencesat the date of acquisition that is subsequently recognized, first reducesgoodwill and other noncurrent assets related to the acquisition and thenreduces income tax expense. At December 31, 2005, the amount of thevaluation allowance for which any tax benefits recognized in future periodswill be allocated to reduce goodwill or other intangible assets of an acquiredentity is $623,812,000.

 

137

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

The difference betweenthe expected income tax (expense) benefit at the U.S. statutory federal incometax rate of 35% and the actual income tax (expense) benefit is as follows(amounts in thousands):

 
| ** **                                                                      | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                      | ** ** | **2005**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                            |       |                             |       |   |   |   |   |
| Expected  income tax (expense) benefit at the statutory federal income tax rate |       | $                                | (49,362    | ) | $ | 670,475 |   | $ | 246,948 |   |
| Change in  valuation allowance – federal                                   |       | (96,411                          | )          | (371,196 | ) | (287,998 | ) |
| Change in  valuation allowance – state                                     |       | 63,077                           |       | (67,406 | ) | (3,170 | ) |
| State tax  (expense) benefit, net of federal (expense) benefit                  |       | (72,656                          | )          | 72,394 |   | (6,798 | ) |
| Income  attributable to Rigas Co-Borrowing Entities                             |       | 158,792                          |       | 572 |   | — |   |
| Minority’s  interest and share of losses of equity affiliates              |       | (15,017                          | )          | (14,186 | ) | (8,338 | ) |
| Cumulative  effect of accounting change due to new accounting pronouncement     |       | —                           |       | (206,074 | ) | — |   |
| Expiration  of NOL                                                              |       | (83,333                          | )          | (79,942 | ) | (61,678 | ) |
| Foreign  losses with no tax benefit                                             |       | (4,787                           | )          | (2,089 | ) | (2,003 | ) |
| Other                                                                           |       | (97                              | )          | 338 |   | 5,067 |   |
| Income tax  (expense) benefit                                                   |       | $                                | (99,794    | ) | $ | 2,886 |   | $ | (117,970 | ) |

 

As of December 31,2005, the Company had NOL carryforwards of approximately $11,600,000,000 and$7,905,000,000 for federal and state income tax purposes, respectively,expiring from 2006 to 2025. Consolidated subsidiaries in which the Company ownsless than an 80% interest had NOL carryforwards of $89,000,000 for federal andstate income tax purposes expiring from 2006 to 2024. These amounts are basedon the income tax returns filed for 2004 and certain adjustments to bereflected in amended returns that are expected to be filed for the 2004 taxyear and prior periods, plus 2005 tax losses. The Company expects to fileamended federal and state income tax returns for 1999 through 2004. Suchreturns are subject to examination by federal and state taxing authorities,generally, for a period of three years after the NOL carryforward is utilized.

 

In the event the Debtorsemerge from bankruptcy: (i) NOL carryforwards are expected to be reducedor completely eliminated by debt cancellation income that might result underthe bankruptcy proceedings; (ii) other tax attributes, including theCompany’s tax basis in its property and equipment, could be reduced; and (iii) astatutory ownership change, as defined in Section 382 of the InternalRevenue Code, would occur upon issuance of new common stock to claimholderspursuant to any approved plan of reorganization. This ownership change may limitthe annual usage of any remaining tax attributes that were generated prior tothe change of ownership. The amount of the limitation will be determinable atthe time of the ownership change.

 

The Company believes thatadequate provision has been made for tax positions that may be challengedby taxing authorities. While it is often difficult to predict the final outcomeor the timing of resolution of any particular tax matter, the Company believesthat the reserves reflect the probable outcome of known tax contingencies.Unfavorable settlement of any particular issue would require the use of cash.Favorable resolution could result in reduced income tax expense reported in theconsolidated financial statements in the future. The tax reserves are presentedin the balance sheet within other noncurrent liabilities. Certain tax reserveitems may be settled through the bankruptcy process which could result inreduced income tax expense reported in the consolidated financial statements inthe future.

 

The Company’s income tax(expense) benefit for the years ended December 31, 2005, 2004 and 2003 hasbeen calculated assuming the Company will continue as a going concern and doesnot reflect the impact the Sale Transaction may have on the Company’sability to utilize its NOL carryforwards or other tax attributes. If the SaleTransaction is consummated, a significant portion of the deferred tax assetswill be realized and a significant portion of the valuation allowance will bereleased.

 

# **Note15:  Segments**

 

The Company’s onlyreportable operating segment is its “cable” segment. The cable segment includesthe Company’s cable system operations (including consolidated subsidiaries,equity method investments and variable interest entities) that provide thedistribution of analog and digital video programming and HSI services tocustomers for a monthly fee through a network of fiber optic and coaxial cables.This segment also includes the Company’s media services (advertising sales)business. Upon the adoption of FIN 46-R on January 1, 2004, the reportablecable segment also includes the operations of the Rigas Co-Borrowing Entities. SeeNote 5 for additional information. The reportable cable segment includes fiveoperating regions that have been combined as one

 

138

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

reportable segment,because all of such regions have similar economic characteristics. The Companyidentifies reportable segments as those consolidated segments that represent10% or more of the combined revenue, net earnings or loss, or total assets of allof the Company’s operating segments as of and for the period ended on the mostrecent balance sheet date presented. Operating segments that do not meet thisthreshold are aggregated for segment reporting purposes within the “corporateand other” column.

 

Selected financialinformation concerning the Company’s current operating segments is presentedbelow for the indicated periods (amounts in thousands):

 
| ** **                               | ** ** | **Cable**  | ** ** | **Corporate  and other** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|------------------------------------------|------------|------------|------------|--------------------------|------------|------------------|------------|------------|------------|
|                                     |       |       |       |                     |       |             |       |       |       |
| Operating  and Capital Expenditure Data: |       |       |       |                     |       |             |       |       |       |
|                                     |       |       |       |                     |       |             |       |       |       |
| Year ended December 31,  2005:      |       |       |       |                     |       |             |       |       |       |
| Revenue                                  |       | $          | 4,353,068  |                     | $          | 11,502           |       | $          | —     |   | $ | 4,364,570 |   |
| Operating  income (loss)                 |       | 347,119    |       | (64,290                  | )          | —           |       | 282,829    |       |
| Capital  expenditures                    |       | (705,338   | )          | (29,200                  | )          | —           |       | (734,538   | )          |
|                                     |       |       |       |                     |       |             |       |       |       |
| Year ended December 31,  2004:      |       |       |       |                     |       |             |       |       |       |
| Revenue                                  |       | $          | 4,103,339  |                     | $          | 40,049           |       | $          | —     |   | $ | 4,143,388 |   |
| Operating  loss                          |       | (117,073   | )          | (47,931                  | )          | —           |       | (165,004   | )          |
| Capital  expenditures                    |       | (764,315   | )          | (56,598                  | )          | —           |       | (820,913   | )          |
|                                     |       |       |       |                     |       |             |       |       |       |
| Year ended December 31,  2003:      |       |       |       |                     |       |             |       |       |       |
| Revenue                                  |       | $          | 3,524,021  |                     | $          | 44,996           |       | $          | —     |   | $ | 3,569,017 |   |
| Operating  loss                          |       | (120,788   | )          | (27,701                  | )          | —           |       | (148,489   | )          |
| Capital  expenditures                    |       | (721,588   | )          | (1,933                   | )          | —           |       | (723,521   | )          |
|                                     |       |       |       |                     |       |             |       |       |       |
| Balance  Sheet Information:              |       |       |       |                     |       |             |       |       |       |
| Total assets                             |       |       |       |                     |       |             |       |       |       |
| As of December 31,  2005            |       | $          | 12,562,225 |                     | $          | 3,309,331        |       | $          | (2,997,546 | ) | $ | 12,874,010 |   |
| As of December 31,  2004            |       | 12,584,147 |       | 4,889,623                |       | (4,375,582       | )          | 13,098,188 |       |

 

The Company did notderive more than 10% of its revenue from any one customer during 2005, 2004 or2003. The Company’s long-lived assets related to its foreign operations were$6,517,000 and $6,394,000, as of December 31, 2005 and 2004, respectively.The Company’s revenue related to its foreign operations was $18,781,000, $13,412,000and $10,159,000 during 2005, 2004 and 2003, respectively. The Company’s assetsand revenue related to its foreign operations were not significant to theCompany’s financial position or results of operations, respectively, during anyof the periods presented.

 

139

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

# **Note16:  Commitments and Contingencies**

 

## *Commitments*

## * *

Future minimum leasepayments under noncancelable capital and operating leases as of December 31,2005, are set forth below (amounts in thousands):

 
| ** **                        | ** ** | **Minimum Lease Commitments** | ** ** |
|-----------------------------------|------------|-------------------------------|------------|
| **Year ending December 31,** | ** ** | **Capital**                   | ** ** | **Operating** | ** ** |
| 2006                              |       | $                             | 16,608     |   | $ | 20,118 |   |
| 2007                              |       | 1,385                         |       | 16,191 |   |
| 2008                              |       | —                        |       | 13,532 |   |
| 2009                              |       | —                        |       | 10,887 |   |
| 2010                              |       | —                        |       | 7,885 |   |
| Thereafter                        |       | —                        |       | 30,493 |   |
| Total  minimum lease payments     |       | $                             | 17,993     |   | $ | 99,106 |   |
| Less:                             |       |                          |       |   |   |
| Amount  representing interest     |       | (447                          | )          |   |   |
| Total                             |       | $                             | 17,546     |   |   |   |
| Less current  portion             |       | $                             | (17,546    | ) |   |   |
| Noncurrent  portion               |       | $                             | —     |   |   |   |

 

Subject to the approvalof the Bankruptcy Court, the Company may reject pre-petition executorycontracts and unexpired leases. As such, the Company expects that itsliabilities pertaining to leases, and the related amounts, may changesignificantly in the future. In addition, it is expected that, in the normalcourse of business, expiring leases will be renewed or replaced by leases onother properties.

 

The Company rents officeand studio space, tower sites, and space on utility poles under leases withterms which are generally one to five years. Rental expense for the indicatedperiods is set forth below (amounts in thousands):

 

| **Year ended December 31,** | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|
| 2005                             |       | $          | 60,016     |   |
| 2004                             |       | $          | 64,135     |   |
| 2003                             |       | $          | 61,160     |   |

 

The Company’s cablesystems are typically constructed and operated under the authority ofnonexclusive permits or “franchises” granted by local and/or state governmentalauthorities. Franchises contain varying provisions relating to the constructionand/or operation of cable systems, including, in certain cases, the impositionof requirements to rebuild or upgrade cable systems or to extend the cablenetwork to new residential developments. The Company’s franchises alsotypically provide for periodic payments of fees of not more than 5% of grossrevenue in the applicable franchise area to the governmental authority grantingthe franchise. Additionally, many franchises require payments to thefranchising authority to fund the construction or improvement of facilitiesthat are used to provide public, education and governmental (“PEG”) accesschannels. The Company’s minimum commitments under franchise agreements,including the estimated cost of fulfilling rebuild, upgrade and networkextension commitments, and the fixed minimum amounts payable to franchiseauthorities for PEG access channels, are set forth in the following table. Theamounts set forth in the table below do not include the variable franchise feeand PEG commitments that are described in the paragraph following this table(amounts in thousands):

 

| **Year ending December 31,** | ** ** | ** ** | ** ** |
|-----------------------------------|------------|------------|------------|
| 2006                              |       | $          | 35,686     |   |
| 2007                              |       | $          | 14,682     |   |
| 2008                              |       | $          | 1,427      |   |
| 2009                              |       | $          | 7,528      |   |
| 2010                              |       | $          | 3,601      |   |
| Thereafter                        |       | $          | 6,717      |   |

 

As described above, theCompany is also obligated to make variable payments to franchise authoritiesfor franchise fees and PEG access channels that are dependent on the amount ofrevenue generated or the number of subscribers served within the

 

140

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

applicable franchise area.Such variable payments aggregated $134,383,000, $130,073,000 and $114,725,000during 2005, 2004 and 2003, respectively.

 

The Company paysprogramming and license fees under multi-year agreements with expiration datesranging through 2015. The amounts paid under these agreements are typicallybased on per customer fees, which may escalate over the term of theagreements. In certain cases, such per customer fees are subject to volume orchannel line-up discounts and other adjustments. The Company incurred totalprogramming expenses of $1,166,156,000, $1,149,168,000 and $1,056,820,000during 2005, 2004 and 2003, respectively.

 

## *Contingencies*

 

## *Reorganization Expensesdue to Bankruptcy and Professional Fees*

 

The Company is currentlyaware of certain success fees that potentially could be paid upon the Company’semergence from bankruptcy to third party financial advisers retained by theCompany and Committees in connection with the Chapter 11 Cases. Currently,these success fees are estimated to be between $6,500,000 and $19,950,000 inthe aggregate. In addition, pursuant to their employment agreements, the CEOand the COO of the Company are eligible to receive equity awards of Adelphia stockwith a minimum aggregate fair value of $17,000,000 upon the Debtors’ emergencefrom bankruptcy. Under the employment agreements, the value of such equityawards will be determined based on the average trading price of thepost-emergence common stock of Adelphia during the 15 trading days immediatelypreceding the 90th day following the date of emergence. Pursuant tothe employment agreements, these equity awards, which will be subject tovesting and trading restrictions, may be increased up to a maximumaggregate value of $25,500,000 at the discretion of the Board. As no plan ofreorganization has been confirmed by the Bankruptcy Court, no accrual for suchcontingent payments or equity awards has been recorded in the accompanyingconsolidated financial statements.

 

## *Letters of Credit*

 

The Company has issuedstandby letters of credit for the benefit of franchise authorities and otherparties, most of which have been issued to an intermediary surety bondingcompany. All such letters of credit will expire no later than October 7,2006. At December 31, 2005, the aggregate principal amount of letters ofcredit issued by the Company was $82,495,000, of which $81,605,000 was issuedunder the Second Extended DIP Facility and $890,000 was collateralized by cash.Letters of credit issued under the DIP facilities reduce the amount that may beborrowed under the DIP facilities.

 

## *Litigation Matters*

 

*General*. TheCompany follows SFAS No. 5, *Accounting forContingencies*, in determining its accruals and disclosures with respectto loss contingencies. Accordingly, estimated losses from loss contingenciesare accrued by a charge to income when information available indicates that itis probable that an asset had been impaired or a liability had been incurredand the amount of the loss can be reasonably estimated. If a loss contingencyis not probable or reasonably estimable, disclosure of the loss contingency ismade in the financial statements when it is reasonably possible that a loss may beincurred.

 

*SEC Civil Action and DoJInvestigation.*OnJuly 24, 2002, the SEC Civil Action was filed against Adelphia, certainmembers of the Rigas Family and others, alleging various securities fraud andimproper books and records claims arising out of actions allegedly taken ordirected by certain members of the Rigas Family who held all of the seniorexecutive positions at Adelphia and constituted five of the nine members ofAdelphia’s board of directors (none of whom remain with the Company).

 

On December 3, 2003, the SEC filed a proof of claim inthe Chapter 11 Cases against Adelphia for, among other things, penalties,disgorgement and prejudgment interest in an unspecified amount. The staff ofthe SEC told the Company’s advisors that its asserted claims for disgorgementand civil penalties under various legal theories could amount to billions ofdollars. On July 14, 2004, the Creditors’ Committee initiated an adversaryproceeding seeking, in effect, to subordinate the SEC’s claims based on the SECCivil Action.

 

On April 25, 2005, after extensive negotiations withthe SEC and the U.S. Attorney, the Company entered into the Non-ProsecutionAgreement pursuant to which the Company agreed, among other things: (i) tocontribute $715,000,000 in value to a fund to be established and administeredby the United States Attorney General and the SEC for the benefit of investorsharmed by the activities of prior management (the “Restitution Fund”); (ii) tocontinue to cooperate with the U.S. Attorney until the later of April 25,2007, or the date upon which all prosecutions arising out of the conductdescribed in the Rigas Criminal Action (as

 

141

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

described below) and SEC Civil Action are final; and (iii) notto assert claims against the Rigas Family except for John J. Rigas,Timothy J. Rigas and Michael J. Rigas (together, the “Excluded Parties”),provided that Michael J. Rigas will cease to be an Excluded Party if allcurrently pending criminal proceedings against him are resolved without afelony conviction on a charge involving fraud or false statements (other thanfalse statements to the U.S. Attorney or the SEC). On November 23, 2005, Michael J. Rigas pled guiltyto a violation of Title 47, U.S. Code, Section 220(e) for making afalse entry in a Company record, (in a form required to be filed with theSEC), and on March 3, 2006, was sentenced to two years of probation, includingten months of home confinement.

 

 The Company’scontribution to the Restitution Fund will consist of stock, future proceeds oflitigation and, assuming consummation of the Sale Transaction (or another salegenerating cash of at least $10 billion), cash. In the event of a salegenerating both stock and at least $10 billion in cash, as contemplated in theSale Transaction, the components of the Company’s contribution to theRestitution Fund will consist of $600,000,000 in cash and stock (with at least$200,000,000 in cash) and 50% of the first $230,000,000 of future proceeds, ifany, from certain litigation against third parties who injured the Company. If,however, the Sale Transaction (or another sale) is not consummated and insteadthe Company emerges from bankruptcy as an independent entity, the $600,000,000payment by the Company will consist entirely of stock in the reorganizedAdelphia. Unless extended on consent of the U.S. Attorney and the SEC, whichconsent may not be unreasonably withheld, the Company must make thesepayments on or before the earlier of:  (i) October 15,2006; (ii) 120 days after confirmation of a stand-alone plan ofreorganization; or (iii) seven days after the first distribution of stockor cash to creditors under any plan of reorganization. The Company recordedcharges of $425,000,000 and $175,000,000 during 2004 and 2002, respectively,related to the Non-Prosecution Agreement. The $425,000,000 charge is reflectedin other income (expense), net in the accompanying consolidated statement ofoperations for the year ended December 31, 2004.

 

The U.S. Attorney agreed:(i) not to prosecute Adelphia or specified subsidiaries of Adelphia forany conduct (other than criminal tax violations) related to the Rigas CriminalAction (defined below) or the allegations contained in the SEC Civil Action; (ii) notto use information obtained through the Company’s cooperation with the U.S.Attorney to criminally prosecute the Company for tax violations; and (iii) totransfer to the Company all of the Rigas Co-Borrowing Entities forfeited by theRigas Family and Rigas Family Entities, certain specified real estate forfeitedby the Rigas Family and Rigas Family Entities and any securities of the Companythat were directly or indirectly owned by the Rigas Family and Rigas FamilyEntities prior to forfeiture. The U.S. Attorney agreed with the Rigas Familynot to require forfeiture of Coudersport and Bucktail (which together servedapproximately 5,000 subscribers (unaudited) as of the date of the ForfeitureOrder). A condition precedent to the Company’s obligation to make thecontribution to the Restitution Fund described in the preceding paragraph isthe Company’s receipt of title to the Rigas Co-Borrowing Entities, certainspecified real estate and any securities described above forfeited by the RigasFamily and Rigas Family Entities, free and clear of all liens, claims,encumbrances, or adverse interests. The forfeited Rigas Co-Borrowing Entitiesanticipated to be transferred to the Company (subject to completion offorfeiture proceedings before a federal judge to determine if there are anysuperior claims) represent the overwhelming majority of the Rigas Co-BorrowingEntities’ subscribers and value.

 

Also on April 25, 2005, the Company consented to theentry of a final judgment in the SEC Civil Action resolving the SEC’s claimsagainst the Company. Pursuant to this agreement, the Company will bepermanently enjoined from violating various provisions of the federalsecurities laws, and the SEC has agreed that if the Company makes the$715,000,000 contribution to the Restitution Fund, then the Company will not berequired to pay disgorgement or a civil monetary penalty to satisfy the SEC’sclaims.

 

Pursuant to letter agreements with TW NY and Comcast, theU.S. Attorney has agreed, notwithstanding any failure by the Company to complywith the Non-Prosecution Agreement, that it will not criminally prosecute anyof the joint venture entities or their subsidiaries purchased from the Companyby TW NY or Comcast pursuant to the Purchase Agreements. Under such letteragreements, each of TW NY and Comcast have agreed that following the closing ofthe Sale Transaction they will cooperate with the relevant governmentalauthorities’ requests for information about the Company’s operations, financesand corporate governance between 1997 and confirmation of the Plan. The soleand exclusive remedy against TW NY or Comcast for breach of any obligation inthe letter agreements is a civil action for breach of contract seeking specificperformance of such obligations. In addition, TW NY and Comcast entered intoletter agreements with the SEC agreeing that upon and after the closing of theSale Transaction, TW NY, Comcast and their respective affiliates (including thejoint venture entities transferred pursuant to the Purchase Agreements) willnot be subject to, or have any obligation under, the final judgment consentedto by the Company in the SEC Civil Action.

 

The Non-ProsecutionAgreement was subject to the approval of, and has been approved by, theBankruptcy Court. Adelphia’s consent to the final judgment in the SEC CivilAction was subject to the approval of, and has been approved by, both theBankruptcy Court and the District Court. Variousparties have challenged and sought appellate review or reconsideration of theorders of the Bankruptcy Court approving these settlements. The District Court affirmedthe Bankruptcy Court’s approval of the

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

Non-Prosecution Agreement, Adelphia’s consent to the finaljudgment in the SEC Civil Action and the Adelphia-Rigas Settlement Agreement. OnMarch 24, 2006, various parties appealed the District Court's orderaffirming the Bankruptcy Court's appoval to the United States Court of Appealsfor the Second Circuit (the “Second Circuit”). The order of the DistrictCourt approving Adelphia’s consent to the final judgment in the SEC CivilAction has not been appealed. The appeals of the District Court’s approval ofthe Government-Rigas Settlement Agreement (defined below) and the creation ofthe Restitution Fund have been denied by the Second Circuit.

 

*Adelphia’s Lawsuit Against theRigas Family.*On July 24, 2002, Adelphia filed acomplaint in the Bankruptcy Court against John J. Rigas, Michael J. Rigas,Timothy J. Rigas, James P. Rigas, James Brown, Michael C. Mulcahey, Peter L.Venetis, Doris Rigas, Ellen Rigas Venetis and the Rigas Family Entities (the “RigasCivil Action”). This action generally alleged the defendants misappropriatedbillions of dollars from the Company in breach of their fiduciary duties toAdelphia. On November 15, 2002, Adelphia filed an amended complaintagainst the defendants that expanded upon the facts alleged in the originalcomplaint and alleged violations of the Racketeering Influenced and CorruptOrganizations (“RICO”) Act, breach of fiduciary duty, securities fraud,fraudulent concealment, fraudulent misrepresentation, conversion , waste ofcorporate assets, breach of contract, unjust enrichment, fraudulent conveyance,constructive trust, inducing breach of fiduciary duty, and a request for anaccounting (the “Amended Complaint”). The Amended Complaint sought relief inthe form of, among other things, treble and punitive damages, disgorgementof monies and securities obtained as a consequence of the Rigas Family’simproper conduct and attorneys’ fees.

 

On April 25, 2005,Adelphia and the Rigas Family entered into a settlement agreement with respectto the Rigas Civil Action (the “Adelphia-Rigas Settlement Agreement”), pursuantto which Adelphia agreed, among other things: (i) to pay $11,500,000 to alegal defense fund for the benefit of the Rigas Family; (ii) to providemanagement services to Coudersport and Bucktail for an interim period ending nolater than December 31, 2005 (“Interim Management Services”); (iii) toindemnify Coudersport and Bucktail, and the Rigas Family’s (other than theExcluded Parties’) interest therein, against claims asserted by the lendersunder the Co-Borrowing Facilities with respect to such indebtedness up to thefair market value of those entities (without regard to their obligations withrespect to such indebtedness); (iv) to provide certain members of theRigas Family with certain indemnities, reimbursements or other protections inconnection with certain third party claims arising out of Company litigation,and in connection with claims against certain members of the Rigas Family byany of the Tele-Media Joint Ventures or Century/ML Cable; and (v) withinten business days of the date on which the consent order of forfeiture isentered, dismiss the Rigas Civil Action, except for claims against the ExcludedParties. The Rigas Family agreed: (i) to make certain tax elections, undercertain circumstances, with respect to the Rigas Co-Borrowing Entities (otherthan Coudersport and Bucktail); (ii) to pay Adelphia five percent of thegross operating revenue of Coudersport and Bucktail for the Interim ManagementServices; and (iii) to offer employment to certain Coudersport andBucktail employees on terms and conditions that, in the aggregate, are no lessfavorable to such employees (other than any employees who were expresslyexcluded by written notice to Adelphia received by July 1, 2005) thantheir terms of employment with the Company.

 

Pursuant to the Adelphia-Rigas Settlement Agreement, on June 21,2005, the Company filed a dismissal with prejudice of all claims in this actionexcept against the Excluded Parties.

 

This settlement was subject to the approval of, andhas been approved by, the Bankruptcy Court. Various parties have challenged andsought appellate review or reconsideration of the order of the Bankruptcy Courtapproving this settlement. The appeals of the Bankruptcy Court’s approvalremain pending.

 

In June 2005, theCompany paid and expensed the aforementioned $11,500,000 in legal defense costs(see Note 6). The Adelphia-Rigas Settlement Agreement releases the Company fromfurther obligation to provide funding for legal defense costs for the RigasFamily.

 

*Rigas Criminal Action.*Inconnection with an investigation conducted by the DoJ, on July 24, 2002,certain members of the Rigas Family and certain alleged co-conspirators werearrested, and on September 23, 2002, were indicted by a grand jury oncharges including fraud, securities fraud, bank fraud and conspiracy to commitfraud (the “Rigas Criminal Action”). On November 14, 2002, one of theRigas Family’s alleged co-conspirators, James Brown, pleaded guilty to onecount each of conspiracy, securities fraud and bank fraud. On January 10,2003, another of the Rigas Family’s alleged co-conspirators, Timothy Werth, whohad not been arrested with the others on July 24, 2002, pleaded guilty toone count each of securities fraud, conspiracy to commit securities fraud, wirefraud and bank fraud. The trial in the Rigas Criminal Action began on February 23,2004 in the District Court. On July 8, 2004, the jury returned a partialverdict in the Rigas Criminal Action. John J. Rigas and Timothy J. Rigas wereeach found guilty of conspiracy (one count), bank fraud (two counts), andsecurities fraud (15 counts) and not guilty of wire fraud (five counts). MichaelJ. Mulcahey was acquitted of all 23 counts against him. The jury found MichaelJ. Rigas not guilty of conspiracy and wire fraud, but remained undecided on thesecurities fraud and bank fraud charges against him. On July 9, 2004, thecourt declared a mistrial on the remaining charges against Michael J. Rigasafter the jurors were unable to reach a verdict as to those charges. The

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

bank fraud chargesagainst Michael J. Rigas have since been dismissed with prejudice. On March 17,2005, the District Court denied the motion of John J. Rigas and Timothy J.Rigas for a new trial. On June 20, 2005, John J. Rigas and Timothy J.Rigas were convicted and sentenced to 15 years and 20 years in prison,respectively. John J. Rigas and Timothy J. Rigas have appealed theirconvictions and sentences and remain free on bail pending resolution of their appeals.On November 23, 2005, Michael J. Rigas pled guilty to a violation of Title47, U.S. Code, Section 220(e) for making a false entry in a Companyrecord(in a form required to be filed with the SEC), and on March 3,2006, was sentenced to two years of probation, including ten months of homeconfinement.

 

The indictment againstthe Rigas Family included a request for entry of a money judgment in an amountexceeding $2,500,000,000 and for entry of an order of forfeiture of allinterests of the convicted Rigas defendants in the Rigas Family Entities. On December 10,2004, the DoJ filed an application for a preliminary order of forfeiturefinding John J. Rigas and Timothy J. Rigas jointly and severally liable forpersonal money judgments in the amount of $2,533,000,000.

 

On April 25, 2005,the Rigas Family and the U.S. Attorney entered into a settlement agreement (the“Government-Rigas Settlement Agreement”), pursuant to which the Rigas Familyagreed to forfeit: (i) all of the Rigas Co-Borrowing Entities with theexception of Coudersport and Bucktail; (ii) certain specified real estate;and (iii) all securities in the Company directly or indirectly owned bythe Rigas Family. The U.S. Attorney agreed: (i) not to seek additionalmonetary penalties from the Rigas Family, including the request for a moneyjudgment as noted above; (ii) from the proceeds of certain assetsforfeited by the Rigas Family, to establish the Restitution Fund for thepurpose of providing restitution to holders of the Company’s publicly tradedsecurities; and (iii) to inform the District Court of this agreementat the sentencing of John J. Rigas and Timothy J. Rigas.

 

Pursuant to theForfeiture Order, all right, title and interest of the Rigas Family and RigasFamily Entities in the Rigas Co-Borrowing Entities (other than Coudersport andBucktail), certain specified real estate and any securities of the Company wereforfeited to the United States. Such assets and securities are expected to betransferred to the Company (subject to completion of forfeiture proceedingsbefore a federal judge to determine if there are any superior claims) infurtherance of the Non-Prosecution Agreement. On August 19, 2005, theCompany filed a petition with the District Court seeking an order transferringtitle to these assets and securities to the Company. Since that time, petitionshave been filed by three lending banks, each asserting an interest in the RigasCo-Borrowing Entities for the purpose, according to the petitions, ofprotecting against the contingency that the Bankruptcy Court approval ofcertain settlement agreements is overturned on appeal. In addition, petitionshave been filed by two local franchising authorities with respect to two of theRigas Co-Borrowing Entities, by two mechanic’s lienholders with respect to twoof the forfeited real properties and by a school district with respect to oneof the forfeited real properties. Finally, the Company’s petition assertedclaims to the forfeited properties on behalf of two subsidiaries, Century/MLCable and Super Cable ALK International, A.A. (Venezuela), that are no longerowned by the Company. The government has requested that its next status reportto the District Court regarding the forfeiture proceedings be submitted on April 21,2006. See Note 6 for additional information.

 

The Company was not adefendant in the Rigas Criminal Action, but was under investigation by the DoJregarding matters related to alleged wrongdoing by certain members of the RigasFamily. Upon approval of the Non-Prosecution Agreement, Adelphia and specifiedsubsidiaries are no longer subject to criminal prosecution (other than forcriminal tax violations) by the U.S. Attorney for any conduct related to theRigas Criminal Action or the allegations contained in the SEC Civil Action, solong as the Company complies with its obligations under the Non-ProsecutionAgreement.

 

*Securities and DerivativeLitigation*. Certain of the Debtors and certain formerofficers, directors and advisors have been named as defendants in a number oflawsuits alleging violations of federal and state securities laws and relatedclaims. These actions generally allege that the defendants made materiallymisleading statements understating the Company’s liabilities and exaggeratingthe Company’s financial results in violation of securities laws.

 

In particular, beginningon April 2, 2002, various groups of plaintiffs filed more than 30 class actioncomplaints, purportedly on behalf of certain of the Company’s shareholders andbondholders or classes thereof in federal court in Pennsylvania. Several non-class actionlawsuits were brought on behalf of individuals or small groups of securityholders in federal courts in Pennsylvania, New York, South Carolina and NewJersey, and in state courts in New York, Pennsylvania, California and Texas. Sevenderivative suits were also filed in federal and state courts in Pennsylvania,and four derivative suits were filed in state court in Delaware. On May 6,2002, a notice and proposed order of dismissal without prejudice was filed bythe plaintiff in one of these four Delaware derivative actions. The remainingthree Delaware derivative actions were consolidated on May 22, 2002. On February 10,2004, the parties stipulated and agreed to the dismissal of these consolidatedactions with prejudice.

 

The complaints, whichnamed as defendants the Company, certain former officers and directors of theCompany and, in some cases, the Company’s former auditors, lawyers, as well asfinancial institutions who worked with the Company, generally allege that,among other improper statements and omissions, defendants misled investorsregarding the Company’s liabilities and earnings in the Company’s publicfilings. The majority of these actions assert claims under Sections 10(b) and20(a) of the Securities

 

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**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

ExchangeAct of 1934 and SEC Rule 10b-5. Certain bondholder actions assertclaims for violation of Section 11 and/or Section 12(a) (2) ofthe Securities Act of 1933. Certain of the state court actions allege variousstate law claims.

 

On July 23, 2003,the Judicial Panel on Multidistrict Litigation issued an order transferringnumerous civil actions to the District Court for consolidated or coordinatedpre-trial proceedings (the “MDL Proceedings”).

 

On September 15,2003, proposed lead plaintiffs and proposed co-lead counsel in the consolidatedclass action were appointed in the MDL Proceedings. On December 22,2003, lead plaintiffs filed a consolidated class action complaint. Motionsto dismiss have been filed by various defendants. Beginning in the spring of2005, the court in the MDL Proceedings granted in part various motions todismiss relating to many of the actions, while granting leave to replead someclaims. The parties continue to brief pleading motions, and no answer to theconsolidated class action complaint, or the other actions, has been filed.The consolidated class action complaint seeks monetary damages of anunspecified amount, rescission and reasonable costs and expenses and such otherrelief as the court may deem just and proper. The individual actionsagainst the Company also seek damages of an unspecified amount.

 

Pursuant to section 362of the Bankruptcy Code, all of the securities and derivative claims that werefiled against the Company before the bankruptcy filings are automaticallystayed and not proceeding as to the Company.

 

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe financial condition or results of operations of the Company.

 

*Acquisition Actions.*Afterthe alleged misconduct of certain members of the Rigas Family was publiclydisclosed, three actions were filed in May and June 2002 against theCompany by former shareholders of companies that the Company acquired, in wholeor in part, through stock transactions. These actions allege that the Companyimproperly induced these former shareholders to enter into these stocktransactions through misrepresentations and omissions, and the plaintiffs seekmonetary damages and equitable relief through rescission of the underlyingacquisition transactions.

 

Two of these proceedingshave been filed with the American Arbitration Association alleging violationsof federal and state securities laws, breaches of representations andwarranties and fraud in the inducement. One of these proceedings seeksrescission, compensatory damages and pre-judgment relief, and the other seeksspecific performance. The third action alleges fraud and seeks rescission,damages and attorneys’ fees. This action was originally filed in a ColoradoState Court, and subsequently was removed by the Company to the United StatesDistrict Court for the District of Colorado. The Colorado State Court actionwas closed administratively on July 16, 2004, subject to reopening if andwhen the automatic bankruptcy stay is lifted or for other good cause shown. Theseactions have been stayed pursuant to the automatic stay provisions of section 362of the Bankruptcy Code.

 

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe financial condition or results of operations of the Company.

 

*Equity Committee ShareholderLitigation.*Adelphia is a defendant in an adversaryproceeding in the Bankruptcy Court consisting of a declaratory judgment actionand a motion for a preliminary injunction brought on January 9, 2003 bythe Equity Committee, seeking, among other relief, a declaration as to how theshares owned by the Rigas Family and Rigas Family Entities would be votedshould a consent solicitation to elect members of the Board be undertaken. Adelphiahas opposed such requests for relief.

 

The claims of the EquityCommittee are based on shareholder rights that the Equity Committee assertsshould be recognized even in bankruptcy, coupled with continuing claims, as ofthe filing of the lawsuit, of historical connections between the Board and theRigas Family. Motions to dismiss filed by Adelphia and others are fully briefedin this action, but no argument date has been set. If this action survivesthese motions to dismiss, resolution of disputed fact issues will occur in twophases pursuant to a schedule set by the Bankruptcy Court. Determinationsregarding fact questions relating to the conduct of the Rigas Family will notoccur until, at a minimum, after the resolution of the Rigas Criminal Action.

 

No pleadings have beenfiled in the adversary proceeding since September 2003.

 

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe financial condition or results of operations of the Company.

 

*ML Media Litigation.*Adelphiaand ML Media have been involved in a longstanding dispute concerning Century/MLCable’s management, the buy/sell rights of ML Media and various other matters.

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

In March 2000, MLMedia brought suit against Century, Adelphia and Arahova Communications, Inc.(“Arahova”) in the Supreme Court of the State of New York, seeking, among otherthings: (i) the dissolution of Century/ML Cable and the appointment of areceiver to sell Century/ML Cable’s assets; (ii) if no receiver wasappointed, an order authorizing ML Media to conduct an auction for the sale ofCentury/ML Cable’s assets to an unrelated third party and enjoining Adelphiafrom interfering with or participating in that process; (iii) an orderdirecting the defendants to comply with the Century/ML Cable joint ventureagreement with respect to provisions relating to governance matters and thebudget process; and (iv) compensatory and punitive damages. The partiesnegotiated a consent order that imposed various consultative and reportingrequirements on Adelphia and Century as well as restrictions on Century’sability to make capital expenditures without ML Media’s approval. Adelphia andCentury were held in contempt of that order in early 2001.

 

In connection with the December 13,2001 settlement of the above dispute, Adelphia, Century/ML Cable, ML Media andHighland, entered into the Recap Agreement, pursuant to which Century/ML Cableagreed to redeem ML Media’s 50% interest in Century/ML Cable on or before September 30,2002 for a purchase price between $275,000,000 and $279,800,000 depending onthe timing of the Redemption, plus interest. Among other things, the Recap Agreementprovided that: (i) Highland would arrange debt financing for theRedemption; (ii) Highland, Adelphia and Century would jointly andseverally guarantee debt service on debt financing for the Redemption on andafter the closing of the Redemption; and (iii) Highland and Century wouldown 60% and 40% interests, respectively, in the recapitalized Century/ML Cable.Under the terms of the Recap Agreement, Century’s 50% interest in Century/MLCable was pledged to ML Media as collateral for the Company’s obligations.

 

On September 30,2002, Century/ML Cable filed a voluntary petition to reorganize under Chapter11 in the Bankruptcy Court. Century/ML Cable was operating its business as adebtor-in-possession.

 

By an order of theBankruptcy Court dated September 17, 2003, Adelphia and Century rejectedthe Recap Agreement, effective as of such date. If the Recap Agreement isenforceable, the effect of the rejection of the Recap Agreement is the same asa pre-petition breach of the Recap Agreement. Therefore, Adelphia and Centuryare potentially exposed to “rejection damages,” which may include therevival of ML Media’s claims under the state court actions described above.

 

Adelphia, Century,Highland, Century/ML Cable and ML Media are engaged in litigation regarding theenforceability of the Recap Agreement. On April 15, 2004, the BankruptcyCourt indicated that it would dismiss all counts of Adelphia’s challenge to theenforceability of the Recap Agreement except for its allegation that ML Mediaaided and abetted a breach of fiduciary duty in connection with the executionof the Recap Agreement. The Bankruptcy Court also indicated that it would allowCentury/ML Cable’s counterclaim to avoid the Recap Agreement as a constructivefraudulent conveyance to proceed.

 

ML Media has alleged thatit is entitled to elect recovery of either $279,800,000, plus costs andinterest in exchange for its interest in Century/ML Cable, or up to thedifference between $279,800,000 and the fair market value of its interest inCentury/ML Cable, plus costs, interest and revival of the state court claimsdescribed above. Adelphia, Century and Century/ML Cable have disputed ML Media’sclaims, and the Plan contemplates that ML Media will receive no distributionuntil such dispute is resolved.

 

On June 3, 2005,Century entered into the IAA, pursuant to which Century and ML Media agreed tosell their interests in Century/ML Cable for $520,000,000 (subject to potentialpurchase price adjustments as defined in the IAA) to San Juan Cable. On August 9,2005, Century/ML Cable filed the Century/ML Plan and the Century/ML DisclosureStatement with the Bankruptcy Court. On August 18, 2005, the BankruptcyCourt approved the Century/ML Disclosure Statement. On September 7, 2005,the Bankruptcy Court confirmed the Century/ML Plan, which is designed tosatisfy the conditions of the IAA with San Juan Cable and provides that allthird-party claims will either be paid in full or assumed by San Juan Cableunder the terms set forth in the IAA. On October 31, 2005, the Century/MLSale was consummated and the Century/ML Plan became effective. Neither theCentury/ML Sale nor the effectiveness of the Century/ML Plan resolves thepending litigation among Adelphia, Century, Highland, Century/ML Cable and MLMedia. Pursuant to the IAA and the Century/ML Plan, Adelphia was grantedcontrol over Century/ML Cable’s counterclaims in the litigation. Adelphia hassince withdrawn Century/ML Cable’s counterclaim to avoid the Recap Agreement asa constructive fraudulent conveyance. On November 23, 2005, Adelphia andCentury filed their first amended answer, affirmative defenses andcounterclaims. On January 13, 2006, ML Media replied to Adelphia’s andCentury’s amended counterclaims and moved for summary judgment against Adelphiaand Century on both Adelphia’s and Century’s remaining counterclaims and theissue of Adelphia’s and Century’s liability. Adelphia and Century filed theirresponse to ML Media’s summary judgment motion, as well as cross-motions forsummary judgment, on March 13, 2006.

 

On March 9, 2006,Highland filed a motion to withdraw the reference, which, if granted, wouldtransfer the litigation among Adelphia, Century, Highland, Century/ML Cable andML Media from the Bankruptcy Court to the District Court.

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

On March 16, 2006,the Bankruptcy Court stayed all discovery for 30 days (except for certainexpert depositions). Adelphia and Century have the right to seek to renew thestay.

 

The Bankruptcy Court hastentatively scheduled trial to begin on June 26, 2006.

 

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe financial condition or results of operations of the Company.

 

*The X Clause Litigation.*OnDecember 29, 2003, the Ad Hoc Committee of holders of Adelphia’s 6% and3.25% convertible subordinated notes (collectively, the “Subordinated Notes”),together with the Bank of New York, the indenture trustee for the SubordinatedNotes (collectively, the “X Clause Plaintiffs”), commenced an adversaryproceeding against Adelphia in the Bankruptcy Court. The X Clause Plaintiffs’complaint sought a judgment declaring that the subordinationprovisions in the indentures for the Subordinated Notes were not applicable toan Adelphia plan of reorganization in which constituents receive common stockof Adelphia and that the Subordinated Notes are entitled to share pari passu inthe distribution of any common stock of Adelphia given to holders of seniornotes of Adelphia.

 

The basis for the XClause Plaintiffs’ claim is a provision in the applicable indentures, commonlyknown as the “X Clause,” which provides that any distributions under a plan ofreorganization comprised solely of “Permitted Junior Securities” are notsubject to the subordination provision of the Subordinated Notes indenture. TheX Clause Plaintiffs asserted that, under their interpretation of the applicableindentures, a distribution of a single class of new common stock ofAdelphia would meet the definition of “Permitted Junior Securities” set forthin the indentures, and therefore be exempt from subordination.

 

On February 6, 2004,Adelphia filed its answer to the complaint, denying all of its substantiveallegations. Thereafter, both the X Clause Plaintiffs and Adelphia cross-movedfor summary judgment with both parties arguing that their interpretation of theX Clause was correct as a matter of law. The indenture trustee for the Adelphiasenior notes also intervened in the action and, like Adelphia, moved forsummary judgment arguing that the X Clause Plaintiffs were subordinated toholders of senior notes with respect to any distribution of common stock undera plan of reorganization. In addition, the Creditors’ Committee also moved tointervene and, thereafter, moved to dismiss the X Clause Plaintiffs’ complainton the grounds, among others, that it did not present a justiciable case or controversyand therefore was not ripe for adjudication. In a written decision, dated April 12,2004, the Bankruptcy Court granted the Creditors’ Committee’s motion to dismisswithout ruling on the merits of the various cross-motions for summary judgment.The Bankruptcy Court’s dismissal of the action was without prejudice to the XClause Plaintiffs’ right to bring the action at a later date, if appropriate.

 

Subsequent to enteringinto the Sale Transaction, the X Clause Plaintiffs asserted that the subordinationprovisions in the indentures for the Subordinated Notes also are not applicableto an Adelphia plan of reorganization in which constituents receive TWC Class ACommon Stock and that the Subordinated Notes would therefore be entitled toshare pari passu in the distribution of any such TWC Class A CommonStock given to holders of senior notes of Adelphia. The indenture trustee forthe Adelphia senior notes (the “Senior Notes Trustee”), together with certainother constituents, disputed this position.

 

On December 6, 2005,the X Clause Plaintiffs and the Debtors jointly filed a motion seeking that theBankruptcy Court establish a pre-confirmation process for interested parties tolitigate the X Clause dispute (the “X Clause Litigation Motion”). By order datedJanuary 11, 2006, the Bankruptcy Court found that the X Clause dispute wasripe for adjudication and directed interested parties to litigate the disputeprior to plan confirmation (the “X Clause Pre-Confirmation Litigation”). Ahearing on the X Clause Pre-Confirmation Litigation was held on March 9and 10, 2006. The matter is now under review by the Bankruptcy Court.

 

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe financial condition or results of operations of the Company.

 

*Verizon Franchise TransferLitigation.*On March 20, 2002, the Company commenced anaction (the “California Cablevision Action”) in the United States DistrictCourt for the Central District of California, Western Division, seeking, amongother things, declaratory and injunctive relief precluding the City of ThousandOaks, California (the “City”) from denying permits on the grounds that theCompany failed to seek the City’s prior approval of an asset purchase agreement(the “Asset Purchase Agreement”), dated December 17, 2001, between theCompany and Verizon Media Ventures, Inc. d/b/a Verizon Americast (“VerizonMedia Ventures”). Pursuant to the Asset Purchase Agreement, the Companyacquired certain Verizon Media Ventures cable equipment and network systemassets (the “Verizon Cable Assets”) located in the City for use in theoperation of the Company’s cable business in the City.

 

On March 25, 2002,the City and Ventura County (the “County”) commenced an action (the “ThousandOaks Action”) against the Company and Verizon Media Ventures in CaliforniaState Court alleging that Verizon Media Ventures’ entry into the

 

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

Asset Purchase Agreementand conveyance of the Verizon Cable Assets constituted a breach of VerizonMedia Ventures’ cable franchises and that the Company’s participation in thetransaction amounted to actionable tortious interference with those franchises.The City and the County sought injunctive relief to halt the sale and transferof the Verizon Cable Assets pursuant to the Asset Purchase Agreement and tocompel the Company to treat the Verizon Cable Assets as a separate cablesystem.

 

On March 27, 2002,the Company and Verizon Media Ventures removed the Thousand Oaks Action to theUnited States District Court for the Central District of California, where itwas consolidated with the California Cablevision Action.

 

On April 12, 2002,the district court conducted a hearing on the City’s and County’s applicationfor a preliminary injunction and, on April 15, 2002, the district courtissued a temporary restraining order in part, pending entry of a further order.On May 14, 2002, the district court issued a preliminary injunction andentered findings of fact and conclusions of law in support thereof (the “May 14,2002 Order”). The May 14, 2002 Order, among other things: (i) enjoinedthe Company from integrating the Company’s and Verizon Media Ventures’ systemassets serving subscribers in the City and the County; (ii) required theCompany to return “ownership” of the Verizon Cable Assets to Verizon MediaVentures except that the Company was permitted to continue to “manage” theassets as Verizon Media Ventures’ agent to the extent necessary to avoiddisruption in services until Verizon Media Ventures chose to reenter the marketor sell the assets; (iii) prohibited the Company from eliminating anyprogramming options that had previously been selected by Verizon Media Venturesor from raising the rates charged by Verizon Media Ventures; and (iv) requiredthe Company and Verizon Media Ventures to grant the City and/or the Countyaccess to system records, contracts, personnel and facilities for the purposeof conducting an inspection of the then-current “state of the Verizon MediaVentures and the Company systems” in the City and the County. The Companyappealed the May 14, 2002 Order and, on April 1, 2003, the U.S. Courtof Appeals for the Ninth Circuit reversed the May 14, 2002 Order, thusremoving any restrictions that had been imposed by the district court againstthe Company’s integration of the Verizon Cable Assets and remanded the actionsback to the district court for further proceedings.

 

In September 2003,the City began refusing to grant the Company’s construction permit requests,claiming that the Company could not integrate the acquired Verizon Cable Assetswith the Company’s existing cable system assets because the City had notapproved the transaction between the Company and Verizon Media Ventures, asallegedly required under the City’s cable ordinance.

 

Accordingly, on October 2,2003, the Company filed a motion for a preliminary injunction in the districtcourt seeking to enjoin the City from refusing to grant the Company’sconstruction permit requests. On November 3, 2003, the district courtgranted the Company’s motion for a preliminary injunction, finding that theCompany had demonstrated “a strong likelihood of success on the merits.”  Thereafter, the parties agreed to informallystay the litigation pending negotiations between the Company and the City forthe Company’s renewal of its cable franchise, with the intent that suchnegotiations would also lead to a settlement of the pending litigation. However,on September 16, 2004, at the City’s request, the court set certainprocedural dates, including a trial date of July 12, 2005, which haseffectively re-opened the case to active litigation. Subsequently, the July 12,2005 trial date was vacated pursuant to a stipulation and order. On July 11,2005, the district court referred the matter to a United States magistratejudge for settlement discussions. A settlement conference was held on October 20,2005, before the magistrate judge. On February 21, 2006, the BankruptcyCourt approved a settlement between the Company and the City that resolves thepending litigation and all past franchise non-compliance issues. Pursuant tothe settlement, the parties filed a stipulation that dismissed with prejudicethe Thousand Oaks Action as it pertained to the City. On March 27, 2006,the Bankruptcy Court approved a settlement between the Company and the Countythat resolves the pending litigation and all past franchise non-complianceissues. Pursuant to the settlement, the parties will file a stipulation thatdismisses, with prejudice, the Thousand Oaks Action as it pertains to theCounty.

 

*Dibbern Adversary Proceeding.*Onor about August 30, 2002, Gerald Dibbern, individually and purportedly onbehalf of a class of similarly situated subscribers nationwide, commencedan adversary proceeding in the Bankruptcy Court against Adelphia assertingclaims for violation of the Pennsylvania Consumer Protection Law, breach ofcontract, fraud, unjust enrichment, constructive trust, and an accounting. Thiscomplaint alleges that Adelphia charged, and continues to charge, subscribersfor cable set-top box equipment, including set-top boxes and remote controls,that is unnecessary for subscribers that receive only basic cable service andhave cable-ready televisions. The complaint further alleges that Adelphiafailed to adequately notify affected subscribers that they no longer needed torent this equipment. The complaint seeks a number of remedies including treblemoney damages under the Pennsylvania Consumer Protection Law, declaratory andinjunctive relief, imposition of a constructive trust on Adelphia’s assets, andpunitive damages, together with costs and attorneys’ fees.

 

On or about December 13,2002, Adelphia moved to dismiss the adversary proceeding on several bases,including that the complaint fails to state a claim for which relief can begranted and that the matters alleged therein should be resolved in the claimsprocess. The Bankruptcy Court granted Adelphia’s motion to dismiss anddismissed the adversary proceeding on May 3, 2005. In

 

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**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

the Bankruptcy Court, Mr. Dibbernhas also objected to the provisional disallowance of his proofs of claim, whichcomprised a portion of the Bankruptcy Court’s May 3, 2005 order. Mr. Dibbernappealed the May 3, 2005 order dismissing adversary proceedings to theDistrict Court. In an August 30, 2005 decision, the District Courtaffirmed the dismissal of Mr. Dibbern’s claims for violation of thePennsylvania Consumer Protection Law, a constructive trust and an accounting,but reversed the dismissal of Mr. Dibbern’s breach of contract, fraud andunjust enrichment claims. These three claims will proceed in the BankruptcyCourt. Adelphia filed its answer on October 14, 2005 and discoverycommenced. On March 15, 2006, the Debtors moved the Bankruptcy Court foran order staying discovery in several adversary proceedings, including theDibbern adversary proceeding. On March 16, 2006, the Bankruptcy Courtgranted the order staying discovery in the Dibbern adversary proceeding.

 

On January 17, 2006,the Debtors filed their tenth omnibus claims objection to certain claims,including claims filed by Dibbern totaling more than $7.9 billion (includingduplicative claims). Through the objections, the Debtors sought to disallow andexpunge each of the Dibbern claims. On February 23, 2006, Dibbernresponded to the Debtors’ objections and requested that the Bankruptcy Courtrequire the Debtors to establish additional reserves for Dibbern’s claims or toreclassify the claims as claims against the operating companies.

 

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe financial condition or results of operations of the Company.

 

*Tele-Media Examiner Motion.*Bymotion filed in the Bankruptcy Court on August 5, 2004, Tele-MediaCorporation of Delaware (“TMCD”) and certain of its affiliates sought theappointment of an examiner for the following Debtors: Tele-Media Company ofTri-States, L.P., CMA Cablevision Associates VII, L.P., CMA CablevisionAssociates XI, L.P., TMC Holdings Corporation, Adelphia Company of WesternConnecticut, TMC Holdings, LLC, Tele-Media Investment Limited Partnership, L.P., Eastern Virginia Cablevision, L.P., Tele-Media Company of Hopewell PrinceGeorge, and Eastern Virginia Cablevision Holdings, LLC (collectively, the “JVEntities”). Among other things, TMCD alleged that management and the Boardbreached their fiduciary obligations to the creditors and equity holders ofthose entities. Consequently, TMCD sought the appointment of an examiner toinvestigate and make recommendations to the Bankruptcy Court regarding variousissues related to such entities.

 

On April 14, 2005,the Debtors filed a motion with the Bankruptcy Court seeking approval of aglobal settlement agreement (the “Tele-Media Settlement Agreement”) by andamong the Debtors and TMCD and certain of its affiliates (the “Tele-MediaParties”), which, among other things: (i) transfers the Tele-Media Parties’ownership interests in the JV Entities to the Debtors, leaving the Debtors 100%ownership of the JV Entities; (ii) requires the Debtors to make asettlement payment to the Tele-Media Parties of $21,650,000; (iii) resolvesthe above-mentioned examiner motion; (iv) settles two pending avoidanceactions brought by the Debtors against certain of the Tele-Media Parties; (v) reconciles691 separate proofs of claim filed by the Tele-Media Parties, thereby allowingclaims worth approximately $5,500,000 and disallowing approximately $1.9billion of claims; (vi) requires the Tele-Media Parties to make a $912,500payment to the Debtors related to workers’ compensation policies; and (vii) effectuatesmutual releases between the Debtors and the Tele-Media Parties. The Tele-MediaSettlement Agreement was approved by an order of the Bankruptcy Court dated May 11,2005 and closed on May 26, 2005.

 

*Creditors’ Committee LawsuitAgainst Pre-Petition Banks.*Pursuant to the Bankruptcy Courtorder approving the DIP Facility (the “Final DIP Order”), the Company madecertain acknowledgments (the “Acknowledgments”) with respect to the extent ofits indebtedness under the pre-petition credit facilities, as well as thevalidity and extent of the liens and claims of the lenders under suchfacilities. However, given the circumstances surrounding the filing of theChapter 11 Cases, the Final DIP Order preserved the Debtors’ right toprosecute, among other things, avoidance actions and claims against thepre-petition lenders and to bring litigation against the pre-petition lendersbased on any wrongful conduct. The Final DIP Order also provided that anyofficial committee appointed in the Chapter 11 Cases would have the right torequest that it be granted standing by the Bankruptcy Court to challenge theAcknowledgments and to bring claims belonging to the Company and its estatesagainst the pre-petition lenders.

 

Pursuant to a stipulationdated July 2, 2003, among the Debtors, the Creditors’ Committee and theEquity Committee, the parties agreed, subject to approval by the Bankruptcy Court,that the Creditors’ Committee would have derivative standing to file andprosecute claims against the pre-petition lenders, on behalf of the Debtors,and granted the Equity Committee leave to seek to intervene in any such action.This stipulation also preserves the Company’s ability to compromise and settlethe claims against the pre-petition lenders. By motion dated July 6, 2003,the Creditors’ Committee moved for Bankruptcy Court approval of thisstipulation and simultaneously filed a complaint (the “Bank Complaint”) againstthe agents and lenders under certain pre-petition credit facilities, andrelated entities, asserting, among other things, that these entities knew of,and participated in, the alleged improper actions by certain members of the RigasFamily and Rigas Family Entities (the “Pre-petition Lender Litigation”). TheDebtors are nominal plaintiffs in this action.

 

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**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

The Bank Complaintcontains 52 claims for relief to redress the claimed wrongs and abusescommitted by the agents, lenders and other entities. The Bank Complaint seeksto, among other things: (i) recover as fraudulent transfers the principaland interest paid by the Company to the defendants; (ii) avoid asfraudulent obligations the Company’s obligations, if any, to repay thedefendants; (iii) recover damages for breaches of fiduciary duties to the Companyand for aiding and abetting fraud and breaches of fiduciary duties by the RigasFamily; (iv) equitably disallow, subordinate or recharacterize each of thedefendants’ claims in the Chapter 11 Cases; (v) avoid and recover certainallegedly preferential transfers made to certain defendants; and (vi) recoverdamages for violations of the Bank Holding Company Act. Numerous motionsseeking to defeat the Pre-petition Lender Litigation were filed by thedefendants and the Bankruptcy Court held a hearing on such issues. The EquityCommittee filed a motion seeking authority to bring an intervenor complaint(the “Intervenor Complaint”) against the defendants seeking to, among otherthings, assert additional contract claims against the investment banking affiliatesof the agent banks and claims under the RICO Act against various defendants(the “Additional Claims”).

 

On October 3 and November 7,2003, certain of the defendants filed both objections to approval of thestipulation and motions to dismiss the bulk of the claims for relief containedin the Bank Complaint and the Intervenor Complaint. The Bankruptcy Court heardoral argument on these objections and motions on December 20 and 21, 2004.In a memorandum decision dated August 30, 2005, the Bankruptcy Courtgranted the motion of the Creditors’ Committee for standing to prosecute theclaims asserted by the Creditors’ Committee. The Bankruptcy Court also granteda separate motion of the Equity Committee to file and prosecute the AdditionalClaims on behalf of the Debtors. The motions to dismiss are still pending. Subsequentto issuance of this decision, several defendants filed, among other things,motions to transfer the Pre-petition Lender Litigation from the BankruptcyCourt to the District Court. By order dated February 9, 2006, thePre-petition Lender Litigation was transferred to the District Court, exceptwith respect to the pending motions to dismiss.

 

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe financial condition or results of operations of the Company.

 

*Non-Agent Banks’ DeclaratoryJudgment.*By complaint dated September 29, 2005, certainnon-agent pre-petition lenders of the Debtors sought a declaratory judgmentagainst the Debtors in the Bankruptcy Court seeking, among other things, theenforcement of asserted indemnification rights and rights to fees and expenses.The non-agent pre-petition lenders subsequently withdrew their complaint.

 

*Devon Mobile Claim.*Pursuantto the Agreement of Limited Partnership of Devon Mobile Communications, L.P., aDelaware limited partnership (“Devon Mobile”), dated as of November 3,1995, the Company owned a 49.9% limited partnership interest in Devon Mobile,which, through its subsidiaries, held licenses to operate regional wirelesstelephone businesses in several states. Devon Mobile had certain business andcontractual relationships with the Company and with former subsidiaries ordivisions of the Company, that were spun off as TelCove in January 2002.

 

In late May 2002,the Company notified Devon G.P., Inc. (“Devon G.P.”), the general partnerof Devon Mobile, that it would likely terminate certain discretionaryoperational funding to Devon Mobile. On August 19, 2002, Devon Mobile andcertain of its subsidiaries filed voluntary petitions for relief under Chapter11 of the Bankruptcy Code with the United States Bankruptcy Court for theDistrict of Delaware (the “Devon Mobile Bankruptcy Court”).

 

On January 17, 2003,the Company filed proofs of claim and interest against Devon Mobile and itssubsidiaries for approximately $129,000,000 in debt and equity claims, as wellas an additional claim of approximately $35,000,000 relating to the Company’sguarantee of certain Devon Mobile obligations (collectively, the “Company Claims”).By order dated October 1, 2003, the Devon Mobile Bankruptcy Courtconfirmed Devon Mobile’s First Amended Joint Plan of Liquidation (the “DevonPlan”). The Devon Plan became effective on October 17, 2003, at which timethe Company’s limited partnership interest in Devon Mobile was extinguished. Underthe Devon Plan, the Devon Mobile Communications Liquidating Trust (the “DevonLiquidating Trust”) succeeded to all of the rights of Devon Mobile, includingprosecution of causes of action against Adelphia.

 

On or about January 8,2004, the Devon Liquidating Trust filed proofs of claim in the Chapter 11 Casesseeking, in the aggregate, approximately $100,000,000 in respect of, amongother things, certain cash transfers alleged to be either preferential orfraudulent and claims for deepening insolvency, alter ego liability and breachof an alleged duty to fund Devon Mobile operations, all of which arose prior tothe commencement of the Chapter 11 Cases (the “Devon Claims”).  On June 21, 2004, the Devon LiquidatingTrust commenced an adversary proceeding in the Chapter 11 Cases (the “DevonAdversary Proceeding”) through the filing of a complaint (the “Devon Complaint”)which incorporates the Devon Claims. On August 20, 2004, the Company filedan answer and counterclaim in response to the Devon Complaint denying theallegations made in the Devon Complaint and asserting various counterclaimsagainst the Devon Liquidating Trust, which encompassed the Company Claims. On November 22,2004, the

 

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

Company filed a motionfor leave (the “Motion for Leave”) to file a third party complaint forcontribution and indemnification against Devon G.P. and Lisa-Gaye ShearingMead, the sole owner and President of Devon G.P. By endorsed order entered January 12,2005, Judge Robert E. Gerber, the judge presiding over the Chapter 11 Cases andthe Devon Adversary Proceeding, granted a recusal request made by counsel toDevon G.P. On January 21, 2005, the Devon Adversary Proceeding wasreassigned from Judge Gerber to Judge Cecelia G. Morris. By an order dated April 5,2005, Judge Morris denied the Motion for Leave and a subsequent motion forreconsideration.

 

Discovery closed and theparties filed cross-motions for summary judgment. On March 6, 2006, theBankruptcy Court issued a memorandum decision granting Adelphia summaryjudgment on all counts of the Devon Complaint, except for the fraudulentconveyance/breach of limited partnership claim. The Bankruptcy Court denied, inits entirety, the summary judgment motion filed by the Devon Liquidating Trust.Trial is scheduled to begin April 17, 2006.

 

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe financial condition or results of operations of the Company.

 

*NFHLP Claim.*OnJanuary 13, 2003, Niagara Frontier Hockey, L.P., a Delaware limitedpartnership owned by the Rigas Family (“NFHLP”) and certain of its subsidiaries(the “NFHLP Debtors”) filed voluntary petitions to reorganize under Chapter 11in the United States Bankruptcy Court of the Western District of New York (the “NFHLPBankruptcy Court”) seeking protection under the U. S. bankruptcy laws. Certainof the NFHLP Debtors entered into an agreement dated March 13, 2003 forthe sale of certain assets, including the Buffalo Sabres National Hockey Leagueteam, and the assumption of certain liabilities. On October 3, 2003, theNFHLP Bankruptcy Court approved the NFHLP joint plan of liquidation. The NFHLPDebtors filed a complaint, dated November 4, 2003, against, among others,Adelphia and the Creditors’ Committee seeking to enforce certain priorstipulations and orders of the NFHLP Bankruptcy Court against Adelphia and theCreditors’ Committee related to the waiver of Adelphia’s right to participatein certain sale proceeds resulting from the sale of assets. Certain of theNFHLP Debtors’ pre-petition lenders, which are also defendants in the adversaryproceeding, have filed cross-complaints against Adelphia and the Creditors’Committee asking the NFHLP Bankruptcy Court to enjoin Adelphia and theCreditors’ Committee from prosecuting their claims against those pre-petitionlenders. Although proceedings as to the complaint itself have been suspended,the parties have continued to litigate the cross-complaints. Discovery closedon November 1, 2005 and motions for summary judgment were filed on January 24,2006, with additional briefing on the motions to follow.

 

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe financial condition or results of operations of the Company.

 

*Adelphia’s Lawsuit AgainstDeloitte.*On November 6, 2002, Adelphia sued Deloitte &Touche LLP (“Deloitte”), Adelphia’s former independent auditors, in the Courtof Common Pleas for Philadelphia County. The lawsuit seeks damages againstDeloitte based on Deloitte’s alleged failure to conduct an audit in compliancewith generally accepted auditing standards, and for providing an opinion thatAdelphia’s financial statements conformed with GAAP when Deloitte allegedlyknew or should have known that they did not conform. The complaint furtheralleges that Deloitte knew or should have known of alleged misconduct andmisappropriation by the Rigas Family, and other alleged acts of self-dealing,but failed to report these alleged misdeeds to the Board or others who couldhave and would have stopped the Rigas Family’s misconduct. The complaint raisesclaims of professional negligence, breach of contract, aiding and abettingbreach of fiduciary duty, fraud, negligent misrepresentation and contribution.

 

Deloitte filedpreliminary objections seeking to dismiss the complaint, which were overruledby the court by order dated June 11, 2003. On September 15, 2003,Deloitte filed an answer, a new matter and various counterclaims in response tothe complaint. In its counterclaims, Deloitte asserted causes of action againstAdelphia for breach of contract, fraud, negligent misrepresentation andcontribution. Also on September 15, 2003, Deloitte filed a relatedcomplaint naming as additional defendants John J. Rigas, Timothy J. Rigas,Michael J. Rigas, and James P. Rigas. In this complaint, Deloitte allegescauses of action for fraud, negligent misrepresentation and contribution. TheRigas defendants, in turn, have claimed a right to contribution and/orindemnity from Adelphia for any damages Deloitte may recover against the Rigasdefendants. On January 9, 2004, Adelphia answered Deloitte’s counterclaims.Deloitte moved to stay discovery in this action until completion of the RigasCriminal Action, which Adelphia opposed. Following the motion, discovery waseffectively stayed for 60 days but has now commenced. Deloitte and Adelphiahave exchanged documents and have begun substantive discovery. On December 6,2005, the court extended the discovery deadline to June 5, 2006 andordered that the case be ready for trial by October 2, 2006.

 

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe financial condition or results of operations of the Company.

 

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

*Arahova Motions*. Substantialdisputes exist between creditors of different Debtors that principally affectthe recoveries to the holders of certain notes due September 15, 2007issued by FrontierVision Holdings, L.P., an indirect subsidiary of Adelphia,and the creditors of Arahova and Adelphia (the “Inter-Creditor Dispute”). On November 7,2005, the ad hoc committee of Arahova noteholders (the “Arahova Noteholders’Committee”) filed four emergency motions for relief with the Bankruptcy Courtseeking, among other things, to: (i) appoint a trustee for Arahova and itssubsidiaries (collectively, the “Arahova/Century Debtors”) who may notreceive payment in full under the Plan or, alternatively, appoint independentofficers and directors, with the assistance of separately retained counsel, torepresent the Arahova/Century Debtors in connection with the Inter-CreditorDispute; (ii) disqualify Willkie Farr & Gallagher LLP (“WF&G”)from representing the Arahova/Century Debtors in the Chapter 11 Cases andthe balance of the Debtors with respect to the Inter-Creditor Dispute; (iii) terminatethe exclusive periods during which the Arahova/Century Debtors may fileand solicit acceptances of a Chapter 11 plan of reorganization and relateddisclosure statement (the previous three motions, the “Arahova EmergencyMotions”); and (iv) authorize the Arahova Noteholders’ Committee to fileconfidential supplements containing certain information. The Bankruptcy Court held a sealed hearing onthe Arahova Emergency Motions on January 4, 5 and 6, 2006.

 

Pursuant to an orderdated January 26, 2006 (the “Arahova Order”), the Bankruptcy Court: (i) deniedthe motion to terminate the Arahova/Century Debtors’ exclusivity; (ii) deniedthe motion to appoint a trustee for the Arahova/Century Debtors, or,alternatively, to require the appointment of nonstatutory fiduciaries; and (iii) grantedthe motion for an order disqualifying WF&G from representing theArahova/Century Debtors and any of the other Debtors in the Inter-CreditorDispute; without finding that present management or WF&G have in any wayacted inappropriately to date, the Bankruptcy Court found that WF&G’svoluntary neutrality in such disputes should be mandatory, except that theBankruptcy Court stated that WF&G could continue to act as a facilitatorprivately to assist creditor groups that are parties to the Inter-CreditorDispute reach a settlement. The Bankruptcy Court issued an extensive writtendecision on these matters. The Arahova Noteholders’ Committee has appealed theArahova Order to the District Court.

 

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe financial condition or results of operations of the Company.

 

*Series E and F PreferredStock Conversion Postponements.*On October 29, 2004,Adelphia filed a motion to postpone the conversion of the Series EPreferred Stock into shares of Class A Common Stock from November 15,2004 to February 1, 2005, to the extent such conversion was not alreadystayed by the Debtors’ bankruptcy filing, in order to protect the Debtors’ netoperating loss carryovers. On November 18, 2004, the Bankruptcy Courtentered an order approving the postponement effective November 14, 2004.

 

Adelphia has subsequentlyentered into several stipulations further postponing, to the extent applicable,the conversion date of the Series E Preferred Stock. Adelphia has alsoentered into several stipulations postponing, to the extent applicable, theconversion date of the Series F Preferred Stock, which was initiallyconvertible into shares of Class A Common Stock on February 1, 2005.

 

**EPASelf Disclosure and Audit.**On June 2, 2004, theCompany orally self-disclosed potential violations of environmental laws to theUnited States Environmental Protection Agency (“EPA”) pursuant to EPA’s AuditPolicy, and notified EPA that it intended to conduct an audit of its operationsto identify and correct any such violations. The potential violations primarilyconcern reporting and record keeping requirements arising from the Company’sstorage and use of petroleum and batteries to provide backup power for itscable operations. Based on current facts, the Company does not anticipate thatthis matter will have a material adverse effect on the Company’s results ofoperations or financial condition.

 

*Other.*TheCompany is subject to various other legal proceedings and claims which arise inthe ordinary course of business. Management believes, based on informationcurrently available, that the amount of ultimate liability, if any, withrespect to any of these other actions will not materially affect the Company’sfinancial position or results of operations.

 

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

# **Note17:  Other Financial Information**

 

## *Supplemental Cash FlowInformation*

 

The table below sets forththe Company’s supplemental cash flow information (amounts in thousands):

 
| ** **                  | ** ** | **December 31,** | ** ** |
|-----------------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **2005**              | ** ** | **2004** | ** ** | **2003** | ** ** |
|                        |       |                  |       |   |   |   |   |
| Cash paid  for interest     |       | $                     | 574,794    |   | $ | 392,053 |   | $ | 379,423 |   |
| Capitalized  interest       |       | $                     | (10,337    | ) | $ | (10,401 | ) | $ | (21,643 | ) |
| Cash paid for  income taxes |       | $                     | 136        |   | $ | 100 |   | $ | 461 |   |

 

Significant non-cashinvesting and financing activities are summarized in the table below. Thesummarized information in the table should be read in conjunction with the moredetailed information included in the referenced note (amounts in thousands):

 
| ** **                                                                           | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                           | ** ** | **2005**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                 |       |                             |       |   |   |   |   |
| Common stock  received from programming vendor                                       |       | $                                | 8,543      |   | $ | — |   | $ | — |   |
| Net property  and equipment distributed to TelCove in the Global Settlement (Note 7) |       | $                                | —     |   | $ | 37,144 |   | $ | — |   |

 

## *Cost and OtherInvestments*

 

The Company’s investmentsin available-for-sale securities, common stock and other cost investmentsaggregated $10,135,000 and $3,569,000 at December 31, 2005 and 2004,respectively and are included in other noncurrent assets, net in theaccompanying consolidated balance sheets.

 

The fair value of theCompany’s available-for-sale equity securities and the related unrealizedholding gains and losses are summarized below. Such unrealized gains and lossesare included as a component of accumulated other comprehensive loss, net in theaccompanying consolidated balance sheets (amounts in thousands):

 
| ** **                       | ** ** | **December 31,** | ** ** |
|----------------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2005**              | ** ** | **2004** | ** ** | **2003** | ** ** |
|                             |       |                  |       |   |   |   |   |
| Fair value                       |       | $                     | 118        |   | $ | 1,966 |   | $ | 2,159 |   |
| Gross  unrealized holding gains  |       | $                     | 78         |   | $ | 1,388 |   | $ | 1,495 |   |
| Gross  unrealized holding losses |       | $                     | —     |   | $ | (7 | ) | $ | (7 | ) |

 

The Company recognizedimpairment losses as a result of other-than-temporary declines in the fairvalue of the Company’s investments in available-for-sale securities, commonstock and other cost investments of $7,000, $3,801,000 and $8,544,000 in 2005,2004 and 2003, respectively. The Company recognized gains of $1,595,000,$292,000 and $3,574,000 in 2005, 2004 and 2003, respectively, related to thesale of cost and other investments. Such impairments and gains are reflected inother income (expense), net in the accompanying consolidated statements ofoperations.

 

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

## *Accrued Liabilities*

 

The details of accruedliabilities are set forth below (amounts in thousands):

 
| ** **                       | ** ** | **December 31,** | ** ** |
|----------------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2005**              | ** ** | **2004** | ** ** |
|                             |       |                  |       |   |   |
| Programming  costs               |       | $                     | 116,239    |   | $ | 106,511 |   |
| Payroll                          |       | 92,162                |       | 62,591 |   |
| Franchise  fees                  |       | 63,673                |       | 58,178 |   |
| Interest                         |       | 51,627                |       | 67,671 |   |
| Property,  sales and other taxes |       | 51,181                |       | 45,963 |   |
| Other                            |       | 176,717               |       | 195,010 |   |
| Total                            |       | $                     | 551,599    |   | $ | 535,924 |   |

 

## *Accumulated OtherComprehensive Loss*

 

Accumulated othercomprehensive loss, net included in the Company’s consolidated balance sheetsand consolidated statements of stockholders’ equity reflect the aggregate of foreign currency translation adjustmentsand unrealized holding gains and losses on securities. The change in thecomponents of accumulated other comprehensive income (loss), net of taxes, isset forth below (amounts in thousands):

 
| ** **                         | ** ** | **Foreign  currency  translation  adjustments** | ** ** | **Unrealized  gains (losses)  on securities** | ** ** | **Total** | ** ** |
|------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|-----------|------------|
|                               |       |                                            |       |                                          |       |      |       |
| Balance at January 1,  2003   |       | $                                               | (18,763    | )                                             | $          | 9         |       | $ | (18,754 | ) |
| Other  comprehensive income        |       | 8,193                                           |       | 881                                           |       | 9,074     |       |
|                               |       |                                            |       |                                          |       |      |       |
| Balance at December 31,  2003 |       | (10,570                                         | )          | 890                                           |       | (9,680    | )          |
| Other  comprehensive loss          |       | (1,821                                          | )          | (64                                           | )          | (1,885    | )          |
|                               |       |                                            |       |                                          |       |      |       |
| Balance at December 31,  2004 |       | (12,391                                         | )          | 826                                           |       | (11,565   | )          |
| Other  comprehensive income (loss) |       | 7,325                                           |       | (748                                          | )          | 6,577     |       |
|                               |       |                                            |       |                                          |       |      |       |
| Balance at December 31,  2005 |       | $                                               | (5,066     | )                                             | $          | 78        |       | $ | (4,988 | ) |

 

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

*Transactions With Other Officersand Directors*

 

 In a letter agreement between Adelphia and FPLGroup, Inc. (“FPL Group”) dated January 21, 1999, Adelphia agreed to (i) repurchase20,000 shares of Series C Preferred Stock and 1,091,524 shares of Class ACommon Stock owned by Telesat Cablevision, Inc., a subsidiary of FPL Group(“Telesat”) and (ii) transfer all of the outstanding common stock of WestBoca Security, Inc. (“WB Security”), a subsidiary of OlympusCommunications, L.P. (“Olympus”), to FPL Group in exchange for FPL Group’s 50%voting interest and 1/3 economic interest in Olympus. The Company ownedthe economic and voting interests in Olympus that were not then owned by FPLGroup. At the time this agreement was entered into, Dennis Coyle, then a memberof the Adelphia board of directors, was the General Counsel and Secretary ofFPL Group. WB Security was a subsidiary of Olympus and WB Security’s sole assetwas a $108,000,000 note receivable (the “WB Note”) from a subsidiary of Olympusthat was secured by the FPL Group’s ownership interest in Olympus and due September 1,2004. On January 29, 1999, Adelphia purchased all of the aforementionedshares of Series C Preferred Stock and Class A Common Stock describedabove from Telesat for aggregate cash consideration of $149,213,000, and on October 1,1999, the Company acquired FPL Group’s interest in Olympus in exchange for allof the outstanding common stock of WB Security. The acquired shares of Class ACommon Stock are presented as treasury stock in the accompanying consolidatedbalance sheets. The acquired shares of Series C Preferred Stock werereturned to their original status of authorized but unissued. On June 24,2004, the Creditors’ Committee filed an adversary proceeding in the BankruptcyCourt, among other things, to avoid, recover and preserve the cash paid byAdelphia pursuant to the repurchase of its Series C Preferred Stock and Class ACommon Stock together with all interest paid with respect to such repurchase. Ahearing date relating to such adversary proceeding has not yet been set.Interest on the WB Note is calculated at a rate of 6% per annum (or afterdefault at a variable rate of LIBOR plus 5%). FPL Group has the right, upon atleast 60 days prior written notice, to require repayment of the principaland accrued interest on the WB Note on or after July 1, 2002. As of December 31,2005 and 2004, the aggregate principal and interest due to the FPL Grouppursuant to the WB Note was $127,537,000. The Company has not accrued intereston the WB Note for periods subsequent to the Petition Date. To date, theCompany has not yet received a notice from FPL Group requiring the repayment ofthe WB Note.

 

From May 2002 until July 2003,the Company engaged Conway, Del Genio, Gries & Co., LLC (“CDGC”) toprovide certain restructuring services pursuant to an engagement letter dated May 21,2002 (the “Conway Engagement Letter”). During that time, Ronald F. Stengel,Adelphia’s former and interim Chief Operating Officer and Chief RestructuringOfficer, was a Senior Managing Director of CDGC. The Conway Engagement Letterprovided for Mr. Stengel’s services to Adelphia while remaining afull-time employee of CDGC. In addition, other employees of CDGC were assignedto assist Mr. Stengel in connection with the Conway Engagement Letter.Pursuant to the Conway Engagement Letter, the Company paid CDGC a total of$2,827,000 for its services in 2003 (which includes the services of Mr. Stengel).The Company also paid CDGC a total of $104,000 in 2003 for reimbursement ofCDGC’s out-of pocket expenses incurred in connection with the engagement. Theseamounts are included in reorganization expenses due to bankruptcy in theaccompanying consolidated statements of operations.

 

## *Sale of SecurityMonitoring Business*

 

In November 2004,the Company entered into an asset purchase agreement to sell its securitymonitoring business in Pennsylvania, Florida and New York.  Such sale was approved by the Bankruptcy Courton January 28, 2005 and closed on February 28, 2005. The adjustedpurchase price was $37,900,000. The Company recognized a $4,500,000 gain onthis transaction during the year ended December 31, 2005.

 

155

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**ADELPHIA COMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**

 

# **Note 18: **QuarterlyFinancial Information (unaudited) (amounts in thousands, except per shareamounts)

 
| ** **                                                         | ** ** | **Quarter Ended 2005** | ** ** |
|--------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                         | ** ** | **March 31**      | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| Revenue                                                            |       | $                      | 1,069,002  |   | $ | 1,103,223 |   | $ | 1,088,568 |   | $ | 1,103,777 |   |
| Operating  income                                                  |       | $                      | 71,553     |   | $ | 74,564 |   | $ | 53,293 |   | $ | 83,419 |   |
| Net income  (loss) (1)                                             |       | $                      | (82,742    | ) | $ | 291,038 |   | $ | (146,558 | ) | $ | (27,075 | ) |
| Amounts per  weighted average share of common stock (2):           |       |                   |       |   |   |   |   |   |   |
| Basic net  income (loss) applicable to Class A Common Stock   |       | $                      | (0.33      | ) | $ | 1.15 |   | $ | (0.58 | ) | $ | (0.11 | ) |
| Diluted net  income (loss) applicable to Class A Common Stock |       | $                      | (0.33      | ) | $ | 0.86 |   | $ | (0.58 | ) | $ | (0.08 | ) |
| Basic net  income (loss) applicable to Class B Common Stock   |       | $                      | (0.33      | ) | $ | 1.10 |   | $ | (0.58 | ) | $ | (0.11 | ) |
| Diluted net  income (loss) applicable to Class B Common Stock |       | $                      | (0.33      | ) | $ | 0.82 |   | $ | (0.58 | ) | $ | (0.08 | ) |

 
| ** **                                                                           | ** ** | **Quarter Ended 2004** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                           | ** ** | **March 31**      | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| Revenue                                                                              |       | $                      | 1,007,330  |   | $ | 1,036,470 |   | $ | 1,041,366 |   | $ | 1,058,222 |   |
| Operating  income (loss)                                                             |       | $                      | (42,981    | ) | $ | (28,346 | ) | $ | (107,961 | ) | $ | 14,284 |   |
| Loss from  continuing operations before cumulative effects of accounting changes (3) |       | $                      | (503,442   | ) | $ | (168,147 | ) | $ | (260,797 | ) | $ | (126,287 | ) |
| Gain (loss)  from discontinued operations                                            |       | $                      | 499        |   | $ | (1,070 | ) | $ | — |   | $ | — |   |
| Loss before  cumulative effects of accounting changes                                |       | $                      | (502,943   | ) | $ | (169,217 | ) | $ | (260,797 | ) | $ | (126,287 | ) |
| Cumulative  effects of accounting changes (4)                                        |       | $                      | (851,629   | ) | $ | — |   | $ | — |   | $ | — |   |
| Net loss                                                                             |       | $                      | (1,354,572 | ) | $ | (169,217 | ) | $ | (260,797 | ) | $ | (126,287 | ) |
| Basic and  diluted loss per weighted average share of common stock:                  |       |                   |       |   |   |   |   |   |   |
| From  continuing operations before cumulative effects of accounting changes          |       | $                      | (1.99      | ) | $ | (0.67 | ) | $ | (1.04 | ) | $ | (0.50 | ) |
| Cumulative  effects of accounting changes                                            |       | $                      | (3.36      | ) | $ | — |   | $ | — |   | $ | — |   |
| Net loss  applicable to common stockholders                                          |       | $                      | (5.35      | ) | $ | (0.67 | ) | $ | (1.04 | ) | $ | (0.50 | ) |

 

----

(1)   TheCompany recorded a $457,733,000 net benefit during the quarter ended June 30,2005 related to the Government Settlement Agreements.

 

(2)   Basicand diluted EPS of Class A and Class B Common Stock considers thepotential impact of dilutive securities. For the quarters ended March 31,2005, September 30, 2005 and December 31, 2005, the potential impactof dilutive securities has been excluded from the calculation of basic anddiluted EPS as the inclusion of potential common shares would have had an anti-dilutiveeffect.

 

(3)   TheCompany recorded a $425,000,000 charge during the quarter ended March 31,2004 related to the Government Settlement Agreements.

 

(4)   Asa result of the consolidation of the Rigas Co-Borrowing Entities, the Companyrecorded a $588,782,000 charge as a cumulative effect of a change in accountingprinciple during the quarter ended March 31, 2004. The application of thenew amortization method to customer relationships acquired prior to 2004resulted in an additional charge of $262,847,000 which has been reflected as acumulative effect of a change in accounting principle.

 

156

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**SUPPLEMENTALFINANCIAL SCHEDULES**

 

**ADELPHIA COMMUNICATIONSCORPORATION**

**(Debtors-In-Possession)**

**SCHEDULE I**

**CONDENSED BALANCE SHEETS (ParentCompany Only)**

**(amounts in thousands)**

 
| ** **                                                                                                                                 | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                 | ** ** | **2005**              | ** ** | **2004** | ** ** |
|                                                                                                                                       |       |                  |       |   |   |
| ASSETS                                                                                                                                     |       |                  |       |   |   |
| Receivable  for securities                                                                                                                 |       | $                     | 10,029     |   | $ | — |   |
| Total assets                                                                                                                               |       | $                     | 10,029     |   | $ | — |   |
|                                                                                                                                       |       |                  |       |   |   |
| LIABILITIES  AND STOCKHOLDERS’ DEFICIT                                                                                                |       |                  |       |   |   |
| Current  liabilities:                                                                                                                      |       |                  |       |   |   |
| Obligation  to fund losses of investments in and advances to consolidated subsidiaries                                                     |       | $                     | 264,095    |   | $ | 327,713 |   |
| Total  current liabilities                                                                                                                 |       | 264,095               |       | 327,713 |   |
|                                                                                                                                       |       |                  |       |   |   |
| Liabilities  subject to compromise                                                                                                         |       | 7,891,777             |       | 7,888,113 |   |
| Total  liabilities                                                                                                                         |       | 8,155,872             |       | 8,215,826 |   |
|                                                                                                                                       |       |                  |       |   |   |
| Stockholders’  deficit:                                                                                                               |       |                  |       |   |   |
| Series preferred  stock                                                                                                               |       | 397                   |       | 397 |   |
| Class A  Common Stock, $.01 par value, 1,200,000,000 shares authorized, 229,787,271  shares issued and 228,692,414 shares outstanding |       | 2,297                 |       | 2,297 |   |
| Convertible Class B  Common Stock, $.01 par value, 300,000,000 shares authorized, 25,055,365  shares issued and outstanding           |       | 251                   |       | 251 |   |
| Additional  paid-in capital                                                                                                                |       | 12,071,165            |       | 12,071,165 |   |
| Accumulated  other comprehensive loss, net                                                                                                 |       | (4,988                | )          | (11,565 | ) |
| Accumulated  deficit                                                                                                                       |       | (20,187,028           | )          | (20,221,691 | ) |
| Treasury  stock, at cost, 1,094,857 shares of Class A Common Stock                                                                    |       | (27,937               | )          | (27,937 | ) |
|                                                                                                                                       |       | (8,145,843            | )          | (8,187,083 | ) |
| Amounts due  from the Rigas Family and Other Rigas Entities, net                                                                           |       | —                |       | (28,743 | ) |
| Total  stockholders’ deficit                                                                                                          |       | (8,145,843            | )          | (8,215,826 | ) |
| Total  liabilities and stockholders’ deficit                                                                                          |       | $                     | 10,029     |   | $ | — |   |

 

157

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**ADELPHIA COMMUNICATIONSCORPORATION**

**(Debtors-In-Possession)**

**SCHEDULE I**

**CONDENSED STATEMENTS OFOPERATIONS (Parent Company Only)**

**(amounts in thousands)**

 
| ** **                                                                                                              | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                              | ** ** | **2005**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                                                    |       |                             |       |   |   |   |   |
| Other  expense, net                                                                                                     |       | $                                | (36,134    | ) | $ | (425,000 | ) | $ | — |   |
|                                                                                                                    |       |                             |       |   |   |   |   |
| Share of  income (losses) of consolidated subsidiaries, net                                                             |       | 70,797                           |       | (1,485,873 | ) | (832,612 | ) |
| Net income  (loss)                                                                                                      |       | 34,663                           |       | (1,910,873 | ) | (832,612 | ) |
| Dividend  requirements applicable to preferred stock (contractual dividends were  $120,125 during 2005, 2004 and 2003): |       |                             |       |   |   |   |   |
| Beneficial  conversion feature                                                                                          |       | (583                             | )          | (8,007 | ) | (7,317 | ) |
| Net income  (loss) applicable to common stockholders                                                                    |       | $                                | 34,080     |   | $ | (1,918,880 | ) | $ | (839,929 | ) |

 

158

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**ADELPHIA COMMUNICATIONSCORPORATION**

**(Debtors-In-Possession)**

**SCHEDULE I**

**CONDENSED STATEMENTS OF CASH FLOWS(Parent Company Only)**

**(amounts in thousands)**

 
| ** **                                                                                | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                | ** ** | **2005**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Operating  Activities:**                                                                | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income  (loss)                                                                        |       | $                                | 34,663     |   | $ | (1,910,873 | ) | $ | (832,612 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by operating activities: |       |                             |       |   |   |   |   |
| Share of  (income) losses of consolidated subsidiaries, net                               |       | (70,797                          | )          | 1,485,873 |   | 832,612 |   |
| Provision  for government settlement                                                      |       | —                           |       | 425,000 |   | — |   |
| Provision  for uncollectible amounts due from Rigas Family and Rigas Family Entities      |       | 13,338                           |       | — |   | — |   |
| Impairment  of receivable for securities                                                  |       | 24,600                           |       | — |   | — |   |
| Other  noncash gains, net                                                                 |       | (1,804                           | )          | — |   | — |   |
| Net cash  provided by operating activities                                                |       | —                           |       | — |   | — |   |
|                                                                                      |       |                             |       |   |   |   |   |
| **Investing  Activities:**                                                                |       |                             |       |   |   |   |   |
| Net cash  used in investing activities                                                    |       | —                           |       | — |   | — |   |
|                                                                                      |       |                             |       |   |   |   |   |
| **Financing  Activities:**                                                                |       |                             |       |   |   |   |   |
| Net cash  provided by financing activities                                                |       | —                           |       | — |   | — |   |
|                                                                                      |       |                             |       |   |   |   |   |
| **Increase  in cash and cash equivalents**                                                |       | —                           |       | — |   | — |   |
| **Cash and  cash equivalents at beginning of year**                                       |       | —                           |       | — |   | — |   |
| **Cash and  cash equivalents at end of year**                                             |       | $                                | —     |   | $ | — |   | $ | — |   |

 

159

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES**

**(Debtors-In-Possession)**

**SCHEDULE II**

**VALUATIONAND QUALIFYING ACCOUNTS**

**Yearsended December 31, 2005, 2004 and 2003**

**(Amountsin thousands)**

 
| ** **                                   | ** ** | **Balance at  beginning of  period** | ** ** | **Additions/  charges to  costs and  expenses** | ** ** | **Deductions  (1)** | ** ** | **Settlements  (2)** | ** ** | **Adjustments  (3)** | ** ** | **Balance at  end of  period** | ** ** |
|----------------------------------------------|------------|--------------------------------------|------------|-------------------------------------------------|------------|---------------------|------------|----------------------|------------|----------------------|------------|--------------------------------|------------|
| For the year  ended December 31, 2005:  |       |                                 |       |                                            |       |                |       |                 |       |                 |       |                           |       |
| Allowance  for doubtful accounts             |       | $                                    | 37,954     |                                            | $          | 50,273              |       | $                    | (60,133    | )                    | $          | (12,147                        | )          | $ | (35 | ) | $ | 15,912 |   |
| Valuation  allowance for deferred tax assets |       | 4,715,603                            |       | 33,334                                          |       | —              |       | —               |       | (1,045               | )          | 4,747,892                      |       |
| For the year  ended December 31, 2004:  |       |                                 |       |                                            |       |                |       |                 |       |                 |       |                           |       |
| Allowance  for doubtful accounts             |       | $                                    | 40,108     |                                            | $          | 67,387              |       | $                    | (70,962    | )                    | $          | —                         |       | $ | 1,421 |   | $ | 37,954 |   |
| Valuation  allowance for deferred tax assets |       | 4,275,754                            |       | 438,602                                         |       | —              |       | —               |       | 1,247                |       | 4,715,603                      |       |
| For the year  ended December 31, 2003:  |       |                                 |       |                                            |       |                |       |                 |       |                 |       |                           |       |
| Allowance  for doubtful accounts             |       | $                                    | 26,957     |                                            | $          | 56,395              |       | $                    | (43,244    | )                    | $          | —                         |       | $ | — |   | $ | 40,108 |   |
| Valuation  allowance for deferred tax assets |       | 3,984,586                            |       | 291,168                                         |       | —              |       | —               |       | —               |       | 4,275,754                      |       |

 

----

(1)   Represents amounts written off as uncollectible,net of recoveries.

 

(2)   Thedecrease is primarily attributable to a settlement in connection with theDebtor’s Chapter 11 Cases.

 

(3)   The 2005 amount reflects the deconsolidationof Coudersport and Bucktail as a result of the Government Settlement Agreements(see Note 6). The 2004 amountsrepresent the impact of the consolidation of the Rigas Co-Borrowing Entities(see Note 5).

 

160

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## ***ITEM 9.*****           ****CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ONACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

**ITEM 9A. CONTROLS AND PROCEDURES**

 

As noted on the cover page ofthis Annual Report, we are not an accelerated filer (as defined in Rule 12b-2of the Exchange Act) in respect of this Annual Report. Therefore, we are notrequired to provide the disclosures in this Annual Report otherwise required byItems 308(a) (*Management’s Annual Reporton Internal Control Over Financial Reporting*) and 308(b) (*Attestation Report of the Registered Public Accounting Firm*)of Regulation S-K. In addition, our CEO and CFO are not required tocertify as to the design of our internal control over financial reporting inrespect of this Annual Report. Therefore, such officers’ respectivecertifications of this Annual Report, filed as Exhibits 31.1 and 31.2 tothis Annual Report, do not contain this particular certification (customarilyset forth as paragraph 4(b) to such certifications).

 

**EVALUATION OF DISCLOSURE CONTROLSAND PROCEDURES**

 

We maintain disclosurecontrols and procedures that are designed to ensure that information requiredto be disclosed in our reports filed under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms. Disclosure controls and procedures include controls andprocedures designed to ensure that such information is accumulated andcommunicated to our management, including our CEO, CFO and CAO, as appropriate,to allow timely decisions regarding required financial disclosure.

 

Our management, under thesupervision and with the participation of our CEO, CFO and CAO, has completedan evaluation of the effectiveness of the design and operation of ourdisclosure controls and procedures (as defined in Rule 13a-15(e) underthe Exchange Act) as of the end of the fiscal year ended December 31,2005. Based on our evaluation of the effectiveness of the design and operationof our disclosure controls and procedures, our management, including our CEO,CFO and CAO, concluded that as of December 31, 2005, our disclosure controlsand procedures were effective.

 

## ***CHANGES IN INTERNAL CONTROL OVERFINANCIAL REPORTING***

 

In the Company’s 2004 Annual Report on Form 10-K forthe fiscal year ended December 31, 2004 (“the 2004 Annual Report”), wedisclosed three material weaknesses in our internal control over financialreporting. The following is a discussion of specific changes that we have madeto our internal control over financial reporting during 2005 relating to thematerial weaknesses previously disclosed in the 2004 Annual Report.

 

A “control deficiency”exists when the design or operation of an internal control over financialreporting does not allow management or employees, in the normal course ofperforming their assigned functions, to prevent or detect misstatements on atimely basis. A “significant deficiency” is a control deficiency, or acombination of control deficiencies, that adversely affects the company’sability to initiate, authorize, record, process or report external financialdata reliably in accordance with GAAP such that there is more than a remotelikelihood that a misstatement of the company’s annual or interim financialstatements that is more than inconsequential will not be prevented or detected.A “material weakness” is a significant deficiency, or combination ofsignificant deficiencies, that results in more than a remote likelihood that amaterial misstatement of the annual or interim financial statements will not beprevented or detected.

 

With respect to theaccess to the financial applications and data material weakness disclosed inthe 2004 Annual Report, we completed our remediation efforts with the exceptionof two significant deficiencies. One significant deficiency relates to a systemconstraint that would require significant system modification. The othersignificant deficiency relates to user access and was partially remediated asof December 31, 2005. During the fourth quarter of 2005, we completed theimplementation of policies and procedures that govern security and access toour IT systems, programs and data, including those supporting our financialdata relating to property and equipment and our general ledger and financial

 

161

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reporting applications.In addition, employees are required to complete training and acknowledge anunderstanding of our Code of Business Conduct and Ethics, which addressesproper use of our assets, including requirements for security/access controls.

 

With respect to theproperty and equipment accounting material weakness disclosed in the 2004Annual Report, we completed our remediation efforts with the exception of onesignificant deficiency related to contractor labor and materials used inconnection with our capital projects. We completed three accurate physicalinventories, including one as of December 31, 2005, of our constructionmaterials, repair and maintenance supplies and customer premise equipment.During the first quarter of 2005, we implemented policies and procedures toimprove controls over capital projects specifically related to the commencementof depreciation expense for capital assets placed in service and controls overthe appropriate review and approval for contractor labor and materials used inconnection with capital projects. During the fourth quarter of 2005, wecontinued to enhance our policies and procedures for contractor labor andmaterials.

 

With respect to the period-end financialreporting process material weakness disclosed in the 2004 Annual Report, wecompleted our remediation efforts with the exception of one significantdeficiency related to spreadsheets. During the first quarter of 2005, controlswere implemented to ensure that journal entries recorded in our general ledgerhave adequate supporting documentation and are appropriately reviewed andapproved prior to being recorded in the general ledger. During the thirdquarter of 2005, we implemented monitoring controls that help ensure generalledger accounts are assigned to specific accounting personnel accountable forensuring that the general ledger accounts are reconciled and reviewed on atimely basis and that adequate supporting documentation is maintained. Duringthe fourth quarter of 2005, we completed an inventory of significantspreadsheets used in our financial reporting process. In addition, we haveprovided guidelines to assist our personnel regarding the preparation andproper use of spreadsheets. During 2006, we will continue to improve internalcontrols over spreadsheets, including a monitoring process and ensuring thatdata integrity and version controls as well as restricted access are effective.

 

After consideration of the remediation efforts describedabove, we have concluded that as of December 31, 2005, the materialweaknesses disclosed in the 2004 Annual Report have been remediated. Inaddition, based on the work we performed during 2005 on our internalcontrol over financial reporting, we have not identified any new materialweaknesses as of December 31, 2005.

 

## ***ITEM 9B. OTHER INFORMATION***

 

None.

 

162

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# **PARTIII**

 

## **ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THEREGISTRANT**

## ** **

### **CURRENTEXECUTIVE OFFICERS AND DIRECTORS**

### ** **

Ourcurrent executive officers and directors and their respective ages (as ofFebruary 28, 2006) are as follows:

 
| **Name**               | ** ** | **Age** | ** ** | **Position**                                             |
|------------------------|------------|---------|------------|----------------------------------------------------------|
|                   |       |    |       |                                                     |
| William T. Schleyer    |       | 54      |       | Chairman and CEO                                         |
| Ron Cooper             |       | 48      |       | President and COO                                        |
| Vanessa A. Wittman     |       | 38      |       | Executive Vice President and CFO                         |
| Brad M. Sonnenberg     |       | 50      |       | Executive Vice President, General Counsel and  Secretary |
| Scott D. Macdonald     |       | 44      |       | SVP and CAO                                              |
| David R. Brunick       |       | 44      |       | SVP – Human Resources                               |
| Jack A. Olson          |       | 51      |       | SVP – Media Services                                |
| Joseph W. Bagan        |       | 41      |       | SVP – Southeast Region                              |
| Paula J. Trustdorf     |       | 59      |       | SVP – Central Region                                |
| Lee A. Perron          |       | 52      |       | SVP – California Region                             |
| Robert G. Wahl         |       | 64      |       | SVP – Northeast Region                              |
| Steven M. Delgado      |       | 48      |       | SVP – Western Region                                |
| E. Thayer Bigelow, Jr. |       | 64      |       | Director                                                 |
| Rodney W. Cornelius    |       | 55      |       | Director                                                 |
| Anthony T. Kronman     |       | 60      |       | Director                                                 |
| Philip R. Lochner, Jr. |       | 62      |       | Director                                                 |
| Susan Ness             |       | 57      |       | Director                                                 |
| Kenneth L. Wolfe       |       | 67      |       | Director                                                 |

 

Belowis information, including biographical information, about our current executiveofficers and directors.

 

**William T. Schleyer** has served as ourChairman and CEO since March 2003. Prior to joining Adelphia, fromOctober 2001 to November 2002, Mr. Schleyer was President andCEO of AT&T Broadband, which provided cable video, HSI access and telephonyservice to more than 13 million homes across the United States. AT&TBroadband merged with Comcast Corporation in November 2002. Prior to joiningAT&T Broadband, from February 2000 to October 2001,Mr. Schleyer was a principal in Pilot House Ventures Group, LLC, a venturecapital company based in Boston. Mr. Schleyer also previously served asPresident and COO of MediaOne, the broadband services arm of U S WEST MediaGroup from November 1996 to October 1997. He also was President andCOO of Continental Cablevision, Inc. before the company’s merger with U SWEST in 1996. Mr. Schleyer serves on the board of directors for theNational Cable Television Association, CableLabs, Inc., C-SPAN and RogersCommunications, Inc.

 

**Ron Cooper** has served as our President andCOO since March 2003. Prior to joining Adelphia, Mr. Cooper was COOof AT&T Broadband from October 2001 to November 2002, where hewas responsible for the operational management of all of the company’sfunctional and geographical units and directed AT&T Broadband’s video,voice and data businesses. Before joining AT&T Broadband, fromApril 2000 to October 2001, Mr. Cooper was co-founder, Presidentand COO of Relera, an information services company serving corporate customers.Mr. Cooper previously served as Executive Vice President of MediaOne from1995 to July 1999, where he oversaw all operations, and previously held anumber of senior executive positions with Continental Cablevision, Inc.Mr. Cooper is a member of the National Cable Television Association, theCable and

 

 

163

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TelecommunicationsAssociation for Marketing and a number of state trade associations and industryand community organizations.

 

**Vanessa A. Wittman** has served as ourExecutive Vice President and CFO since March 2003. Prior to joiningAdelphia, from April 2001 to March 2003, Ms. Wittman served asCFO at 360networks, a telecommunications service provider, where she led thatcompany’s restructuring efforts to successfully emerge from bankruptcyprotection. From February 2000 to April 2001, Ms. Wittman servedas Vice President, Corporate Development at 360networks. Prior to joining360networks, Ms. Wittman served as Senior Director of CorporateDevelopment at Microsoft Corporation from April 1999 to May 2000, andhad previously been the CFO of the wireless-services company,Metricom, Inc. from April 1997 to December 1999.

 

**Brad M. Sonnenberg** has served as ourExecutive Vice President, General Counsel and Secretary since July 2003.Prior to joining Adelphia, Mr. Sonnenberg was Senior Vice President,General Counsel and Secretary from June 2002 to July 2003 at CovadCommunications, where he played a lead role in that company’s bankruptcyrestructuring. Mr. Sonnenberg joined Covad Communications, a provider ofHSI and network access utilizing DSL technology, in January 1999. FromOctober 1990 to January 1999, Mr. Sonnenberg served as anAssistant U.S. Attorney for the Department of Justice, where he prosecutedwhite collar crimes.

 

**Scott D. Macdonald** has served as our SVPand CAO since March 2003. Prior to joining Adelphia, Mr. Macdonaldwas Senior Vice President and Corporate Controller at AT&T Broadband fromFebruary 2001 to November 2002. From June 2000 toJanuary 2001, Mr. Macdonald served as AT&T Broadband’s VicePresident of Financial Operations. Prior to this position, Mr. Macdonaldwas Senior Vice President of Accounting and Finance for AT&T Broadband fromJune 1999 to May 2000. Before joining AT&T Broadband,Mr. Macdonald was Vice President and Controller for Primestar, Inc.,a provider of satellite television services in the United States, fromOctober 1996 to May 1999. He is a certified public accountant in thestate of Colorado and is a member of the American Institute of Certified PublicAccountants and the Colorado Society of Certified Public Accountants.

 

**David R. Brunick** has served as ourSVP—Human Resources since March 2003. Mr. Brunick has 22 yearsof human resource experience in the transportation, health, telecommunicationsand cable/broadband industries. Prior to joining Adelphia, fromFebruary 2000 through December 2002, Mr. Brunick was Senior VicePresident of Human Resources for AT&T Broadband. Prior to that position,from January 1998 to February 2000, Mr. Brunick was VicePresident of Human Resources at MediaOne.

 

**Jack A. Olson** has served as our SVP—MediaServices since April 2003. Mr. Olson joined Adelphia in 1980. He hasheld a series of management and marketing positions with us, including RegionalSales and Marketing Director for Michigan, Ohio, New York and Virginia fromOctober 1985 to July 1989, Corporate Director of Advertising fromJuly 1989 to January 1996 and Vice President of Media Developmentfrom January 1996 to March 2003.

 

**Joseph W. Bagan** has served as ourSVP—Southeast Region since April 2004. From March 2003 toMarch 2004, Mr. Bagan was the Senior Vice President—InformationTechnology and Chief Administrative Officer of Adelphia. Prior to joiningAdelphia, from December 2002 to February 2003, Mr. Bagan was theCFO for Ricochet Wireless High Speed Data Internet (d/b/a RicochetNetworks, Inc.), a wireless high-speed data service provider targeted tomobile high speed data users. Prior to joining Ricochet, Mr. Bagan wasChief Information Officer for AT&T Broadband from January 2000 toOctober 2001, and was the Senior Vice President of Billing Operations andChief Information Officer from October 2001 to November 2002.Mr. Bagan had previously been a partner at Arthur Andersen responsible forthe Communications, Media and High Tech consulting practice for thesouthwestern United States from October 1997 to January 2000.

 

**Paula J. Trustdorf** has served as ourSVP—Central Region since September 2003. Ms. Trustdorf has more than13 years of experience in the cable industry. Prior to joining Adelphia,from June 2000 to March 2003, Ms. Trustdorf was a Senior VicePresident at AT&T Broadband, responsible for its Dallas Region. Prior toher role at AT&T Broadband, Ms. Trustdorf was Regional Vice President,Operations—Northwest Division at TCI of Colorado, Inc. fromFebruary 1998 to June 2000.

 

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**Lee A. Perron** has served as our SVP—CaliforniaRegion since April 2003. Mr. Perron has 25 years experience inthe cable television industry. He joined Adelphia in October 1999 inconnection with Adelphia’s acquisition of Century. Mr. Perron held severalmanagement positions with Adelphia prior to being appointed to his currentposition, including Vice President, Corporate Affairs from October 1999 toFebruary 2002 and Regional Vice President from March 2002 to March 2003.Prior to his employment with us, Mr. Perron held various managementpositions at Tele-Communications, Inc., serving as that company’s RegionalVice President, West Division from 1997 until 1998.

 

**Robert G. Wahl** has served as ourSVP—Northeast Region since April 2003. Mr. Wahl joined Adelphia in1990. Mr. Wahl has served in a series of management positions for us inconnection with cable systems throughout the Northeast, including CorporateDirector of Operations for the Great Lakes Region from June 1994 toJuly 1999, and Regional Vice President for the Great Lakes Region fromAugust 1999 to March 2003.

 

**Steven M. Delgado** has served as ourSVP—Western Region since September 2003. Mr. Delgado joined Adelphiain October 1999 as Regional Vice President in connection with Adelphia’sacquisition of Century. From 1997 to October 1999, Mr. Delgado servedas Vice President at Century, where he managed its Western Region.Mr. Delgado is a 24-year veteran of the cable industry, and has worked inthe areas of advertising sales, direct sales, telemarketing, marketing, programmingand operations.

 

**E. Thayer Bigelow, Jr.** was appointed adirector by the Board effective August 2003. Mr. Bigelow is a memberof the Audit Committee and Chairman of the Compensation Committee of the Board.Mr. Bigelow has been the Managing General Partner of Bigelow Media, LLC,which is an investor in media and entertainment companies, sinceSeptember 2000. Previously, Mr. Bigelow was Senior Advisor of TimeWarner, Inc., a media and entertainment company, from October 1998 toSeptember 2000. From February 1997 to October 1998,Mr. Bigelow was the Acting CEO of Courtroom Television Network LLC, anetwork distributed through cable television and satellite systems providinglive coverage of trials and related documentary and entertainment programming.From September 1991 to February 1997, Mr. Bigelow was thePresident and CEO of Time Warner Cable Programming, Inc., which developedand invested in new cable television networks and other new servicesdistributed over cable systems. From May 1988 to September 1991,Mr. Bigelow served as the President of Home Box Office, Inc, a distributorof pay television programming throughout the world on cable television andsatellite systems. Mr. Bigelow serves on the boards of directors of CraneCo. and Huttig Building Products, Inc. and is an independent director ofthe Lord Abbett family of mutual funds.

 

**Rodney W. Cornelius** was appointed adirector by the Board effective October 2002. Mr. Cornelius, a20-year veteran of the cable industry, is currently an investor focusing onprivate and public markets as well as venture capital. In 1997,Mr. Cornelius co-founded and was an investor in Renaissance Cable, whichowned and operated cable systems, and served as its Vice Chairman until 1999when it was sold to Charter Communications. In 1983, Mr. Cornelius wasemployed by and held a minority interest in Cablevision Industries, Inc.,which at the time, owned and operated cable systems serving approximately100,000 subscribers. Mr. Cornelius held various executive positions includingCFO, COO and Vice Chairman of the Board until 1996 when the company, thenhaving approximately 1.5 million subscribers, was sold to TimeWarner, Inc. Prior to 1983, Mr. Cornelius was a Certified PublicAccountant.

 

**Anthony T. Kronman** was appointed a directorby the Board effective October 2002 and was appointed Lead Director onDecember 5, 2003. Professor Kronman is a member of the CorporateGovernance and Nominating Committee of the Board. Professor Kronman is SterlingProfessor of Law at Yale Law School and was the dean of the school from 1994until his deanship concluded on July 1, 2004.

 

**Philip R. Lochner, Jr.** was appointed adirector by the Board effective May 2003. Mr. Lochner is a member ofthe Compensation Committee and Chairman of the Corporate Governance andNominating Committee of the Board. Mr. Lochner serves on the boards ofdirectors of Apria Healthcare Group Inc., CMS Energy, GTechHoldings, Inc., Clarcor Inc. and Solutia Inc. Mr. Lochnerserved as Senior Vice President and Chief Administrative Officer of TimeWarner, Inc. from July 1991 to June 1998. Previously,Mr. Lochner served as a Commissioner on the United States Securities andExchange Commission from March 1990 to July 1991.

 

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**Susan Ness** was appointed a director by theBoard effective May 2003. Ms. Ness is a member of the Audit andCorporate Governance and Nominating Committees of the Board. SinceAugust 2005, Ms. Ness has served as the President and Chief ExecutiveOfficer of GreenStone Media, LLC, formerly the Women’s Radio Network, LLC,formed to produce and syndicate talk radio for women. Since 2001, Ms. Nesshas been a business consultant to communications companies. Ms. Ness wasDistinguished Visiting Professor of Communication at the Annenberg School forCommunication (University of Pennsylvania) and Director of Information andSociety of the Annenberg Policy Center for the 2001-2002 academic year.Ms. Ness was a Commissioner of the Federal Communications Commission from1994 to 2001. Prior to joining the Federal Communications Commission,Ms. Ness was a vice president of American Security Bank and was the grouphead for lending to communications companies. She also was Assistant GeneralCounsel to the Banking, Currency and Housing Committee of the United StatesHouse of Representatives during the mid-1970s. Ms. Ness serves on theboards of directors of LCC International, Inc. and the Library of AmericanBroadcasting Foundation.

 

**Kenneth L. Wolfe** was appointed a directorby the Board effective August 2003. Mr. Wolfe is Chairman of theAudit Committee of the Board. Mr. Wolfe served as the Chairman and CEO ofHershey Foods Corporation, a food products manufacturing firm, from 1994 untilhis retirement in December 2001. He joined that company in 1967 and heldvarious executive positions before being appointed Vice President and CFO in1981. In 1984, Mr. Wolfe was named Senior Vice President. From 1985 to1993, he was President and COO. Mr. Wolfe serves on the board of directorsof Bausch & Lomb, Inc. and Revlon, Inc., and is a member ofthe Board of Trustees of Fidelity Funds.

 

Thereare no family relationships among our current executive officers and directors.Ms. Wittman was serving as an executive officer at 360networks when itfiled for protection under Chapter 11 in June 2001.

 

Eachdirector named above holds such office until the next annual meeting ofstockholders and until his or her successor is elected and qualified or untilhis death, resignation or removal.

 

#### ***Identification of Audit Committee/Audit CommitteeFinancial Expert***

#### *** ***

Adelphia has a separately designated standing Audit Committeeestablished in accordance with Section 3(a)(58)(A) of the Exchange Act.The Audit Committee, which has a written charter approved by the Board,consists of three directors: Kenneth L. Wolfe, Chairman, E. Thayer Bigelow, Jr.and Susan Ness. Each member of the Audit Committee is independent and able toread and understand fundamental financial statements as defined in the listingstandards of Nasdaq and applicable SEC regulations. The Board has determinedthat Mr. Wolfe is an audit committee financial expert within the meaningof Item 401(h) of Regulation S-K under the Securities Act.

 

***Code of Business Conduct and Ethics***

 

Adelphiaadopted its Code of Ethics in April 2003 and amended its Code of Ethics inMay 2005. See Item 1, “Business — CorporateGovernance — Code of Business Conduct and Ethics.”

 

#### ***Section 16(a) Beneficial Ownership ReportingCompliance***

#### *** ***

Section 16(a)of the Exchange Act requires directors, executive officers and persons who ownmore than 10% of the Class A Common Stock, to file with the SEC initialreports of ownership and reports of changes in ownership of Adelphia’s equitysecurities. Directors, executive officers and greater than 10% stockholders arerequired by SEC regulations to provide us with copies of all Section 16(a)reports they file. Based solely on our review of the copies of such reportsfurnished to us and written representations from our executive officers anddirectors, during and for the year 2005, all Section 16(a) filingrequirements applicable to our executive officers and directors were compliedwith. In addition, based solely on our review of the copies ofSection 16(a) reports furnished to us, the following greater than 10%stockholders did not file Forms 5 for the year 2005:  John J. Rigas,Michael J. Rigas, Timothy J. Rigas, James P. Rigas, Ellen Rigas Venetis,Highland, a Rigas Family Entity, and Leonard Tow. We are unable to determinewhether such filings were required under Section 16(a) because we do nothave access to, and those individuals have not provided us with, the necessaryinformation to make such a determination.

 

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## **ITEM 11. EXECUTIVE COMPENSATION**

## ** **

### **SUMMARY COMPENSATION**

### ** **

Thefollowing table sets forth for the periods indicated information regarding thecompensation earned by or paid to our current CEO, the four other most highlycompensated executive officers serving as of December 31, 2005 (collectivelyreferred to herein as the “Named Executive Officers”):

 

**Summary Compensation Table**

 
| ** **                                           | ** ** | **Annual Compensation** | ** ** | ** **                |
|------------------------------------------------------|------------|------------------------------|------------|---------------------------|
| **Name and Principal Position**       | ** ** | **Year**                     | ** ** | **Salary ($ )** | ** ** | **Bonus ($ )** | ** ** | **Other Annual  Compensation  ($ )** | ** ** | **All Other  Compensation  ($ )** | ** ** |
| ** **                                           | ** ** | ** **                   | ** ** | ** **                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                 |       | 2005                         |       | 1,275,000                 |   | 1,966,632 | (2) |   |   |   |   |
| William T. Schleyer (1)                              |       | 2004                         |       | 1,275,000                 |   | 1,716,536 | (3) |   |   |   |   |
| Chairman and CEO                                     |       | 2003                         |       | 1,384,387                 | (4) | 1,489,848 | (5) |   |   |   |   |
|                                                 |       |                         |       |                      |   |   |   |   |   |   |   |
|                                                 |       | 2005                         |       | 850,000                   |   | 1,309,893 | (6) |   |   |   |   |
| Ron Cooper (1)                                       |       | 2004                         |       | 850,000                   |   | 1,143,162 | (7) |   |   |   |   |
| President and COO                                    |       | 2003                         |       | 916,526                   | (8) | 992,290 | (9) |   |   | 750 | (10) |
|                                                 |       |                         |       |                      |   |   |   |   |   |   |   |
| Vanessa A. Wittman (1)  Executive Vice President and |       | 2005  2004                   |       | 597,885  485,962          |   | 1,834,926  1,178,202 | (11)  (13) | 277,642 | (12) | 4,143 | (10) |
| CFO                                                  |       | 2003                         |       | 356,610                   | (14) | 1,570,322 | (15) | 111,921 | (16) |   |   |
|                                                 |       |                         |       |                      |   |   |   |   |   |   |   |
| Brad M. Sonnenberg (1)                               |       | 2005                         |       | 323,865                   |   | 993,928 | (17) | 67,556 | (18) | 8,400 | (10) |
| Executive Vice President,                            |       | 2004                         |       | 264,385                   |   | 597,892 | (19) | 66,784 | (20) | 2,505 | (10) |
| General Counsel and Secretary                        |       | 2003                         |       | 115,000                   | (21) | 380,303 | (22) | 124,187 | (23) |   |   |
|                                                 |       |                         |       |                      |   |   |   |   |   |   |   |
|                                                 |       | 2005                         |       | 267,308                   |   | 919,697 | (24) |   |   | 5,872 | (10) |
| Joseph W. Bagan (1)                                  |       | 2004                         |       | 257,308                   |   | 539,500 | (25) | 81,590 | (26) | 5,538 | (10) |
| SVP-Southeast Region                                 |       | 2003                         |       | 217,154                   |   | 632,729 | (27) |   |   | 750 | (10) |

 

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(1)      Messrs. Schleyerand Cooper joined Adelphia in January 2003, Ms. Wittman andMr. Bagan joined Adelphia in March 2003, and Mr. Sonnenbergjoined Adelphia in July 2003.

 

(2)      Amountrepresents the 2005 portion of Mr. Schleyer’s signing bonus equal to$609,836 and an incentive bonus earned pursuant to our short-term incentiveplan (the “STIP”) of $1,356,796. See Item 11, “ExecutiveCompensation — Non-Equity Based Plans and Agreements Maintained bythe Company — Short-Term Incentive Plan.”

 

(3)      Amountrepresents the 2004 portion of Mr. Schleyer’s signing bonus equal to$609,836 and an incentive bonus earned pursuant to the STIP of $1,106,700. SeeItem 11, “Executive Compensation — Non-Equity Based Plans andAgreements Maintained by the Company — Short-Term Incentive Plan.”

 

(4)      Amountrepresents $1,000,387, the pro rata portion of Mr. Schleyer’s annualsalary of $1,275,000 for his services on and after March 18, 2003, and$384,000, Mr. Schleyer’s compensation for his services prior toMarch 18, 2003, as provided by his employment agreement. During the periodJanuary 17, 2003 through March 18, 2003 (the effective date of theBankruptcy Court’s approval of Mr. Schleyer’s employment agreement),Mr. Schleyer was employed by Adelphia, but did not act as an officer ordirector of Adelphia.

 

(5)      Amountrepresents the 2003 portion of Mr. Schleyer’s signing bonus equal to$480,328 and an incentive bonus earned pursuant to the STIP of $1,009,521. SeeItem 11, “Executive Compensation — Non-Equity Based Plans andAgreements Maintained by the Company — Short-Term Incentive Plan.”

 

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(6)      Amountrepresents the 2005 portion of Mr. Cooper’s signing bonus equal to$405,362 and an incentive bonus earned pursuant to the STIP of $904,531. SeeItem 11, “Executive Compensation — Non-Equity Based Plans andAgreements Maintained by the Company — Short-Term Incentive Plan.”

 

(7)      Amountrepresents the 2004 portion of Mr. Cooper’s signing bonus equal to$405,362 and an incentive bonus earned pursuant to the STIP of $737,800. SeeItem 11, “Executive Compensation — Non-Equity Based Plans andAgreements Maintained by the Company — Short-Term Incentive Plan.”

 

(8)      Amountrepresents $666,926, the pro rata portion of Mr. Cooper’s annual salary of$850,000 for his services on and after March 18, 2003, and $249,600,Mr. Cooper’s compensation for his services prior to March 18, 2003,as provided by his employment agreement. During the period January 17,2003 through March 18, 2003 (the effective date of the Bankruptcy Court’sapproval of Mr. Cooper’s employment agreement), Mr. Cooper wasemployed by Adelphia, but did not act as an officer or director of Adelphia.

 

(9)      Amountrepresents the 2003 portion of Mr. Cooper’s signing bonus equal to$319,277 and an incentive bonus earned pursuant to the STIP of $673,014. SeeItem 11, “Executive Compensation—Non-Equity Based Plans and AgreementsMaintained by the Company—Short-Term Incentive Plan.”

 

(10)    Amount representsmatching contributions under Adelphia’s 401(k) plan.

 

(11)    Amount representsan incentive bonus earned pursuant to the STIP of $508,926 and an award earnedpursuant to the Amended and Restated Adelphia Communications CorporationPerformance Retention Plan (the “PRP”) of $1,326,000. Pursuant to the terms ofthe PRP, the $1,326,000 award has not yet been paid. Unless vesting isaccelerated in connection with a Change in Control (as defined in the PRP), theaward generally vests in 36 equal monthly installments commencing inJanuary 2006. See Item 11, “Executive Compensation — Non-Equity BasedPlans and Agreements Maintained by the Company — Short-Term IncentivePlan” and Item 12, “Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters — Amended and RestatedAdelphia Communications Corporation Performance Retention Plan.”  In addition, subject to the terms of theAmended and Restated Adelphia Communications Corporation Executive VicePresident Continuity Program (the “EVP Stay Plan”) and the Amended and RestatedAdelphia Communications Corporation Sale Bonus Program (the “Sale Plan”), Ms.Wittman may be eligible to receive $931,500 and $1,242,000, respectively, inthe event of a Change in Control (as defined in the EVP Stay Plan and SalePlan, respectively). See Item 11, “ExecutiveCompensation — Non-Equity Based Plans and Agreements Maintained bythe Company — EVP Stay Plan.”

 

(12)    Amount includesthe payment of expenses in connection with relocating from Denver to New York(including related estimated tax gross up of $101,971).

 

(13)    Amount representsan incentive bonus earned pursuant to the STIP of $337,452 and an award earnedpursuant to the PRP of $840,750. Unless vesting is accelerated in connectionwith a Change in Control (as defined in the PRP), the award generally vests in36 equal monthly installments commencing in January 2005. Pursuant to theterms of the PRP, $140,125 of the $840,750 award was paid in January 2006. SeeItem 11, “Executive Compensation — Non-Equity Based Plans andAgreements Maintained by the Company — Short-Term Incentive Plan” andItem 12, “Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters — Amended and Restated AdelphiaCommunications Corporation Performance Retention Plan.”

 

(14)    Amount representsthe pro rata portion of Ms. Wittman’s annual salary of $475,000 for herservices on and after March 31, 2003.

 

(15)    Amountrepresents a one-time signing bonus of $250,000, incentive bonus earnedpursuant to the STIP of $340,634 and an award earned pursuant to the PRP of$979,688. Unless vesting is accelerated in connection with a Change in Control(as defined in the PRP), the award generally vests in 36 equal monthlyinstallments commencing in April 2004. Pursuant to the terms of the PRP,$163,281 of the $979,688 award was paid in April 2005. See Item 11, “ExecutiveCompensation — Non-Equity Based Plans and Agreements Maintained bythe Company — Short-Term Incentive Plan” and Item 12, “SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters — Amended and Restated Adelphia Communications CorporationPerformance Retention Plan.”

 

(16)    Amount representsthe payment of relocation expenses (including related estimated tax gross up of$996).

 

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(17)    Amount representsan incentive bonus earned pursuant to the STIP of $275,678 and an award earnedpursuant to the PRP of $718,250. Pursuant to the terms of the PRP, the $718,250award has not yet been paid. Unless vesting is accelerated in connection with aChange in Control (as defined in the PRP), the award generally vests in 36equal monthly installments commencing in January 2006. See Item 11, “ExecutiveCompensation — Non-Equity Based Plans and Agreements Maintained bythe Company — Short-Term Incentive Plan” and Item 12, “SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters — Amended and Restated Adelphia Communications CorporationPerformance Retention Plan.”  Inaddition, subject to the terms of the EVP Stay Plan and the Sale Plan,Mr. Sonnenberg may be eligible to receive $504,563 and $672,750,respectively, in the event of a Change in Control (as defined in the EVP StayPlan and Sale Plan, respectively). See Item 11, “ExecutiveCompensation — Non-Equity Based Plans and Agreements Maintained bythe Company — EVP Stay Plan.”

 

(18)    Amount represents(i) the payment of the following expenses: (a) rental costs for an apartment in Denver of $25,004;(b) temporary storage costs of $4,552; and (c) related estimated taxgross up of $22,622 and (ii) a housing stipend of $15,000 for housing inNew York. Mr. Sonnenberg began receiving the housing stipend of $5,000 permonth beginning October 2005.

 

 (19)   Amountrepresents an incentive bonus earned pursuant to the STIP of $137,692 and an awardearned pursuant to the PRP of $460,200. Unless vesting is accelerated inconnection with a Change in Control (as defined in the PRP), the awardgenerally vests in 36 equal monthly installments commencing inJanuary 2005. Pursuant to the terms of the PRP, $76,700 of the $460,200award was paid in January 2006. See Item 11, “ExecutiveCompensation — Non-Equity Based Plans and Agreements Maintained bythe Company — Short-Term Incentive Plan” and Item 12, “SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters — Amended and Restated Adelphia Communications CorporationPerformance Retention Plan.”

 

(20)    Amount representsthe payment of the following expenses: (a) relocation expenses of $7,503; (b) rental costs for an apartmentin Denver of $38,867; and (c) related estimated tax gross up of $20,414.

 

(21)    Amount representsthe pro rata portion of Mr. Sonnenberg’s annual salary of $260,000 for hisservices on and after July 21, 2003.

 

(22)    Amount representsan incentive bonus earned pursuant to the STIP of $82,386 and an award earnedpursuant to the PRP of $297,917. Unless vesting is accelerated in connectionwith a Change in Control (as defined in the PRP), the award generally vests in36 equal monthly installments commencing in August 2004. Pursuant to theterms of the PRP, $49,653 of the $297,917 award was paid in August 2005. SeeItem 11, “Executive Compensation — Non-Equity Based Plans andAgreements Maintained by the Company — Short-Term Incentive Plan” andItem 12, “Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters — Amended and Restated AdelphiaCommunications Corporation Performance Retention Plan.”

 

(23)    Amount representsthe payment of relocation expenses (including related estimated tax gross up of$12,156).

 

(24)    Amount representsan incentive bonus earned pursuant to the STIP of $150,097, an award earnedpursuant to the PRP of $574,600 and a bonus paid pursuant to the AdelphiaCommunications Corporation Key Employee Continuity Program (the “Stay Plan”) of$195,000. Pursuant to the terms of the PRP, the $574,600 award has not yet beenpaid. Unless vesting is accelerated in connection with a Change in Control (asdefined in the PRP), the awards generally vest in 36 equal monthly installmentscommencing in January 2006. See Item 11, “ExecutiveCompensation — Non-Equity Based Plans and Agreements Maintained bythe Company — Short-Term Incentive Plan” and “Amended and RestatedAdelphia Communications Corporation Performance Retention Plan.”  In addition, subject to the terms of the SalePlan, Mr. Bagan may be eligible to receive $270,000 in the event of aChange in Control (as defined in the Sale Plan). See Item 11, “ExecutiveCompensation — Non-Equity Based Plans and Agreements Maintained bythe Company — Stay Plan” and “ExecutiveCompensation — Non-Equity Based Plans and Agreements Maintained bythe Company — Sale Plan.”

 

(25)    Amount representsan incentive bonus earned pursuant to the STIP of $97,000 and an award earnedpursuant to the PRP of $442,500. Unless vesting is accelerated in connectionwith a Change in Control (as defined in the PRP), the awards generally vest in36 equal monthly installments commencing in January 2005. Pursuant to theterms of the PRP, $73,750 of the $442,500 award was paid in January 2006. See Item11, “Executive

 

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Compensation — Non-Equity Based Plans andAgreements Maintained by the Company — Short-Term Incentive Plan” and“Amended and Restated Adelphia Communications Corporation Performance RetentionPlan.”

 

(26)    Amount representsthe payment of relocation expenses (including related estimated tax gross up of$3,339).

 

(27)    Amount representsan incentive bonus earned pursuant to the STIP of $117,104 and an award earnedpursuant to the PRP of $515,625. Unless vesting is accelerated in connectionwith a Change in Control (as defined in the PRP), the awards generally vest in36 equal monthly installments commencing in April 2004. Pursuant to the termsof the PRP, $85,938 of the $515,625 award was paid in April 2005. SeeItem 11, “Executive Compensation — Non-Equity Based Plans andAgreements Maintained by the Company — Short-Term Incentive Plan” andItem 12, “Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters — Amended and Restated AdelphiaCommunications Corporation Performance Retention Plan.”

 

### **STOCK OPTION/SAR GRANTS**

### ** **

Therewere no grants of stock options or stock appreciation rights (“SARs”) to any ofthe Named Executive Officers in 2005.

 

### **AGGREGATED OPTION/SAR EXERCISES AND YEAR-END OPTION/SARVALUES**

### ** **

Duringthe fiscal year ended December 31, 2005, none of the Named ExecutiveOfficers exercised any stock options or SARs. As of December 31, 2005,none of the Named Executive Officers held any stock options or SARs.

 

**LONG-TERM INCENTIVE PLAN AWARDS**

 

Noneof the Named Executive Officers received long-term incentive plan awards in2005.

 

### **DIRECTOR COMPENSATION**

### ** **

Ourcurrent directors are compensated for their services as follows:

 

Eachdirector who is neither an officer nor an employee of the Company is paid$75,000 a year for serving as a director. In addition, each director is paid$2,000 for each board meeting attended and $1,000 for each committee meeting attended.The chairman of each committee is also paid an additional $500 for eachcommittee meeting over which he or she presides. The Lead Director is paid anadditional $10,000 a year.

 

Directorswho are also our officers or employees do not receive any additionalcompensation for their services as directors. Mr. Schleyer is our onlydirector who is also an officer or employee of Adelphia.

 

### **EMPLOYMENT ARRANGEMENTS**

### ** **

#### ***William T. Schleyer and Ron Cooper***

#### *** ***

OnJanuary 17, 2003, Adelphia entered into employment and indemnificationagreements with William T. Schleyer—CEO and Chairman of the Board, and RonCooper—President and COO, which agreements were subsequently amended and becameeffective on March 18, 2003 following approval of the agreements by theBankruptcy Court. The term of each employment agreement runs untilDecember 31, 2006.

 

Theemployment agreements provide for annual base salaries of $1,275,000 forMr. Schleyer and $850,000 for Mr. Cooper, to be reviewed by the Boardannually but not to be decreased except upon mutual consent. The executiveswere guaranteed an annual bonus for 2003 of 100 percent of base salaryprorated for the period between the effective date of the agreement andDecember 31, 2003. In 2004 and all subsequent years, the executives areeligible for an annual bonus of 100 percent of base salary for meetingcertain performance targets, and such bonus may be adjusted accordingly forperformance below or above the performance targets. The agreements provide fora

 

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signingbonus of $1,700,000 for Mr. Schleyer and $1,130,000 for Mr. Cooper,to be payable in ratable monthly installments from the month in which theeffective date occurs until December 2005. As of December 31, 2005,we paid $609,836 and $405,362 to Mr. Schleyer and Mr. Cooper,respectively, for the 2005 portion of their signing bonuses and fully satisfiedour obligation to pay these signing bonuses.

 

Eachagreement provides that if an executive’s employment is terminated by Adelphianot for Cause (as defined in the agreements) or by the executive for GoodReason (as defined in the agreements), the executive shall receive within30 days after termination a payment of three times the sum of base salaryand target bonus. The executive will also be entitled to health coverage atemployee rates for 18 months.

 

Eachagreement provides that if the executive does not complete the initial term ofemployment by reason of termination by us without Cause, resignation by theexecutive for Good Reason or death or disability, the remaining unpaid balanceof the signing bonus will be paid to the executive (or his estate) within30 days after the termination date. If the executive’s employment isterminated by Adelphia for Cause or by the executive not for Good Reason, theexecutive shall receive salary earned through the date of termination ofemployment. Each agreement provides that if employment had been terminated forCause before December 2005, the executive would have been required to repaythe portion of the signing bonus he received. These agreements also providedthat if the executive had voluntarily terminated employment not for Good Reasonbefore December 2005, the executive would not have received the remainingportion of his signing bonus.

 

Eachagreement provides that upon Adelphia’s emergence from bankruptcy, theexecutives will be entitled to receive initial equity awards of restrictedshares of Adelphia stock valued at $10.2 million for Mr. Schleyer and$6.8 million for Mr. Cooper. One-third of the restricted shares willvest on the second anniversary of the effective date of each executive’semployment agreement, an additional one-third will vest on the firstanniversary of the date of Adelphia’s emergence from bankruptcy, and the finalone-third will vest on the second anniversary of the date of such emergence.The executives are eligible to receive an additional grant of restricted sharesof up to $5.1 million for Mr. Schleyer and $3.4 million forMr. Cooper if the Board determines that the executives’ performance duringthe pre-emergence period was exceptional. For each calendar year after the yearin which Adelphia emerges from bankruptcy, the executives will be eligible toreceive equity awards (made up of restricted shares and/or stock options)valued at two times the sum of base salary plus target annual bonus, if theyachieve certain performance targets set by the Board. Upon emergence frombankruptcy and in each year thereafter, the executives will be eligible toreceive grants of stock options in amounts to be determined by the Board. Ifthe executives are terminated by Adelphia for Cause or resign not for GoodReason, all unvested restricted shares, restricted deferred share units, andoptions are forfeited. Any vested stock options immediately expire if theexecutive is terminated by Adelphia for Cause. If the executive resigns otherthan for Good Reason, any vested stock options must be exercised within30 days.

 

Theexecutives agree not to compete with us for one year after employment isterminated for any reason other than the expiration of the agreement. Eachemployment agreement also provides that the executives shall not divulgeconfidential information, shall not solicit our customers for one yearfollowing termination of employment for any reason and shall assignintellectual property rights to us.

 

Adelphiawill provide a gross-up for any excise tax imposed upon either of theexecutives under section 4999 of the Tax Code or similar provisionssufficient to put each of the executives in the same after-tax position as ifsuch excise tax were not due. Each of the executives shall be entitled tocontinuing indemnification for any additional tax imposed by taxing authoritiesrelating to such excise tax or gross-up.

 

Eachof the employment agreements provides that each of the executives will bepermitted use of our aircraft in accordance with our aircraft policy approvedby the Board, provided that no personal use of our aircraft shall be permitted.

 

Toinduce Messrs. Schleyer and Cooper to enter into their employmentagreements, Adelphia entered into indemnification agreements with each of thempursuant to which Adelphia agrees to indemnify each of Messrs. Schleyerand Cooper, respectively, in their capacity as officers of Adelphia and, in thecase of Mr. Schleyer, in his capacity as a director of Adelphia.

 

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Subjectto certain limited exceptions, the indemnification agreements indemnifyMessrs. Schleyer and Cooper against any and all expenses and liabilitiesincurred by them as a result of any action or legal proceeding related to theirstatus as a fiduciary of Adelphia, to the fullest extent permitted by law.Under the terms of the indemnification agreements, Adelphia will, among otherthings, advance all such expenses incurred by them or on their behalf withoutregard to their ultimate entitlement to indemnification. However,Messrs. Schleyer and Cooper would be required to repay such advances if itis determined by final judgment or other final adjudication that they would notbe entitled to be indemnified. A determination as to whether Adelphia willindemnify either of Messrs. Schleyer or Cooper against any action or legalproceeding will be decided either by members of the Board who are not involvedin the proceeding or by independent counsel hired by Adelphia.

 

#### ***Vanessa A. Wittman***

#### *** ***

Adelphia entered into an employment agreement with Vanessa A.Wittman—Executive Vice President and CFO, effective on May 8, 2003. Theterm of the agreement runs until the death or disability of Ms. Wittman ortermination by Adelphia or Ms. Wittman for any reason.

 

The agreement provides for initial annual base salary of $475,000,which may be increased subject to periodic review. Pursuant to the CompensationCommittee’s annual performance review of Ms. Wittman in January 2004,her annual base salary was increased to $490,000, effective in April 2004.Effective January 1, 2005, we increased Ms. Wittman’s annual basesalary to $600,000 pursuant to an order entered by the Bankruptcy Court onApril 20, 2005 (the “EVP KERP Order”). Pursuant to the CompensationCommittee’s annual performance review of Ms. Wittman in January 2006,her annual base salary was increased to $621,000 effective January 1,2006.

 

The agreement provides that Ms. Wittman is eligible to earn annualincentive bonuses of 80% of base salary, upon the satisfaction of performancegoals set by the Compensation Committee. The agreement also provides thatMs. Wittman is eligible to participate in the PRP, the initial terms ofwhich include a grant of 200% of base salary to be payable in accordance withthe terms of the plan and prorated for the first year of employment.

 

The employment agreement provides that in the event thatMs. Wittman’s employment terminates due to death or disability, she isentitled to accrued and unpaid base salary, accrued and unpaid incentivebonuses, a pro rata portion of the incentive bonus for the year in whichtermination occurs, all vested and unpaid benefits under our benefit plans andunreimbursed reasonable and necessary business expenses. In the event thatMs. Wittman’s employment is terminated by Adelphia other than for death,disability or Cause (as defined in the employment agreement), or if terminatedby Ms. Wittman for Good Reason (as defined in the employment agreement),she is entitled to, in addition to the aforementioned, continued payments of anamount equal to the base salary for two years and payment of health carepremiums equal to the price of Company health care premiums for one year. Inthe event Ms. Wittman is terminated for Cause or by her without GoodReason, she is only entitled to receive accrued and unpaid base salary, vestedbenefits and unreimbursed reasonable and necessary business expenses.

 

Ms. Wittman has agreed not to perform services for any digitalbroadcast service provider that competes with Adelphia in the principalgeographic locations where Adelphia is then doing business for at least12 months following termination of her employment for any reason withoutthe express prior written approval of Adelphia. The employment agreementprovides that Ms. Wittman shall not divulge confidential information,shall not solicit our customers for one year following termination of employmentfor any reason and shall have no claim to our intellectual property rights.

 

Pursuant to the EVP KERP Order, we have implemented severalcompensation and retention-related measures for Ms. Wittman as follows:

 

•      subject to theterms of the EVP Stay Plan, Ms. Wittman may be eligible to receive$931,500 in the event of a Change in Control (as defined in the EVP Stay Plan).See Item 11, “Executive Compensation — Non-Equity Based Plansand Agreements Maintained by the Company — Key Employee RetentionPrograms — EVP Stay Plan;” and

 

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•      subject to theterms of the Sale Plan, Ms. Wittman may be eligible to receive $1,242,000in the event of a Change in Control (as defined in the Sale Plan). SeeItem 11, “Executive Compensation — Non-Equity Based Plans andAgreements Maintained by the Company — Key Employee RetentionPrograms — Sale Plan.”

 

#### ***Brad M. Sonnenberg***

#### *** ***

Adelphia entered into an employment agreement with Brad M.Sonnenberg—Executive Vice President, General Counsel and Secretary, effectiveJuly 21, 2003. The term of the agreement runs until the death ordisability of Mr. Sonnenberg or termination by Adelphia orMr. Sonnenberg for any reason.

 

The agreement provided for initial annual base salary of $260,000 whichmay be increased subject to periodic review. Pursuant to the CompensationCommittee’s annual performance review of Mr. Sonnenberg inJanuary 2004, his annual base salary was increased to $266,000, effectivein April 2004. Effective January 1, 2005, we increasedMr. Sonnenberg’s annual base salary to $325,000 pursuant to the EVP KERPOrder. Pursuant to the Compensation Committee’s annual performance review ofMr. Sonnenberg in January 2006, his annual base salary was increasedto $336,375, effective January 1, 2006.

 

The agreement provides that Mr. Sonnenberg is eligible to earnannual incentive bonuses of 60% of base salary, upon the satisfaction ofperformance goals set by the Compensation Committee. The agreement alsoprovides that Mr. Sonnenberg is eligible to participate in the PRP, theinitial terms of which include a grant of 200% of base salary to be payable inaccordance with the terms of the plan and prorated for the first year ofemployment.

 

The employment agreement provides that in the event that Mr. Sonnenberg’semployment terminates due to death or disability, he is entitled to accrued andunpaid base salary, accrued and unpaid incentive bonuses, a pro rata portion ofthe incentive bonus for the year in which termination occurs, all vested andunpaid benefits under our benefit plans and unreimbursed reasonable andnecessary business expenses. In the event that Mr. Sonnenberg’s employmentis terminated by Adelphia other than for death, disability or Cause (as definedin the employment agreement), or if terminated by Mr. Sonnenberg for GoodReason (as defined in the employment agreement), he is entitled to, in additionto the aforementioned, continued payments of an amount equal to the base salaryfor two years and payment of health care premiums equal to the price of Companyhealth care premiums for one year. In the event Mr. Sonnenberg isterminated for Cause or by him without Good Reason, he is only entitled toreceive accrued and unpaid base salary, vested benefits and unreimbursedreasonable and necessary business expenses.

 

Mr. Sonnenberg has agreed not to perform services for any digitalbroadcast service provider that competes with Adelphia in the principalgeographic locations where Adelphia is then doing business for at least12 months following termination of his employment for any reason withoutthe express prior written approval of Adelphia. The employment agreementprovides that Mr. Sonnenberg shall not divulge confidential information,shall not solicit our customers for at least 12 months followingtermination of employment for any reason and shall have no claim to ourintellectual property rights.

 

Pursuant to the EVP KERP Order, we have implemented severalcompensation and retention-related measures for Mr. Sonnenberg as follows:

 

•      increasedMr. Sonnenberg’s annual bonus opportunity under the STIP from 60% to 80%of his base salary. This bonus amount will be determined based on ourperformance in relation to certain financial and operational targets inaccordance with the terms of the STIP. See Item 11, “ExecutiveCompensation — Non-Equity Based Plans and Agreements Maintained bythe Company — Short-Term Incentive Plan;

 

•      subject to theterms of the EVP Stay Plan, Mr.  Sonnenberg may be eligible to receive$504,563 in the event of a Change in Control (as defined in the EVP Stay Plan).See Item 11, “Executive Compensation — Non-Equity Based Plansand Agreements Maintained by the Company — Key Employee RetentionPrograms — EVP Stay Plan;” and

 

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•      subject to theterms of the Sale Plan, Mr. Sonnenberg may be eligible to receive $672,750in the event of a Change in Control (as defined in the Sale Plan). SeeItem 11, “Executive Compensation — Non-Equity Based Plans andAgreements Maintained by the Company — Key Employee RetentionPrograms — Sale Plan.”

 

#### ***Joseph W. Bagan***

#### *** ***

On November 1, 2004, Adelphia entered into an amended and restatedemployment agreement with Joseph W. Bagan—SVP-Southeast Region. Theagreement became effective on the date of execution and supersedes the prioremployment agreement that Mr. Bagan had with Adelphia that becameeffective May 8, 2003. The term of the agreement runs until Mr. Bagan’sdeath or disability, termination by Adelphia with or without Cause (as definedin the employment agreement), or termination with or without Good Reason****(as defined in the employment agreement). Modifications tothe agreement include revisions to the definition of Good Reason, the provisionconcerning the reimbursement of business and other expenses and the calculationof the incentive bonus in the event of termination from Adelphia. Also,provisions regarding continued medical coverage for up to two years followingcertain termination events and reimbursement for relocation expenses were added.

 

The employment agreement provides for an annual base salary of$260,000, which may be increased, subject to periodic review. Pursuant to theCompensation Committee’s annual performance review of Mr. Bagan inJanuary 2005, his annual base salary was increased to $270,000 effectivein April 2005. Pursuant to the Compensation Committee’s annual performancereview of Mr. Bagan in January 2006, his annual base salary wasincreased to $280,000, effective in April 2006.

 

The employment agreement also provides that Mr. Bagan is eligibleto earn annual incentive bonuses of 50% of base salary, upon the satisfactionof performance goals set by the Compensation Committee. The agreement alsoprovides that Mr. Bagan is eligible to participate in the PRP, the initialterms of which include a grant of 200% of base salary to be payable inaccordance with the terms of the plan and prorated for the first year ofemployment. Subject to the terms of the Sale Plan, Mr. Bagan may beeligible to receive $270,000 in the event of a Change in Control (as defined inthe Sale Plan). See Item 11, “ExecutiveCompensation — Non-Equity Based Plans and Agreements Maintained bythe Company — Key Employee Retention Programs — Sale Plan.”

 

The agreement provides that in the event that Mr. Bagan’semployment terminates due to death or disability, he is entitled to anyaccrued, unpaid base salary and incentive bonuses, a pro rata portion of theincentive bonus for the year in which termination occurs, all vested and unpaidbenefits under our benefit plans and unreimbursed business expenses. In theevent that Mr. Bagan’s employment is terminated by Adelphia other than fordeath, disability or Cause, or if terminated by Mr. Bagan for Good Reason,he is entitled to, in addition to the aforementioned, payment of an amountequal to the base salary for two years, continued medical coverage for twoyears and reimbursement for relocation expenses if he had previously relocatedat our request since March of 2003. In the event Mr. Bagan is terminatedfor Cause or by him without Good Reason, he shall only receive accrued, unpaidbase salary, vested benefits and unreimbursed expenses.

 

Mr. Bagan has agreed not to perform services for any regional belloperating company and any satellite company for at least 12 monthsfollowing termination of employment for any reason without our express priorwritten approval. The agreement also provides that Mr. Bagan shall notdivulge confidential information, shall not solicit our customers or employeesfor at least 12 months following termination of employment for any reasonand shall have no claim to our intellectual property rights.

 

#### ***Compensation Committee Interlocks and InsiderParticipation***

#### *** ***

OurCompensation Committee is currently comprised of E. Thayer Bigelow, Jr. andPhilip R. Lochner, both of whom have been serving on such committee since2003. None of the members of our Compensation Committee in 2005 was an officeror employee of Adelphia or any of its subsidiaries during 2005, and none ofthem has ever been an officer of Adelphia or any of its subsidiaries. During2005, none of our executive officers served as

 

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amember of the board of directors or compensation committee of any other companythat had one or more executive officers serving as a member of our Board or ourCompensation Committee.

 

### **NON-EQUITY BASED PLANS AND AGREEMENTS MAINTAINED BY THECOMPANY**

### ** **

#### ***Key Employee Retention Programs***

#### *** ***

OnSeptember 21, 2004, the Bankruptcy Court entered orders authorizing the Debtorsto implement and adopt the Adelphia Communications Corporation Key EmployeeContinuity Program (as amended, the “Stay Plan”) and the AdelphiaCommunications Corporation Sale Bonus Program (as amended, the “Sale Plan”). OnApril 20, 2005, the Bankruptcy Court entered the EVP KERP Orderauthorizing the Debtors to implement and adopt the Adelphia CommunicationsCorporation Executive Vice President Continuity Program (as amended, the “EVPStay Plan,” and, together with the Stay Plan and the Sale Plan, the “ContinuityProgram”), and authorized the Executive Vice Presidents’ participation in astay bonus program. The EVP Stay Plan was amended on November 3, 2005. Suchamendment is contingent upon a Change in Control (as defined in the EVP StayPlan). The Continuity Program is designed to motivate certain employees(including our Named Executive Officers, other than our CEO and COO) to remainwith us.

 

Withrespect to the Continuity Program, in the event that a Change in Control (asdefined in the EVP Stay Plan, the Stay Plan and the Sale Plan) occurs and allof the bonuses under the Continuity Program are paid, the total cost of theContinuity Program could be approximately $33.7 million (includingapproximately $1.4 million payable under the EVP Stay Plan, $9.4 millionpaid under the Stay Plan during 2005, $19.9 million payable under the Sale Plan(including approximately $1.9 million payable to certain Executive VicePresidents under the Sale Plan pursuant to the EVP KERP Order) and a$3.0 million pool from which our CEO may grant additional stay or salebonuses, of which $760,950 was paid as stay bonuses during 2005).

 

##### *EVP Stay Plan*

##### * *

Subjectto the terms of the EVP Stay Plan, certain of our employees with the title ofExecutive Vice President are participants in the EVP Stay Plan and are eligibleto receive a cash payment in the form of a bonus if, subject to certain limitedexceptions, the participants continue their active employment with us from thedate such participants are notified in writing that they have been selected forcoverage under the EVP Stay Plan until immediately prior to the date on which aChange in Control (as defined in the EVP Stay Plan) occurs. Subject to theterms of the EVP Stay Plan, our CEO establishes the amount of each participant’sstay bonus, which amounts were approved by the Compensation Committee of theBoard. Mr. Sonnenberg and Ms. Wittman are the only Executive VicePresidents that participate in the EVP Stay Plan. During the year endedDecember 31, 2005, we recognized expense of approximately $1.0 millionrelated to the EVP Stay Plan.

 

##### *Stay Plan*

##### * *

Subjectto the terms of the Stay Plan, certain of our employees (other than employeeswho participate in the EVP Stay Plan) received cash payments in the form ofbonuses as such participants continued their active employment with us throughthe nine-month period ended July 5, 2005. Subject to the terms of the StayPlan, our CEO has established the amount of each participant’s stay bonus,which amounts were approved by the Compensation Committee of the Board. Werecognized expense of approximately $6.9 million and $3.3 million during 2005and 2004, respectively, related to the Stay Plan and additional stay bonuses(and paid approximately $9.4 million related to the Stay Plan and $760,950related to additional stay bonuses in 2005). We do not intend to pay anyfurther bonuses under the Stay Plan.

 

##### *Sale Plan*

##### * *

Underthe terms of the Sale Plan, certain of our employees may be eligible to receivecash payments in the form of a bonus if, subject to certain limited exceptions,the participants continue their active employment with us or our successorsuntil, and following, a Change in Control (as defined in the Sale Plan). Generally,50% of the bonus amount will be paid to eligible participants within 10business days of the effective date of the Change in Control

 

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and theremaining 50% of the bonus amount will be paid to eligible participants upon adate that is within 10 business days of the six-month anniversary of sucheffective date (the “Second Sale Bonus Payment Date”). However, if an eligibleparticipant is terminated following a Change in Control without Cause (asdefined in the Sale Plan) or due to death or disability or by the participantfor Good Reason (as defined in the Sale Plan) after the required payment datefor the first installment of such bonus but prior to the Second Sale BonusPayment Date, then the participant will be entitled to receive any unpaidamounts of such bonus on the Second Sale Bonus Payment Date. Our CEO hasselected the participants and established the amount of each participant’s salebonus, and the Compensation Committee has approved such amounts. During theyear ended December 31, 2005, we recognized expense of approximately $16.0million related to the Sale Plan and additional sale bonuses.

 

##### ***Amended and Restated Severance Program***

##### * *

Certainof our employees are currently afforded severance benefits either pursuant toAdelphia’s existing severance plan, the Amended and Restated AdelphiaCommunications Corporation Severance Plan (the “Severance Plan”), or pursuantto an existing employment agreement with us (each an “Existing EmploymentAgreement”). Except for certain limited exceptions, all full-time employees ofAdelphia and certain affiliates that do not have Existing Employment Agreementsare covered by the Severance Plan, which provides for severance pay in theevent of certain involuntary employment terminations without Cause (as definedin the Severance Plan). The severance benefits pursuant to the Severance Planand the Existing Employment Agreements could cost us a maximum of approximately$10 million, consisting of severance benefits, healthcare continuation andrelocation reimbursement expenses, if each Director-level employee, vicepresident (“VP”) and senior vice president (“SVP”) were to be involuntarilyseparated from us and all eligible VPs and SVPs qualified for the maximumamount of relocation reimbursement. Messrs. Schleyer, Cooper and Sonnenbergand Ms. Wittman are not eligible to participate in the Severance Plan. Duringthe year ended December 31, 2005, we recognized expense of approximately $5.0million related to the Severance Plan.

 

#### ***Short-Term Incentive Plan***

#### *** ***

Wemaintain the STIP, which is a calendar-year program that provides for thepayment of annual bonuses to our employees based upon the satisfaction ofqualitative and quantitative metrics, as approved by the Compensation Committeeof the Board. In general, full-time employees at the general manager level (wholead the operations of a local system or systems) and above (including all ofour Named Executive Officers) are eligible to participate in the STIP. For2005, approximately 320 employees participated in the STIP. Target awardsunder the STIP are based on a percentage of each participant’s base pay. Awardsare determined based upon the satisfaction of certain performance criteriaestablished by us and, where relevant, the satisfaction of certain performancecriteria for certain regional operations, and individual performance criteria. TheCompany and regional performance criteria include revenue, operating cash flow,capital expenditures, customer care, internal controls and basic subscribers. Subjectto the execution of a general release, in the event that an employee’semployment with us is terminated by us for any reason other than for cause (asdetermined by the plan administrator), such employee will be entitled to a prorata portion paid at target of his or her STIP award for the year in which thetermination occurs. We recognized expense related to the STIP of approximately$7.4 million during 2003 (and paid approximately $7.2 million in 2004), $9.6million during 2004 (and paid approximately $9.4 million in 2005) and $12.3million during 2005 (and paid approximately $12.5 million in the first quarterof 2006).

 

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## **ITEM 12.**     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS

## ** **

Thefollowing table sets forth certain information regarding the beneficialownership of shares of Class A Common Stock and Class B Common Stockas of January 20, 2006 by each Named Executive Officer, each director, allexecutive officers and directors of Adelphia as a group, and each person knownto us to own beneficially more than 5% of either class of common stock, basedon 228,692,414 shares of Class A Common Stock and 25,055,365 shares ofClass B Common Stock outstanding as of December 31, 2005. Unlessotherwise noted, each of the stockholders in the table has sole voting andinvestment power for the corresponding shares of stock owned by suchstockholder. The business address of each director and officer named below,unless otherwise noted, is c/o Adelphia Communications Corporation, 5619 DTCParkway, Greenwood Village, Colorado 80111.

 
| **Name**                                                      | ** ** | **Shares of  Class A  Common  Stock (a)** | ** ** | **Percent of  Class A  Common Stock** | ** ** | **Shares of ClassB  Common  Stock (a)** | ** ** | **Percentof  Class B  Common  Stock** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------|------------|
|                                                          |       |                                                     |       |                                                 |       |                                                   |       |                                       |       |
| William T. Schleyer                                           |       | —                                                   |       | —                                               |       | —                                                 |       | —                                     |       |
| Ron Cooper                                                    |       | —                                                   |       | —                                               |       | —                                                 |       | —                                     |       |
| Vanessa A. Wittman                                            |       | —                                                   |       | —                                               |       | —                                                 |       | —                                     |       |
| Brad M. Sonnenberg                                            |       | —                                                   |       | —                                               |       | —                                                 |       | —                                     |       |
| Joseph W. Bagan                                               |       | —                                                   |       | —                                               |       | —                                                 |       | —                                     |       |
| E. Thayer Bigelow                                             |       | —                                                   |       | —                                               |       | —                                                 |       | —                                     |       |
| Rodney W. Cornelius                                           |       | —                                                   |       | —                                               |       | —                                                 |       | —                                     |       |
| Anthony T. Kronman                                            |       | —                                                   |       | —                                               |       | —                                                 |       | —                                     |       |
| Philip R. Lochner                                             |       | —                                                   |       | —                                               |       | —                                                 |       | —                                     |       |
| Susan Ness                                                    |       | —                                                   |       | —                                               |       | —                                                 |       | —                                     |       |
| Kenneth L. Wolfe                                              |       | —                                                   |       | —                                               |       | —                                                 |       | —                                     |       |
| All executive officers and directors as a  group (18 persons) |       | 8,559                                                    |       | *                                                    |       | —                                                 |       | —                                     |       |
| **5% Beneficial Owners**                                      |       |                                                     |       |                                                 |       |                                                   |       |                                       |       |
| (b)                                                           |       | 60,488,832                                               | (c)        | 22.7                                                 | %          | 37,212,877                                             | (c)        | 100.0                                      | %          |
| Leonard Tow  160 Lantern Ridge Road  New Canaan, CT 06840     |       | 28,299,294                                               | (d)        | 12.4                                                 | %          | —                                                 |       | —                                     |       |
| Claire Tow  160 Lantern Ridge Road  New Canaan, CT 06840      |       | 19,287,908                                               | (e)        | 8.4                                                  | %          | —                                                 |       | —                                     |       |
| David Z. Rosensweig  380 Lexington Avenue  New York, NY 10168 |       | 19,154,997                                               | (f)        | 8.4                                                  | %          | —                                                 |       | —                                     |       |

 

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*        Less than 1%of the outstanding shares of such class.

 

(a)      Pursuant to therules and regulations of the SEC, a person is deemed to beneficially ownsecurities over which such person has or shares voting power or investment power,as well as securities over which such person has the right to acquirebeneficial ownership within 60 days of January 20, 2006 (“DerivativeSecurities”). For purposes of computing the percentage of beneficial ownershipof any person, only the Derivative Securities of such person and not theDerivative Securities of any other person are deemed to be outstanding.

 

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(b)      Pursuant to theForfeiture Order entered on June 8, 2005, all right, title and interestheld by the Rigas Family and the Rigas Family Entities in our securities (the “ForfeitedSecurities”) were forfeited to the United States. Pursuant to theNon-Prosecution Agreement, one of the conditions to our obligation to make thecontribution to the Restitution Fund is that we receive full and clear title tothe Forfeited Securities. We expect that the United States will transfer fulland clear title to the Forfeited Securities to us (subject to completion offorfeiture proceedings before a federal judge to determine if there are anysuperior claims). For additional information concerning the Forfeiture Order,the Non-Prosecution Agreement and the other Government Settlement Agreements,see Item 3, “Legal Proceedings — SEC Civil Action and DOJInvestigation.”

 

(c)      Based solely onour review of the Schedule 13D/A filed on August 15, 2001 by John J.Rigas, Michael J. Rigas, Timothy J. Rigas, James P. Rigas, EllenRigas Venetis, Doris Holdings, L.P., Eleni Acquisitions, Inc., Highland, HighlandHoldings II, Highland 2000, L.P. and Highland 2000 LLC, the Forms 5 filedon February 13, 2002 by John J. Rigas, Michael J. Rigas,Timothy J. Rigas, James P. Rigas and Ellen Rigas Venetis, certainagreements referenced therein and our records, this amount consists of thefollowing securities that, prior to the date of the Forfeiture Order and afterthe conviction and sentencing of John J. Rigas on June 20, 2005, the RigasFamily or the Rigas Family Entities had beneficially owned, or had thepurported power to direct the voting of: (i) 60,488,832 shares of Class A Common Stock, which consistsof (1) 23,275,955 shares of Class A Common Stock, (2) 25,055,365shares of Class B Common Stock and (3) 12,157,512 shares ofClass B Common Stock issuable upon conversion of convertible subordinatednotes at the option of the holder; and (ii) 37,212,877 shares ofClass B Common Stock, which consists of (1) 25,055,365 shares ofClass B Common Stock and (2) 12,157,512 shares of Class B CommonStock issuable upon of conversion of convertible subordinated notes at theoption of the holder. Each share of Class B Common Stock is convertibleinto one share of Class A Common Stock at the option of the holder.

 

(d)      Based on ourreview of the Schedule 13G filed on April 11, 2003 by the Claire TowTrust, The Leonard and Claire Tow Charitable Trust, Inc., the TowCharitable Remainder Unitrust # 1, the Tow Foundation, Inc., Claire Tow,Leonard Tow and David Rosensweig (the “2003 Tow Schedule 13G”) andsubsequent information provided by Mr. Rosensweig, the amount shown forMr. Tow includes: (i) 6,090,290 shares as to which Mr. Tow hassole voting and investment power; and (ii) the following shares over whichMr. Tow disclaims beneficial ownership: (1) 19,149,997 shares held bytrusts and foundations (17,307,308 of which are held by the Claire Tow Trust,160 Lantern Ridge Road, New Canaan, CT 06840) as to all of which he may bedeemed to share voting and investment power with his wife, Claire L. Tow, andMr. Rosensweig; and (2) 3,059,007 shares held by CitizensCommunications Company as to which he may be deemed to share voting andinvestment power. The amount shown for Mr. Tow does not include 137,911shares described in note (e) as to which Mrs. Tow has sole voting andinvestment power, as to which shares Mr. Tow disclaims beneficialownership.

 

(e)      Based on ourreview of the 2003 Tow Schedule 13G and subsequent information provided byMr. Rosensweig, the amount shown for Mrs. Tow includes:(i) 137,911 shares as to which Mrs. Tow has sole voting andinvestment power; and (ii) the 19,149,997 shares held by trusts andfoundations described in note (d) as to which she may be deemed to sharevoting and investment power with Mr. Tow and Mr. Rosensweig, and asto which shares Mrs. Tow disclaims beneficial ownership. The amount shownfor Mrs. Tow does not include the 6,090,290 shares described innote (d) as to which Mr. Tow has sole voting and investment power, asto which shares Mrs. Tow disclaims beneficial ownership.

 

(f)       Based on ourreview of the 2003 Tow Schedule 13G and subsequent information provided byMr. Rosensweig, the amount shown for Mr. Rosensweig includes:(i) 5,000 shares as to which Mr. Rosensweig has sole voting andinvestment power; and (ii) 19,149,997 shares held by trusts and foundationsdescribed in note (d) as to which he may be deemed to share voting andinvestment power with Mr. and Mrs. Tow, as to which Mr. Towdisclaims beneficial ownership.

 

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### **EQUITY COMPENSATION PLAN INFORMATION**

### ** **

Thefollowing table provides information as of December 31, 2005 with respectto shares of Class A Common Stock that may be issued under our existingequity compensation plans.

 
| **Plan Category (1)**                                      | ** ** | **Number of securities  to be issued upon  exercise of  outstanding options,  warrants and rights** | ** ** | **Weighted-average  exercise price of  outstanding  options, warrants  and rights** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation plans  (excluding securities  reflected in the first column)** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                 |       |                                                                                                                                             |       |                                                                                                    |       |                                                                                                                                                                                                                        |       |
| Equity compensation plans approved by  security holders (2)     |       | 23,250                                                                                                                                           |       | $                                                                                                       | 44.25      |                                                                                                                                                                                                                        | 7,476,750  |   |
|                                                                 |       |                                                                                                                                             |       |                                                                                                    |       |                                                                                                                                                                                                                        |       |
| Equity compensation plans not approved by  security holders (3) |       | N/A                                                                                                                                              |       | N/A                                                                                                     |       | N/A                                                                                                                                                                                                                         |       |
|                                                                 |       |                                                                                                                                             |       |                                                                                                    |       |                                                                                                                                                                                                                        |       |
| Total                                                                |       | 23,250                                                                                                                                           |       | $                                                                                                       | 44.25      |                                                                                                                                                                                                                        | 7,476,750  |   |

 

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(1)           The tabledoes not include information for the equity compensation plans assumed by us inconnection with the acquisition of Century during the fourth quarter of 1999.The number of securities to be issued upon exercise of outstanding options,warrants and rights under plans assumed in the acquisition and outstanding atDecember 31, 2005 was 4,146 and the weighted-average exercise price was$8.68. No further grants or awards have been or will be made under the assumedplans.

 

(2)           Ourstockholders approved the Adelphia 1998 Long-Term Incentive Compensation Plan.

 

(3)           Ourstockholders have not approved the PRP, the Adelphia and HyperionTelecommunications Corporation Executive Performance Share Compensation Plan(the “EPSCP”) or the Employment Agreements for William T. Schleyer and RonCooper (which provide for the grant of equity awards in connection with andfollowing the Debtors’ emergence from bankruptcy). The PRP and the EPSCP arenot reflected in the table because there is no limit to the number of securitiesthat can be granted pursuant to such plans and thus no definitive number ofsecurities remaining available for future issuance. With respect to the PRP, asof December 31, 2005, approximately $1.2 million awards had been paid. Withrespect to the EPSCP, no awards have been granted under that plan since the1999 plan year (although some award letters were sent in January 2001relating to grants for the 1999 plan year), and we do not intend to grant anyadditional performance unit awards under the EPSCP. As of December 31,2005, there were 18,271 performance units outstanding under the EPSCP. Thereare no options, warrants or rights outstanding with respect to the Class ACommon Stock under the PRP or the EPSCP as of December 31, 2005.

 

Thefollowing is a description of the material provisions of our equitycompensation plans that have not been approved by stockholders.

 

### **AMENDED AND RESTATED ADELPHIA COMMUNICATIONS CORPORATIONPERFORMANCE RETENTION PLAN**

### ** **

The Adelphia Communications Corporation Performance Retention Plan wasapproved by the Bankruptcy Court on May 5, 2003, and the PRP, as amendedand restated, was approved by the Bankruptcy Court on September 21, 2004. ThePRP was amended, contingent upon a Change in Control (as defined in the PRP),on November 3, 2005. Participants in the PRP are eligible to receiveannual target awards that are based on the participant’s base salary, job titleand responsibilities. Target awards range from 25% to 200% of a participant’s

 

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base salary. The amount of theaward that a participant receives for each plan year is dependent on thepercentage of the EBITDAR Target achieved by us for such year. EBITDAR Targetis defined in the PRP to mean the EBITDAR objective established by us for ourbusiness plan for each plan year for purposes of calculating awards under thePRP. EBITDAR is defined as our consolidated earnings, normalized for accountingadjustments, changes in accounting policies and asset sales and determinedbefore reduction by certain expenses, including consolidated interest expense,total income tax expense, total depreciation expense, total amortizationexpense and total restructuring-related fees and expenses.

 

The PRP is administered by the Compensation Committee of the Board, andcovers approximately 50 management employees, including Executive VicePresidents, SVPs and VPs. The CEO and COO do not participate in the PRP. TheCompensation Committee determines, among other things, the date upon which eachparticipant’s award is granted and the target amount of such award.

 

In general, awards granted for the plan year during which theparticipant first commences participation in the PRP will vest on a monthlybasis in 36 equal monthly installments commencing one year after theparticipant begins participation in the PRP. Subsequent awards will vest in 36equal monthly installments beginning as of the January 31 of the yearimmediately following the plan year with respect to which the award wasgranted.

 

Generally, upon a Change in Control (as defined in the PRP, anddescribed below), each award (whether vested or unvested) will be paid in cash,in a lump sum, on the date of such Change in Control. The unvested portion ofall awards will be paid based on either the value established for each annualgrant based on performance if so established, or 100% achievement of anyunvalued grants.

 

In the event that a Change in Control does not occur on or before thesecond anniversary of the date on which a participant’s award is granted, 50%of the portion of such award that is vested will be paid in cash on the date ofsuch second anniversary, and the balance of the award, whether vested orunvested, will be paid in cash, in a lump sum, as of the date of such Change inControl.

 

If we terminate a participant for any reason other than for Cause (asdefined in the PRP) prior to the date on which an award is scheduled to bepaid, the participant will receive a payment equal to the vested portion of hisor her award; provided, that in addition to the payment of the vested portionof the awards, the Compensation Committee of the Board may provide that theunvested portion of all awards will be paid in cash based on either the valueestablished for each annual grant based on performance, if so established, or100% achievement of any unvalued grants. In the event a participant isterminated by us for Cause, any awards granted to the participant will beforfeited, and the participant will be ineligible to receive any payment or settlementof any award under the PRP. We recognized expense related to the PRP ofapproximately $9.8 million during 2005, $6.5 million during 2004 (of whichapproximately $1.4 million was paid in the first quarter of 2006) and $2.3million during 2003 (of which approximately $1.2 million was paid in 2005).

 

### **ADELPHIA AND HYPERION TELECOMMUNICATIONS CORPORATIONEXECUTIVE PERFORMANCE SHARE COMPENSATION PLAN**

### ** **

We adopted the Adelphia and Hyperion Telecommunications CorporationExecutive Performance Share Compensation Plan, effective as of January 1,1998. The purpose of the EPSCP is to provide certain of our key employees withan opportunity to receive awards based on the growth in the price of theClass A Common Stock. No awards have been granted under the EPSCP sincethe 1999 plan year (although some award letters were sent in January 2001relating to grants for the 1999 plan year), and we do not presently intend togrant any additional performance unit awards under the EPSCP. As ofDecember 31, 2005, there were 18,271 performance units outstanding underthe EPSCP.

 

The EPSCP is administered by a committee appointed by the Board. Thecommittee determines those employees who are eligible to participate in theEPSCP and the times when performance units are to be awarded. In general,employees who are heads of major functional areas and who earn more than$90,000 are eligible to participate in the EPSCP.

 

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The number of performance units awarded in connection with any award isbased on the eligible compensation earned by a participant during the plan yearin which the performance unit award is granted and the cumulative averagegrowth rate of the Class A Common Stock for the relevant period. Theperformance units awarded to a participant are credited to a performance unitaccount, which records the number of performance units awarded, is solely foraccounting purposes and does not require a segregation of our assets.

 

Awards granted under the EPSCP vest ratably over a three-year periodbeginning on the December 31st following the date the award isgranted. Awards generally become payable upon the earliest to occur of death,retirement or termination of employment from us (other than due to totaldisability or involuntary termination) (each, a “Payment Event”). If aparticipant’s employment is terminated as a result of his/her total disabilityor involuntary termination, no payment would be made to a participant, unlessthe administrative committee under the EPSCP determines otherwise. Upon theoccurrence of a Payment Event, a participant will receive an amount in cash orshares of Class A Common Stock equal in value to the participant’s vestedaccount, determined in the year in which the Payment Event occurs. Awards arepayable in either cash or Class A Common Stock, as determined by thecommittee that administers the EPSCP. A participant’s right to the payment ordistribution of an award will be forfeited in the event the participantcompetes with us, solicits our employees, or discloses our work product ortrade secrets.

 

### **EMPLOYMENT AGREEMENTS FOR WILLIAM T. SCHLEYER AND RONCOOPER**

### ** **

TheEmployment Agreements for William T. Schleyer and Ron Cooper provide for thegrant of certain equity awards in the event of the Debtors’ emergence frombankruptcy. The material terms of the Employment Agreements forMessrs. Schleyer and Cooper, including a description of the equity awards,are set forth under Item 11, “ExecutiveCompensation — Employment Arrangements.”

 

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## **ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

## ** **

### **RELATED TRANSACTIONS — RIGAS FAMILY**

### ** **

#### ***(1)***           Co-BorrowingAgreements

#### *** ***

Between March 29, 1996 and September 28, 2001, RigasManagement caused certain Rigas Co-Borrowing Entities and certain of oursubsidiaries to enter into three separate co-borrowing agreements that have anoutstanding loan balance. Except for TelCove, which was limited to$500 million maximum under the applicable facility, each co-borrower undereach of these agreements was able to borrow up to the entire amount of theavailable credit under the applicable facility. Each co-borrower is jointly andseverally liable for the entire amount of the indebtedness under the applicableco-borrowing agreement regardless of whether that co-borrower actually borrowedthat amount under such co-borrowing agreement. Although the applicable RigasCo-Borrowing Entities and the applicable subsidiaries of the Company enteredinto assumption agreements dated as of May 6, 2002, pursuant to which theapplicable Rigas Co-Borrowing Entities have confirmed their previous agreementwith the applicable subsidiaries of the Company to repay the amount of anyborrowings that are transferred onto its books, we have concluded that we remainfully liable to the lenders under the co-borrowing agreement for the fullamount of such borrowings. Accordingly, all amounts outstanding underco-borrowing agreements have been reflected in the consolidated balance sheetsin Item 8, “Consolidated Financial Statements and Supplementary Data” of thisreport as of the dates that such agreements were in effect. As ofDecember 31, 2005, $4.576 billion was outstanding under these co-borrowingcredit facilities, of which $2.846 billion was attributable to RigasCo-Borrowing Entities and $1.730 billion was attributable to non-RigasCo-Borrowing Entities.

 

#### ***(2)***           Managementagreements and services provided by us to Managed Cable Entities and certainfees charged to Managed Cable Entities

#### *** ***

We provide management and administrative services to the Managed CableEntities. In circumstances where a management agreement exists, a managementfee is charged to the Managed Cable Entity in accordance with the agreement.Such management agreements generally provide for a management fee based on apercentage of revenue plus reimbursements for expenses incurred by us on behalfof the Managed Cable Entities. Where no management agreement exists, weallocate a pro rata share of our corporate, regional, call center and certainother costs to the Managed Cable Entities. Such allocations generally are basedupon the Managed Cable Entities’ pro rata share of revenue or subscribers, asappropriate. The management fees paid by the Managed Cable Entities aregenerally limited by the terms of the applicable co-borrowing agreement.Commencing July 2005, the first month following the Forfeiture Order, we ceasedcharging a management fee to the Managed Cable Entities forfeited pursuant tothe Forfeiture Order and began allocating a pro rata share of our corporate,regional, call center and certain other costs consistent with the allocationsto those Managed Cable Entities without a management agreement. The amountcharged and allocated to the Managed Cable Entities pursuant to thesearrangements was $25.3 million for 2005. Effective January 1, 2004, these feesand cost allocations have been eliminated upon consolidation of the RigasCo-Borrowing Entities.

 

We perform all of the cash management functions of the Managed CableEntities. As such, any positive (negative) cash flows of the Managed CableEntities are deposited into (deducted from) our cash accounts. In addition, thepersonnel of the Managed Cable Entities are our employees, and substantiallyall of the cash operating expenses and capital expenditures of the ManagedCable Entities are allocated or otherwise charged to the Managed Cable Entitiesby us based on the terms of the applicable vendor agreements. Such charges andallocations represent amounts incurred by us on behalf of the Managed CableEntities, and the amounts charged and allocated are determined by reference tothe terms of third-party invoices or agreements. Accordingly, while thisactivity affects the amounts due from the Managed Cable Entities, prior to theconsolidation of the Rigas Co-Borrowing Entities on January 1, 2004, wedid not designate any of these charges and allocations as related partytransactions to be separately reported in our consolidated statements ofoperations. Upon consolidation of the Rigas Co-Borrowing Entities, such amountsare included in our consolidated statements of operations.

 

Pursuant to the Forfeiture Order, all right, title and interest of theRigas Family and the Rigas Family Entities in the Rigas Co-Borrowing Entities(other than Coudersport and Bucktail) were forfeited to the United

 

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States on June 8, 2005. InNovember 2005, we ceased providing management and administrative services toCoudersport and Bucktail in accordance with the Adelphia-Rigas SettlementAgreement.

 

#### ***(3)***           Praxis

#### *** ***

We owna 99.5% limited partnership interest in Praxis Capital Ventures, L.P. (“Praxis”),a consolidated subsidiary of Adelphia. Peter L. Venetis, the son-in-law of JohnJ. Rigas, owns membership interests in both the general partner of Praxis andthe company that manages Praxis. Formed in June 2001, Praxis primarilyengaged in making private equity investments in the telecommunications market. Wecommitted to provide $65 million of capital to Praxis, of which$8.5 million was invested by Praxis during 2002 and 2001. Under the termsof the Praxis partnership agreement, we were required to pay a management feeto the management company at an annual rate equal to 2% of the capitalcommitted by us. By order dated October 20, 2003, the Debtors rejected thePraxis partnership agreement under applicable bankruptcy law. Rejection maygive rise to pre-bankruptcy unsecured damages claims that are included inliabilities subject to compromise at the amounts expected to be allowed. As ofDecember 31, 2005, we had accrued $1.3 million in management feesunder the Praxis partnership agreement for periods prior to rejection of thepartnership agreement.

#### *** ***

#### ***(4)***           RigasFamily Agreement

#### *** ***

On May 23, 2002, Adelphia entered into the Rigas Family Agreementwith John J. Rigas, Timothy J. Rigas, James P. Rigas and Michael J. Rigas,acting in their individual capacities and on behalf of each entity directly orindirectly controlled by any or all of them (collectively, the “ContractingRigas Family Members”), that, among other items, provided for:

 

(i)  the resignation of the Contracting Rigas Family Membersfrom their positions as executive officers of Adelphia and members of theBoard;

 

(ii)  the placement of all shares of Adelphia Common Stock ownedby the Contracting Rigas Family Members into a voting trust until allobligations of the Contracting Rigas Family Members to us for borrowed moneyare satisfied, with the voting of such shares to be directed by a SpecialCommittee of the Board through Adelphia’s 2004 annual meeting and thereafter tobe voted in proportion to the votes cast by all other holders of Adelphiashares;

 

(iii)  the use of all of the free cash flow of the ManagedCable Entities to repay amounts owed by the Contracting Rigas Family Members asprimary obligors in respect of the Co-Borrowing Facilities and the pledge ofthe Contracting Rigas Family Members’ equity interests in the Managed CableEntities to us until all amounts owed by the Contracting Rigas Family Membersto us in respect of borrowed money are satisfied;

 

(iv)  the transfer of the stock or assets of the ManagedCable Entities from the Contracting Rigas Family Members to us in exchange fora payment equal to the taxes incurred by the Contracting Rigas Family Members asa result of such transfer and a reduction in the amounts owed by theContracting Rigas Family Members as primary obligors in respect of theCo-Borrowing Facilities, with the amount of such reduction to be based onthird-party appraisals, less the payment with respect to taxes to be incurredby the Contracting Rigas Family Members in connection with such transfer;

 

(v)  the transfer of approximately $567 million of ourdebt held directly or indirectly by the Contracting Rigas Family Members to usin exchange for an equivalent reduction in the amounts owed by the ContractingRigas Family Members (A) to us in respect of existing stock purchaseagreements and (B) as primary obligors in respect of the Co-BorrowingFacilities;

 

(vi)  the pledge of all shares of Adelphia Common Stock owneddirectly or indirectly by the Contracting Rigas Family Members to secure therepayment of the Co-Borrowing Facilities and the repayment of anyindemnification payments made by us to Contracting Rigas Family Memberspursuant to the terms of the Rigas Family Agreement;

 

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(vii)  the accrual of interest on amounts owed by theContracting Rigas Family Members under the Co-Borrowing Facilities at a rate of6% per annum, to be paid on December 31, 2006, or earlier if amounts dueunder the Co-Borrowing Facilities are prepaid;

 

(viii)  the transfer of a 3,656 acre parcel of landunderlying certain of our timber rights by the Contracting Rigas Family Membersto us in exchange for a $465,000 reduction in the amounts owed by theContracting Rigas Family Members as primary obligors in respect of theCo-Borrowing Facilities;

 

(ix)  honoring our prior commitment to provide severancearrangements to John J. Rigas, including a $1.4 million annual cashpayment for three years, lifetime healthcare coverage for Mr. Rigas andhis spouse, the use of office space, equipment and a secretary, vested stockoptions exercisable for their term and the use of our aircraft in certainlimited circumstances; and

 

(x)  the termination of the aforementioned severancearrangements in the event Mr. Rigas is convicted of a felony.

 

The Adelphia-Rigas Settlement Agreement contains a provision wherebythe Rigas Family (as defined in the Adelphia-Rigas Settlement Agreement) andPeter L. Venetis, on the one hand, and the Company (except with regard toExcluded Parties), on the other, covenanted and agreed not to sue each other,or bring any claim, action or proceeding against the other, on account of anyobligation or liability arising from or relating to, among other things, anyfacts, transactions or occurrences, whether known or unknown, suspected,contingent or claimed, existing as of the date of the Adelphia-Rigas SettlementAgreement. Further, under the terms of the Plan and in accordance with theBankruptcy Code, we intend to reject the Rigas Family Agreement. Except for theaccrual of the severance arrangements for John J. Rigas, no economic effect hadbeen given to the Rigas Family Agreement in the consolidated financialstatements in Item 8, “Consolidated Financial Statements and Supplementary Data”of this report.

 

#### ***(5)***           Adelphia-RigasSettlement Agreement

#### *** ***

OnApril 25, 2005, Adelphia entered into the Adelphia-Rigas SettlementAgreement pursuant to which, Adelphia agreed, among other things, to pay theRigas Family $11.5 million to be used for a legal defense fund for thebenefit of the Rigas Family, to provide Interim Management Services toCoudersport and Bucktail, to indemnify Coudersport and Bucktail, and the Rigas Family’s(other than the Excluded Parties’) interest therein against claims asserted bythe lenders under the Co-Borrowing Facilities with respect to such indebtednessup to the fair market value of those entities (without regard to theirobligations with respect to such indebtedness), to provide certain members ofthe Rigas Family with certain indemnities, reimbursements or other protectionsin connection with certain third party claims arising out of Companylitigation, and in connection with claims against certain members of the RigasFamily by any of the Tele-Media Ventures or Century/ML Cable, within 10business days of the date on which the consent order of forfeiture is entered,dismiss the Rigas Civil Action, except for claims against the Excluded Parties.The Rigas Family agreed to make certain tax elections, under certaincircumstances, with respect to the forfeited Rigas Co-Borrowing Entities, topay Adelphia five percent of the gross operating revenue of Coudersport andBucktail for the Interim Management Services, and to offer employment tocertain Coudersport and Bucktail employees on terms and conditions that, in theaggregate, are no less favorable to such employees (other than any employeeswho were expressly excluded by written notice to Adelphia received byJuly 1, 2005) than their terms of employment with us.

 

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## **ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**

## ** **

TheAudit Committee of our Board of Directors is responsible for the appointment, compensationand oversight of the work of our independent registered public accounting firm.Pursuant to the Audit Committee’s charter, the Audit Committee pre-approves allaudit and permissible non-audit services provided by our independent registeredpublic accounting firm. The approval may be given as part of the AuditCommittee’s approval of the scope of the engagement of our independentregistered public accounting firm or on an individual basis. Our independentregistered public accounting firm may not be retained to perform the non-auditservices specified in Section 10A(g) of the Exchange Act.

 

TheAudit Committee appointed PricewaterhouseCoopers LLP (“PwC”) to serve as ourindependent registered public accounting firm on June 13, 2002. During2005 and 2004, all of the services performed by PwC described below wereapproved in advance by our Audit Committee except for the services relating tothe 2003 audit of our 401(k) Employee Savings Plan, which were approved by ourAudit Committee after such services had begun, and relating to the entry in2004 into a “click-through” annual license of research software owned by PwC,which was approved by our Audit Committee after such software was licensed,each pursuant to the *de minimis*exception under SEC regulations. Such amounts accounted for 6% of theaudit-related fees incurred during 2004 and less than 1% of the audit-relatedfees incurred during 2005****.****

 

Setforth below are the fees and expenses incurred for the services of PwC and itsaffiliates in 2005 and 2004 (dollars in thousands).

 

| ** **         | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------|------------|----------|------------|----------|------------|
|               |       |     |       |     |       |
| Audit fees         |       | $        | 23,197     |     | $          | 67,324 |   |
| Audit-related fees |       | 2,136    |       | 403      |       |
| Tax fees           |       | 193      |       | 270      |       |
| Subtotal           |       | 25,526   |       | 67,997   |       |
| All other fees     |       | 28       |       | 66       |       |
| Total fees         |       | $        | 25,554     |     | $          | 68,063 |   |

 

For purposes of thepreceding table, the professional fees are classified as follows:

 

***Audit Fees*** — These are fees and expenses forprofessional services incurred during 2004 and 2005 for the re-audit of ourconsolidated financial statements for the years ended December 31, 1999and 2000 (which were not filed with the SEC) and the audits of our consolidatedfinancial statements for the years ended December 31, 2001, 2002, 2003,2004 and 2005. The 2004 and 2005 amounts also include fees and expenses for theaudit of our annual management assessment of the effectiveness of internalcontrol over financial reporting.

 

***Audit-Related Fees*** — These are fees and expensesfor professional services incurred for due diligence services associated withthe Sale Transaction, the audit of certain subsidiary financial statements andthe audit of our 401(k) Employee Savings Plan. Audit-related fees also includes$1.1 million of fees and expenses for professional services incurred during2005 for the audit of certain financial statements required in connection withthe Sale Transaction. These fees and expenses will be reimbursed by TW NY andComcast in accordance with the terms and conditions of the Purchase Agreements.

 

***Tax Fees*** — These are fees and expenses forprofessional services incurred for tax planning and tax compliance services.

 

***All Other Fees*** — These are fees and expenses forprofessional services incurred related to forensic consultant fees, whichcommenced prior to the engagement of PwC to serve as our independent registeredpublic accounting firm.

 

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# ** **

# **PARTIV**

 

**ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

 

**EXHIBIT INDEX**

 
| 2.01.1 |   | Agreement and Plan of Merger by and among Adelphia Communications  Corporation, Adelphia Acquisition Subsidiary, Inc., and Century  Communications Corp., dated as of March 5, 1999 (Incorporated herein by  reference to Exhibit 2.01 to the Company’s Current Report on  Form 8-K filed on March 10, 1999) (File No. 0-16014). |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 2.01.2 |   | First Amendment to Agreement and Plan of Merger dated as of July 12,  1999 with respect to merger with Century Communications Corp. (Incorporated  herein by reference to Exhibit 2.01 to the Company’s Current Report on  Form 8-K filed on August 12, 1999) (File No. 0-16014).                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 2.01.3 |   | Second Amendment to Agreement and Plan of Merger dated as of July 29,  1999 with respect to merger with Century Communications Corp. (Incorporated  herein by reference to Exhibit 2.02 to the Company’s Current Report on  Form 8-K filed on August 12, 1999) (File No. 0-16014).                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 2.02   |   | Plan of Reorganization Under Chapter 11 of the Bankruptcy Code  Filed by Century/ML Cable Venture, dated August 9, 2005 (Incorporated  herein by reference to Exhibit 2.03 to the Company’s Annual Report on Form  10-K for the year ended December 31, 2004) (File No. 0-16014).                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 2.03.1 |   | Asset Purchase Agreement, dated as of April 20, 2005, between  Adelphia Communications Corporation and Time Warner NY Cable LLC  (Incorporated herein by reference to Exhibit 2.1 to the Company’s Current  Report on Form 8-K filed on April 25, 2005) (File No. 0-16014).                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 2.03.2 |   | Amendment No. 1, dated June 24, 2005, to Asset Purchase Agreement  Between Adelphia Communications Corporation and Time Warner NY Cable LLC  (Incorporated herein by reference to Exhibit C to Exhibit 2.2 to  the Company’s Current Report on Form 8-K filed on June 27, 2005)  (File No. 0-16014).                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 2.03.3 |   | Letter Agreement, dated June 24, 2005, between Time Warner NY Cable  LLC, Adelphia Communications Corporation and Comcast Corporation  (Incorporated herein by reference to Exhibit C to Exhibit 2.2 to the  Company’s Current Report on Form 8-K filed on June 27, 2005)  (File No. 0-16014).                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 2.03.4 |   | Asset Purchase Agreement, dated as of April 20, 2005, between  Adelphia Communications Corporation and Comcast Corporation (Incorporated  herein by reference to Exhibit 2.2 to the Company’s Current Report on  Form 8-K filed on April 25, 2005) (File No. 0-16014).                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 2.03.5 |   | Amendment No. 1, dated June 24, 2005, to Asset Purchase Agreement  Between Adelphia Communications Corporation and Comcast Corporation (Incorporated  herein by reference to Exhibit D to Exhibit 2.2 to the Company’s  Current Report on Form 8-K filed on June 27, 2005)  (File No. 0-16014).                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 2.03.6 |   | Letter Agreement, dated June 24, 2005, between Comcast Corporation,  Adelphia Communications Corporation and Time Warner NY Cable LLC  (Incorporated herein by reference to Exhibit D to Exhibit 2.2 to  the Company’s Current Report on Form 8-K filed on June 27, 2005)  (File No. 0-16014).                                        |

 

 

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| 2.03.7 |   | Parent Agreement, dated as of April 20, 2005, among Time Warner Cable  Inc., Time Warner NY Cable LLC and Adelphia Communications Corporation  (Incorporated herein by reference to Exhibit 2.3 to the Company’s  Current Report on Form 8-K filed on April 25, 2005) (File No. 0-16014).                    |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                       |
| 2.03.8 |   | Expanded Transaction Letter Agreement, dated as of April 20, 2005,  among Comcast Corporation, Time Warner NY Cable LLC and Adelphia  Communications Corporation (Incorporated herein by reference to  Exhibit 2.4 to the Company’s Current Report on Form 8-K filed on  April 25, 2005) (File No. 0-16014). |
|   |   |                                                                                                                                                                                                                                                                                                                                       |
| 3.01   |   | Certificate of Incorporation of Adelphia Communications Corporation,  as amended (Incorporated herein by reference to Exhibit 3.01 to the  Company’s Quarterly Report on Form 10-Q for the quarter ended  September 30, 1999) (File No. 0-16014).                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                       |
| 3.02   |   | Amended and Restated Bylaws of Adelphia Communications Corporation,  as amended through January 23, 2003 (Incorporated herein by reference to  Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on  March 5, 2003) (File No. 0-16014).                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                       |
| 4.01.1 |   | Certificate of Designations for 13% Series A and Series B  Cumulative Exchangeable Preferred Stock (Incorporated herein by reference to  Exhibit 4.01 to the Company’s Current Report on Form 8-K filed on  July 24, 1997) (File No. 0-16014).                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                       |
| 4.01.2 |   | Form of Certificate for 13% Cumulative Exchangeable Preferred Stock  (Incorporated herein by reference to Exhibit 4.06 to the Company’s  Current Report on Form 8-K filed on July 24, 1997) (File No. 0-16014).                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                       |
| 4.02.1 |   | Certificate of Designations with respect to the Company’s 51/2%  Series D Convertible Preferred Stock (Incorporated by reference herein to  Exhibit 3.01 to the Company’s Current Report on Form 8-K filed on  April 30, 1999) (File No. 0-16014).                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                       |
| 4.02.2 |   | Form of Certificate for the Company’s 5.5% Series D Convertible  Preferred Stock (Incorporated herein by reference to Exhibit 4.02.2 to  the Company’s Annual Report on Form 10-K for the year ended  December 31, 2003) (File No. 0-16014).                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                       |
| 4.03.1 |   | Certificate of Designations with respect to the Company’s 7.5%  Series E Mandatory Convertible Preferred Stock (Incorporated herein by  reference to Exhibit 3.01 to the Company’s Current Report on  Form 8-K filed on November 16, 2001) (File No. 0-16014).                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                       |
| 4.03.2 |   | Certificate of Amendment of Certificate of Designations with respect  to the Company’s 7.5% Series E Mandatory Convertible Preferred Stock  (Incorporated herein by reference to Exhibit 3.1 to the Company’s  Current Report on Form 8-K filed on November 18, 2004)  (File No. 0-16014).         |
|   |   |                                                                                                                                                                                                                                                                                                                                       |
| 4.03.3 |   | Certificate of Amendment of Certificate of Designations with respect  to the Company’s 7.5% Series E Mandatory Convertible Preferred Stock  (Incorporated herein by reference to Exhibit 3.1 to the Company’s  Current Report on Form 8-K filed on February 25, 2005)  (File No. 0-16014).              |
|   |   |                                                                                                                                                                                                                                                                                                                                       |
| 4.03.4 |   | Certificate of Amendment of Certificate of Designations with respect  to the Company’s 7.5% Series E Mandatory Convertible Preferred Stock  (Incorporated herein by reference to Exhibit 3.1 to the Company’s  Current Report on Form 8-K filed on March 4, 2005)  (File No. 0-16014).                  |
|   |   |                                                                                                                                                                                                                                                                                                                                       |
| 4.03.5 |   | Certificate of Amendment of Certificate of Designations with respect  to the Company’s 7.5% Series E Mandatory Convertible Preferred Stock  (Incorporated herein by reference to Exhibit 3.1 to the Company’s  Current Report on Form 8-K filed on April 11, 2005)  (File No. 0-16014).                 |

 

187

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| 4.03.6 |   | Certificate of Amendment of Certificate of Designations with respect  to the Company’s 7.5% Series E Mandatory Convertible Preferred Stock  (Incorporated herein by reference to Exhibit 3.1 to the Company’s  Current Report on Form 8-K filed on May 18, 2005)  (File No. 0-16014).                                                            |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.03.7 |   | Certificate of Amendment of Certificate of Designations with respect  to the Company’s 7.5% Series E Mandatory Convertible Preferred Stock  (Incorporated herein by reference to Exhibit 3.1 to the Company’s  Current Report on Form 8-K filed on June 29, 2005)  (File No. 0-16014).                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.03.8 |   | Certificate of Amendment of Certificate of Designations with respect  to the Company’s 7.5% Series E Mandatory Convertible Preferred Stock  (Incorporated herein by reference to Exhibit 3.1 to the Company’s  Current Report on Form 8-K filed on November 17, 2005) (File  No. 0-16014).                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.03.9 |   | Form of Certificate for the Company’s 7.5% Series E Mandatory  Convertible Preferred Stock (Incorporated herein by reference to  Exhibit 4.01 to the Company’s Current Report on Form 8-K filed on  November 16, 2001) (File No. 0-16014).                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.04.1 |   | Certificate of Designations with respect to the Company’s 7.5% Series  F Mandatory Convertible Preferred Stock (Incorporated herein by reference to  Exhibit 3.01 to the Company’s Current Report on Form 8-K filed on  February 1, 2002) (File No. 0-16014).                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.04.2 |   | Certificate of Amendment of Certificate of Designations with respect  to the Company’s 7.5% Series F Mandatory Convertible Preferred Stock  (Incorporated herein by reference to Exhibit 3.2 to the Company’s  Current Report on Form 8-K filed on February 25, 2005)  (File No. 0-16014).                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.04.3 |   | Certificate of Amendment of Certificate of Designations with respect  to the Company’s 7.5% Series E Mandatory Convertible Preferred Stock  (Incorporated herein by reference to Exhibit 3.2 to the Company’s  Current Report on Form 8-K filed on March 4, 2005)  (File No. 0-16014).                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.04.4 |   | Certificate of Amendment of Certificate of Designations with respect  to the Company’s 7.5% Series F Mandatory Convertible Preferred Stock  (Incorporated herein by reference to Exhibit 3.2 to the Company’s  Current Report on Form 8-K filed on April 11, 2005)  (File No. 0-16014).                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.04.5 |   | Certificate of Amendment of Certificate of Designations with respect  to the Company’s 7.5% Series F Mandatory Convertible Preferred Stock  (Incorporated herein by reference to Exhibit 3.2 to the Company’s  Current Report on Form 8-K filed on May 18, 2005)  (File No. 0-16014).                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.04.6 |   | Certificate of Amendment of Certificate of Designations with respect  to the Company’s 7.5% Series F Mandatory Convertible Preferred Stock  (Incorporated herein by reference to Exhibit 3.2 to the Company’s  Current Report on Form 8-K filed on June 29, 2005)  (File No. 0-16014).                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.04.7 |   | Certificate of Amendment of Certificate of Designations with respect  to the Company’s 7.5% Series F Mandatory Convertible Preferred Stock  (Incorporated herein by reference to Exhibit 3.2 to the Company’s  Current Report on Form 8-K filed on November 17, 2005) (File No. 0-16014).                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.04.8 |   | Form of Certificate for the Company’s 7.5% Series F Mandatory  Convertible Preferred Stock (Incorporated herein by reference to Exhibit 4.01  to the Company’s Current Report on Form 8-K filed on February 1,  2002) (File No. 0-16014).                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.05.1 |   | Amended and Restated Indenture, dated as of May 11, 1993, between the  Company and Bank of Montreal Trust Company, with respect to the Company’s 97/8%  Senior Debentures Due 2005 (Incorporated herein by reference to  Exhibit 4.01 to the Company’s Annual Report on Form 10-K for the fiscal  year ended March 31, 1993) (File No. 0-16014). |

 

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| 4.05.2 |   | Form of 97/8% Senior Debenture due 2005  (Incorporated herein by reference to Exhibit 4.05.2 to the Company’s  Annual Report on Form 10-K for the year ended December 31, 2003)  (File No. 0-16014).                                                                                                                                                                     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.06.1 |   | Indenture, dated as of February 22, 1994, between the Company and  Bank of Montreal Trust Company, with respect to the Company’s 91/2%  Senior Pay-In-Kind Notes Due 2004 (Incorporated herein by reference to  Exhibit 4.05 to the Company’s Registration Statement No. 33-52513  on Form S-4 filed on March 4, 1994).                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.06.2 |   | Form of 91/2% Senior Pay-In-Kind Note due 2004  (Contained in Exhibit 4.06.1).                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.06.3 |   | First Supplemental Indenture, dated as of May 4, 1994, with respect  to the Company’s 91/2% Senior Pay-In-Kind Notes due  2004, between the Company and Bank of Montreal Trust Company (Incorporated  herein by reference to Exhibit 4.01 to the Company’s Current Report on  Form 8-K filed on May 6, 1994) (File No. 0-16014).                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.07.1 |   | Indenture, dated as of February 26, 1997, between the Company and  Bank of Montreal Trust Company with respect to the Company’s 97/8%  Senior Notes Due 2007 (Incorporated herein by reference to  Exhibit 4.01 to the Company’s Current Report on Form 8-K filed on  May 1, 1997) (File Number 0-16014).                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.07.2 |   | Form of 97/8% Senior Note due 2007  (Incorporated herein by reference to Exhibit 4.07.2 to the Company’s Annual  Report on Form 10-K for the year ended December 31, 2003)  (File No. 0-16014).                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.08.1 |   | Indenture, dated as of July 7, 1997, with respect to the Company’s 101/2%  Senior Notes due 2004, between the Company and the Bank of Montreal Trust  Company (Incorporated herein by reference to Exhibit 4.03 to the  Company’s Current Report on Form 8-K filed on July 24, 1997) (File  No. 0-16014).                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.08.2 |   | Form of 101/2% Senior Note due 2004 (Contained  in Exhibit 4.08.1).                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.09.1 |   | Indenture, dated as of September 25, 1997, with respect to the  Company’s 91/4% Senior Notes due 2002, between the  Company and the Bank of Montreal Trust Company (Incorporated herein by  reference to Exhibit 4.01 to the Company’s Current Report on  Form 8-K filed on October 21, 1997) (File No. 0-16014).                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.09.2 |   | Form of 91/4% Senior Note due 2002 (Contained  in Exhibit 4.09.1).                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.10.1 |   | Indenture, dated as of January 21, 1998, with respect to the  Company’s 83/8% Senior Notes due 2008, between the  Company and the Bank of Montreal Trust Company (Incorporated herein by  reference to Exhibit 4.01 to the Company’s Current Report on  Form 8-K filed on January 28, 1998) (File No. 0-16014).                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.10.2 |   | Form of 83/8% Senior Note due 2008 (Contained  in Exhibit 4.10.1).                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.10.3 |   | First Supplemental Indenture, dated as of November 12, 1998, to  January 21, 1998 Indenture, with respect to the Company’s 83/8%  Senior Notes due 2008, between the Company and The Bank of Montreal Trust  Company (Incorporated herein by reference to Exhibit 4.01 to the  Company’s Current Report on Form 8-K filed on January 28, 1999)  (File No. 0-16014). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| 4.11.1 |   | Indenture, dated as of July 2, 1998, with respect to the Company’s 81/8%  Senior Notes due 2003, between the Company and the Bank of Montreal Trust  Company (Incorporated herein by reference to Exhibit 4.01 to the  Company’s Current Report on Form 8-K filed on July 23, 1998) (File  No. 0-16014)                                                                  |

 

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| 4.11.2 |   | Form of 81/8% Senior Note due 2003 (Contained  in Exhibit 4.11.1).                                                                                                                                                                                                                                                                                                                                                              |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.12.1 |   | Form of Indenture, with respect to the Company’s 13% Senior  Subordinated Exchange Debentures due 2009, between the Company and the Bank  of Montreal Trust Company (Incorporated herein by reference to  Exhibit 4.05 to the Company’s Current Report on Form 8-K filed on  July 24, 1997) (File No. 0-16014).                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.12.2 |   | Form of 13% Senior Subordinated Exchange Debenture due 2009  (Incorporated herein by reference to Exhibit 4.02.2 to the Company’s  Annual Report on Form 10-K for the year ended December 31, 2003)  (File No. 0-16014).                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.13.1 |   | Indenture, dated as of January 13, 1999, with respect to the  Company’s 71/2% Senior Notes due 2004 and 73/4%  Senior Notes due 2009, between the Company and the Bank of Montreal Trust  Company (Incorporated herein by reference to Exhibit 4.03 to the  Company’s Current Report on Form 8-K filed on January 28, 1999)  (File No. 0-16014).                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.13.2 |   | Form of 71/2% Senior Note due 2004 (Contained  in Exhibit 4.13.1).                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.13.3 |   | Form of 73/4% Senior Note due 2009 (Contained  in Exhibit 4.13.1).                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.14.1 |   | Base Indenture, dated as of April 28, 1999, with respect to the  Company’s Senior Indebtedness, between the Company and The Bank of Montreal  Trust Company (Incorporated herein by reference to Exhibit 4.01 to the  Company’s Current Report on Form 8-K filed on April 30, 1999)  (File No. 0-16014).                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.14.2 |   | First Supplemental Indenture, dated as of April 28, 1999, to April  28, 1999 Base Indenture, with respect to the Company’s 77/8%  Senior Notes due 2009, between the Company and The Bank of Montreal Trust  Company (Incorporated herein by reference to Exhibit 4.02 to the  Company’s Current Report on Form 8-K filed on April 30, 1999)  (File No. 0-16014).                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.14.3 |   | Form of 77/8% Senior Note due 2009 (Contained  in Exhibit 4.14.2).                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.14.4 |   | Second Supplemental Indenture, dated as of November 16, 1999, to  April 28, 1999 Base Indenture, with respect to the Company’s 93/8%  Senior Notes due 2009, between Harris Trust Company and the Company  (Incorporated herein by reference to Exhibit 4.16 to the Company’s  Annual Report on Form 10-K for the year ended December 31, 1999)  (File No. 0-16014).                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.14.5 |   | Form of 93/8% Senior Note due 2009 (Contained  in Exhibit 4.14.4).                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.14.6 |   | Third Supplemental Indenture, dated as of September 20, 2000, with  respect to the Company’s 107/8% Senior Notes due 2010,  between the Company and The Bank of New York, successor entity by acquisition  to Harris Trust Company of New York, as trustee (Incorporated herein by  reference to Exhibit 4.01 to the Company’s Current Report on Form 8-K  filed on September 29, 2000) (File No. 0-16014). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 4.14.7 |   | Form of 107/8% Senior Note due 2010 (Contained  in Exhibit 4.14.6).                                                                                                                                                                                                                                                                                                                                                             |

 

190

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| 4.14.8   |   | Fourth Supplemental Indenture, dated as of June 12, 2001, with  respect to the Company’s 101/4% Senior Notes due 2011,  between the Company and The Bank of New York, successor entity by acquisition  to Harris Trust Company of New York, as trustee (Incorporated herein by  reference to Exhibit 4.01 to the Company’s Current Report on Form 8-K  filed on June 14, 2001) (File No. 0-16014).                                                                                    |
|----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.14.9   |   | Form of 101/4% Senior Note due 2011 (Contained  in Exhibit 4.14.8).                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.14.10  |   | Fifth Supplemental Indenture, dated as of October 25, 2001, with  respect to the Company’s 101/4% Senior Notes due 2006,  between the Company and The Bank of New York, successor entity by acquisition  to Harris Trust Company of New York, as trustee (Incorporated herein by  reference to Exhibit 4.01 to the Company’s Current Report on  Form 8-K filed on October 30, 2001) (File No. 0-16014).                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.14.11  |   | Form of 101/4% Senior Note due 2006 (Contained  in Exhibit 4.14.10).                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.15.1   |   | Base Subordinated Debt Indenture dated as of January 23, 2001, with  respect to the Company’s Subordinated Debt, between the Company and The Bank  of New York, successor entity by acquisition to Harris Trust Company of New  York, as trustee (Incorporated herein by reference to Exhibit 4.01 to  the Company’s Current Report on Form 8-K filed on January 24, 2001)  (File No. 0-16014).                                                                                       |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.15.2   |   | First Supplemental Indenture, dated as of January 23, 2001, with  respect to the Company’s 6% Convertible Subordinated Notes due 2006, between  the Company and The Bank of New York, successor entity by acquisition to  Harris Trust Company of New York, as trustee (Incorporated herein by  reference to Exhibit 4.02 to the Company’s Current Report on  Form 8-K filed on January 24, 2001) (File No. 0-16014).                                                                 |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.15.3   |   | Form of 6% Convertible Subordinated Note due 2006 (Contained in  Exhibit 4.15.2).                                                                                                                                                                                                                                                                                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.15.4   |   | Second Supplemental Indenture, dated as of April 25, 2001, with  respect to the Company’s 3.25% Convertible Subordinated Notes due 2021,  between the Company and The Bank of New York, successor entity by acquisition  to Harris Trust Company of New York, as trustee, to Subordinated Debt  Indenture dated as of January 23, 2001 (Incorporated herein by reference  to Exhibit 4.01 to the Company’s Current Report on Form 8-K filed  on May 4, 2001) (File No. 0-16014). |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.15.5   |   | Form of 3.25% Convertible Subordinated Note due 2021 (Contained in  Exhibit 4.15.4).                                                                                                                                                                                                                                                                                                                                                                                                                           |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.16.1   |   | Promissory Note in favor of Highland 2000, L.P. for the Company’s 6%  Convertible Subordinated Notes due 2006 (Incorporated herein by reference to  Exhibit 10.01 to the Company’s Current Report on Form 8-K filed on  February 1, 2002) (File No. 0-16014).                                                                                                                                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.16.2   |   | Promissory Note in favor of Highland 2000, L.P. for the Company’s  3.25% Convertible Subordinated Notes due 2021 (Incorporated herein by  reference to Exhibit 10.02 to the Company’s Current Report on Form 8-K  filed on February 1, 2002) (File No. 0-16014).                                                                                                                                                                                                                      |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.01.1  |   | Management Agreement by and between Olympus Communications, L.P.,  Olympus Cable Holdings, LLC, Adelphia Holdings 2001, LLC, Highland Video  Associates, L.P., Coudersport Television Cable Company and Adelphia Company  of Western Connecticut, dated September 28, 2001 (Incorporated herein by  reference to Exhibit 10.01.1 to the Company’s Annual Report on Form 10-K  for the year ended December 31, 2003) (File No. 0-16014).                                                    |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.01.2* |   | Management Agreement by and between Praxis Capital Management, LLC  and Praxis Capital Partners, LLC dated June 8, 2001 (Incorporated herein  by reference to Exhibit 10.01.2 to the Company’s Annual Report on  Form 10-K for the year ended December 31, 2003) (File No. 0-16014).                                                                                                                                                                                                  |

 

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| 10.01.3 |   | Amended and Restated Management Agreement and Joint Venture Agreement  of Century/ML Cable Venture dated January 1, 1994, between Century  Communications Corp. and ML Media Partners, L.P. (Incorporated herein by  reference to Exhibit 10.01.3 to the Company’s Annual Report on  Form 10-K for the year ended December 31, 2003) (File  No. 0-16014).                     |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.02   |   | Business Opportunity Agreement, dated July 1, 1986 among John J.  Rigas, Michael J. Rigas, Timothy J. Rigas, James P. Rigas,  Daniel Milliard, Dorellenic Cable Partners and the Company (Incorporated  herein by reference to Exhibit 10.13 to Amendment No. 3 to the  Company’s Registration Statement No. 33-6974 on Form S-1/A filed on  August 12, 1986). |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.03.1 |   | Master Reciprocal Settlement Agreement, dated as of December 3, 2003,  between Adelphia Communications Corporation and Adelphia Business Solutions,  Inc. (d/b/a TelCove) (Incorporated herein by reference to  Exhibit 10.03.1 to the Company’s Annual Report on Form 10-K for the  year ended December 31, 2003) (File No. 0-16014).                                             |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.03.2 |   | Amendment to the Master Reciprocal Settlement Agreement, dated April  7, 2004, between Adelphia Communications Corporation and Adelphia Business  Solutions, Inc. (d/b/a TelCove) (Incorporated herein by reference to  Exhibit 10.03.2 to the Company’s Annual Report on Form 10-K for the  year ended December 31, 2003) (File No. 0-16014).                                     |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.04.1 |   | Global Settlement Agreement, dated February 21, 2004, between  Adelphia Communications Corporation and Adelphia Business Solutions, Inc.  (d/b/a TelCove) (Incorporated herein by reference to Exhibit 10.04.1 to  the Company’s Annual Report on Form 10-K for the year ended December 31,  2003) (File No. 0-16014).                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.04.2 |   | Mutual Release Agreement, dated April 2004, between Adelphia  Communications Corporation and Adelphia Business Solutions, Inc. (d/b/a  TelCove) (Incorporated herein by reference to Exhibit 10.04.2 to the  Company’s Annual Report on Form 10-K for the year ended December 31,  2003) (File No. 0-16014).                                                                            |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.04.3 |   | Commercial Services Agreement, dated April 2004, between Adelphia  Communications Corporation and Adelphia Business Solutions, Inc. (d/b/a  TelCove) (Incorporated herein by reference to Exhibit 10.04.3 to the Company’s  Annual Report on Form 10-K for the year ended December 31, 2003) (File  No. 0-16014).                                                                       |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.04.4 |   | Amendment No. 1 to the Commercial Services Agreement, dated  August 17, 2004, between Adelphia Communications Corporation and  Adelphia Business Solutions, Inc. (d/b/a TelCove) (Incorporated herein by  reference to Exhibit 10.04.4 to the Company’s Annual Report on  Form 10-K for the year ended December 31, 2003) (File  No. 0-16014).                                |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.04.5 |   | IP Transport Agreement, dated April 2004, between Adelphia Communications  Corporation and Adelphia Business Solutions, Inc. (d/b/a TelCove)  (Incorporated herein by reference to Exhibit 10.04.5 to the Company’s  Annual Report on Form 10-K for the year ended December 31, 2003) (File  No. 0-16014).                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.04.6 |   | Conveyance Agreement, dated April 2004, between Adelphia  Communications Corporation and Adelphia Business Solutions, Inc. (d/b/a  TelCove) (Incorporated herein by reference to Exhibit 10.04.6 to the  Company’s Annual Report on Form 10-K for the year ended December 31,  2003) (File No. 0-16014).                                                                                |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.05   |   | Leveraged Recapitalization Agreement by and among Century/ML Cable  Venture, ML Media Partners, L.P., Century Communications Corp., Adelphia  Communications Corporation, and Highland, dated as of December 13, 2001  (Incorporated herein by reference to Exhibit 10.05 to the                                                                                                                  |

 

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|     |   | Company’s Annual Report on Form 10-K for the year ended  December 31, 2003) (File No. 0-16014).                                                                                                                                                                                                                             |
|----------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.06.1* |   | Terms and Conditions of Employment between William T. Schleyer and  Adelphia Communications Corporation, dated January 17, 2003  (Incorporated herein by reference to Exhibit 10.06 to the Company’s  Current Report on Form 8-K filed on March 5, 2003) (File  No. 0-16014).                                          |
|     |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.06.2* |   | Amendment No. 1 to the Terms and Conditions of Employment between  William T. Schleyer and Adelphia Communications Corporation, dated as of  February 21, 2003 (Incorporated herein by reference to Exhibit 10.07 to  the Company’s Current Report on Form 8-K filed on March 5, 2003)  (File No. 0-16014).            |
|     |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.06.3* |   | Revised Amendment No. 2 to the Terms and Conditions of Employment  between William T. Schleyer and Adelphia Communications Corporation, dated as  of March 10, 2003 (Incorporated herein by reference to Exhibit 10.08  to the Company’s Current Report on Form 8-K filed on March 12,  2003) (File No. 0-16014). |
|     |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.07.1* |   | Employment between Ron Cooper and Adelphia Communications  Corporation, dated January 17, 2003 (Incorporated herein by reference to  Exhibit 10.09 to the Company’s Current Report on Form 8-K filed on  March 5, 2003) (File No. 0-16014).                                                                       |
|     |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.07.2* |   | Amendment No. 1 to the Terms and Conditions of Employment between Ron  Cooper and Adelphia Communications Corporation, dated as of February 21,  2003 (Incorporated herein by reference to Exhibit 10.10 to the Company’s  Current Report on Form 8-K filed on March 5, 2003) (File  No. 0-16014).                |
|     |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.08*   |   | Employment Agreement between Vanessa Wittman and Adelphia  Communications Corporation, dated May 8, 2003 (Incorporated herein by  reference to Exhibit 10.08 to the Company’s Annual Report on Form 10-K  for the year ended December 31, 2003) (File No. 0-16014).                                                    |
|     |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.09*   |   | Amended and Restated Employment Agreement between Joseph Bagan and  Adelphia Communications Corporation, dated November 1, 2004  (Incorporated herein by reference to Exhibit 10.10 to the Company’s  Annual Report on Form 10-K for the year ended December 31, 2003) (File  No. 0-16014).                            |
|     |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.10*   |   | Employment Agreement between Brad Sonnenberg and Adelphia Communications  Corporation, dated July 21, 2003 (Incorporated herein by reference to  Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2004) (File No. 0-16014).                                           |
|     |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.11.1  |   | Olympus Communications, L.P. Second Amended and Restated Limited  Partnership Agreement, dated as of February 28, 1995 (Incorporated  herein by reference to Exhibit 10.32 to the Company’s Annual Report on  Form 10-K for the fiscal year ended March 31, 1995) (File No. 0-16014).                                  |
|     |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.11.2  |   | First Amendment to the Olympus Communications, L.P. Second Amended  and Restated Limited Partnership Agreement, dated September 1, 1995  (Incorporated herein by reference to Exhibit 10.33 to the Company’s  Amended Annual Report on Form 10-K/A for the fiscal year ended  March 31, 1996) (File No. 0-16014). |
|     |   |                                                                                                                                                                                                                                                                                                                                            |
| 10.11.3  |   | First Amendment to the Olympus Communications, L.P. Second Amended  and Restated Limited Partnership Agreement, dated March 29, 1996  (Incorporated herein by reference to Exhibit 10.34 to the Company’s  Amended Annual Report on Form 10-K/A for the fiscal year ended  March 31, 1996) (File No. 0-16014).         |

 

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| 10.11.4  |   | Second Amendment to the Olympus Communications, L.P. Second Amended  and Restated Limited Partnership Agreement, dated June 27, 1996  (Incorporated herein by reference to Exhibit 10.35 to the Company’s  Amended Annual Report on Form 10-K/A for the fiscal year ended  March 31, 1996) (File No. 0-16014).                                |
|----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.11.5  |   | Third Amendment to the Olympus Communications, L.P. Second Amended  and Restated Limited Partnership Agreement, dated October 1, 1999  (Incorporated herein by reference to Exhibit 3.8 to Olympus’ Annual  Report on Form 10-K for the fiscal year ended December 31, 1999) (File No. 333-19327).                                                 |
|     |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.12.1  |   | Agreement of Limited Partnership of Century-TCI California  Communications, L.P., dated as of December 7, 1999 (Incorporated herein  by reference to Exhibit 10.115 to the Company’s Annual Report on  Form 10-K for the fiscal year ended December 31, 1999) (File  No. 0-16014).                                                            |
|     |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.12.2  |   | Amendment to the Agreement of Limited Partnership of Century-TCI  California Communications, L.P., dated June 25, 2002 (Incorporated  herein by reference to Exhibit 10.13.2 to the Company’s Annual Report on  Form 10-K for the fiscal year ended December 31, 2003) (File  No. 0-16014).                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.12.3  |   | Second Amendment to the Agreement of Limited Partnership of  Century-TCI California Communications, L.P., dated September 30, 2004  (Incorporated herein by reference to Exhibit 10.13.3 to the Company’s  Annual Report on Form 10-K for the fiscal year ended December 31,  2003) (File No. 0-16014).                                       |
|     |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.13.1  |   | Agreement of Limited Partnership of Parnassos Communications, L.P.,  dated as of December 30, 1998 (Incorporated herein by reference to  Exhibit 10.14.1 to the Company’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2003) (File No. 0-16014).                                                                        |
|     |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.13.2  |   | Amendment to the Agreement of Limited Partnership of Parnassos  Communications, L.P., dated June 25, 2002 (Incorporated herein by  reference to Exhibit 10.14.2 to the Company’s Annual Report on  Form 10-K for the fiscal year ended December 31, 2003) (File  No. 0-16014).                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.13.3  |   | Second Amendment to the Agreement of Limited Partnership of Parnassos  Communications, L.P., dated September 30, 2004 (Incorporated herein by  reference to Exhibit 10.14.3 to the Company’s Annual Report on  Form 10-K for the fiscal year ended December 31, 2003) (File  No. 0-16014).                                                    |
|     |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.14.1  |   | Warrant Agreement dated as of April 15, 1996, by and among Hyperion  Telecommunications, Inc. (now known as Adelphia Business Solutions) and Bank  of Montreal Trust Company (Incorporated herein by reference to  Exhibit 10.13 to Hyperion Telecommunications, Inc.’s Registration  Statement No. 333-06957 on Form S-4 filed on June 27, 1996). |
|     |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.14.2  |   | Warrant issued by Hyperion Telecommunications, Inc. to MCI dated  May 8, 1998 (Incorporated herein by reference to Exhibit 10.03 to  Hyperion Telecommunications, Inc.’s Current Report on Form 8-K filed on  June 24, 1998) (File No. 0-21605).                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.14.3  |   | Warrant issued by Hyperion Telecommunications, Inc. to the Company  dated June 5, 1998 (Incorporated herein by reference to  Exhibit 10.04 to Hyperion Telecommunications, Inc.’s Current Report on  Form 8-K filed on June 24, 1998) (File No. 0-21605).                                                                                          |
|     |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.15.1* |   | Hyperion Telecommunications, Inc. 1996 Long-Term Incentive  Compensation Plan (Incorporated herein by reference to Exhibit 10.17 to  Hyperion Telecommunications, Inc.’s Amended Registration Statement  No. 333-13663 on Form S-1/A filed on October 31, 1996).                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                        |
| 10.15.2* |   | Adelphia Communications Corporation 1998 Long Term Incentive  Compensation Plan, as amended through August 7, 2001 (Incorporated  herein by reference to Appendix C to the Company’s Proxy Statement for  the Annual Meeting of Stockholders on August 7, 2001) (File No. 0-16014).                                                                |

 

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| 10.15.3   |   | 1994 Stock Option Plan of Century (Incorporated herein by reference  to Exhibit 10(v)(3) to Century’s Annual Report on Form 10-K for the  fiscal year ended May 31, 1995) (File No. 0-16899).                                                                                                            |
|-----------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                                                                                                         |
| 10.15.4   |   | Century Communications Corp. 1993 Non-Employee Directors’ Stock  Option Plan (Incorporated herein by reference to Exhibit 10.16.4 to the  Company’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2003) (File No. 0-16014).                                               |
|      |   |                                                                                                                                                                                                                                                                                                                         |
| 10.15.5*  |   | Form of Adelphia Communications Corporation 2001 Outside Director  Nonstatutory Stock Option Agreement (Incorporated herein by reference to  Exhibit 10.16.5 to the Company’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2003) (File No. 0-16014).                          |
|      |   |                                                                                                                                                                                                                                                                                                                         |
| 10.15.6*  |   | Form of Adelphia Communications Corporation Nonstatutory Stock Option  Agreement (Incorporated herein by reference to Exhibit 10.16.6 to the  Company’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2003) (File No. 0-16014).                                                     |
|      |   |                                                                                                                                                                                                                                                                                                                         |
| 10.15.7*  |   | Adelphia Communications Corporation and Hyperion Telecommunications  Corporation Executive Performance Share Compensation Plan (Incorporated  herein by reference to Exhibit 10.16.7 to the Company’s Annual Report on  Form 10-K for the fiscal year ended December 31, 2003) (File  No. 0-16014). |
|      |   |                                                                                                                                                                                                                                                                                                                         |
| 10.15.8*  |   | Adelphia Communications Corporation Key Employee Continuity Program  (Incorporated herein by reference to Exhibit 10.1 to the Company’s  Current Report on Form 8-K filed on October 5, 2004) (File  No. 0-16014).                                                                                       |
|      |   |                                                                                                                                                                                                                                                                                                                         |
| 10.15.9*  |   | Amended and Restated Adelphia Communications Corporation Sale Bonus  Program (Incorporated herein by reference to Exhibit 10.02.2 to the  Company’s Quarterly Report on Form 10-Q for the quarter ended September  30, 2005) (File No. 0-16014).                                                         |
|      |   |                                                                                                                                                                                                                                                                                                                         |
| 10.15.10* |   | Form of Performance Retention Plan Grant Letter (Incorporated herein  by reference to Exhibit 10.16.12 to the Company’s Annual Report on  Form 10-K for the fiscal year ended December 31, 2003) (File  No. 0-16014).                                                                               |
|      |   |                                                                                                                                                                                                                                                                                                                         |
| 10.15.11* |   | Form of Amended and Restated Adelphia Communications Corporation  Performance Retention Plan Award Letter for 2005 (Incorporated herein by  reference to Exhibit 10.2 to the Company’s Current Report on  Form 8-K filed on January 24, 2005) (File No. 0-16014).                                   |
|      |   |                                                                                                                                                                                                                                                                                                                         |
| 10.15.12* |   | Amended and Restated Adelphia Communications Corporation Performance  Retention Plan (Incorporated herein by reference to Exhibit 10.02.1 to  the Company’s Quarterly Report on Form 10-Q for the quarter ended  September 30, 2005) (File No. 0-16014).                                                 |
|      |   |                                                                                                                                                                                                                                                                                                                         |
| 10.15.13* |   | Form of Amended and Restated Adelphia Communications Corporation  Performance Retention Plan Award Letter for 2006 (Incorporated herein by  reference to Exhibit 10.3 to the Company’s Current Report on  Form 8-K filed on December 7, 2005) (File No. 0-16014).                                        |
|      |   |                                                                                                                                                                                                                                                                                                                         |
| 10.15.14* |   | Amended and Restated Adelphia Communications Corporation Severance  Plan/Summary Plan Description (Incorporated herein by reference to  Exhibit 10.02.4 to the Company’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2005) (File No. 0-16014).                                    |
|      |   |                                                                                                                                                                                                                                                                                                                         |
| 10.15.15* |   | Adelphia Communications Corporation 2003 Short-Term Incentive Plan  Summary (Incorporated herein by reference to Exhibit 10.16.14 to the  Company’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2003) (File No. 0-16014).                                                    |

 

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| 10.15.16* |   | Adelphia Communications Corporation 2004 Short-Term Incentive Plan  Summary (Incorporated herein by reference to Exhibit 10.1 to the Company’s  Current Report on Form 8-K filed on January 24, 2005) (File  No. 0-16014).                                                                                                                                                                     |
|-----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.15.17* |   | Amended Adelphia Communications Corporation 2005 Short-Term Incentive  Plan (Incorporated herein by reference to Exhibit 10.15.17 to the Company’s  Annual Report on Form 10-K for the fiscal year ended December 31, 2004)  (File No. 0-16014).                                                                                                                                                    |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.15.18* |   | Form of 2005 STIP Participant Notice (Incorporated herein by  reference to Exhibit 10.2 to the Company’s Current Report on  Form 8-K filed on January 26, 2005) (File No. 0-16014).                                                                                                                                                                                                  |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.15.19* |   | Amended Adelphia Communications Corporation 2006 Short-Term Incentive  Plan (Incorporated herein by reference to Exhibit 10.2 to the Company’s  Current Report on Form 8-K filed on December 7, 2005) (File No.  0-16014).                                                                                                                                                                     |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.15.20* |   | Form of 2006 STIP Participant Notice (Incorporated herein by  reference to Exhibit 10.2 to the Company’s Current Report on  Form 8-K filed on December 7, 2005) (File No. 0-16014).                                                                                                                                                                                                  |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.15.21* |   | Adelphia Communications Corporation Executive Vice President  Continuity Program (Incorporated herein by reference to Exhibit 10.15.19 to  the Company’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2004) (File No. 0-16014).                                                                                                                                          |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.15.22* |   | Amended and Restated Adelphia Communications Corporation Executive  Vice President Continuity Program (Incorporated herein by reference to  Exhibit 10.02.3 to the Company’s Quarterly Report on Form 10-Q for the  quarter ended September 30, 2005) (File No. 0-16014).                                                                                                                           |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.16     |   | Extension Agreement dated as of January 8, 1997, among Hyperion  Telecommunications, Inc., Adelphia Communications Corporation,  Charles R. Drenning, Paul D. Fajerski, Randolph S. Fowler, and six  Trusts named therein (Incorporated herein by reference to Exhibit 10.04  to the Company’s Current Report on Form 8-K filed on May 1, 1997)  (File No. 0-16014).       |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.17.1   |   | Purchase Agreement between the Company and Highland Holdings II dated  January 11, 1999, regarding the Company’s Class A Common Stock  (Incorporated herein by reference to Exhibit 10.01 to the Company’s  Current Report on Form 8-K filed January 13, 1999) (File  No. 0-16014).                                                                                   |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.17.2   |   | Stock Purchase Agreement between the Company and Mayberry  Investments, Inc., dated January 28, 1999, regarding the Company’s  Class A Common Stock and Series C Convertible Preferred Stock  (Incorporated herein by reference to Exhibit 13 to Amendment No. 3  to the Schedule 13D filed, on behalf of FPL Group, Inc., on  February 8, 1999).                     |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.17.3   |   | Purchase Agreement between Hyperion Telecommunications, Inc. and the  Initial Purchasers named therein, dated as of February 25, 1999,  regarding Hyperion Telecommunications Inc.’s 12% Senior Subordinated Notes  due 2007 (Incorporated herein by reference to Exhibit 10.03 to the  Company’s Current Report on Form 8-K filed on March 10, 1999) (File  No. 0-16014). |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.17.4   |   | Purchase Agreement between Hyperion Telecommunications, Inc. and  Highland Holdings, dated as of February 25, 1999, regarding Hyperion  Telecommunications Inc.’s 12% Senior Subordinated Notes due 2007  (Incorporated herein by reference to Exhibit 10.05 to the Company’s Current  Report on Form 8-K filed on March 10, 1999) (File  No. 0-16014).                         |
|      |   |                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.17.5   |   | Class B Common Stock Purchase Letter Agreement dated April 9, 1999  between Adelphia Communications Corporation and Highland Holdings  (Incorporated herein by reference to Exhibit 10.01 to the Company’s  Current Report on Form 8-K filed on April 19, 1999) (File No. 0-16014).                                                                                                  |

 

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| 10.17.6  |   | Purchase Agreement dated as of July 12, 1999, between Adelphia and  Citizens Cable Company (Incorporated herein by reference to  Exhibit 10.03 to the Company’s Current Report on Form 8-K filed on  August 12, 1999) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                |
|----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.17.7  |   | Stock Purchase Agreement dated October 1, 1999 between the Company  and Highland Holdings regarding the Company’s Class B Common Stock  (Incorporated herein by reference to Exhibit 10.01 to the Company’s  Quarterly Report on Form 10-Q for the quarter ended September 30,  1999) (File No. 0-16014).                                                                                                                                                                                                                                      |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.17.8  |   | Stock Purchase Agreement dated November 23, 1999 between Adelphia  Business Solutions and the Company regarding the Company’s Class B  Common Stock (Incorporated herein by reference to Exhibit 10.01 to  Adelphia Business Solutions’ Current Report on Form 8-K filed on  December 1, 1999) (File No. 0-21605).                                                                                                                                                                                                                             |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.17.9  |   | Purchase Agreement dated as of January 17, 2001 between Highland  2000, L.P. and the Company regarding Class B Common Stock (Incorporated  herein by reference to Exhibit 10.01 to the Company’s Current Report on  Form 8-K filed on January 24, 2001) (File No. 0-16014).                                                                                                                                                                                                                                                                         |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.17.10 |   | Purchase Agreement dated as of January 17, 2001 between Highland  2000, L.P. and the Company regarding 6% convertible subordinated notes due  2006 (Incorporated herein by reference to Exhibit 10.02 to the Company’s  Current Report on Form 8-K filed on January 24, 2001) (File  No. 0-16014).                                                                                                                                                                                                                                                       |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.17.11 |   | Purchase Agreement, dated April 19, 2001, between the Company and  Highland 2000, L.P. dated April 19, 2001 regarding 3.25% convertible  subordinated notes due 2021 (Incorporated herein by reference to  Exhibit 10.01 to the Company’s Current Report on Form 8-K filed on May 4,  2001) (File No. 0-16014).                                                                                                                                                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.17.12 |   | Purchase Agreement between the Company and Highland 2000, L.P. dated  November 9, 2001, regarding the Class B Common Stock of the Company  (Incorporated herein by reference to Exhibit 10.01 to the Company’s  Current Report on Form 8-K filed on November 16, 2001) (File  No. 0-16014).                                                                                                                                                                                                                                                    |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.17.13 |   | Purchase Agreement between the Company and Highland 2000, L.P. dated  November 9, 2001, regarding the 7.5% Series E Mandatory Convertible  Preferred Stock of the Company (Incorporated herein by reference to  Exhibit 10.02 to the Company’s Current Report on Form 8-K filed on  November 16, 2001) (File No. 0-16014).                                                                                                                                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.18    |   | Credit Agreement, dated as of December 30, 1998, among  Parnassos, L.P. as the Borrower, various financial institutions as the  Lenders, the Bank of Nova Scotia as the Administrative Agent, Nationsbank,  N.A. as the Documentation Agent, and TD Securities (USA) Inc. as the  Syndication Agent (Incorporated herein by reference to Exhibit 10.03 to  the Company’s Current Report on Form 8-K filed January 28, 1999)  (File No. 0-16014).                                                                                                    |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.19    |   | Credit Agreement dated May 6, 1999 among Hilton Head Communications,  L.P., UCA Corp., UCA LLC, National Cable Acquisition Associates, L.P., Grand  Island Cable, Inc., SVHH Cable Acquisition, L.P., Tele-Media Company of  Hopewell-Prince George, each other person permitted or required to become a  borrower, and each of the Financial Institutions from time to time party  thereto (Incorporated herein by reference to Exhibit 10.01 to the  Company’s Current Report on Form 8-K for the event dated  September 17, 1999) (File No. 0-16014). |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.20.1  |   | Second Amended and Restated Credit Agreement dated December 19, 1997  among FrontierVision Operating Partners, L.P. and each of the financial  institutions from time to time party thereto                                                                                                                                                                                                                                                                                                                                                                                       |

 

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|    |   | (Incorporated herein by reference to Exhibit 10.18 to  FrontierVision Holdings, L.P.’s and FrontierVision Holdings Capital  Corporation’s Annual Report on Form 10-K for the fiscal year ended  December 31, 1997, File No. 333-9535).                                                                                                                                                                                                                                                                                                    |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.20.2 |   | Amendment No. 1 dated October 7, 1998 to the Second Amended and  Restated Credit Agreement dated December 19, 1997 among FrontierVision  Operating Partners, L.P. and each of the financial institutions from  time to time party thereto (Incorporated herein by reference to  Exhibit 10.21.2 to the Company’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2003) (File No. 0-16014).                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.20.3 |   | Amendment No. 2 dated July 15, 1999 to the Second Amended and  Restated Credit Agreement dated December 19, 1997 among FrontierVision  Operating Partners, L.P. and each of the financial institutions from time to  time party thereto (Incorporated herein by reference to Exhibit 10.21 to  FrontierVision Holdings, L.P.’s Annual Report on Form 10-K for the  fiscal year ended December 31, 1999) (File No. 333-36519).                                                                                                        |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.20.4 |   | Amendment No. 3 dated March 2, 2001 to the Second Amended and  Restated Credit Agreement dated December 19, 1997 among FrontierVision  Operating Partners, L.P. and each of the financial institutions from time to  time party thereto (Incorporated herein by reference to Exhibit 10.7 to  FrontierVision Holdings, L.P.’s Annual Report on Form 10-K for the  fiscal year ended December 31, 2000) (File No. 333-36519).                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.21   |   | Credit Agreement dated as of April 15, 1997 among Citizens Century  Cable Television Venture, Societe Generale, as Agent, and Bank of America,  National Trust and Savings Association, as Syndication Agent, Corestates Bank,  N.A., The First National Bank of Boston, LTCB Trust Company, and PNC Bank,  National Association, as Co-Agents, and each of the bank parties thereto  (Incorporated herein by reference to Exhibit 10.41 to Century’s Annual  Report on Form 10-K for the fiscal year ended May 31, 1997) (File  No. 0-16899). |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.22   |   | Credit Agreement dated as of December 3, 1999 among Century-TCI  California, L.P., Certain Lenders, Societe Generale and Deutsche Bank  Securities Inc., as Co-Syndication Agents, Salomon Smith Barney Inc., as Lead  Arranger and Sole Book Manager, Mellon Bank, N.A., as Documentation Agent,  and Citibank, N.A., as Administrative Agent (Incorporated herein by reference  to Exhibit 10.116 to the Company’s Annual Report on Form 10-K for  the fiscal year ended December 31, 1999) (File No. 0-16014).                              |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.23   |   | Revolving Credit and Term Loan Agreement dated as of October 5,  1999, among Harron Communications Corp, the Subsidiary Guarantors named  therein, and the Agents and Lenders named therein (Incorporated herein by  reference to Exhibit 10.119 to the Company’s Annual Report on  Form 10-K for the fiscal year ended December 31, 1999) (File  No. 0-16014).                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.24   |   | Credit Agreement dated as of April 14, 2000, among Century Cable  Holdings, LLC, Ft. Myers Cablevision, LLC, Highland Prestige Georgia, Inc.,  and each of the financial institutions from time to time party thereto  (Incorporated herein by reference to Exhibit 10.01 to the Company’s  Quarterly Report on Form 10-Q for the quarter ended March 31, 2000)  (File No. 0-16014).                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.25   |   | Credit Agreement dated as of September 28, 2001 among Olympus Cable  Holdings, LLC, Adelphia Company of Western Connecticut, Highland Video  Associates, L.P., Coudersport Television Cable Company, Adelphia Holdings  2001, LLC, and each of the financial institutions from time to time party  thereto (Incorporated herein by reference to Exhibit 10.01 to the  Company’s Current Report on Form 8-K filed on October 12, 2001)  (File No. 0-16014).                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10.26.1 |   | Amended and Restated Credit and Guaranty Agreement (the “Amended and  Restated DIP Credit Agreement”), dated as of August 26, 2002, among UCA  LLC, Century Cable Holdings, LLC, Century-TCI California, L.P., Olympus Cable  Holdings, LLC, Parnassos, L.P., FrontierVision                                                                                                                                                                                                                                                                             |

 

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|     |   | Operating Partners, L.P., ACC Investment Holdings, Inc., Arahova  Communications, Inc. and Adelphia California Cablevision, LLC, as Borrowers,  the Guarantors listed therein, each of the Financial Institutions from time  to time party thereto, JPMorgan Chase Bank, as Administrative Agent, Citicorp  USA, Inc., as Syndication Agent, J.P. Morgan Securities Inc. and Salomon  Smith Barney Inc., as Joint Bookrunners and Co-Lead Arrangers, Citicorp USA,  Inc., as Collateral Agent, Wachovia Bank, N.A., as Co-Syndication Agent, and  The Bank of Nova Scotia, Fleet National Bank, Bank of America, N.A. and  General Electric Capital Corporation, as Co-Documentation Agents  (Incorporated herein by reference to Exhibit 10.01 to the Company’s Current Report  on Form 8-K filed on September 3, 2002) (File No. 0-16014). |
|----------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.26.2  |   | Amended and Restated Security and Pledge Agreement, dated as of  August 26, 2002, among each of the loan parties named therein and  Citicorp USA, Inc., as Collateral Agent (Incorporated by reference to  Exhibit 10.05 to the Company’s Current Report on Form 8-K filed on  March 5, 2003 (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.26.3  |   | Amended No. 1 and Waiver, dated as of October 30, 2002, to the  Amended and Restated DIP Credit Agreement (Incorporated by reference to  Exhibit 10.01 to the Company’s Current Report on Form 8-K filed on  March 5, 2003 (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.26.4  |   | Amended No. 2 and Waiver, dated as of October 23, 2002, to the  Amended and Restated DIP Credit Agreement (Incorporated by reference to  Exhibit 10.02 to the Company’s Current Report on Form 8-K filed on  March 5, 2003 (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.26.5  |   | Amended No. 3 and Waiver, dated as of December 16, 2002, to the  Amended and Restated DIP Credit Agreement (Incorporated by reference to  Exhibit 10.03 to the Company’s Current Report on Form 8-K filed on  March 5, 2003 (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.26.6  |   | Amendment No. 4 and Waiver No. 6, dated as of February 13, 2003, to  the Amended and Restated DIP Credit Agreement (Incorporated herein by  reference to Exhibit 10.04 to the Company’s Current Report on  Form 8-K filed on March 5, 2003) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.26.7  |   | Amendment No. 5, dated as of April 14, 2003, to the Amended  and Restated DIP Credit Agreement (Incorporated herein by reference to  Exhibit 10.01 to the Company’s Current Report on Form 8-K filed on  June 20, 2003) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.26.8  |   | Amendment No. 6 and Waiver, dated as of May 7, 2003, under  the Amended and Restated DIP Credit Agreement (Incorporated herein by reference  to Exhibit 10.02 to the Company’s Current Report on Form 8-K filed  on June 20, 2003) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.26.9  |   | Amendment No. 7, dated as of May 27, 2003, to the Amended  and Restated DIP Credit Agreement (Incorporated herein by reference to Exhibit 10.03  to the Company’s Current Report on Form 8-K filed on June 20, 2003)  (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.26.10 |   | Covenant Addendum, dated as of May 27, 2003, to the Amended and  Restated DIP Credit Agreement (Incorporated herein by reference to  Exhibit 10.04 to the Company’s Current Report on Form 8-K filed on  June 20, 2003) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.26.11 |   | Amendment No. 8, dated as of September 12, 2003, to the Amended  and Restated DIP Credit Agreement (Incorporated herein by reference to  Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on  September 29, 2003) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.26.12 |   | Amendment No. 9, dated as of October 10, 2003, to the Amended  and Restated DIP Credit Agreement (Incorporated herein by reference to  Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on  October 27, 2003) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 

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| 10.26.13 |   | Amendment No. 10, dated as of December 5, 2003, to the Amended  and Restated DIP Credit Agreement (Incorporated herein by reference to  Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on  January 5, 2004) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|----------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.26.14 |   | Amendment No. 11, dated as of December 18, 2003, to the  Amended and Restated DIP Credit Agreement (Incorporated herein by reference  to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed  on January 5, 2004) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.26.15 |   | Amendment No. 12, dated as of February 3, 2004, to the Amended  and Restated DIP Credit Agreement (Incorporated herein by reference to  Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on  February 26, 2004) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.26.16 |   | Amendment No. 13, dated as of March 17, 2004, to the  Amended and Restated DIP Credit Agreement (Incorporated herein by reference  to Exhibit 10.28.16 to the Company’s Annual Report on Form 10-K for  the fiscal year ended December 31, 2003) (File No. 0-16014) **(Portions of this exhibit have been omitted pursuant  to a request for confidential treatment under Rule 24b-2 of the Securities  Exchange Act of 1934, as amended)**.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.27.1  |   | Second Amended and Restated Credit and Guaranty Agreement (the  “Second Amended and Restated DIP Credit Agreement”), dated as of May 10,  2004, among UCA LLC, Century Cable Holdings, LLC, Century-TCI California,  L.P., Olympus Cable Holdings, LLC, Parnassos, L.P., FrontierVision Operating  Partners, L.P., ACC Investment Holdings, Inc., Arahova Communications, Inc.  and Adelphia California Cablevision, LLC, as Borrowers, the Guarantors listed  therein, each of the Financial Institutions from time to time party thereto,  JPMorgan Chase Bank, as Administrative Agent, Citigroup Global Markets Inc.,  as Syndication Agent, J.P. Morgan Securities Inc. and Citigroup Global  Markets Inc., as Joint Bookrunners and Co-Lead Arrangers, Citicorp North  America, Inc., as Collateral Agent, Wachovia Bank, N.A., as Co-Syndication  Agent, and The Bank of Nova Scotia, Bank of America, N.A. and General  Electric Capital Corporation, as Co-Documentation Agents (Incorporated herein  by reference to Exhibit 10.1 to the Company’s Current Report on  Form 8-K filed on May 12, 2004) (File No. 0-16014). |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.27.2  |   | Amendment No. 1, dated as of May 10, 2004, to the Amended and  Restated Security and Pledge Agreement, dated as of August 26, 2002,  among each of the loan parties named therein and Citicorp North America, Inc.  as Collateral Agent (Incorporated herein by reference to Exhibit 10.2 to  the Company’s Current Report on Form 8-K filed on May 12, 2004)  (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.27.3  |   | Amendment No. 1 and Waiver, dated as of July 21, 2004, to  the Second Amended and Restated DIP Credit Agreement (Incorporated herein by  reference to Exhibit 10.1 to the Company’s Current Report on  Form 8-K filed on July 21, 2004) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.27.4  |   | Amendment No. 2, dated as of September 24, 2004, to Second  Amended and Restated DIP Credit Agreement (Incorporated herein by reference  to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed  on September 24, 2004) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.27.5  |   | Amendment No. 3 and Waiver, dated as of December 23, 2004, to  Second Amended and Restated DIP Credit Agreement (Incorporated herein by  reference to Exhibit 10.01 to the Company’s Current Report on  Form 8-K filed on December 23, 2004) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.28.1  |   | Third Amended and Restated Credit and Guaranty Agreement (the “Third  Amended and Restated DIP Credit Agreement”), dated as of February 25, 2005,  by and among UCA LLC, Century Cable Holdings, LLC, Century-TCI California,  L.P., Olympus Cable Holdings, LLC, Parnassos, L.P., FrontierVision Operating  Partners, L.P., ACC Investment Holdings, Inc., Arahova Communications, Inc.,  Adelphia California Cablevision, LLC, as borrowers, Adelphia Communications  Corporation and certain of its other direct and indirect subsidiaries named  therein, as guarantors, JPMorgan Chase Bank, N.A., as Administrative Agent,  Citigroup Global                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

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|    |   | Markets Inc., as Syndication Agent, J.P. Morgan Securities Inc. and Citigroup  Global Markets Inc., as Joint Bookrunners and Co-Lead Arrangers, Citicorp  North America, Inc., as Collateral Agent, Wachovia Bank, N.A., as  Co-Syndication Agent, The Bank of Nova Scotia, Bank of America, N.A. and  General Electric Capital Corporation, as Co-Documentation Agents, and the  other lenders named therein (Incorporated herein by reference to  Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on  February 25, 2005) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.28.2 |   | Amendment No. 1 and Waiver, dated as of April 8, 2005, to the  Third Amended and Restated DIP Credit Agreement (Incorporated by reference to  Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on  April 13, 2005) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.28.3 |   | Amendment No. 3 and Waiver, dated as of May 20, 2005, to  Third Amended and Restated Credit and Guaranty Agreement (Incorporated by  reference to Exhibit 10.1 to the Company’s Current Report on  Form 8-K filed on May 25, 2005) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.28.4 |   | Amendment No. 4 and Waiver, dated as of August 24, 2005, to  Third Amended and Restated Credit and Guaranty Agreement, dated as February  25, 2005 (Incorporated by reference to Exhibit 10.1 to the Company’s  Current Report on Form 8-K filed on August 25, 2005) (File  No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.28.5 |   | Amendment No. 5 and Waiver, dated as of December 21, 2005, to  Third Amended and Restated Credit and Guaranty Agreement, dated as February  25, 2005 (Incorporated by reference to Exhibit 10.1 to the Company’s  Current Report on Form 8-K filed on December 23, 2005) (File  No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.29   |   | Fourth Amended and Restated Credit and Guaranty Agreement (the  “Fourth Amended and Restated DIP Credit Agreement”), dated as of  March 17, 2006, by and among UCA LLC, Century Cable Holdings, LLC,  Century-TCI California, L.P., Olympus Cable Holdings, LLC, Parnassos, L.P.,  FrontierVision Operating Partners, L.P., ACC Investment Holdings, Inc.,  Arahova Communications, Inc. and Adelphia California Cablevision, LLC, as  borrowers, Adelphia Communications Corporation and certain of its other  direct and indirect subsidiaries named therein, as guarantors, JPMorgan Chase  Bank, N.A., as Administrative Agent, Citigroup Global Markets Inc., as  Syndication Agent, J.P. Morgan Securities Inc. and Citigroup Global Markets  Inc., as Joint Bookrunners and Co-Lead Arrangers, Citicorp North America,  Inc., as Collateral Agent, Wachovia Bank, N.A., as Co-Syndication Agent, The  Bank of Nova Scotia, Bank of America, N.A. and General Electric Capital  Corporation, as Co-Documentation Agents, and the other lenders named therein  (Incorporated herein by reference to Exhibit 10.1 to the Company’s  Current Report on Form 8-K filed on March 23, 2006) (File  No. 0-16014). |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.30.1 |   | Pledge Agreement between Hyperion Telecommunications, Inc. and the Bank  of Montreal Trust Company as Collateral Agent, dated as of August 27,  1997 (Incorporated herein by reference to Exhibit 4.03 to Hyperion  Telecommunications, Inc.’s Current Report on Form 8-K filed on  September 15, 1997) (File No. 0-21605).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.30.2 |   | Pledge, Escrow and Disbursement Agreement, between Hyperion  Telecommunications, Inc. and the Bank of Montreal Trust Company dated as of  August 27, 1997 (Incorporated herein by reference to Exhibit 4.05  to Hyperion Telecommunications, Inc.’s Current Report on Form 8-K filed  on September 15, 1997) (File No. 0-21605).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.31   |   | Tag-Along Rights Agreement dated as of July 12, 1999, among Adelphia,  the Century Class B Holders, Ms. Claire Tow and the holders of Adelphia Class  B Common Stock named therein (Incorporated herein by reference to  Exhibit 10.02 to the Company’s Current Report on Form 8-K filed on  August 12, 1999) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

 

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| 10.32   |   | Redemption Agreement dated as of October 1, 1999 between Olympus  Communications, LP and Cable GP, Inc. (Incorporated by reference herein to  Exhibit 10.6 to Olympus’ Annual Report on Form 10-K for the fiscal  year ended December 31, 1999) (File No. 333-19327).                                                                                                                                                                                                         |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.33.1 |   | Indenture dated as of March 2, 1999, with respect to Hyperion  Telecommunications, Inc. 12% Senior Subordinated Notes due 2007, between  Hyperion Telecommunications, Inc. and the Bank of Montreal Trust Company  (Incorporated herein by reference to Exhibit 4.01 to the Company’s  Current Report on Form 8-K filed on March 10, 1999) (File  No. 0-16014).                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.33.2 |   | Form of 12% Senior Subordinated Notes due 2007 (Contained in  Exhibit 10.33.1).                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.34.1 |   | Indenture, dated as of April 15, 1996, with respect to Hyperion  Telecommunications, Inc.’s 13% Series A Senior Discount Notes due 2003 and  13% Series B Senior Discount Notes due 2003, between Hyperion  Telecommunications, Inc. and Bank of Montreal Trust Company (Incorporated  herein by reference to Exhibit 4.1 to Hyperion Telecommunications, Inc.’s  Registration Statement No. 333-06957 on Form S-4 filed on  June 27, 1996).                                  |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.34.2 |   | Form of 13% Senior Discount Notes due 2003 (Contained in  Exhibit 10.34.1).                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.34.3 |   | First Supplemental Indenture, dated as of September 12, 1996, with  respect to Hyperion Telecommunications, Inc.’s 13% Series A Senior Discount  Notes due 2003 and 13% Series B Senior Discount Notes due 2003, between  Hyperion Telecommunications, Inc. and Bank of Montreal Trust Company  (Incorporated herein by reference to Exhibit 4.2 to Hyperion  Telecommunications, Inc.’s Registration Statement No. 333-12619 on  Form S-1).                                       |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.34.4 |   | Second Supplemental Indenture, dated as of August 27, 1997, with  respect to Hyperion Telecommunications, Inc.’s 13% Series A Senior Discount  Notes due 2003 and 13% Series B Senior Discount Notes due 2003, between  Hyperion Telecommunications, Inc. and the Bank of Montreal Trust Company  (Incorporated herein by reference to Exhibit 4.06 to Hyperion  Telecommunications, Inc.’s Current Report on Form 8-K filed on September 15,  1997) (File No. 0-21605). |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.35.1 |   | Indenture, dated as of November 12, 1996, with respect to Olympus  Communications, L.P. and Olympus Capital Corporation’s 105/8%  Senior Notes due 2006, between Olympus Communications, L.P., Olympus Capital  Corporation and Bank of Montreal Trust Company (Incorporated herein by  reference to Exhibit 10.02 to the Company’s Current Report on  Form 8-K filed on December 16, 1996) (File No. 0-16014).                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.35.2 |   | Form of 105/8% Senior Note due 2006  (Contained in Exhibit 10.35.1).                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.36.1 |   | Indenture, dated as of August 27, 1997, with respect to Hyperion  Telecommunications, Inc. 121/4% Senior Secured Notes  due 2004, between Hyperion Telecommunications, Inc. and the Bank of Montreal  Trust Company (Incorporated herein by reference to Exhibit 4.01 to  Hyperion Telecommunications, Inc.’s Current Report on Form 8-K filed on  September 15, 1997) (File No. 0-21605).                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.36.2 |   | Form of 121/4% Senior Secured Note due  2004 (Contained in Exhibit 10.36.1).                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.37.1 |   | Indenture dated as of October 7, 1996, with respect to certain 11%  Senior Subordinated Notes due 2006, among FrontierVision Operating Partners,  L.P., FrontierVision Capital Corporation and Colorado National Bank, as  Trustee (Incorporated herein by reference to Exhibit 4.1 to  FrontierVision Operating Partners, L.P.’s and FrontierVision Capital  Corporation’s Quarterly Report on Form 10-Q for the quarter ended  September 30, 1996, File No. 333-09535).     |

 

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| 10.37.2 |   | Form of 11% Senior Subordinated Note due 2006 (Contained in  Exhibit 10.37.1).                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.38.1 |   | Indenture dated as of September 19, 1997, with respect to certain 117/8%  Senior Discount Notes due 2007, among FrontierVision Holdings, L.P.,  FrontierVision Holdings Capital Corporation and U.S. Bank National  Association d/b/a Colorado National Bank, as Trustee (Incorporated herein by  reference to Exhibit 4.2 to FrontierVision Holdings, L.P.’s and  FrontierVision Holdings Capital Corporation’s Registration Statement No. 333-36519  on Form S-4 filed on September 26, 1997). |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.38.2 |   | Form of 117/8% Senior Discount Note due  2007 (Contained in Exhibit 10.38.1).                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.39.1 |   | Indenture dated as of December 9, 1998, with respect to Series B 117/8%  Senior Discount Notes due 2007, among FrontierVision Holdings, L.P.,  FrontierVision Holdings Capital II Corporation and U.S. Bank National  Association, as Trustee (Incorporated herein by reference to Exhibit 4.5  to FrontierVision Holdings, L.P.’s and FrontierVision Holdings Capital II  Corporation’s Registration Statement No. 333-75567 on Form S-4  filed on April 2, 1999).                              |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.39.2 |   | Form of 117/8% Series B Senior Discount  Note due 2007 (Contained in Exhibit 10.39.1).                                                                                                                                                                                                                                                                                                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.40.1 |   | Indenture, dated as of October 15, 1991, by and between Century and  the Bank of Montreal Trust Company, as Trustee (Incorporated herein by  reference to Exhibit 4.2 to Amendment No. 2 to Century’s  Registration Statement on Form S-3/A filed on March 1, 1991) (File  No. 33-33787).                                                                                                                                                                                                             |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.40.2 |   | First Supplemental Indenture, dated as of October 15, 1991, with  respect to Century’s 117/8% Senior Subordinated  Debentures due 2003, by and between Century and the Bank of Montreal Trust  Company, as Trustee (Incorporated herein by reference to Exhibit 7(2) to  Century’s Current Report on Form 8-K filed on October 22, 1991)  (File No. 0-16899).                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.40.3 |   | Form of 117/8% Senior Subordinated  Debenture due 2003 (Contained in Exhibit 10.40.2).                                                                                                                                                                                                                                                                                                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.41.1 |   | Indenture, dated as of February 15, 1992, by and between Century and  the Bank of America National Trust and Savings Association, as Trustee  (Incorporated herein by reference to Exhibit 4.1 to Amendment No. 2  to Century’s Registration Statement on Form S-3/A filed on March 1,  1991) (File No. 33-33787).                                                                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.41.2 |   | First Supplemental Indenture, dated as of February 15, 1992, with  respect to Century’s 93/4% Senior Notes due 2002, by  and between Century and the Bank of America National Trust and Savings  Association, as Trustee (Incorporated herein by reference to Exhibit 4(t)  to Century’s Annual Report on Form 10-K for the fiscal year ended  May 31, 1992) (File No. 0-16899).                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.41.3 |   | Form of Century Communications Corp. 93/4%  Senior Note due 2002 (Incorporated herein by reference to Exhibit 10.41.3 to  the Company’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2003) (File No. 0-16014).                                                                                                                                                                                                                                                                  |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.41.4 |   | Second Supplemental Indenture, dated as of August 15, 1992, with  respect to Century’s 91/2% Senior Notes due 2000, by  and between Century and Bank of America National Trust and Savings  Association, as Trustee (Incorporated herein by reference to  Exhibit 4(u) to Century’s Annual Report on Form 10-K for the fiscal  year ended May 31, 1992) (File No. 0-16899).                                                                                                                      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.41.5 |   | Form of Century Communications Corp. 91/2%  Senior Note due 2000 (Contained in Exhibit 10.41.4).                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.41.6 |   | Third Supplemental Indenture, dated as of April 1, 1993, with respect  to Century’s Senior Discount Notes due 2003, by and between Century and Bank  of America National Trust and Savings Association, as Trustee (Incorporated  herein by reference to Exhibit 4(v) to Century’s                                                                                                                                                                                                                              |

 

203

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|     |   | Annual Report on Form 10-K for the fiscal year ended  May 31, 1993) (File No. 0-16899).                                                                                                                                                                                                                                                                                                                                                                           |
|----------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.41.7  |   | Form of Senior Discount Note due 2003 (Contained in  Exhibit 10.40.6).                                                                                                                                                                                                                                                                                                                                                                                                 |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.41.8  |   | Fourth Supplemental Indenture, dated as of March 6, 1995, with  respect to Century’s 91/2% Senior Notes due 2005, by  and between Century and Bank of America National Trust and Savings  Association, as Trustee (Incorporated herein by reference to  Exhibit 4(w) to Century’s Annual Report on Form 10-K for the fiscal  year ended May 31, 1995) (File No. 0-16899).                                                                          |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.41.9  |   | Form of Century Communications Corp. 91/2%  Senior Note due 2005 (Incorporated herein by reference to Exhibit 10.41.9 to  the Company’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2003) (File No. 0-16014).                                                                                                                                                                                                                    |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.41.10 |   | Fifth Supplemental Indenture, dated as of January 23, 1997, with  respect to Century’s 87/8% Senior Notes due 2007, by  and between Century and First Trust of California, National Association,  successor trustee to Bank of America National Trust and Savings Association,  as Trustee (Incorporated herein by reference to Exhibit 4.10 to Century’s  Annual Report on Form 10-K for the fiscal year ended May 31, 1997)  (File No. 0-16899). |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.41.11 |   | Form of Century Communications Corp. 87/8%  Senior Note due 2007 (Incorporated herein by reference to Exhibit 10.41.11 to  the Company’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2003) (File No. 0-16014).                                                                                                                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.41.12 |   | Sixth Supplemental Indenture, dated as of September 29, 1997, with  respect to Century’s 83/4% Senior Notes due 2007,  between Century and First Trust of California, National Association,  successor trustee to Bank of America National Trust and Savings Association,  as Trustee (Incorporated herein by reference to Exhibit 10.2 to  Century’s Quarterly Report on Form 10-Q for the quarter ended  August 31, 1997) (File No. 0-16899).    |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.41.13 |   | Form of 83/4% Senior Note due 2007  (Contained in Exhibit 10.40.12).                                                                                                                                                                                                                                                                                                                                                                                                   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.41.14 |   | Seventh Supplemental Indenture dated as of November 13, 1997, with  respect to Century’s 83/8% Senior Notes due 2017,  between Century and First Trust of California, National Association,  successor trustee to Bank of America National Trust and Savings Association,  as Trustee (Incorporated herein by reference to Exhibit 4.1 to Century’s  Quarterly Report on Form 10-Q for the quarter ended November 30,  1997) (File No. 0-16899).   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.41.15 |   | Form of Century Communications Corp. 83/8%  Senior Note due 2017 (Incorporated herein by reference to  Exhibit 10.41.15 to the Company’s Annual Report on Form 10-K for  the fiscal year ended December 31, 2003) (File No. 0-16014).                                                                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.41.16 |   | Eighth Supplemental Indenture dated as of December 10, 1997,  with respect to Century’s 83/8% Senior Notes due 2007  between Century and First Trust of California, National Association,  successor trustee to Bank of America National Trust and Savings Association,  as Trustee (Incorporated herein by reference to Exhibit 4.13 to  Century’s Annual Report on Form 10-K for the fiscal year ended  May 31, 1999) (File No. 0-16899).   |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.41.17 |   | Form of Century Communications Corp. 83/8%  Senior Note due 2007 (Incorporated herein by reference to  Exhibit 10.41.17 to the Company’s Annual Report on Form 10-K for  the fiscal year ended December 31, 2003) (File No. 0-16014).                                                                                                                                                                                                              |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.41.18 |   | Ninth Supplemental Indenture, dated as of October 1, 1999  between Arahova Communications, Inc. and U.S. Bank Trust National  Association, successor trustee to Bank of America National Trust and Savings  Association, to the Indenture, dated as of February 15, 1992 between  Century                                                                                                                                                                              |

 

204

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|     |   | Communications Corp. and the U.S. Bank Trust National Association  (Incorporated herein by reference to Exhibit 4.01 to Arahova’s Quarterly  Report on Form 10-Q for the quarter ended August 31, 1999) (File  No. 0-16899).                                                                                                                                                                                                                 |
|----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.42.1  |   | Indenture, dated as of January 15, 1998, with respect to Century’s  Senior Discount Notes due 2008, between Century and First Trust of  California, National Association, as Trustee (Incorporated herein by  reference to Exhibit 4 to Century’s Registration Statement on Form S-4  filed on March 2, 1998) (File No. 333-47161).                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.42.2  |   | Form of Series A Senior Discount Note due 2008 (Contained in  Exhibit 10.41.1).                                                                                                                                                                                                                                                                                                                                                                             |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.42.3  |   | Form of Series B Senior Discount Note due 2008 (Contained in  Exhibit 10.41.1).                                                                                                                                                                                                                                                                                                                                                                             |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.42.4  |   | First Supplemental Indenture, dated as of October 1, 1999 between  Arahova Communications, Inc. and U.S. Bank Trust National Association, to the  Indenture, dated as of January 15, 1998 between Century Communications  Corp. and the U.S. Bank Trust National Association (Incorporated herein by  reference to Exhibit 4.02 to Arahova’s Quarterly Report on  Form 10-Q for the quarter ended August 31, 1999) (File  No. 0-16899). |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.43    |   | Agreement and Plan of Reorganization dated as of December 8, 1999, by  and among Cablevision of the Midwest, Inc., Cablevision of the Midwest  Holding Co., Inc., Adelphia General Holdings II, Inc. and the Company  (Incorporated herein by reference to Exhibit 10.117 to the Company’s  Annual Report on Form 10-K for the fiscal year ended December 31,  1999) (File No. 0-16014).                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.44.1* |   | Indemnification Agreement, entered into as of January 17, 2003,  between Adelphia Communications Corporation and William T. Schleyer  (Incorporated herein by reference to Exhibit 10.44.1 to the Company’s  Annual Report on Form 10-K for the fiscal year ended December 31,  2003) (File No. 0-16014).                                                                                                                               |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.44.2* |   | Indemnification Agreement, entered into as of January 17, 2003,  between Adelphia Communications Corporation and Ronald Cooper (Incorporated  herein by reference to Exhibit 10.44.2 to the Company’s Annual Report on  Form 10-K for the fiscal year ended December 31, 2003) (File  No. 0-16014).                                                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.44.3* |   | Form of Indemnification Agreement for Independent Directors  between Adelphia Communications Corporation and each of the independent  directors (Incorporated herein by reference to Exhibit 10.44.3 to the  Company’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2003) (File No. 0-16014).                                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.45.1  |   | Class B Common Stockholders’ Agreement dated July 1, 1986 among John  J. Rigas, Michael J. Rigas, Timothy J. Rigas, James P. Rigas, Daniel  Milliard, Dorellenic Cable Partners and the Company (Incorporated herein by  reference to Exhibit 10.01 to Amendment No. 2 to the Company’s  Registration Statement No. 33-6974 on Form S-1/A filed on  August 5, 1986).                                                          |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.45.2  |   | Joinder to Class B Common Stockholders’ Agreement (Incorporated  herein by reference to Exhibit 10.02 to the Company’s Annual Report on  Form 10-K for the fiscal year ended March 31, 1994) (File No. 0-16014).                                                                                                                                                                                                                        |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.46.1  |   | Class B Voting Agreement, dated as of March 5, 1999, among  Adelphia Communications Corporation, Leonard Tow, The Claire Tow Trust, and  the Trust Created by Claire Tow under date of December 10, 1979  (Incorporated herein by reference to Exhibit 10.01 to the Company’s  Current Report on Form 8-K filed on March 10, 1999) (File  No. 0-16014).                                                                            |

 

205

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| 10.46.2 |   | Rigas Class B Voting Agreement, dated as of March 5, 1999, among  Century Communications Corp., John J. Rigas, Michael J. Rigas, Timothy J.  Rigas and James P. Rigas (Incorporated herein by reference to  Exhibit 10.02 to the Company’s Current Report on Form 8-K filed on  March 10, 1999) (File No. 0-16014).                                                                                                                                                                                                                                                                                                             |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.47.1 |   | Non-Prosecution Agreement between the Office of the United States  Attorney for the Southern District of New York, on the one hand, and Adelphia  Communications Corporation, the subsidiaries listed in the Company’s  Form 10-K for fiscal year 2003, the subsequently formed or acquired  subsidiaries listed on Exhibit S thereto and any joint ventures in which  the Company has or acquires a controlling interest, on the other hand, dated  April 25, 2005 (Incorporated herein by reference to Exhibit 99.1 to  the Company’s Current Report on Form 8-K filed on April 26, 2005)  (File No. 0-16014). |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.47.2 |   | Consent of Defendant Adelphia Communications Corporation  (Incorporated herein by reference to Exhibit 99.2 to the Company’s  Current Report on Form 8-K filed on April 26, 2005) (File  No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.47.3 |   | Final Judgment as to Defendant Adelphia Communications Corporation,  dated May 31, 2005 (Incorporated herein by reference to Exhibit 10.3 to  the Company’s Current Report on Form 8-K filed on June 2, 2005)  (File No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.47.4 |   | Settlement Agreement between Adelphia Communications Corporation and  all of its subsidiaries, on the one hand, and John J. Rigas, Doris Rigas,  Michael J. Rigas, Timothy J. Rigas, James P. Rigas, Ellen Rigas  Venetis and individuals and entities listed on Exhibit A thereto and  Peter L. Venetis, on the other hand, dated April 25, 2005  (Incorporated herein by reference to Exhibit 99.4 to the Company’s  Current Report on Form 8-K filed on April 26, 2005) (File  No. 0-16014).                                                                                                             |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.48   |   | Interest Acquisition Agreement by and among ML Media Partners, L.P.,  Century Communications Corporation, Century ML Cable Venture, Century ML  Cable Corp. and San Juan Cable, LLC, as buyer, dated as of June 3, 2005  (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current  Report on Form 8-K filed on June 29, 2005) (File No. 0-16014).                                                                                                                                                                                                                                                             |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 14.1    |   | Code of Business Conduct and Ethics of Adelphia Communications  Corporation (Incorporated herein by reference to Exhibit 14.1 to the  Company’s Current Report on Form 8-K filed on May 17, 2005) (File  No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 21.1    |   | Subsidiaries of Adelphia Communications Corporation (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 31.1    |   | Certification of CEO pursuant to Rule 13a-14(a)/15d-14(a) under  the Securities Exchange Act of 1934, as amended (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 31.2    |   | Certification of CFO pursuant to Rule 13a-14(a)/15d-14(a) under the  Securities Exchange Act of 1934, as amended (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 32.1    |   | Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 32.2    |   | Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 99.1*   |   | Agreement, dated May 23, 2002, between the Company and the Rigas  Parties (Incorporated herein by reference to Exhibit 99.01 to the  Company’s Current Report on Form 8-K filed on May 24, 2002) (File  No. 0-16014).                                                                                                                                                                                                                                                                                                                                                                                                                |

 

206

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| 99.2.1 |   | Amended and Restated Commitment Letter dated March 24, 2004 among  Adelphia Communications Corporation and JPMorgan Chase Bank, J.P. Morgan  Securities Inc., Credit Suisse First Boston, acting through its Cayman  Islands Branch, Citicorp North America, Inc., Citigroup Global Markets Inc.,  Deutsche Bank AG Cayman Islands Branch and Deutsche Bank Securities Inc.  (Incorporated herein by reference to Exhibit 99.1 to the Company’s  Current Report on Form 8-K filed on March 24, 2004) (File  No. 0-16014).                         |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 99.2.2 |   | Amendment of Amended and Restated Commitment Letter, dated June 1,  2004, among Adelphia Communications Corporation and JPMorgan Chase Bank, J.P.  Morgan Securities Inc., Credit Suisse First Boston, acting through its Cayman  Islands Branch, Citicorp North America, Inc., Citigroup Global Markets Inc.,  Deutsche Bank AG Cayman Islands Branch and Deutsche Bank Securities Inc.  (Incorporated herein by reference to Exhibit 99.1 to the Company’s  Current Report on Form 8-K filed on June 3, 2004) (File  No. 0-16014).              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 99.2.3 |   | Amendment No. 2 of Amended and Restated Commitment Letter, dated  June 28, 2004, among Adelphia Communications Corporation and JPMorgan Chase  Bank, J.P. Morgan Securities Inc., Credit Suisse First Boston, acting through  its Cayman Islands Branch, Citicorp North America, Inc., Citigroup Global  Markets Inc., Deutsche Bank AG Cayman Islands Branch and Deutsche Bank  Securities Inc. (Incorporated herein by reference to Exhibit 99.1 to the  Company’s Current Report on Form 8-K filed on June 29, 2004) (File  No. 0-16014). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 99.2.4 |   | Amendment No. 3 of Amended and Restated Commitment Letter, dated  March 9, 2005, among Adelphia Communications Corporation, JPMorgan Chase  Bank, N.A., J.P. Morgan Securities Inc., Credit Suisse First Boston, acting  through its Cayman Islands Branch, Citicorp North America, Inc., Citigroup  Global Markets Inc., Deutsche Bank AG Cayman Islands Branch and Deutsche Bank  Securities Inc. (Incorporated by reference to Exhibit 99.1 to the  Company’s Current Report on Form 8-K filed on March 11, 2005) (File  No. 0-16014).    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 99.3.1 |   | Settlement Agreement between the United States Attorney’s Office for  the Southern District of New York, on the one hand, and John J. Rigas,  Doris Rigas, Michael J. Rigas, Timothy J. Rigas, James P. Rigas,  Ellen Rigas Venetis and their affiliated entities listed on Exhibit A  thereto, on the other hand, dated April 24, 2005 (Incorporated herein by  reference to Exhibit 99.5 to the Company’s Current Report on  Form 8-K filed on April 26, 2005) (File No. 0-16014).                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 99.3.2 |   | Opinion and Order of the United States District Court for the  Southern District of New York, dated May 18, 2005 (Incorporated herein  by reference to Exhibit 99.2 to the Company’s Current Report on  Form 8-K filed on June 2, 2005) (File No. 0-16014).                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 99.3.3 |   | Order Approving three Related Agreements Between the Debtors and the  Securities and Exchange Commission, the Debtors and the Department of  Justice, and the Debtors and the Rigas Family of the United States Bankruptcy  Court for the Southern District of New York, dated May 26, 2005  (Incorporated herein by reference to Exhibit 99.3 to the Company’s  Current Report on Form 8-K filed on June 2, 2005) (File  No. 0-16014).                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 99.3.4 |   | Order Approving Settlement Agreement of the United States District  Court for the Southern District of New York, dated May 31, 2005  (Incorporated herein by reference to Exhibit 99.4 to the Company’s  Current Report on Form 8-K filed on June 2, 2005) (File  No. 0-16014).                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 99.4   |   | Order Confirming Plan of Reorganization of Century/ML Cable Venture (Incorporated  herein by reference to Exhibit 99.1 to the Company’s Current Report on  Form 8-K filed on September 13, 2005) (File No. 0-16014).                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 99.5   |   | Debtors’ Fourth Amended Joint Plan of Reorganization under Chapter 11  of the Bankruptcy Code, dated November 21, 2005 (subject to Bankruptcy Court  approval) (Incorporated herein by reference to Exhibit 99.1 to the  Company’s Current Report on Form 8-K filed on November 28, 2005)  (File No. 0-16014).                                                                                                                                                                                                                                    |

 

207

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| 99.6   |   | Debtors’ Fourth Amended Disclosure Statement, dated November 21, 2005  (Incorporated herein by reference to Exhibit 99.2 to the Company’s  Current Report on Form 8-K filed on November 28, 2005)  (File No. 0-16014). |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                            |
| 99.7   |   | Notice of Filing Plan Supplement Documents, dated January 9, 2006  (Incorporated herein by reference to Exhibit 99.1 to the Company’s  Current Report on Form 8-K filed on January 13, 2006)  (File No. 0-16014).      |

 

----

*Denotes a management contract or a compensatory plan or arrangement required tobe identified by Item 15(a)(3) of Form 10-K.

 

TheCompany will furnish to the Commission upon request copies of instruments notfiled herewith which authorize the issuance of long-term obligations of theCompany or its subsidiaries not in excess of 10% of the Company’s total assetson a consolidated basis.

 

### **CONSOLIDATED FINANCIAL STATEMENTS**

### ** **

Seepage 92 of this Annual Report for an index to the consolidated financialstatements.

 

### **FINANCIAL STATEMENT SCHEDULES**

### ** **

Thefollowing financial statement schedules are included in this Annual Report:

 

•                  CondensedBalance Sheets of Adelphia Communications Corporation for the fiscal yearsended December 31, 2005 and 2004

 

•                  CondensedStatements of Operations of Adelphia Communications Corporation for the fiscalyears ended December 31, 2005, 2004 and 2003

 

•                  CondensedStatements of Cash Flows of Adelphia Communications Corporation for the fiscalyears ended December 31, 2005, 2004 and 2003

 

•                  Valuationand Qualifying Accounts of Adelphia Communications Corporation and subsidiariesfor the fiscal years ended December 31, 2005, 2004 and 2003

 

208

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### **GLOSSARY OF DEFINED TERMS**

### ** **

Set forthbelow is a list of certain defined terms as used in this Annual Report.

 

**Adelphia**—Adelphia CommunicationsCorporation.

 

**Adelphia Business Solutions**—AdelphiaBusiness Solutions, Inc., a former majority-owned subsidiary, whichcurrently conducts business under the name TelCove.

 

**Adelphia Common Stock**—Collectively,the Class A Common Stock and the Class B Common Stock.

 

**Adelphia-Rigas Settlement Agreement**—Settlementagreement between Adelphia and the Rigas Family, dated April 25, 2005.

 

**Amended Complaint**—Amendedcomplaint filed by the Company on November 15, 2002, in the Company’slawsuit against the Rigas Family and the Rigas Family Entities.

 

**Arahova**—ArahovaCommunications Inc., a direct subsidiary of Adelphia.

 

**Arahova Noteholders' Committee**—Thead hoc committee of Arahova noteholders.

 

**ARPU**—Average revenueper unit.

 

**Asset Purchase Agreement**—Assetpurchase agreement, dated December 17, 2001, between the Company andVerizon Media Ventures.

 

**Bank Complaint**—Complaintfiled by the Creditors’ Committee, by motion dated July 6, 2003, in thePre-petition Lender Litigation.

 

**Bankruptcy Code**—Title11 of the United States Code.

 

**Bankruptcy Court**—TheUnited States Bankruptcy Court for the Southern District of New York.

 

**Bar Date**—January 9,2004.

 

**Board**—Board ofDirectors of Adelphia.

 

**Bucktail—**BucktailBroadcasting Corporation.

 

**CALEA**—CommunicationsAssistance to Law Enforcement Act.

 

**CAO**—Chief accountingofficer.

 

**Carryover Directors**—DennisCoyle, Leslie Gelber, Erland Kailbourne and Pete Metros.

 

**Century**—CenturyCommunications Corp., an indirect wholly owned subsidiary of Adelphia.

 

**Century/ML Cable**—Century/MLCable Venture, a joint venture between Century and ML Media.

 

**Century/ML Cable Account**—Anaccount jointly held in the name of Century and ML Media to fund theobligations of Century/ML Cable that were not assumed by San Juan Cable.

 

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**Century/ML Cable Corp.**—Century**-**ML Cable Corp., a subsidiary of Century/MLCable.

 

**Century/ML Plan**—Century/MLCable’s Plan of Reorganization confirmed by the Bankruptcy Court on September7, 2005.

 

**Century-TCI**—Century-TCICalifornia, L.P., a joint venture between Adelphia and Comcast Corporation.

 

**CEO**—Chief executiveofficer.

 

**CFO**—Chief financialofficer.

 

**CGO**—Corporategovernance officer.

 

**Chapter 11**—Chapter11 of Title 11 of the United States Code.

 

**Chapter 11 Cases**—Voluntarypetitions to reorganize under Chapter 11 of the Bankruptcy Code filed by theDebtors in June 2002.

 

**Claim Difference**—Thedifference between the allowed unsecured claim listed on the Debtors’ Schedulesof Liabilities and the amount listed on the claimant’s proof of claim.

 

**Class A Common Stock**—Adelphia’sClass A common stock, par value $0.01 per share.

 

**Class B Common Stock**—Adelphia’sClass B common stock, par value $0.01 per share.

 

**CLECs**—Competitivelocal exchange carriers.

 

**CMS**—Cash managementsystem.

 

**Co-Borrowing Facilities**—Fourcredit facilities established by Rigas Management, which were accessible byboth the Company and the Rigas Co-Borrowing Entities.

 

**Code of Ethics**—Adelphia’sCode of Business Conduct and Ethics adopted in April 2003, as amended inMay 2005.

 

**Comcast**—ComcastCorporation.

 

**Comcast Purchase Agreement**—Assetpurchase agreement, dated as of April 20, 2005, between the Company andComcast.

 

**Committees**—Collectively,the Equity Committee and the Creditors’ Committee.

 

**Communications Act**—CommunicationsAct of 1934, as amended.

 

**Company**—AdelphiaCommunications Corporation and its consolidated subsidiaries and otherconsolidated entities.

 

**Continuity Program**—Collectively,the EVP Stay Plan, the Stay Plan and the Sale Plan.

 

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**Contracting Rigas Family Members**—JohnJ. Rigas, Timothy J. Rigas, James P. Rigas and Michael J. Rigas, acting intheir individual capacities and on behalf of each entity directly or indirectlycontrolled by any or all of them.

 

**COO**—Chief operatingofficer.

 

**Corporate Governance Guidelines**—Adelphia’sCorporate Governance Guidelines.

 

**Coudersport**—CoudersportTelevision Cable Co.

 

**Credit Facilities**—Bankdebt, incurred by the Company under six different credit facilities.

 

**Creditors’ Committee**—Committeeappointed by the U.S. Trustee to represent the interests of unsecured creditorsof the Debtors.

 

**DBS**—Direct broadcastsatellite.

 

**Debtors**—Adelphia andsubstantially all of its domestic subsidiaries that filed voluntary petitionsto reorganize under Chapter 11 in 2002.

 

**Delaware Action**—Civilaction brought by Preferred Stockholders against the Company in the DelawareChancery Court.

 

**Deloitte**—Deloitte &Touche LLP.

 

**Deloitte Litigation**—Anaction we brought against Deloitte in November 2002 for professionalnegligence, breach of contract, fraud and other wrongful conduct in connectionwith its work auditing our consolidated financial statements during the time ofthe Rigas Family’s wrongdoing.

 

**Devon Claims**—Proofsof claim in the Chapter 11 Cases filed by Devon Mobile on or aboutJanuary 8, 2004.

 

**Devon Complaint**—Complaintfiled by Devon Mobile in the Chapter 11 Cases in respect of the Devon Claims onJune 21, 2004.

 

**Devon Mobile**—DevonMobile Communications, L.P., a Delaware limited partnership in which Adelphiaowns a 49.9% limited partnership interest.

 

**Devon Mobile Bankruptcy Court**—UnitedStates Bankruptcy Court for the District of Delaware.

 

**Devon Plan**—DevonMobile’s First Amended Joint Plan of Liquidation, dated July 24, 2003 (asmodified on September 29, 2003), as confirmed by order of the DevonBankruptcy Court on October 1, 2003.

 

**DIP Facility**—Thedebtor-in-possession facility entered into by the Loan Parties in connectionwith the Chapter 11 filings.

 

**DirecTV**—DIRECTTV, Inc.

 

**Disclosure Statement**—FourthAmended and Restated Disclosure Statement, as filed with the Bankruptcy Courton November 21, 2005.

 

**District Court**—TheUnited States District Court for the Southern District of New York.

 

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**DoJ**—United StatesDepartment of Justice.

 

**DSL**—Digitalsubscriber line.

 

**DVR**—Digital videorecorder.

 

**EBITDAR**—Earningsbefore interest, taxes, depreciation, amortization and restructuring costs.

 

**EBU**—Equivalent bulkunit.

 

**EchoStar**—EchoStar CommunicationsCorporation.

 

**EPA**—United StatesEnvironmental Protection Agency.

 

**EPSCP**—The Adelphiaand Hyperion Telecommunications Corporation Executive Performance ShareCompensation Plan.

 

**Equity Committee**—Committeeappointed by the U.S. Trustee to represent the interests of equity holders ofthe Debtors.

 

**EVP KERP Order**—Orderentered by the District Court on April 20, 2005, authorizing the Companyto implement several compensation and retention-related measures for Vanessa A.Wittman and Brad M. Sonnenberg.

 

**EVP Stay Plan**—AdelphiaCommunications Corporation Executive Vice President Continuity Program, asamended.

 

**Exchange Act**—SecuritiesExchange Act of 1934, as amended.

 

**Exchange Agreement**—TWCand Comcast and certain of their affiliates entered into an exchange agreement,dated as of April 20, 2005, as amended, pursuant to which, and subject to theterms and conditions thereof, TWC and Comcast or such affiliates expect toexchange certain cable systems, including certain systems to be acquired by TWNY and Comcast pursuant to their respective purchase agreements with Adelphia. Adelphiais not a party to the Exchange Agreement.

 

**Excluded Parties**—John J. Rigas, Timothy J. Rigas and Michael J. Rigas, providedthat Michael J. Rigas will cease to be an Excluded Party if all currentlypending criminal proceedings against him are resolved without a felonyconviction on a charge involving fraud or false statements (other than falsestatements to the U.S. Attorney or the SEC).

 

**Exit Financing Facility**—Commitmentsfrom Exit Lenders for an $8.8 million fully committed exit financingfacility.

 

**Expanded Transaction**—TheSale Transaction that contemplates the purchase by TW NY of the interest in theCompany that would otherwise be purchased by Comcast.

 

**Expanded Transaction Letter Agreement**—Letteragreement, dated as of April 20, 2005, among the Company, TW NY andComcast.

 

**FASB**—FinancialAccounting Standards Board.

 

**FCC**—FederalCommunications Commission.

 

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**Final DIP Order**—BankruptcyCourt order approving the DIP Facility.

 

**First Extended DIP Facility**—SecondAmended and Restated Credit and Guaranty Agreement approved by the BankruptcyCourt on May 6, 2004, which amends and restates in its entirety the DIPFacility.

 

**Forfeited Securities**—Allright, title and interest held by the Rigas Family and the Rigas FamilyEntities in the Company’s securities, which were forfeited to the United Statespursuant to the Forfeiture Order.

 

**Forfeiture Order**—TheConsent Order of Forfeiture entered by the District Court on June 8, 2005pursuant to which all right, title and interest of the Rigas Family and theRigas Family Entities in the Rigas Co-Borrowing Entities (other thanCoudersport and Bucktail), certain specified real estate and any securities ofthe Company were forfeited to the United States.

 

**FrontierVision**—FrontierVisionHoldings, L.P., an indirect subsidiary of Adelphia.

 

**FTC**—The FederalTrade Commission.

 

**GAAP**—Generallyaccepted accounting principles in the United States.

 

**Global Settlement**—Globalsettlement agreement between Adelphia and TelCove, dated February 21,2004.

 

**Government-Rigas Settlement Agreement**—Settlementagreement between the U.S. Attorney and the Rigas Family, dated April 25,2005.

 

**Government Settlement Agreements—**Collectively,the Adelphia-Rigas Settlement Agreement, the Non-Prosecution Agreement, theGovernment-Rigas Settlement Agreement and the final judgment as to Adelphiaentered into by the District Court in the SEC Civil Action.

 

**HD**—High definition.

 

**HDTV**—High definitiontelevision.

 

**HFC**—Hybrid fibercoaxial cable.

 

**Highland**—HighlandHoldings, a Rigas Family Entity.

 

**Highland II**—HighlandHoldings II, a Rigas Family Entity.

 

**HSI**—High-speedInternet.

 

**HSR Act**—TheHart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

 

**IAA**—InterestAcquisition Agreement among Century, ML Media, Century/ML Cable, Century-MLCable Corp. and San Juan Cable, LLC, as buyer, dated as of June 3, 2005.

 

**ILECs**—Incumbentlocal exchange carriers.

 

**Inter-Creditor Dispute**—Substantialdisputes exist between creditors of different Debtors that principally affectthe recoveries to the creditors of Arahova, Adelphia and FrontierVision.

 

**Interim Management**—ErlandKailbourne, Chairman and interim CEO, together with the Carryover Directors andcertain officers engaged by the Company after May 2002.

 

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**Interim Management Services**—Managementservices to be provided by the Company to Coudersport and Bucktail for aninterim period ending no later than December 31, 2005.

 

**IP**—Internetprotocol.

 

**ISPs**—Internetservice providers.

 

**IVR**—Interactivevoice response.

 

**LFAs**—Local franchiseauthorities.

 

**Loan Parties**—Adelphiaand certain of its subsidiaries, collectively, who are parties to the DIP facilities.

 

**M&A Advisors**—Collectively,UBS Securities LLC and Allen & Company LLC.

 

**Managed Cable Entities**—CertainRigas Co-Borrowing Entities that nominally owned assets related to certaincable systems that are managed by the Company.

 

**MDL Proceedings**—OnJuly 23, 2003, the Judicial Panel on Multidistrict Litigation issued anorder transferring numerous civil actions to the District Court forconsolidated or coordinated pre-trial proceedings.

 

**MDU**—Multi-dwellingunit.

 

**MHz**—Megahertz.

 

**ML Media**—ML MediaPartners, L.P.

 

**MMDS**—Multi-channelmultipoint distribution systems.

 

**MVDDS**—MultichannelVideo Distribution & Data Service.

 

**MVPD**—Multichannelvideo programming distributor.

 

**Named Executive Officers**—Collectively,the CEO, the four other most highly compensated executive officers serving asof December 31, 2005 and each other person who served as CEO at any timeduring the year.

 

**NFHLP**—NiagaraFrontier Hockey, L.P., a Delaware limited partnership owned by the RigasFamily.

 

**NFHLP Bankruptcy Court**—U.S.Bankruptcy Court of the Western District of New York.

 

**NFHLP Debtors**—NFHLPand certain of its subsidiaries.

 

**NOL**—Net operatingloss.

 

**NYSE**—The New YorkStock Exchange.

 

**Non-Prosecution Agreement**—Agreementbetween Adelphia and the U.S. Attorney, dated April 25, 2005.

 

**Other Rigas Entities**—TheRigas Family Entities other than the Rigas Co-Borrowing Entities.

 

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**Parnassos**—Venturewith Comcast in which Adelphia holds a 66.67% interest in two partnerships andmanages the day-to-day operations.

 

**Petition Date**—June25, 2002, the date on which Adelphia and substantially all of its wholly owneddomestic subsidiaries each filed a voluntary petition to reorganize underChapter 11 of the Bankruptcy Code in the Bankruptcy Court.

 

**Plan**—Fourth AmendedJoint Plan of Reorganization, as filed with the Bankruptcy Court onNovember 21, 2005 (as may be amended or modified).

 

**Praxis**—PraxisCapital Ventures, L.P., a consolidated subsidiary of Adelphia.

 

**Pre-petition Lender Litigation**—Actionby the Creditors’ Committee against the agents and lenders under certainpre-petition credit facilities.

 

**PRP**—Amended andRestated Adelphia Communications Corporation Performance Retention Plan.

 

**PSTN**—Public switchedtelephone network.

 

**Puerto Rico Interests**—MLMedia and Century’s joint interest in Century/ML Cable.

 

**Puerto Rico Systems**—Cablesystems in San Juan and Levittown, Puerto Rico that were owned and served byCentury-ML Cable Corp.

 

**Purchase Agreements**—Collectively,the TW Purchase Agreement and the Comcast Purchase Agreement.

 

**PwC**—PricewaterhouseCoopersLLP, our independent registered public accounting firm.

 

**RBOCs**—Regional Belloperating companies.

 

**Recap Agreement**—LeveragedRecapitalization Agreement, pursuant to which Century/ML Cable agreed to redeemML Media’s 50% interest in Century/ML Cable on or before September 30,2002.

 

**Redemption**—Redemptionpursuant to the Recap Agreement.

 

**Redemption Agreements**—Twoseparate redemption agreements, each dated as of April 20, 2005, asamended, pursuant to which Comcast and TWC expect to redeem Comcast’s interestsin TWC and TWE. Adelphia is not a party to the Redemption Agreements.

 

**Resolution Process**—Thelitigation process for the resolution of the Inter-Creditor Dispute establishedby the Bankruptcy Court.

 

**Restitution Fund**—Fund,established and administered by the United States Attorney General and the SEC,for the benefit investors harmed by the activities of Rigas Management.

 

**RICO**—RacketeeringInfluence and Corrupt Organizations Act.

 

**Rigas Civil Action**—Adelphia’scomplaint in the Bankruptcy Court against John J. Rigas, Michael J. Rigas,Timothy J. Rigas, James P. Rigas, James Brown, Michael C. Mulcahey, Peter L.Venetis, Doris Rigas, Ellen Rigas Venetis and the Rigas Family Entities.

 

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**Rigas Co-Borrowing Entities**—Certaincable television entities that were owned by the Rigas Family and theirsubsidiaries that are subject to co-borrowing arrangements with the Company.

 

**Rigas Criminal Action**—Inconnection with an investigation conducted by the DoJ, on July 24, 2002,certain members of the Rigas Family and certain alleged co-conspirators werearrested, and on September 23, 2002, were indicted by a grand jury oncharges including fraud, securities fraud, bank fraud and conspiracy to commitfraud.

 

**Rigas Family**—Membersof the John J. Rigas family.

 

**Rigas Family Agreement**—Agreementdated May 23, 2002 by which certain members of the Rigas Family resignedfrom their positions as officers and directors of Adelphia.

 

**Rigas Family Entities**—Entitiesin which members of the Rigas Family directly or indirectly held controllinginterests.

 

**Rigas Management**—Priorto May 2002, members of the Rigas Family who held all of the senior executivepositions at Adelphia and constituted five of the nine members of Adelphia’board of directors, none of whom remain with the Company.

 

**Sale Plan**—Amendedand Restated Adelphia Communications Corporation Sale Bonus Plan.

 

**Sale Transaction**—Transactions,effective April 20, 2005, pursuant to which Adelphia entered intodefinitive agreements with TW NY and Comcast.

 

**San Juan Cable**—SanJuan Cable, LLC.

 

**SEC**—Securities andExchange Commission.

 

**Second Circuit**—TheUnited States Court of Appeals for the Second Circuit.

 

**SEC Civil Action**—Civilenforcement action filed on July 24, 2002, by the SEC against the Company,certain members of the Rigas Family and others, alleging various securitiesfraud claims arising out of the Rigas Family’s misconduct.

 

**Second Extended DIP Facility**—ThirdAmended and Restated Credit and Guaranty Agreement approved by the BankruptcyCourt on February 22, 2005, which amends and restates in its entirety theFirst Extended DIP Facility.

 

**Second Sales Bonus Payment Date**—Thedate on which the remaining 50% of the bonus amount will be paid to eligibleparticipants under the Sale Plan.

 

**Securities Act**—SecuritiesAct of 1933, as amended.

 

**Series A Preferred Stock**—Series A13% Cumulative Exchangeable Preferred Stock issued by Adelphia, dueJuly 15, 2009.

 

**Series B Preferred Stock**—Series B13% Cumulative Exchangeable Preferred Stock issued by Adelphia, dueJuly 15, 2009.

 

**Series C Preferred Stock**—Adelphia’s81/8% Series C Cumulative Convertible PreferredStock issued by Adelphia, $0.01 par value per share.

 

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**Series D Preferred Stock**—51/2%Series D Convertible Preferred Stock issued by Adelphia, $0.01 par valueper share.

 

**Series E Preferred Stock**—7.5%Series E Mandatory Convertible Preferred Stock issued by Adelphia, $0.01par value per share.

 

**Series F Preferred Stock**—7.5%Series F Mandatory Convertible Preferred Stock issued by Adelphia, $0.01par value per share.

 

**Settlement Amount**—Proposedsettlement amount agreed upon by the Debtors and certain creditors inconnection with the Settlement Procedures Order.

 

**Settlement Procedures Order**—Settlementdiscussions commenced by the Debtors with certain creditors in an effort tocompromise and/or settle their claims in accordance with the settlementprocedures protocol authorized by order of the Bankruptcy Court datedFebruary 9, 2004.

 

**SFAS**—Statement ofFinancial Accounting Standards.

 

**SMATV systems**—Satellitemaster antenna television systems.

 

**SOP**—Statement ofPosition.

 

**Special Committee**—Specialcommittee of the Board, composed solely of three Carryover Directors, DennisCoyle, Leslie Gelber and Erland Kailbourne, which began to investigate theallegations against the Rigas Family.

 

**Stay Plan**—AdelphiaCommunications Corporation Key Employee Continuity Program, as amended.

 

**STIP**—Adelphia CommunicationsCorporation Short-Term Incentive Plan.

 

**Subordinated Notes**—TheCompany’s 6% and 3.25% Subordinated Notes.

 

**SVP**—Senior vicepresident.

 

**Tax Code**—InternalRevenue Code of 1986, as amended.

 

**TelCove**—TelCove, Inc.,formerly known as Adelphia Business Solutions, Inc.

 

**TelCove Plan**—TelCove’sModified Third Amended Joint Plan of Reorganization Under Chapter 11 of theBankruptcy Code, dated December 18, 2003 as confirmed by the Court onDecember 19, 2003.

 

**TelCove Spin-off**—Transactioncompleted on January 11, 2002, whereby the Company distributed all of theshares of TelCove common stock owned by Adelphia to the holders of itsClass A Common Stock and Class B Common Stock in the form of adividend.

 

**Telecommunications Act**—TelecommunicationsAct of 1996.

 

**Tele-Media Ventures**—Threejoint ventures in which Adelphia indirectly holds interests ranging from 75% to82% with certain affiliates of Tele-Media Corporation of Delaware.

 

**Third Extended DIP Facility**—FourthAmended and Restated Credit and Guaranty Agreement approved by the BankruptcyCourt on March 16, 2006, which amends and restates in its entirety theSecond Extended DIP Facility.

 

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**Time Warner**—TimeWarner Inc.

 

**TMCD**—Tele-MediaCorporation of Delaware.

 

**TWC**—Time WarnerCable Inc.

 

**TWC Class A Common Stock**—Class ACommon Stock of Time Warner Cable Inc.

 

**TWE**—Time WarnerEntertainment Company, L.P.

 

**TW NY**—Time Warner NYCable LLC.

 

**TW Purchase Agreement**—Assetpurchase agreement, dated as of April 20, 2005, between the Company and TWNY.

 

**UNEs**—Unbundlednetwork elements.

 

**U.S. Trustee**—UnitedStates Trustee for the Southern District of New York.

 

**U.S. Attorney**—UnitedStates Attorney’s Office for the Southern District of New York.

 

**Verizon Cable Assets**—CertainVerizon cable equipment and network system assets acquired by the Company.

 

**VOD**—Video-on-demand.

 

**VoIP**—Voice overInternet protocol.

 

**X Clause Litigation Motion**—OnDecember 6, 2005, the X Clause Plaintiffs and the Debtors jointly filed amotion seeking that the Bankruptcy Court establish a pre-confirmation processfor interested parties to litigate the X Clause dispute.

 

**X Clause Plaintiffs**—The*Ad Hoc* Committee of holders ofthe Company’s Subordinated Notes, together with the Bank of New York, theindenture trustee for the Subordinated Notes.

 

**X Clause Pre-Confirmation Litigation**—Byorder dated January 11, 2006, the Bankruptcy Court found that the X Clausedispute was ripe for adjudication and directed interested parties to litigatethe dispute prior to plan confirmation.

 

**1984 Cable Act**—CableCommunications Policy Act of 1984, as amended.

 

**2004 Annual Report**—TheCompany’s Annual Report on Form 10-K for the fiscal year ended December 31,2004.

 

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**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
|   | ADELPHIA  COMMUNICATIONS CORPORATION |
|--------|--------------------------------------|
|   |                                 |
|   |                                 |
|   | By:                                  | /s/  William T. Schleyer |   |
|   |                                 |  William T. Schleyer |
|   |                                 | * Chairman  and Chief Executive Officer* |

 

Date:  March 29, 2006

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated.

 
| **Signature**           | ** ** | **Title** | ** **                           | **Date** |
|-------------------------|------------|-----------|--------------------------------------|----------|
|                    |       |      |                                 |     |
|                    |       |      |                                 |     |
| /s/ William T. Schleyer |       |      | Chairman and Chief Executive Officer |     | March 29, 2006 |
| William T. Schleyer     |       |      | (Principal Executive Officer)        |     |   |
|                    |       |      |                                 |     |   |
|                    |       |      |                                 |     |   |
| /s/ Vanessa A. Wittman  |       |      | Chief Financial Officer              |     | March 29, 2006 |
| Vanessa A. Wittman      |       |      | (Principal Financial Officer)        |     |   |
|                    |       |      |                                 |     |   |
|                    |       |      |                                 |     |   |
| /s/ Scott D. Macdonald  |       |      | Chief Accounting Officer             |     | March 29, 2006 |
| Scott D. Macdonald      |       |      | (Principal Accounting Officer)       |     |   |
|                    |       |      |                                 |     |   |
|                    |       |      |                                 |     |   |
| /s/ E. Thayer Bigelow   |       |      | Director                             |     | March 29, 2006 |
| E. Thayer Bigelow       |       |      |                                 |     |   |
|                    |       |      |                                 |     |   |
|                    |       |      |                                 |     |   |
| /s/ Rodney Cornelius    |       |      | Director                             |     | March 29, 2006 |
| Rodney Cornelius        |       |      |                                 |     |   |
|                    |       |      |                                 |     |   |
| /s/ Anthony Kronman     |       |      | Director                             |     | March 29, 2006 |
| Anthony Kronman         |       |      |                                 |     |   |
|                    |       |      |                                 |     |   |
|                    |       |      | Director                             |     | March 29, 2006 |
| Philip Lochner          |       |      |                                 |     |   |
|                    |       |      |                                 |     |   |
|                    |       |      |                                 |     |   |
| /s/ Susan Ness          |       |      | Director                             |     | March 29, 2006 |
| Susan Ness              |       |      |                                 |     |   |
|                    |       |      |                                 |     |   |
|                    |       |      |                                 |     |   |
| /s/ Kenneth Wolfe  |       |      | Director                             |     | March 29, 2006 |
| Kenneth Wolfe           |       |      |                                 |     |   |

 

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