**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

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**(Mark One)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

**For the quarterly periodended September 30, 2006**

 

**or**

 

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

**For the transition periodfrom**                    to                     

 

**Commissionfile number: 0-16014**

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**Adelphia Communications Corporation**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                     |   | **23-2417713**                           |
|------------------------------------------------------------------|--------|------------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification Number) |

 

**5619 DTC Parkway**

**Greenwood Village,CO  80111**

(Address of principal executive offices, including zipcode)

 

**(303) 268-6300**

(Registrant’s telephonenumber, including area code)

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Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.Yes x   No o

Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):Large accelerated filer oAccelerated filer oNon-accelerated filer x

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).Yes o   No x

Number of shares of Class A common stockoutstanding as of September 30, 2006: 228,692,414

Numberof shares of Class B common stock outstanding as of September 30, 2006:25,055,365

 

 

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** **

**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)Quarterly Report on Form 10-Q for the period ended September 30, 2006Table of Contents**
|                                | ** ** | ** **                                                                                                                                                                                     | ** ** | ** ** |
|--------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| PART I.  FINANCIAL INFORMATION |       |                                                                                                                                                                                           |
|                           |       |                                                                                                                                                                                           |       |       |
| Item 1.                        |       | Financial Statements                                                                                                                                                                           |       |       |
|                           |       | Consolidated  Statement of Net Liabilities in Liquidation as of September 30, 2006  (unaudited)                                                                                                |       |       |
|                           |       | Consolidated  Statement of Changes in Net Liabilities in Liquidation for the two months  ended September 30, 2006 (unaudited)                                                                  |       |       |
|                           |       | Condensed  Consolidated Balance Sheet (Going Concern Basis) as of December 31, 2005                                                                                                            |       |       |
|                           |       | Condensed  Consolidated Statements of Operations (Going Concern Basis) for the month and  seven months ended July 31, 2006 and the three and nine months ended September  30, 2005 (unaudited) |       |       |
|                           |       | Condensed  Consolidated Statement of Cash Flow (Going Concern Basis) for the seven  months ended July 31, 2006 and the nine months ended September 30, 2005  (unaudited)                       |       |       |
|                           |       | Notes to  Consolidated Financial Statements (unaudited)                                                                                                                                        |       |       |
|                           |       |                                                                                                                                                                                           |       |       |
| Item 2.                        |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                                    |       |       |
| Item 3.                        |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                                    |       |       |
| Item 4.                        |       | Controls and  Procedures                                                                                                                                                                       |       |       |
|                           |       |                                                                                                                                                                                           |       |       |
| PART  II. OTHER INFORMATION    |       |                                                                                                                                                                                           |
|                           |       |                                                                                                                                                                                           |       |       |
| Item 1.                        |       | Legal Proceedings                                                                                                                                                                              |       |       |
| Item 1A.                       |       | Risk  Factors                                                                                                                                                                                  |       |       |
| Item 3.                        |       | Defaults Upon  Senior Securities                                                                                                                                                               |       |       |
| Item 6.                        |       | Exhibits                                                                                                                                                                                       |       |       |
|                           |       |                                                                                                                                                                                           |       |       |
| SIGNATURES                     |       |                                                                                                                                                                                           |

 

**INTRODUCTORY NOTE**

In this Quarterly Report,the “Company,” “we,” “us” and “our” refer to Adelphia CommunicationsCorporation (“Adelphia”), its consolidated subsidiaries and other consolidatedentities.

This Quarterly Report onForm 10-Q is for the quarterly period ended September 30, 2006.  This Quarterly Report should be read inconjunction with our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2005 (the “2005 Form 10-K”) and all of our other reports,including Current Reports on Form 8-K, filed with or furnished to theSecurities and Exchange Commission (the “SEC”) through the date of thisreport.  As disclosed in the 2005Form 10-K, readers should not rely on Adelphia’s periodic and otherreports filed with or furnished to the SEC prior to May 24, 2002.

As further described inNote 2 to the accompanying consolidated financial statements, on July 31, 2006(the “Closing Date”), Adelphia completed the sale of assets, which in theaggregate comprise substantially all of its U.S. assets (the “Sale Transaction”),to Time Warner NY Cable LLC (“TW NY”), a subsidiary of Time Warner Cable Inc. (“TWC”),the cable subsidiary of Time Warner Inc., and Comcast Corporation (“Comcast”).  Proceeds from the Sale Transaction totaledapproximately $17.4 billion, consisting of cash in the amount of approximately$12.5 billion (including approximately $503 million of cash held in escrow) andapproximately 156 million shares of TWC Class A Common Stock (includingapproximately 6.1 million shares of such stock held in escrow) with anestimated fair value as of the Closing Date of approximately $4.9 billion.  Such estimated fair value of the TWC Class ACommon Stock as of July 31, 2006 was determined by the Company based onmanagement’s review of projected discounted cash flows for TWC and marketcomparable data.

Effective July 21,2006, Adelphia entered into the July 21, 2006 Second Amended and RestatedAgreement Concerning Terms and Conditions of a Modified Chapter 11 Plan (the “PlanAgreement”) with certain representatives of 

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the *ad hoc* committee of holders of ACC Senior Notes, the *ad hoc* committee of holders of ACC Senior Notes and ArahovaNotes, the *ad hoc*committee of Arahova Noteholders,the *ad hoc*committee of holders ofFrontierVision Opco Notes Claims and FrontierVision Holdco Notes Claims, W.R.Huff Asset Management Co., L.L.C., the *ad hoc*committeeof ACC Trade Claimants, the *ad hoc*committeeof Subsidiary Trade Claimants and the statutory committee of unsecuredcreditors (the “Creditors’ Committee”) (collectively, the “Settlement Parties”).  Subsequently, on October 11, 2006, theDebtors (as defined in Note 1 to the accompanying consolidated financialstatements) (other than the JV Debtors (as defined in Note 1 to theaccompanying consolidated financial statements)), the Creditors’ Committee,certain holders of ACC Senior Notes, certain holders of Arahova Notes, theSettlement Parties and other creditors (collectively, the “PSA Parties”)entered into a Plan Support Agreement (the “Plan Support Agreement”).  The Plan Support Agreement, among otherthings, sets forth the terms on which the PSA Parties have committed to supportthe Plan (as defined below).  The PlanSupport Agreement provides, among other things, that the PSA Parties willsupport a plan of reorganization that incorporates the terms of the PlanAgreement, as subsequently modified by the Plan Support Agreement, thatprovides for the transfer of value from certain unsecured creditors of variousAdelphia subsidiaries to certain of Adelphia’s unsecured senior and tradecreditors and is effective by December 22, 2006, unless extended in writing bythe parties to the Plan Support Agreement.

On October 16, 2006, theDebtors and the Creditors’ Committee filed a draft of the Fifth Amended JointChapter 11 Plan for Adelphia Communications Corporation and Certain of ItsAffiliates (the “Plan”) and the related Second Disclosure Statement Supplement(the “DSS”) with the United States Bankruptcy Court for the Southern Districtof New York (the “Bankruptcy Court”). The Plan is based on the terms of the Plan Agreement and the PlanSupport Agreement and proposes a global compromise and settlement of alldisputes among the creditors, not all of whom are parties to theseagreements.  By order dated October 17,2006, the Bankruptcy Court approved the DSS as containing “adequate information”pursuant to Section 1125 of Chapter 11 of Title 11 (“Chapter 11”) of theUnited States Code (the “Bankruptcy Code”). The voting deadline for beneficial holders holding securities throughintermediaries is November 20, 2006.  Thevoting deadline for all other parties in interest is November 27,2006.  A hearing to consider confirmationof the Plan is scheduled for December 7, 2006.

This QuarterlyReport describes the financial results of the Company for the reportedperiods.  As a result of the SaleTransaction, the Company disposed of substantially all of its operating assetsand adopted a liquidation basis of accounting on August 1, 2006.

**CAUTIONARYSTATEMENTS**

This Quarterly Reportincludes forward-looking statements.  Allstatements regarding Adelphia and its consolidated subsidiaries’ expectedsources and uses of cash, income tax positions, indemnification obligations andany post-closing purchase price adjustments related to the Sale Transaction,settlements with the SEC and the United States Attorney’s Office for theSouthern District of New York (the “U.S. Attorney”) and future course of theCompany’s pending bankruptcy proceeding are forward-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.  Suchforward-looking statements are inherently uncertain, and readers must recognizethat actual results may differ materially from our expectations.  We do not undertake a duty to update suchforward-looking statements.  You areadvised, however, to consult any future disclosures we make on related subjectsin our reports filed with or furnished to the SEC.  Risks, uncertainties and other factors thatmay cause actual results to differ materially from those in the forward-lookingstatements include, but are not limited to, the following:

·                  whetherand on what timetable a plan of reorganization under Chapter 11 of theBankruptcy Code will be confirmed and consummated to mitigate the continuedincurrence of costs and fees as a result of the Chapter 11 bankruptcyproceeding and our obligations under the Registration Rights and Sale Agreementbetween Adelphia and TWC (the “Registration Rights Agreement”) dated as ofJuly 31, 2006;

·                  actualcosts incurred during liquidation may exceed our current estimates;

·                  potentialdilutive impact to our stakeholders related to the substantial claims filedagainst us in the Chapter 11 bankruptcy proceeding;

·                  potentialliability to TW NY or Comcast for certain post-closing purchase priceadjustments;

·                  potentialdecrease in the fair value of the TWC Class A Common Stock we received in theSale Transaction;

·                  thevalue of our short-term investments could decrease;

·                  increasedemployee attrition after the closing of the Sale Transaction;

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·                  ourincome and franchise tax liabilities in connection with the Sale Transactionand consummation of a plan of reorganization could be materially more thanestimated;

·                  theoutcome of significant pending litigation;

·                  oursettlement agreements with the U.S. Attorney and the SEC could be overturned orvacated;

·                  uncertaintyregarding tax attributes and potential tax liabilities due to our re-evaluationof our historical tax positions; and

·                  potentialtax consequences of certain advances by the Company to members of theJohn J. Rigas Family (the “Rigas Family”) and the Rigas Family Entities(as defined in Note 1 to the accompanying consolidated financial statements),our settlements with the U.S. Attorney and the SEC, the acquisition of theForfeited Entities (as defined in Note 1 to the accompanying consolidatedfinancial statements) and the subsequent sale of the assets of such entities inthe Sale Transaction.

Many of these risks,uncertainties and other factors are outside of the Company’s control.  Readers should consider all of these factorscarefully in evaluating the forward-looking statements contained in thisQuarterly Report.  We discuss theserisks, uncertainties and other factors more fully in Part II,Item 1A, “Risk Factors,” in this Quarterly Report and in other reportsfiled by us with, or furnished by us to, the SEC.

 

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**PART I. FINANCIAL INFORMATION**

**ITEM1.  FINANCIAL STATEMENTS**

**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)CONSOLIDATED STATEMENT OF NET LIABILITIES IN LIQUIDATION(amounts in thousands)(unaudited)**
| ** **                                              | ** ** | **September 30,** | ** ** |
|---------------------------------------------------------|------------|------------------------|------------|
| ** **                                              | ** ** | **2006**               | ** ** |
| ASSETS                                                  |       |                   |       |
| Cash and cash  equivalents (Note 10)                    |       | $                      | 6,240,035  |   |
| Restricted cash                                         |       | 33,414                 |       |
| Short-term  investments (Note 10)                       |       | 3,091,856              |       |
| Proceeds from  Sale Transaction held in escrow (Note 2) |       | 732,481                |       |
| TWC Class A  Common Stock (Note 2)                      |       | 5,475,208              |       |
| Other assets                                            |       | 159,143                |       |
| Total assets                                            |       | 15,732,137             |       |
|                                                    |       |                   |       |
| LIABILITIES                                             |       |                   |       |
| Accounts payable                                        |       | 8,116                  |       |
| Accrued income  taxes                                   |       | 512,546                |       |
| Accrued  liquidation costs (Note 1)                     |       | 201,264                |       |
| Other  liabilities                                      |       | 303,352                |       |
| Liabilities  subject to compromise (Note 2)             |       | 16,662,827             |       |
| Total  liabilities                                      |       | 17,688,105             |       |
|                                                    |       |                   |       |
| Commitments and  contingencies (Note 8)                 |       |                   |       |
|                                                    |       |                   |       |
| Net liabilities in  liquidation                         |       | $                      | (1,955,968 | ) |

 

See accompanying notes to the consolidated financialstatements.

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)CONSOLIDATED STATEMENT OF CHANGES IN NET LIABILITIES IN LIQUIDATION(amounts in thousands)(unaudited)**
| ** **                                                                                            | ** ** | **Two months ended  September 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                                            | ** ** | **2006**                                           | ** ** |
|                                                                                                  |       |                                               |       |
| Stockholders’ deficit  at July 31, 2006                                                          |       | $                                                  | (2,483,284 | ) |
|                                                                                                  |       |                                               |       |
| Effects of adopting a  liquidation basis of accounting:                                               |       |                                               |       |
| Accrual of  liquidation costs (Notes 1 and 8)                                                         |       | (212,605                                           | )          |
| Adjustment of  assets to estimated realizable values                                                  |       | (13,441                                            | )          |
| Net effect of  adopting a liquidation basis of accounting                                             |       | (226,046                                           | )          |
|                                                                                                  |       |                                               |       |
| Net liabilities  in liquidation at August 1, 2006                                                     |       | (2,709,330                                         | )          |
|                                                                                                  |       |                                               |       |
| Changes in net  liabilities in liquidation:                                                           |       |                                               |       |
| Change in  estimate of net realizable value of TWC Class A Common Stock                               |       | 756,173                                            |       |
| Change in  estimate of net realizable value of other assets                                           |       | (1,004                                             | )          |
| Settlement of  liabilities subject to compromise                                                      |       | (762                                               | )          |
| Interest income                                                                                       |       | 83,289                                             |       |
| Interest expense  (contractual interest was $219,997 during the two months ended September 30,  2006) |       | (84,334                                            | )          |
|                                                                                                  |       |                                               |       |
| Net change in  net liabilities in liquidation                                                         |       | 753,362                                            |       |
|                                                                                                  |       |                                               |       |
| Net liabilities in liquidation at September 30, 2006                                                  |       | $                                                  | (1,955,968 | ) |

 

See accompanying notes to the consolidated financialstatements.

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)CONDENSED CONSOLIDATED BALANCE SHEET (GOING CONCERN BASIS)(amounts in thousands, except share data)**
| ** **                                                                                                                            | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                            | ** ** | **2005**              | ** ** |
| ASSETS                                                                                                                                |       |                  |       |
| Current assets:                                                                                                                       |       |                  |       |
| Cash and cash equivalents                                                                                                             |       | $                     | 389,839    |   |
| Restricted cash                                                                                                                       |       | 25,783                |       |
| Accounts receivable, less allowance for doubtful  accounts of $15,912                                                                 |       | 119,512               |       |
| Receivable for securities                                                                                                             |       | 10,029                |       |
| Other current assets                                                                                                                  |       | 74,399                |       |
| Total current assets                                                                                                                  |       | 619,562               |       |
|                                                                                                                                  |       |                  |       |
| Noncurrent assets:                                                                                                                    |       |                  |       |
| Restricted cash                                                                                                                       |       | 262,393               |       |
| Property and equipment, net                                                                                                           |       | 4,334,651             |       |
| Intangible assets, net (Note 10)                                                                                                      |       | 7,529,164             |       |
| Other noncurrent assets, net                                                                                                          |       | 128,240               |       |
| Total assets                                                                                                                          |       | $                     | 12,874,010 |   |
|                                                                                                                                  |       |                  |       |
| Current liabilities:                                                                                                                  |       |                  |       |
| Accounts payable                                                                                                                      |       | $                     | 130,157    |   |
| Subscriber advance payments and deposits                                                                                              |       | 34,543                |       |
| Accrued liabilities (Note 10)                                                                                                         |       | 551,599               |       |
| Deferred revenue                                                                                                                      |       | 21,376                |       |
| Parent and subsidiary debt (Note 5)                                                                                                   |       | 869,184               |       |
| Total current liabilities                                                                                                             |       | 1,606,859             |       |
|                                                                                                                                  |       |                  |       |
| Noncurrent liabilities:                                                                                                               |       |                  |       |
| Other liabilities                                                                                                                     |       | 31,929                |       |
| Deferred revenue                                                                                                                      |       | 61,065                |       |
| Deferred income taxes                                                                                                                 |       | 833,535               |       |
| Total noncurrent liabilities                                                                                                          |       | 926,529               |       |
|                                                                                                                                  |       |                  |       |
| Liabilities subject to compromise (Note 2)                                                                                            |       | 18,415,158            |       |
|                                                                                                                                  |       |                  |       |
| Total liabilities                                                                                                                     |       | 20,948,546            |       |
|                                                                                                                                  |       |                  |       |
| Commitments and contingencies (Note 8)                                                                                                |       |                  |       |
|                                                                                                                                  |       |                  |       |
| Minority’s interest in equity of subsidiary                                                                                      |       | 71,307                |       |
|                                                                                                                                  |       |                  |       |
| Stockholders’ deficit:                                                                                                           |       |                  |       |
| Series preferred stock                                                                                                                |       | 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                 |       |
| Convertible Class B Common Stock, $.01 par value,  300,000,000 shares authorized, 25,055,365 shares issued and outstanding            |       | 251                   |       |
| Additional paid-in capital                                                                                                            |       | 12,071,165            |       |
| Accumulated other comprehensive loss, net                                                                                             |       | (4,988                | )          |
| Accumulated deficit                                                                                                                   |       | (20,187,028           | )          |
| Treasury stock, at cost, 1,094,857 shares of Class A  Common Stock                                                                    |       | (27,937               | )          |
| Total stockholders’ deficit                                                                                                      |       | (8,145,843            | )          |
| Total  liabilities and stockholders’ deficit                                                                                     |       | $                     | 12,874,010 |   |

 

See accompanying notes to the consolidated financialstatements.

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (GOING CONCERN BASIS)(amounts in thousands, except share and per share amounts)(unaudited)**
| ** **                                                                                                                                                                                                                                                                                                       | ** ** | **Month ended  July 31,** | ** ** | **Three months  ended  September 30,** | ** ** | **Seven months  ended  July 31,** | ** ** | **Nine months  ended  September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                       | ** ** | **2006**                            | ** ** | **2005**                                         | ** ** | **2006**                                    | ** ** | **2005**                                        | ** ** |
|                                                                                                                                                                                                                                                                                                             |       |                                |       |                                             |       |                                        |       |                                            |       |
| Revenue                                                                                                                                                                                                                                                                                                          |       | $                                   | 397,438    |                                             | $          | 1,088,568                                   |       | $                                               | 2,745,439  |   | $ | 3,260,793 |   |
|                                                                                                                                                                                                                                                                                                             |       |                                |       |                                             |       |                                        |       |                                            |       |
| Costs and  expenses:                                                                                                                                                                                                                                                                                             |       |                                |       |                                             |       |                                        |       |                                            |       |
| Direct operating and programming                                                                                                                                                                                                                                                                                 |       | 246,870                             |       | 680,614                                          |       | 1,641,343                                   |       | 2,001,202                                       |       |
| Selling, general and administrative                                                                                                                                                                                                                                                                              |       | 26,903                              |       | 90,285                                           |       | 204,156                                     |       | 261,899                                         |       |
| Investigation, re-audit and sale transaction costs                                                                                                                                                                                                                                                               |       | 2,295                               |       | 15,832                                           |       | 32,527                                      |       | 54,317                                          |       |
| Depreciation                                                                                                                                                                                                                                                                                                     |       | 62,729                              |       | 193,017                                          |       | 442,636                                     |       | 606,839                                         |       |
| Amortization                                                                                                                                                                                                                                                                                                     |       | 10,639                              |       | 32,795                                           |       | 77,170                                      |       | 106,827                                         |       |
| Impairment of  long-lived assets                                                                                                                                                                                                                                                                                 |       | 16,560                              |       | 23,063                                           |       | 16,560                                      |       | 23,063                                          |       |
| Provision for uncollectible amounts due from the  Rigas Family and Rigas Family Entities (Note 4)                                                                                                                                                                                                                |       | —                              |       | —                                           |       | —                                      |       | 13,338                                          |       |
| Gain on disposition of long-lived assets                                                                                                                                                                                                                                                                         |       | (339                                | )          | (331                                             | )          | (1,697                                      | )          | (6,102                                          | )          |
| Total costs and expenses                                                                                                                                                                                                                                                                                         |       | 365,657                             |       | 1,035,275                                        |       | 2,412,695                                   |       | 3,061,383                                       |       |
|                                                                                                                                                                                                                                                                                                             |       |                                |       |                                             |       |                                        |       |                                            |       |
| Operating income                                                                                                                                                                                                                                                                                                 |       | 31,781                              |       | 53,293                                           |       | 332,744                                     |       | 199,410                                         |       |
|                                                                                                                                                                                                                                                                                                             |       |                                |       |                                             |       |                                        |       |                                            |       |
| Other income  (expense), net:                                                                                                                                                                                                                                                                                    |       |                                |       |                                             |       |                                        |       |                                            |       |
| Gain on Sale Transaction (Note 2)                                                                                                                                                                                                                                                                                |       | 6,129,718                           |       | —                                           |       | 6,129,718                                   |       | —                                          |       |
| Interest expense, net of amounts capitalized  (contractual interest was $127,788 during the month ended July 31, 2006;  $341,199 during the three months ended September 30, 2005; $859,640 during  the seven months ended July 31, 2006 and $987,762 during the nine months  ended September 30, 2005) (Note 2) |       | (60,877                             | )          | (138,329                                         | )          | (438,172                                    | )          | (441,064                                        | )          |
| Other income (expense), net (Notes 4 and 8)                                                                                                                                                                                                                                                                      |       | 83                                  |       | (2,998                                           | )          | (107,983                                    | )          | 457,941                                         |       |
| Total other income (expense), net                                                                                                                                                                                                                                                                                |       | 6,068,924                           |       | (141,327                                         | )          | 5,583,563                                   |       | 16,877                                          |       |
| Income (loss) before reorganization income  (expenses), income taxes, share of income (losses) of equity affiliates and  minority’s interest                                                                                                                                                                |       | 6,100,705                           |       | (88,034                                          | )          | 5,916,307                                   |       | 216,287                                         |       |
| Reorganization  income (expenses) due to bankruptcy, net (Note 2)                                                                                                                                                                                                                                                |       | (9,535                              | )          | (21,230                                          | )          | 53,104                                      |       | (52,804                                         | )          |
| Income (loss) before income taxes, share of income  (losses) of equity affiliates and minority’s interest                                                                                                                                                                                                   |       | 6,091,170                           |       | (109,264                                         | )          | 5,969,411                                   |       | 163,483                                         |       |
| Income tax  expense (Note 10)                                                                                                                                                                                                                                                                                    |       | (201,948                            | )          | (38,984                                          | )          | (273,389                                    | )          | (103,450                                        | )          |
| Share of income  (losses) of equity affiliates, net                                                                                                                                                                                                                                                              |       | (1,081                              | )          | 393                                              |       | (1,899                                      | )          | (975                                            | )          |
| Minority’s  interest in loss of subsidiary                                                                                                                                                                                                                                                                  |       | 1,663                               |       | 1,297                                            |       | 12,769                                      |       | 2,680                                           |       |
| Net income (loss)                                                                                                                                                                                                                                                                                                |       | 5,889,804                           |       | (146,558                                         | )          | 5,706,892                                   |       | 61,738                                          |       |
| Dividend  requirements applicable to preferred stock (contractual dividends were  $10,010 during the month ended July 31, 2006; $30,031 during the three months  ended September 30, 2005; $70,073 during the seven months ended July 31, 2006  and $90,094 during the nine months ended September 30, 2005)     |       | —                              |       | —                                           |       | —                                      |       | —                                          |       |
| Beneficial conversion feature                                                                                                                                                                                                                                                                                    |       | —                              |       | —                                           |       | —                                      |       | (583                                            | )          |
|                                                                                                                                                                                                                                                                                                             |       |                                |       |                                             |       |                                        |       |                                            |       |
| Net income (loss) applicable to common stockholders                                                                                                                                                                                                                                                              |       | $                                   | 5,889,804  |                                             | $          | (146,558                                    | )          | $                                               | 5,706,892  |   | $ | 61,155 |   |

 

See accompanying notes to the consolidated financialstatements.

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (GOING CONCERN BASIS) — Continued(amounts in thousands, except share and per share amounts)(unaudited)**
| ** **                                                           | ** ** | **Month ended  July 31,** | ** ** | **Three months  ended  September 30,** | ** ** | **Seven months  ended  July 31,** | ** ** | **Nine months  ended  September 30,** | ** ** |
|----------------------------------------------------------------------|------------|-------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                           | ** ** | **2006**                            | ** ** | **2005**                                         | ** ** | **2006**                                    | ** ** | **2005**                                        | ** ** |
| Amounts per weighted  average share of common stock (Note 10):       | ** ** | ** **                          |       |                                             | ** ** | ** **                                  | ** ** | ** **                                      | ** ** |
| Basic net income (loss) applicable to Class A common  stockholders   |       | $                                   | 23.32      |                                             | $          | (0.58                                       | )          | $                                               | 22.60      |   | $ | 0.24 |   |
| Diluted net income (loss) applicable to Class A  common stockholders |       | $                                   | 17.39      |                                             | $          | (0.58                                       | )          | $                                               | 16.85      |   | $ | 0.18 |   |
| Basic weighted average shares of Class A Common  Stock outstanding   |       | 228,692,414                         |       | 228,692,414                                      |       | 228,692,414                                 |       | 228,692,414                                     |       |
| Diluted weighted average shares of Class A Common  Stock outstanding |       | 303,300,746                         |       | 228,692,414                                      |       | 303,300,746                                 |       | 303,300,746                                     |       |
| Basic net income (loss) applicable to Class B common  stockholders   |       | $                                   | 22.21      |                                             | $          | (0.58                                       | )          | $                                               | 21.52      |   | $ | 0.23 |   |
| Diluted net income (loss) applicable to Class B  common stockholders |       | $                                   | 16.56      |                                             | $          | (0.58                                       | )          | $                                               | 16.04      |   | $ | 0.17 |   |
| Basic weighted average shares of Class B Common  Stock outstanding   |       | 25,055,365                          |       | 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                                       |       | 37,215,133                                  |       | 37,215,133                                      |       |

 

See accompanying notes to the consolidated financialstatements.

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (GOING CONCERN BASIS)(amounts in thousands)(unaudited)**
| ** **                                                                              | ** ** | **Seven months  ended July 31,** | ** ** | **Nine months  ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                              | ** ** | **2006**                                        | ** ** | **2005**                                        | ** ** |
| **Operating  activities:**                                                              |       |                                            |       |                                            |       |
| Net income                                                                              |       | $                                               | 5,706,892  |                                            | $          | 61,738 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities:      |       |                                            |       |                                            |       |
| Depreciation                                                                            |       | 442,636                                         |       | 606,839                                         |       |
| Amortization                                                                            |       | 77,170                                          |       | 106,827                                         |       |
| Impairment of  long-lived assets                                                        |       | 16,560                                          |       | 23,063                                          |       |
| Provision for uncollectible amounts due from the  Rigas Family and Other Rigas Entities |       | —                                          |       | 13,338                                          |       |
| Gain on disposition of long-lived assets                                                |       | (1,697                                          | )          | (6,102                                          | )          |
| Gain on Sale Transaction                                                                |       | (6,129,718                                      | )          | —                                          |       |
| Settlement with the Rigas Family and Rigas Family  Entities, net                        |       | —                                          |       | (457,733                                        | )          |
| Amortization/write-off of deferred financing costs                                      |       | 1,747                                           |       | 60,687                                          |       |
| Provision for Verizon Media Ventures and other  claims                                  |       | 44,915                                          |       | —                                          |       |
| Other noncash charges, net                                                              |       | 5,227                                           |       | 8,104                                           |       |
| Reorganization (income) expenses due to bankruptcy,  net                                |       | (53,104                                         | )          | 52,804                                          |       |
| Deferred income tax expense                                                             |       | (282,607                                        | )          | 101,900                                         |       |
| Share of losses of equity affiliates, net                                               |       | 1,899                                           |       | 975                                             |       |
| Minority’s interest in loss of subsidiary                                          |       | (12,769                                         | )          | (2,680                                          | )          |
| Change in operating assets and liabilities                                              |       | 541,532                                         |       | (92,135                                         | )          |
| Net cash  provided by operating activities before payment of reorganization expenses    |       | 358,683                                         |       | 477,625                                         |       |
| Reorganization expenses paid during the period                                          |       | (69,541                                         | )          | (41,822                                         | )          |
| Net cash  provided by operating activities                                              |       | 289,142                                         |       | 435,803                                         |       |
|                                                                                    |       |                                            |       |                                            |       |
| **Investing  activities:**                                                              |       |                                            |       |                                            |       |
| Capital expenditures for property and equipment                                         |       | (329,895                                        | )          | (533,312                                        | )          |
| Cash proceeds from Sale Transaction, net of amounts  in escrow                          |       | 11,753,166                                      |       | —                                          |       |
| Proceeds from the sale of long-lived assets and  investments                            |       | 1,586                                           |       | 38,243                                          |       |
| Acquisition of minority interests                                                       |       | —                                          |       | (21,650                                         | )          |
| Change in restricted cash                                                               |       | 197,131                                         |       | (15,581                                         | )          |
| Other                                                                                   |       | (5,208                                          | )          | (8,789                                          | )          |
| Net cash  provided (used) in investing activities                                       |       | 11,616,780                                      |       | (541,089                                        | )          |
|                                                                                    |       |                                            |       |                                            |       |
| **Financing  activities:**                                                              |       |                                            |       |                                            |       |
| Proceeds from debt                                                                      |       | 1,058,000                                       |       | 856,729                                         |       |
| Repayments of debt                                                                      |       | (3,167,837                                      | )          | (712,899                                        | )          |
| Payments of deferred financing costs                                                    |       | (900                                            | )          | (49,440                                         | )          |
| Net cash (used) provided by financing activities                                        |       | (2,110,737                                      | )          | 94,390                                          |       |
| ** **                                                                              |       |                                            |       |                                            |       |
| **Increase  (decrease) in cash and cash equivalents**                                   |       | 9,795,185                                       |       | (10,896                                         | )          |
| **Cash  and cash equivalents at beginning of period**                                   |       | 389,839                                         |       | 338,909                                         |       |
| **Cash and cash equivalents at  end of period**                                         |       | $                                               | 10,185,024 |                                            | $          | 328,013 |   |

 

See accompanying notes to the consolidated financialstatements.

 

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**ADELPHIA COMMUNICATIONSCORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(unaudited)**

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

*Background*

On July 31, 2006, Adelphia completed the sale of assets, which in theaggregate comprise substantially all of its U.S. assets, to TW NY andComcast.  As a result of the sale, theCompany is no longer conducting any operations other than those necessary toliquidate its assets.  For additionalinformation, see Note 2.

On June 25, 2002 (the “Petition Date”), Adelphia and substantially allof its domestic subsidiaries filed voluntary petitions to reorganize (the “Chapter11 Cases”) under Chapter 11 of the Bankruptcy Code in the BankruptcyCourt.  On June 10, 2002, Century CommunicationsCorporation (“Century”), an indirect wholly owned subsidiary of Adelphia, fileda voluntary petition to reorganize under Chapter 11.  On October 6 and November 15, 2005, certainadditional subsidiaries of Adelphia also filed voluntary petitions toreorganize under Chapter 11.  On March31, 2006, the Forfeited Entities (as defined below) and certain other entitiesfiled voluntary petitions to reorganize under Chapter 11.  The bankruptcy proceedings for Century andthe subsequent filers are jointly administered with Adelphia and substantiallyall of its domestic subsidiaries (the “Debtors”) and are included in theChapter 11 Cases.  On June 29, 2006, theBankruptcy Court confirmed the Third Modified Fourth Amended Joint Plan ofReorganization (the “JV Plan”) for the Century-TCI Debtors and ParnassosDebtors (collectively, the “JV Debtors”). On July 31, 2006, the JV Plan became effective by its terms.  Accordingly, from and after July 31, 2006,the Debtors no longer include the JV Debtors. For additional information, see Note 2.

In May 2002, certain members of the Rigas Family resigned from theirpositions as directors and executive officers of the Company.  In addition, although members of the RigasFamily owned Adelphia $0.01 par value Class A common stock (“Class A CommonStock”) and Adelphia $0.01 par value Class B common stock (“Class B CommonStock”) with a majority of the voting power in Adelphia, the Rigas Family wasnot able to exercise such voting power since the Debtors filed for protectionunder the Bankruptcy Code in June 2002. Prior to May 2002, the Company engaged in numerous transactions thatdirectly or indirectly involved members of the Rigas Family and entities inwhich members of the Rigas Family directly or indirectly held controllinginterests (collectively, the “Rigas Family Entities”).  The Rigas Family Entities include certaincable television entities formerly owned by the Rigas Family that are subjectto co-borrowing arrangements with the Company, including Coudersport TelevisionCable Co. (“Coudersport”) and Bucktail Broadcasting Corp. (“Bucktail”)(collectively, the “Rigas Co-Borrowing Entities”), as well as other RigasFamily entities (the “Other Rigas Entities”).

On March 29, 2006, the United States District Court for the SouthernDistrict of New York (the “District Court”) entered various orders offorfeiture (the “RME Forfeiture Orders”) pursuant to which on March 29, 2006,all right, title and interest in the Rigas Co-Borrowing Entities (other thanCoudersport and Bucktail) (the “Forfeited Entities”) held by the Rigas Familyand by the Rigas Family Entities prior to the District Court’s order dated June8, 2005 (the “Forfeiture Order”) were transferred to certain subsidiaries ofthe Company free and clear of all liens, claims, encumbrances and adverseinterests in accordance with the RME Forfeiture Orders, subject to certainlimitations set forth in the RME Forfeiture Orders.  On July 28, 2006, the District Court enteredvarious orders of forfeiture (the “Real Property Forfeiture Orders”) pursuantto which all right, title and interest previously held by the Rigas Family andRigas Family Entities in certain specified real estate and other property weretransferred to certain subsidiaries of the Company free and clear of all liens,claims, encumbrances and adverse interests in accordance with the Real PropertyForfeiture Orders, subject to certain limitations set forth in the RealProperty Forfeiture Orders.  The transferin furtherance of the agreement between the Company and the U.S. Attorney datedApril 25, 2005 (the “Non-Prosecution Agreement”) of all right, title andinterest previously held by the Rigas Family and by the Rigas Family Entitiesin certain other property and in any of the Company’s securities, as further discussedin Note 8, “SEC Civil Action and the United States Department of JusticeInvestigation,” is expected to occur in accordance with separate, subsequentcourt documentation.

*Basis ofPresentation*

As a result of the SaleTransaction, the Company no longer has any continuing operations.  Following the Sale Transaction, the Company’sprincipal focus is to obtain confirmation of the Plan, complete all BankruptcyCourt proceedings, settle pre-petition liabilities and liquidate theCompany.  Therefore, as a result of theSale Transaction, complete liquidation of the Company is imminent and on August1, 2006 the Company adopted a liquidation basis of

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

accounting.  Under the liquidation basis of accounting,assets are recorded at their estimated realizable amounts and liabilities thatwill be paid in full are recorded at the present value of amounts to be paid.  Liabilities subject to compromise arerecorded at their face amounts until they are settled, at which time they willbe adjusted to their settlement amounts. In connection with the adoption of a liquidation basis of accounting,the Company wrote down certain assets (primarily prepaid insurance) by$13,441,000 to reflect such assets at their net realizable value and recordedan estimated accrual for costs during the liquidation period of$212,605,000.  The net realizable valueof the TWC Class A Common Stock is equal to its estimated fair value as theCompany expects to distribute such shares to its creditors upon emergence frombankruptcy.  Under the liquidation basisof accounting, the net present value of the estimated remaining costs to beincurred during liquidation (exclusive of interest expense) is accrued.  The Company’s estimate for liquidation costsas of September 30, 2006 includes professional fees associated with the Chapter11 proceedings, litigation matters and other legal matters ($109,793,000), compensationand benefits for the remaining employees ($49,733,000), and other miscellaneousgeneral and administrative costs.  Suchestimated costs are subject to change. The Company expects that changes will be made to its estimated costs of liquidation,and such changes in estimates will be recognized in future periods as a changein the Company’s net liabilities in liquidation.  The estimated costs as of September 30, 2006are based in large part on assumptions regarding the timing of emergence frombankruptcy, the resolution of litigation matters and the post-emergence lengthof time required to settle all matters of the Company.  If there are delays in these matters, actualcosts incurred during liquidation could increase as a result of the need foradditional internal and external resources. A hearing to consider confirmation of the Plan is currently scheduledfor December 7, 2006.  The Companyanticipates that approximately $155 million of the liquidation costs as ofSeptember 30, 2006 will be paid in the next twelve months.

 

The accompanying consolidated financial statements of the Company havebeen prepared in accordance with accounting principles generally accepted inthe United States (“GAAP”) for interim financial information and the rules andregulations of the SEC.  Accordingly,certain information and footnote disclosures typically included in the Company’sfinancial statements filed with its Annual Report on Form 10-K have beencondensed or omitted for this Quarterly Report. In the opinion of management, the accompanying consolidated financialstatements include all adjustments, which consist of only normal recurringadjustments, necessary for a fair presentation of the results for the periodspresented.  These financial statementsshould be read in conjunction with the Company’s 2005 Form 10-K.  However, financial statements for periodssubsequent to the adoption of a liquidation basis of accounting are notcomparable to the financial statements for periods prior to the adoption of aliquidation basis of accounting.  Priorto August 1, 2006, the consolidated financial statements were prepared on agoing concern basis, which assumed continuity of operations, realization ofassets and satisfaction of liabilities in the ordinary course of business, and whichdid not purport to show, reflect or provide for the consequences of the Chapter11 Cases or the Sale Transaction.

Although the Company is operating as a debtor-in-possession in theChapter 11 Cases, the Company’s ability to control the activities andoperations of its subsidiaries that are also Debtors may be limited pursuant tothe Bankruptcy Code.  However, becausethe bankruptcy proceedings for the Debtors are consolidated for administrativepurposes in the same Bankruptcy Court and will be overseen by the same judge,the financial statements of Adelphia and its subsidiaries have been presentedon a combined basis, which is consistent with consolidated financialstatements.  All inter-entitytransactions between Adelphia, its subsidiaries and the Rigas Co-BorrowingEntities have been eliminated in consolidation.

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

**Note 2: Bankruptcy Proceedings and Sale of Assets of the Company**

### *Overview*

On July 11, 2002, the Creditors’ Committee was appointed, and on July31, 2002, a statutory committee of equity holders (the “Equity Committee” and,together with the Creditors’ Committee, the “Committees”) was appointed.  The Committees have the right to, among otherthings, review and object to certain business transactions and may participatein the formulation of the Debtors’ plan of reorganization.  Under the Bankruptcy Code, the Debtors wereprovided with specified periods during which only the Debtors could propose andfile a plan of reorganization (the “Exclusive Period”) and solicit acceptancesthereto (the “Solicitation Period”).  TheDebtors received several extensions of the Exclusive Period and theSolicitation Period from the Bankruptcy Court with the latest extension of theExclusive Period and the Solicitation Period being through February 17, 2004and April 20, 2004, respectively.  Inearly 2004, the Debtors filed a motion requesting an additional extension ofthe Exclusive Period and the Solicitation Period.  However, in 2004, the Equity Committee fileda motion to terminate the Exclusive Period and the Solicitation Period andother objections were filed regarding the Debtors’ request.  The Bankruptcy Court has extended theExclusive Period and the Solicitation Period until the hearing on the motionsis held and a determination by the Bankruptcy Court is made.  No hearing has been scheduled.  For additional information, see Note 8, “ArahovaMotions.”  On August 17, 2006, certainholders of ACC Senior Notes filed a motion to terminate the Exclusive Period(the “Termination Motion”).  On August25, 2006, certain bank lenders filed a motion to terminate the Exclusive Periodor, alternatively, convert the Chapter 11 Cases to Chapter 7 (the “Bank Motions”).  A hearing on the motions was initiated onSeptember 11 and 12, 2006.  By decisiondated September 19, 2006, the Bankruptcy Court denied the Termination Motion.  A hearing on the Bank Motions has beenadjourned by the parties.

### *Confirmation of Plan of Reorganization*

For a plan ofreorganization to be confirmed and become effective, the Debtors (other thanthe JV Debtors, for whom a plan has been confirmed) must, among other things:

·                  obtain an order of the Bankruptcy Court approving adisclosure statement as containing “adequate information”;

·                  solicit acceptance of such plan of reorganization fromthe holders of claims and equity interests in each class that is impaired andnot deemed by the Bankruptcy Court to have rejected such plan;

·                  obtain an order from the Bankruptcy Court confirmingsuch plan; and

·                  consummate such plan.

Before it can issue an order confirming a plan of reorganization, theBankruptcy Court must find that either (i) each class of impaired claimsor equity interests has accepted such plan or (ii) the plan meets therequirements of the Bankruptcy Code to confirm such plan over the objections ofdissenting classes.  In addition, theBankruptcy Court must find that such plan meets certain other requirementsspecified in the Bankruptcy Code.

On May 26, 2006, the Debtors filed a motion (the “363 Motion”) with theBankruptcy Court seeking, among other things, approval to proceed with the SaleTransaction without first confirming a Chapter 11 plan of reorganization (otherthan with respect to the JV Debtors).  Ahearing to consider certain amended bid protections proposed in the 363 Motionwas held on June 16, 2006, and on that date the Bankruptcy Court enteredan order approving new provisions for termination, for the payment of the breakupfee, a reduction in the purchase price under certain circumstances andreaffirming the effectiveness of the “no-shop provision” and overruling allobjections thereto.  On June 28, 2006,the Bankruptcy Court entered an order (the “363 Approval Order”) approving thebalance of the 363 Motion, including the approval of the sale of the Debtors’assets in connection with the Sale Transaction.

On June 22, 2006,the Debtors filed the JV Plan for the JV Debtors with the Bankruptcy Court withrespect to the Company’s partnerships with Comcast.  In response to the Debtors’ plan modificationmotion dated June 2, 2006 (the “Plan Modification Motion”), by order dated June8, 2006, the Bankruptcy Court approved the information in the 363 Motion andthe Plan Modification Motion as containing “adequate information” pursuant toSection 1125 of the

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

Bankruptcy Code.  On June 29, 2006, the Bankruptcy Courtentered an order (the “JV Confirmation Order”) confirming the JV Plan.  Together the JV Confirmation Order and the363 Approval Order authorized, among other things, consummation of the SaleTransaction.  On July 31, 2006, the JVPlan became effective by its terms. Accordingly, from and after July 31, 2006, the Debtors no longerinclude the JV Debtors.  The Company paid$1,783,349,000 of claims and related interest in the third quarter of 2006 inaccordance with the JV Plan, of which $1,608,567,000 relates topre-petition debt obligations.

Effective July 21,2006, Adelphia entered into the Plan Agreement with the SettlementParties.  Subsequently, on October 11,2006, the PSA Parties entered into the Plan Support Agreement.  The Plan Support Agreement, among otherthings, sets forth the terms on which the PSA Parties have committed to supportthe Plan.  The Plan Support Agreementprovides, among other things, that the PSA Parties will support a plan ofreorganization that incorporates the terms of the Plan Agreement, assubsequently modified by the Plan Support Agreement, that provides for thetransfer of value from certain unsecured creditors of various Adelphiasubsidiaries to certain of Adelphia’s unsecured senior and trade creditors andis effective by December 22, 2006, unless extended in writing by the parties tothe Plan Support Agreement.

On October 16,2006, the Debtors and the Creditors’ Committee filed the Plan and the DSS withthe Bankruptcy Court.  The Plan is basedon the terms of the Plan Agreement and the Plan Support Agreement and proposesa global compromise and settlement of all disputes among the creditors, not allof whom are parties to these agreements. By order dated October 17, 2006, the Bankruptcy Court approved the DSS,as containing “adequate information” pursuant to Section 1125 of the BankruptcyCode.  The voting deadline for beneficialholders holding securities through intermediaries is November 20, 2006.  The voting deadline for all other parties ininterest is November 27, 2006.  A hearingto consider confirmation of the Plan is scheduled for December 7, 2006.

### *Sale of Assets*

On July 31, 2006, Adelphia completed thesale of assets, which in the aggregate comprise substantially all of its U.S.assets, to TW NY and Comcast.  Proceedsfrom the Sale Transaction totaled approximately $17.4 billion, consisting ofcash in the amount of approximately $12.5 billion (including approximately $503million of cash held in escrow) and approximately 156 million shares of TWCClass A Common Stock (including approximately 6.1 million shares of such stockheld in escrow) with an estimated fair value as of the Closing Date ofapproximately $4.9 billion.  Such estimated fair value of the TWCClass A Common Stock as of July 31, 2006 was determined by the Company based onmanagement’s review of projected discounted cash flows for TWC and marketcomparable data.  The Company recognizeda gain on the Sale Transaction of $6,129,718,000.  The gain on the Sale Transaction is subjectto adjustment and represents the difference between the sales proceeds and thenet book value of the assets which were sold.

The aggregate purchase price is subject to certain post-closingadjustments.  Upon consummation of theSale Transaction, a portion of the aggregate purchase price, consisting of$503,279,000 of cash and 6,148,283 shares of TWC Class A Common Stock, wasdeposited in escrow accounts to secure Adelphia’s indemnification obligationsand any post-closing purchase price adjustments that may be due to TW NYand Comcast from Adelphia pursuant to the asset purchase agreements with TW NYand Comcast dated April 20, 2005, as amended (the “Purchase Agreements”).  Pursuant to the Purchase Agreements, thepost-closing purchase price adjustments, if any, are likely to be finalized byno later than the end of the first quarter 2007.  To the extent such post-closing adjustmentsare in favor of TW NY or Comcast, the amount of the escrow released to theCompany will be reduced.  To the extent such post-closing adjustmentsare in favor of the Company, TW NY or Comcast, as applicable, is required underthe Purchase Agreement to contribute the amount of such post-closing adjustmentinto escrow.  On October 27, 2006,TW NY and Comcast delivered to the Company their calculations of thepurchase price adjustments pursuant to the Purchase Agreements.  Based on TW NY’s and Comcast’scalculations, the net adjustment asserted would result in a payment ofapproximately $133 million to TW NY and Comcast.  The Company believes that additionalpost-closing adjustments of approximately $23 million are due from TW NYand Comcast. While the Company is still reviewing TW NY’s and Comcast’scalculations, at this time it believes that it will be sending a formalobjection to TW NY and Comcast at the beginning of next month that challengesat a minimum, substantially all of the amount claimed.  As a result, the Company has not adjusted thegain on the Sale Transaction for these potential post-closing adjustments, andany such adjustments are not considered material to the gain that the Companyrecognized in the accompanying consolidated financial statements.  Additionally, the Company has not beenprovided with notice of any claims being asserted pursuant to the indemnificationprovisions of the respective Purchase Agreements, nor is the Company aware ofany basis for such claims.  To the extentthat

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

we determine additionalamounts are owed to either TW NY or Comcast in the future under the PurchaseAgreements, the amount of the gain recognized on the Sale Transaction will beadjusted.

The TWC Class A Common Stock is expected to belisted on The New York Stock Exchange (the “NYSE”) in connection with aninitial registered public offering of the TWC Class A Common Stock orwithin two weeks following the consummation of a plan of reorganization todistribute the proceeds of the Sale Transaction to the Company’s creditors andstakeholders (other than those of the JV Debtors) or, if not listed on the NYSEwithin a reasonable period following the initial registered offering ordistribution pursuant to a plan of reorganization, on The Nasdaq Stock Market(the “Nasdaq”).

On the Closing Date, Adelphia entered into the Registration RightsAgreement with TWC pursuant to which Adelphia agreed to sell in a singlefirm-commitment underwritten public offering at least 33-1/3% of the TWC ClassA Common Stock issued by TWC in the Sale Transaction (inclusive of theoverallotment option, if any) within three months after a registrationstatement is declared effective (subject to delays under specified conditions).  Pursuant to the Registration RightsAgreement, TWC is required to file and have a registration statement coveringthese shares declared effective as promptly as possible and in any event, nolater than January 31, 2007, subject to certain extensions.  Adelphia’s obligation to sell in such publicoffering terminates if Adelphia consummates a plan of reorganization pursuantto which (i) 75% of the TWC Class A Common Stock Adelphia received in theSale Transaction (excluding TWC Class A Common Stock held in escrow pursuant tothe Sale Transaction) is distributed to creditors pursuant to Section 1145 ofthe Bankruptcy Code and the TWC Class A Common Stock is listed on the NYSE orthe Nasdaq within two weeks of the consummation of such plan, or (ii) 90% ofthe TWC Class A Common Stock Adelphia received in the Sale Transaction(excluding TWC Class A Common Stock held in escrow pursuant to the SaleTransaction) is distributed to creditors pursuant to Section 1145 of theBankruptcy Code regardless of listing status. Unless Adelphia’s obligation to sell in such public offering isterminated as described above, Adelphia will have the right to a demandregistration and, under the circumstance described in the next sentence, afinal registration for a distribution of the remaining TWC Class A Common Stockto Adelphia’s creditors and stakeholders under a Chapter 11 plan ofreorganization.  Pursuant to theRegistration Rights Agreement, TWC has the right to elect, in its solediscretion, to not rely on Section 1145 of the Bankruptcy Code and conducta final registration for the distribution of the remaining TWC Class A CommonStock to the Company’s creditors and stakeholders.  Pursuant to the Registration RightsAgreement, Adelphia’s ability to distribute the TWC Class A Common Stock may besubject to lock-up periods following public offerings of TWC Class A CommonStock.  Pursuant to the RegistrationRights Agreement, Adelphia is required to bear its legal and accounting fees(other than accounting fees that TWC has agreed to reimburse to Adelphia orpursuant to the Purchase Agreement with TW NY) and costs, underwritingdiscounts and selling commissions in connection with such offering.  On October 18, 2006, TWC filed an initialregistration statement on a Form S-1 Registration Statement in connection withthe registration of at least 33-1/3% of the TWC Class A Common Stock issued toAdelphia in the Sale Transaction.  Thisregistration statement is not effective.

### *Pre-petition Obligations*

Pre-petition and post-petition obligations of the Debtors are treateddifferently under the Bankruptcy Code. Due to the commencement of the Chapter 11 Cases and the Debtors’ failureto comply with certain financial and other covenants, the Debtors are indefault on substantially all of their pre-petition debt obligations.  As a result of the Chapter 11 filing, allactions to collect the payment of pre-petition indebtedness are subject tocompromise or other treatment under a plan of reorganization.  Generally, actions to enforce or otherwiseeffect payment of pre-petition liabilities are stayed 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 payingand intend to continue to pay undisputed post-petition claims in the ordinarycourse 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 from the rejection ofexecutory contracts and unexpired leases are treated as general unsecuredclaims and will be classified as liabilities subject to compromise.  For additional information concerning liabilitiessubject to compromise, see below.

The ultimate amount of the Debtors’ and JV Debtors’ liabilities will bedetermined during the Debtors’ and JV Debtors’ claims resolution process.  The Bankruptcy Court has established bardates of January 9, 2004, November 14, 2005, December 20, 2005 and May 1, 2006for filing proofs of claim against the Debtors’ and the JV 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

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

Debtors’ and JVDebtors’ Schedules of Liabilities. However, under certain limited circumstances, claimants may file proofsof claims after the bar date.  As ofJanuary 9, 2004, approximately 17,000 proofs of claim asserting in excess of$3.20 trillion in claims were filed, and as of September 30, 2006,approximately 19,700 proofs of claim asserting approximately $3.98 trillion inclaims were filed, in each case including duplicative claims, but excluding anyestimated amounts for unliquidated claims. The aggregate amount of claims filed with the Bankruptcy Court farexceeds the Company’s estimate of ultimate liability.  The Debtors and Adelphia, the planadministrator for the JV Debtors (the “Plan Administrator”), currently are inthe process of reviewing, analyzing and reconciling the scheduled and filedclaims.  The Debtors and the PlanAdministrator for the JV Debtors expect that the claims resolution process willtake significant time to complete following the consummation of a plan ofreorganization.  As the amounts of theallowed claims are determined, adjustments will be recorded in liabilitiessubject to compromise.

The Debtors and the Plan Administrator for the JV Debtors have filednumerous omnibus objections that address $3.88 trillion of filed claims,consisting primarily of duplicative claims. Certain claims addressed in such objections were either: (i) reduced andallowed; (ii) disallowed and expunged; or (iii) subordinated by orders of theBankruptcy Court.  Hearings on certainclaims objections are ongoing.  Certainother objections have been adjourned to allow the parties to continue toreconcile such claims.  With the exception of (i) claims againstthe Debtors arising pursuant to four of the six pre-petition creditoragreements and (ii) claims against the Debtors arising under 28 series ofnotes issued pursuant to certain indentures, both of which will be treated inaccordance with the Plan, approximately 1,730 claims totaling approximately$592 million have not yet been expunged, withdrawn, adjourned or allowed by theDebtors.  Additional omnibusobjections may be filed as the claims resolution process continues.  Additionally, as a result of settlementsbetween certain claimants and the Debtors and the Plan Administrator for the JVDebtors, approximately $84 billion of filed claims have been expunged orwithdrawn.

### *Presentation*

Liabilities subject to compromise are reported at the amounts expectedto be allowed, even if they may be settled for lesser amounts.  For periods subsequent to the Petition Date,interest expense has been reported only to the extent that it is expected to bepaid during the Chapter 11 proceedings. In addition, no preferred stock dividends have been accrued subsequentto the Petition Date.

Liabilities subject to compromise consist of thefollowing (amounts in thousands):

|                                                                         | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                              | ** ** | **2006(a)**            | ** ** | **2005**              | ** ** |
| Parent and  subsidiary debt                                             |       | $                      | 14,517,109 |                  | $          | 16,136,960 |   |
| Accounts payable                                                        |       | 809,850                |       | 926,794               |       |
| Accrued  liabilities                                                    |       | 1,187,074              |       | 1,202,610             |       |
| Series B 13%  Cumulative Exchangeable Preferred Stock due July 15, 2009 |       | 148,794                |       | 148,794               |       |
| Liabilities  subject to compromise                                      |       | $                      | 16,662,827 |                  | $          | 18,415,158 |   |

----

(a)             EffectiveAugust 1, 2006, the Company adopted a liquidation basis of accounting.

16

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

Following is areconciliation of the changes in liabilities subject to compromise for theperiod from December 31, 2005 through September 30, 2006 (amounts inthousands):

| Balance at December 31, 2005                         |   | $          | 18,415,158 |   |
|------------------------------------------------------|--------|------------|------------|--------|
| Verizon Media Ventures claims (a)                    |   | 87,013     |       |
| Disallowed pre-petition accrued interest expense (b) |   | (127,244   | )          |
| Chapter 11 filing by the Forfeited Entities          |   | (1,701     | )          |
| Debt obligations associated with the JV Plan (c)     |   | 9,958      |       |
| Interest on the JV Plan’s allowed claims (c)    |   | 50,952     |       |
| Allowed claims under the JV Plan (d)                 |   | (1,797,782 | )          |
| Estimated cost for rejected contracts                |   | 29,831     |       |
| Settlements and other                                |   | (2,331     | )          |
| Balance at July  31, 2006                            |   | 16,663,854 |       |
| Settlements and other                                |   | (1,027     | )          |
| Balance at September  30, 2006                       |   | $          | 16,662,827 |   |

----

(a)             Inconnection with the acquisition of Verizon Media Ventures, Inc. (“Verizon MediaVentures”), Adelphia issued shares of Class A Common Stock valued at$46,470,000.  Verizon Media Ventures hadthe option to require the Company to repurchase such shares, including relatedinterest charges, in the event that the Company failed to register the shareswithin a specified period of time after the acquisition.  As a result of the claims reconciliationprocess, the Company determined that, prior to the Petition Date, Verizon MediaVentures had asked the Company to repurchase the shares.  Accordingly, the Company has revised theclassification of the amount of the purchase price previously recorded throughequity to liabilities subject to compromise. In addition, the Company recorded losses of $40,054,000 during the sevenmonths ended July 31, 2006, associated with claims asserted by Verizon Media Venturesin connection with two separate asset purchase agreements which were notconsummated.  The losses recorded by theCompany for these claims represent the impact of a settlement which has beenreached by the parties and approved by the Bankruptcy Court on October 5, 2006.

(b)            Duringthe seven months ended July 31, 2006, the Company reversed $127,244,000 ofpre-petition interest expense which had previously been accrued as a result ofa May 2006 Bankruptcy Court order which disallowed this interest.

(c)             Duringthe second quarter of 2006 and the month ended July 31, 2006, the Companyrecorded $49,883,000 and $1,069,000, respectively, of additional interestexpense for certain allowed claims under the JV Plan.  Other than pre-petition debt obligationswhich accrue interest at their contractual rate, the JV Plan generally providesfor interest on allowed claims at a rate of 8% from the Petition Date throughJuly 31, 2006.  In connection withthe confirmation of the JV Plan, the Company also increased liabilities subjectto compromise by $9,958,000 to reflect the allowed claims for the JV Debtors’pre-petition debt obligations.

(d)            Duringthe quarter ended September 30, 2006, the Company paid $1,783,349,000 ofallowed claims and interest under the JV Plan (includes $1,608,567,000 of debtobligations).  Pre-petition debtobligations of $14,433,000 related to the JV Debtors yet to be disbursed underthe JV Plan were reclassified to other liabilities in the accompanyingunaudited consolidated statement of net liabilities in liquidation.

The amounts presented as liabilities subject to compromise may besubject to future adjustments depending on Bankruptcy Court actions, completionof the reconciliation process with respect to disputed claims, determinationsof the secured status of certain claims, the value of any collateral securingsuch claims or other events. Such adjustments may be material to the amountsreported as liabilities subject to compromise.

17

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

### *Reorganization Income (Expenses) Due to Bankruptcy, net*

Prior to the adoption of a liquidation basis ofaccounting, only those fees and other items directly related to the Chapter 11filings were included in reorganization income (expenses) due to bankruptcy,net.  These fees and other items wereadjusted by interest earned during reorganization and income related to thesettlement of certain liabilities subject to compromise.  The following table sets forth certaincomponents of reorganization income (expenses) due to bankruptcy, net under thegoing concern basis prior to August 1, 2006 for the indicated periods (amountsin thousands):
| ** **                                               | ** ** | **Month ended  July 31,** | ** ** | **Three months  ended  September 30,** | ** ** | **Seven months  ended July 31,** | ** ** | **Nine months  ended  September 30,** | ** ** |
|----------------------------------------------------------|------------|-------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                               | ** ** | **2006**                            | ** ** | **2005**                                         | ** ** | **2006**                                        | ** ** | **2005**                                        | ** ** |
| Professional  fees                                       |       | $                                   | (12,436    | )                                                | $          | (22,239                                         | )          | $                                               | (82,269    | ) | $ | (63,291 | ) |
| Disallowed  pre-petition accrued interest expense        |       | —                              |       | —                                           |       | 127,244                                         |       | —                                          |       |
| Debt obligations  associated with the JV Plan            |       | —                              |       | —                                           |       | (9,958                                          | )          | —                                          |       |
| Interest earned  during reorganization                   |       | 2,270                               |       | 2,790                                            |       | 12,963                                          |       | 7,338                                           |       |
| Settlements and  other                                   |       | 631                                 |       | (1,781                                           | )          | 5,124                                           |       | 3,149                                           |       |
| Reorganization income  (expenses) due to bankruptcy, net |       | $                                   | (9,535     | )                                                | $          | (21,230                                         | )          | $                                               | 53,104     |   | $ | (52,804 | ) |

 

In connection with the adoption of a liquidation basis of accounting,the Company recorded an estimated accrual for costs during the liquidationperiod of $212,605,000.  Such accrualincludes an estimate for fees directly related to the Chapter 11 filings.

## **Note 3:  Variable InterestEntities**

FinancialAccounting Standards Board (“FASB”) Interpretation No. 46, *Consolidationof Variable Interest Entities*(as subsequently revised in December2003*,*“FIN 46-R”), requires variableinterest entities, as defined by FIN 46-R, to be consolidated by the primarybeneficiary if certain criteria are met. Effective January 1, 2004, the Company began consolidating the RigasCo-Borrowing Entities under FIN 46-R.  Asdescribed below, the Company ceased to consolidate Coudersport and Bucktailunder FIN 46-R in the second quarter of 2005. Pursuant to the RME Forfeiture Orders, all right, title and interest inthe Forfeited Entities held by the Rigas Family and Rigas Family Entities priorto the Forfeiture Order were transferred to the Company on March 29, 2006.  The Forfeited Entities do not includeCoudersport and Bucktail.  See Note 8 foradditional information.  As a result, theForfeited Entities became part of Adelphia and its consolidated subsidiaries onMarch 29, 2006 and the provisions of FIN 46-R are no longer applicable to theForfeited Entities.

The April 2005agreements approved by the District Court in the SEC civil enforcement action(the “SEC Civil Action”), including: (i) the Non-Prosecution Agreement;(ii) the Adelphia-Rigas Settlement Agreement (defined in Note 8, “Adelphia’sLawsuit Against the Rigas Family”); (iii) the Government-Rigas SettlementAgreement (also defined in Note 8, “Rigas Criminal Action”); and (iv) the finaljudgment as to Adelphia (collectively, the “Government Settlement Agreements”),provide for, among other things, the forfeiture of certain assets by the RigasFamily and Rigas Family Entities.  As aresult of the Forfeiture Order on June 8, 2005, the Company was no longer theprimary beneficiary of Coudersport and Bucktail.  Accordingly, the Company ceased toconsolidate Coudersport and Bucktail under FIN 46-R in the second quarter of2005.

 

18

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

The consolidation of the Rigas Co-Borrowing Entitiesunder FIN 46-R resulted in the following impact to the Company’s consolidatedfinancial statements for the indicated periods (amounts in thousands):

|                                              | ** ** | **Three months  ended March 31,  2006 *** | ** ** | **Nine months  ended  September 30,  2005** | ** ** |
|----------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| Revenue                                      |       | $                                                             | 53,459     |                                                  | $          | 152,278 |   |
| Operating income                             |       | $                                                             | 8,339      |                                                  | $          | 13,722 |   |
| Other (expense) income,  net                 |       | $                                                             | (644       | )                                                     | $          | 433,732 |   |
| Net income applicable to common stockholders |       | $                                                             | 7,695      |                                                  | $          | 447,454 |   |

 

|                        | ** ** | **December 31,  2005** | ** ** |
|------------------------|------------|-----------------------------|------------|
| Current assets         |       | $                           | 3,383      |   |
| Noncurrent assets      |       | $                           | 612,065    |   |
| Current liabilities    |       | $                           | 15,602     |   |
| Noncurrent liabilities |       | $                           | 5,660      |   |

----

*                    EffectiveMarch 29, 2006, the Forfeited Entities became part of Adelphia and theprovisions of FIN 46-R are no longer applicable to the Forfeited Entities;thus, FIN 46-R had no impact to the Company’s consolidated financial statementsfor periods subsequent to March 31, 2006.

**Note 4:  Transactions with the Rigas Family and OtherRigas Entities**

In connection with the Government SettlementAgreements, all amounts owed between Adelphia (including the Rigas Co-BorrowingEntities) and the Rigas Family and Other Rigas Entities will not be collectedor paid. As a result, in June 2005, the Company derecognized through otherincome (expense) the $460,256,000 payable by the Rigas Co-Borrowing Entities tothe Rigas Family and Other Rigas Entities.

On June 8, 2005, pursuant to the Forfeiture Order,equity ownership of the Rigas Co-Borrowing Entities (other than Coudersport andBucktail), the debt and equity securities of the Company and certain realestate and other property were forfeited by the Rigas Family and the RigasFamily Entities to the United States. In conjunction with the Forfeiture Orderon June 8, 2005, the Company recorded the settlement proceeds at their fairvalue. The Company determined that the equity interests in the RigasCo-Borrowing Entities had nominal value as the liabilities of these entitiessignificantly exceed the fair value of their assets. On March 29, 2006, allright, title and interest in the Forfeited Entities held by the Rigas Familyand by the Rigas Family Entities prior to the Forfeiture Order were transferredto certain subsidiaries of the Company free and clear of all liens, claims,encumbrances and adverse interests in accordance with the RME ForfeitureOrders, subject to certain limitations set forth in the RME Forfeiture Orders.

On July 28, 2006, the District Court entered the RealProperty Forfeiture Orders pursuant to which all right, title and interestpreviously held by the Rigas Family and the Rigas Family Entities in certainspecified real estate and other property were transferred to certainsubsidiaries of the Company free and clear of all liens, claims, encumbrancesand adverse interests in accordance with the Real Property Forfeiture Orders,subject to certain limitations set forth in the Real Property ForfeitureOrders.

The transfer in furtherance of the Non-ProsecutionAgreement of all right, title and interest previously held by the Rigas Familyand by the Rigas Family Entities in certain other property and in any of theCompany’s securities is expected to occur in accordance with separate,subsequent court documentation. As more fully described in Note 5, at September30, 2006, $567,376,000 of the Company’s convertible subordinated notes whichwere held by the Rigas Family and Rigas Family Entities prior to the ForfeitureOrder and, which have not yet been transferred to the Company, are included inliabilities subject to compromise in the accompanying unaudited consolidatedstatement of net liabilities in liquidation. Upon receipt of these securities,the Company will remove the related obligation from liabilities subject tocompromise.

Also, in connection with the Government SettlementAgreements, the Company agreed to pay the Rigas Family an additional$11,500,000 for legal defense costs, which was paid by the Company in June2005. The Government 

19

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

Settlement Agreements release the Company from furtherobligation to provide funding for legal defense costs for the Rigas Family.

As of December 31, 2004, the Company had accrued$2,717,000 of severance for John J. Rigas pursuant to the terms of a May 23,2002 agreement with John J. Rigas, Timothy J. Rigas, James P. Rigas and MichaelJ. Rigas. The Government Settlement Agreements release the Company from thisseverance obligation. Accordingly, the Company derecognized the severanceaccrual and recognized the benefit of $2,717,000 in June 2005.

The Company recognized a net benefit from thesettlement with the Rigas Family and Other Rigas Entities in June 2005 and hasincluded such net benefit in other income (expense), net in the condensedconsolidated statements of operations, 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 3)                                                       |   | (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 and Other Rigas Entities, net                                                  |   | $       | 457,733 |   |

----

*                    Representsthe December 31, 2004 amounts due from the Rigas Family and Other RigasEntities of $28,743,000, less the provision for uncollectible amounts of$13,338,000 recognized by the Company for the period from January 1, 2005through June 8, 2005 (date of the Forfeiture Order) due to a further decline inthe fair value of the underlying securities.

20

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

**Note 5:  Debt**

The carrying valueof the Company’s debt is summarized below for the indicated periods (amounts inthousands):

|                                      | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|--------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Parent and subsidiary  debt:         |       |                         |       |                        |       |
| Secured:                             |       |                         |       |                        |       |
| DIP Facilities  (a)                  |       | $                            | —     |                        | $          | 851,352 |   |
| Capital lease  obligations           |       | —                       |       | 17,546                      |       |
| Unsecured other  subsidiary debt     |       | —                       |       | 286                         |       |
| Parent and  subsidiary debt          |       | $                            | —     |                        | $          | 869,184 |   |
|                                 |       |                         |       |                        |       |
| 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 (d)          |       | 617,313                      |       | 2,240,313                   |       |
| Co-Borrowing  Facilities (e)         |       | 4,576,375                    |       | 4,576,375                   |       |
| 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                      |       | 121,424                     |       |
| Total subsidiary  debt               |       | 7,727,487                    |       | 9,350,487                   |       |
|                                 |       |                         |       |                        |       |
| Deferred  financing fees(f)          |       | (131,059                     | )          | (134,208                    | )          |
| Parent and subsidiary  debt (Note 2) |       | $                            | 14,517,109 |                        | $          | 16,136,960 |   |

----

*(a)  Debtor-in-Possession (“DIP”) Facilities*

In order to provide liquidity following thecommencement of the Chapter 11 Cases, Adelphia and certain of its subsidiaries(the “Loan Parties”) entered into a $1,500,000,000 debtor-in-possession creditfacility (as amended, the “DIP Facility”). On May 10, 2004, the Loan Partiesentered into a $1,000,000,000 extended debtor-in-possession credit facility (asamended, the “First Extended DIP Facility”), which amended and restated the DIPFacility in its entirety. On February 25, 2005, the Loan Parties entered into a$1,300,000,000 further extended debtor-in-possession credit facility (asamended, the “Second Extended DIP Facility”), which amended and restated theFirst Extended DIP Facility in its entirety. On March 17, 2006, the LoanParties entered into a $1,300,000,000 further extended debtor-in-possessioncredit facility (the “Third Extended DIP Facility”), which amended and restatedthe Second Extended DIP Facility in its entirety.

The Third Extended DIP Facility generally wasscheduled to mature upon the earlier of August 7, 2006 or the occurrence ofcertain other events, as described in the Third Extended DIP Facility. The ThirdExtended DIP Facility was comprised of an $800,000,000 revolving Tranche A Loan(including a $500,000,000 letter of credit subfacility) and a $500,000,000 termTranche B Loan. The Third Extended DIP Facility was secured with a firstpriority lien on all of the Loan Parties’ unencumbered assets, a priming firstpriority lien on all assets of the Loan Parties securing their pre-petitionbank debt and a junior lien on all other assets of the Loan Parties. Theapplicable margin on loans extended under the Third Extended DIP Facility wasreduced (when compared to the Second Extended DIP Facility) to 1.00% per annumin the case of alternate base rate loans and 2.00% per annum in the case ofadjusted London interbank offered rate

21

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

(“LIBOR”) loans, and the commitment fee with respectto the unused portion of the Tranche A Loan was 0.50% per annum (which is thesame fee that was charged under the Second Extended DIP Facility).

In connection with the completion of the SaleTransaction, on the Closing Date, the Loan Parties terminated the ThirdExtended DIP Facility. In connection with the termination of the Third ExtendedDIP Facility, the Loan Parties repaid all loans outstanding under the ThirdExtended DIP Facility and all accrued and unpaid interest thereon, with suchpayments totaling approximately $986,000,000. In addition, in connection withthe termination of the Third Extended DIP Facility the Loan Parties paid allaccrued and unpaid fees of the lenders under the Third Extended DIP Facility. Inconnection with these payments, the collateral agent under the Third ExtendedDIP Facility released any and all liens and security interests on the assetsthat collateralized the obligations under the Third Extended DIP Facility.

*(b)  Parent Debt*

All debt of Adelphia is structurally subordinated tothe debt of its subsidiaries such that the assets of an indebted subsidiary areused to satisfy the applicable subsidiary debt before being applied to thepayment of parent debt.

*(c)  Convertible Subordinated Notes*

The convertible subordinated notesinclude $1,029,876,000 aggregate principal amount of 6% convertiblesubordinated notes and $975,000,000 aggregate principal amount of 3.25%convertible subordinated notes. Prior to the Forfeiture Order, the Other RigasEntities purportedly held $167,376,000 aggregate principal amount of the 6%notes and $400,000,000 aggregate principal amount of the 3.25% notes. The termsof the 6% notes and 3.25% notes provide for the conversion of such notes intoClass A Common Stock (Class B Common Stock in the case of notes held bythe Other Rigas Entities) at the option of the holder any time prior to maturityat an initial conversion price of $55.49 per share and $43.76 per share,respectively.

The transfer of all right, title and interestpreviously held by the Rigas Family and by the Rigas Family Entities in any ofthe Company’s securities, including the 6% notes and the 3.25% notes, infurtherance of the Non-Prosecution Agreement is expected to occur in accordancewith separate, subsequent court documentation. The Company will recognize thebenefits of such conveyance when it occurs. For additional information, seeNote 8.

*(d)  Notes Payable to Banks*

The Company paid $1,608,567,000 of pre-petition debtobligations to certain banks in the third quarter of 2006 in accordance withthe JV Plan. At September 30, 2006, pre-petition debt obligations of $14,433,000related to the JV Debtors had not yet been paid out under the JV Plan. Suchamounts were reclassified to other liabilities in the accompanying unauditedconsolidated statement of net liabilities in liquidation.

*(e)  Co-Borrowing Facilities*

The co-borrowing facilities represent the aggregateamount outstanding pursuant to three separate co-borrowing facilities dated May6, 1999, April 14, 2000 and September 28, 2001 (the “Co-Borrowing Facilities”).Each co-borrower is jointly and severally liable for the entire amount of theindebtedness under the applicable Co-Borrowing Facility regardless of whetherthat co-borrower actually borrowed that amount under such Co-BorrowingFacility. All amounts outstanding under Co-Borrowing Facilities representpre-petition liabilities that have been classified as liabilities subject tocompromise in the accompanying unaudited consolidated statement of netliabilities in liquidation at September 30, 2006 and the accompanying condensedconsolidated balance sheet at December 31, 2005.

*(f)  Deferred Financing Fees*

In connection with the confirmation of the JV Plan,deferred financing fees of $9,958,000 related to the JV Debtors were removedfrom liabilities subject to compromise.

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

*Other Debt Matters*

Due to the commencement of the Chapter 11 proceedingsand the Company’s failure to comply with certain financial covenants, theCompany is in default on substantially all of its pre-petition debtobligations. Except as otherwise may be determined by the Bankruptcy Court, theautomatic stay protection afforded by the Chapter 11 proceedings prevents anyaction from being taken against any of the Debtors with regard to any of thedefaults under the pre-petition debt obligations. For additional information,see Note 2.

On September 22, 2006, certain holders of ACC SeniorNotes filed a motion seeking, among other things, authorization to have the Debtorsimmediately repay all of the Debtors’ outstanding bank facilities, includingthe Co-Borrowing Facilities. The Bankruptcy Court held a conference on themotion on September 26, 2006. A hearing on the motion has not been scheduledyet.

*Interest Rate DerivativeAgreements*

At the Petition Date, all of the Company’s derivativefinancial instruments had been settled or have since been settled except forone fixed rate swap, one variable rate swap and one interest rate collar. Asthe settlement of the remaining derivative financial instruments will bedetermined by the Bankruptcy Court, the $3,486,000 fair value of the liabilityassociated with the derivative financial instruments at the Petition Date hasbeen classified as a liability subject to compromise in the accompanyingunaudited consolidated statement of net liabilities in liquidation and thecondensed consolidated balance sheet.

**Note 6:  Segments**

As a result of the Sale Transaction, the Company nolonger has any continuing operations. Prior to the Sale Transaction, theCompany identified reportable segments as those consolidated segments thatrepresent 10% or more of the combined revenue, net earnings or loss, or totalassets of all of the Company’s operating segments as of and for the periodended on the most recent balance sheet date presented. Operating segments thatdid not meet this threshold were aggregated for segment reporting purposeswithin the “corporate and other” column. Prior to the Sale Transaction, theCompany’s only reportable operating segment was its “cable” segment. The cablesegment included the Company’s cable system operations (including consolidatedsubsidiaries, equity method investments and variable interest entities) thatprovided the distribution of analog and digital video programming andhigh-speed Internet (“HSI”) services to customers, for a monthly fee, through anetwork of fiber optic and coaxial cables. This segment also included theCompany’s media services (advertising sales) business. The reportable cablesegment included five operating regions that have been combined as onereportable segment because all of such regions had similar economiccharacteristics.

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

Selected financialinformation concerning the Company’s operating segments under the going concernbasis prior to August 1, 2006 is presented below for the indicated periods(amounts in thousands):
| ** **                                       | ** ** | **Cable** | ** ** | **Corporate  and other** | ** ** | **Eliminations** | ** ** | **Total** | ** ** |
|--------------------------------------------------|------------|-----------|------------|-------------------------------|------------|------------------|------------|-----------|------------|
| Operating and Capital  Expenditure Data:         |       |      |       |                          |       |             |       |      |       |
| Month ended July 31,  2006                       |       |      |       |                          |       |             |       |      |       |
| Revenue                                          |       | $         | 396,532    |                          | $          | 906              |       | $         | —     |   | $ | 397,438 |   |
| Operating income  (loss)                         |       | 57,823    |       | (26,042                       | )          | —           |       | 31,781    |       |
| Capital  expenditures for property and equipment |       | 44,460    |       | 814                           |       | —           |       | 45,274    |       |
| Three months ended  September 30, 2005           |       |      |       |                          |       |             |       |      |       |
| Revenue                                          |       | $         | 1,086,684  |                          | $          | 1,884            |       | $         | —     |   | $ | 1,088,568 |   |
| Operating income  (loss)                         |       | 67,635    |       | (14,342                       | )          | —           |       | 53,293    |       |
| Capital  expenditures for property and equipment |       | 183,747   |       | 11,374                        |       | —           |       | 195,121   |       |
| Seven months ended July  31, 2006                |       |      |       |                          |       |             |       |      |       |
| Revenue                                          |       | $         | 2,741,467  |                          | $          | 3,972            |       | $         | —     |   | $ | 2,745,439 |   |
| Operating income  (loss)                         |       | 383,392   |       | (50,648                       | )          | —           |       | 332,744   |       |
| Capital  expenditures for property and equipment |       | 324,728   |       | 5,167                         |       | —           |       | 329,895   |       |
| Nine months ended September  30, 2005            |       |      |       |                          |       |             |       |      |       |
| Revenue                                          |       | $         | 3,248,627  |                          | $          | 12,166           |       | $         | —     |   | $ | 3,260,793 |   |
| Operating income  (loss)                         |       | 251,078   |       | (51,668                       | )          | —           |       | 199,410   |       |
| Capital  expenditures for property and equipment |       | 510,538   |       | 22,774                        |       | —           |       | 533,312   |       |
| Balance Sheet  Information:                      |       |      |       |                          |       |             |       |      |       |
| Total assets as of  December 31, 2005            |       | $         | 12,562,225 |                          | $          | 3,309,331        |       | $         | (2,997,546 | ) | $ | 12,874,010 |   |

 

The Company did not derive more than 10% of itsrevenue from any one customer during the month and seven months ended July 31,2006 or the three and nine months ended September 30, 2005. The Company’slong-lived assets related to its foreign operations were $6,517,000 as ofDecember 31, 2005. The Company’s revenue related to its foreign operationswas $1,772,000 during the month ended July 31, 2006; $4,706,000 during thethree months ended September 30, 2005; $13,245,000 during the seven monthsended July 31, 2006; and $13,362,000 during the nine months ended September 30,2005. The Company’s assets and revenue related to its foreign operations werenot significant to the Company’s financial position or results of operations,respectively, during any of the periods presented.

**Note 7:  Comprehensive Income (Loss)**

The Company’scomprehensive income (loss), net of tax, under the going concern basis prior toAugust 1, 2006 is presented below for the indicated periods (amounts inthousands):
| ** **                                  | ** ** | **Month ended  July 31,  2006** | ** ** | **Three months  ended  September 30,  2005** | ** ** | **Seven months  ended July 31,  2006** | ** ** | **Nine months  ended   September 30,  2005** | ** ** |
|---------------------------------------------|------------|-------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| Net income (loss)                           |       | $                                         | 5,889,804  |                                                   | $          | (146,558                                              | )          | $                                                           | 5,706,892  |   | $ | 61,738 |   |
| Other comprehensive  income (loss):         |       |                                      |       |                                                   |       |                                                  |       |                                                        |       |
| Foreign currency  translation adjustments   |       | —                                    |       | 1,212                                                  |       | (2,155                                                | )          | (6,421                                                      | )          |
| Unrealized gains  on securities, net of tax |       | —                                    |       | (14                                                    | )          | 18                                                    |       | 784                                                         |       |
| Other  comprehensive loss, net of tax       |       | —                                    |       | 1,198                                                  |       | (2,137                                                | )          | (5,637                                                      | )          |
| Comprehensive income (loss), net            |       | $                                         | 5,889,804  |                                                   | $          | (145,360                                              | )          | $                                                           | 5,704,755  |   | $ | 56,101 |   |

 

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

**Note 8:  Contingencies**

*Letters of Credit*

At September 30, 2006, the aggregate principal amountof letters of credit issued by the Company was $18,611,000 and these letters ofcredit are collateralized by cash of $20,532,000.

*Litigation Matters*

*General.*   TheCompany follows Statement of Financial Accounting Standards (“SFAS”) No. 5, *Accounting for Contingencies*, in determining its accrualsand disclosures with respect to loss contingencies. Accordingly, estimatedlosses from loss contingencies have been reflected as a charge to income forperiods prior to August 1, 2006 and as a change to net liabilities inliquidation for periods subsequent to July 31, 2006 when information availableindicates that it is probable that an asset had been impaired or a liabilityhad been incurred and the amount of the loss can be reasonably estimated. If aloss contingency is not probable or reasonably estimable, disclosure of theloss contingency is made in the financial statements when it is reasonablypossible that a material loss may be incurred.

*SECCivil Action and the United States Department of Justice Investigation.**  *OnJuly 24, 2002, the SEC Civil Action was filed against Adelphia, certain members of the Rigas Family andothers, alleging various securities fraud and improper books and records claimsarising out of actions allegedly taken or directed by certain members of theRigas Family who held all of the senior executive positions at Adelphia andconstituted five of the nine members of Adelphia’s board of directors (none ofwhom remain with the Company).

On December3, 2003, the SEC filed a proof of claim in the Chapter 11 Cases againstAdelphia for, among other things, penalties, disgorgement and prejudgmentinterest in an unspecified amount. The staff of the SEC told the Company’sadvisors that its asserted claims for disgorgement and civil penalties undervarious legal theories could amount to billions of dollars. On July 14, 2004,the Creditors’ Committee initiated an adversary proceeding seeking, in effect,to subordinate the SEC’s claims based on the SEC Civil Action.

On April25, 2005, after extensive negotiations with the SEC and the U.S. Attorney, theCompany entered into the Non-Prosecution Agreement pursuant to which theCompany agreed, among other things: (i) to contribute $715,000,000 invalue to a fund to be established and administered by the United StatesAttorney General and the SEC for the benefit of investors harmed by theactivities of prior management (the “Restitution Fund”); (ii) to continueto cooperate with the U.S. Attorney until the later of April 25, 2007, or thedate upon which all prosecutions arising out of the conduct described in theRigas Criminal Action (as described below) and SEC Civil Action are final; and(iii) not to assert claims against the Rigas Family except for JohnJ. 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 aviolation of Title 47, U.S. Code, Section 220(e) for making a false entry in aCompany record (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.

As a resultof the Sale Transaction, the Company’s contribution to the Restitution Fundwill consist of $600,000,000 in cash and shares of TWC Class A Common Stock(with at least $200,000,000 in cash) and 50% of the first $230,000,000 offuture proceeds, if any, from certain litigation against certain third parties.Unless extended on consent of the U.S. Attorney and the SEC, which consent maynot be unreasonably withheld, and subject to the satisfaction of certainconditions not yet satisfied by the government, the Company must make thesepayments on or before the earlier of: (i) October 15, 2006; (ii) 120days after confirmation of a stand-alone plan of reorganization; or(iii) seven days after the first distribution of stock or cash tocreditors under any plan of reorganization (the SEC on behalf of itself and theU.S. Attorney has informed the Company that such distribution under the JV Plandoes not create an obligation to make the restitution payment). The Companyrecorded charges of $425,000,000 and $175,000,000 during 2004 and 2002,respectively, related to the Non-Prosecution Agreement.

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

The U.S. Attorneyagreed: (i) not to prosecute Adelphia or specified subsidiaries ofAdelphia for any conduct (other than criminal tax violations) related to theRigas Criminal Action (defined below) or the allegations contained in the SECCivil Action; (ii) not to use information obtained through the Company’scooperation with the U.S. Attorney to criminally prosecute the Company for taxviolations; and (iii) to transfer to the Company all of the ForfeitedEntities, certain specified real estate and other property forfeited by theRigas Family and by the Rigas Family Entities and any securities of the Companythat were directly or indirectly owned by the Rigas Family and by the RigasFamily Entities prior to forfeiture.  The U.S. Attorney agreed with theRigas Family not to require forfeiture of Coudersport and Bucktail (whichtogether served approximately 5,000 subscribers (unaudited) as of the date ofthe Forfeiture Order).  A condition precedent to the Company’s obligationto make the contribution to the Restitution Fund described in the precedingparagraph is the Company’s receipt of title to the Forfeited Entities, certainspecified real estate and other property and any securities described aboveforfeited by the Rigas Family and by the Rigas Family Entities, free and clearof all liens, claims, encumbrances or adverse interests.  The ForfeitedEntities transferred to the Company pursuant to the RME Forfeiture Ordersrepresent the overwhelming majority of the Rigas Co-Borrowing Entities’subscribers and value.

Also on April 25, 2005, the Company consented to the entryof a final judgment in the SEC Civil Action resolving the SEC’s claims againstthe Company.  Pursuant to this agreement,the Company will be permanently enjoined from violating various provisions ofthe federal securities 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 letter agreements, each of TW NYand Comcast have agreed that following the closing of the Sale Transaction theywill cooperate with the relevant governmental authorities’ requests forinformation about the Company’s operations, finances and corporate governancebetween 1997 and confirmation of the Debtors’ plan of reorganization.  The sole and exclusive remedy against TW NYor Comcast for breach of any obligation in the letter agreements is a civilaction for breach of contract seeking specific performance of suchobligations.  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 the Company in the SEC Civil Action.

TheNon-Prosecution Agreement was subject to the approval of, and has been approvedby, the Bankruptcy Court.  Adelphia’s consent to the final judgment in theSEC Civil Action was subject to the approval of, and has been approved by, boththe Bankruptcy Court and the District Court. Various parties have challenged and sought appellate review or reconsiderationof the order of the Bankruptcy Court approving these settlements.  The District Court affirmedthe Bankruptcy Court’s approval of the Non-Prosecution Agreement, Adelphia’sconsent to the final judgment in the SEC Civil Action and the Adelphia-RigasSettlement Agreement (defined below).  OnMarch 24, 2006, various parties appealed the District Court’s order affirmingthe Bankruptcy Court’s approval to the United States Court of Appeals for theSecond Circuit (the “Second Circuit”). Adelphia has moved to dismiss that appeal on the grounds that it ismoot, amounts to an impermissible collateral attack on the 363 Approval Orderand is barred by res judicata.  Theappeal from the District Court’s order affirming the Bankruptcy Court’sapproval and Adelphia’s motion to dismiss that appeal are pending before theSecond Circuit.  The order of theDistrict Court approving Adelphia’s consent to the final judgment in the SECCivil Action has not been appealed.  The appeals of the District Court’sapproval of the Government-Rigas Settlement Agreement (defined below) and thecreation of the Restitution Fund have been denied by the Second Circuit.

*Adelphia’sLawsuit Against the Rigas Family.* On July 24, 2002, Adelphia filed a complaintin 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 generallyalleged the defendants misappropriated billions of dollars from the Company inbreach of their fiduciary duties to Adelphia. On November 15, 2002, Adelphia filed an amended complaint against thedefendants that expanded upon the facts alleged in the original complaint andalleged violations of the Racketeering Influenced and Corrupt Organizations (“RICO”)Act, breach of fiduciary duty, securities fraud, fraudulent concealment,fraudulent misrepresentation, conversion, waste of corporate assets, breach ofcontract, unjust enrichment, fraudulent conveyance, constructive trust,inducing breach of fiduciary duty, and a request for an accounting (the “AmendedComplaint”).  The

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

AmendedComplaint sought relief in the form of, among other things, treble and punitivedamages, disgorgement of monies and securities obtained as a consequence of theRigas Family’s improper 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 Venture (“Century/MLCable”); and (v) within ten business days of the date on which the consentorder of forfeiture is entered, dismiss the Rigas Civil Action, except forclaims against the Excluded Parties.  The Rigas Family agreed: (i) tomake certain tax elections, under certain circumstances, with respect to theForfeited Entities; (ii) to pay Adelphia five percent of the grossoperating 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) than theirterms of employment with the Company.

Pursuant to the Adelphia-Rigas Settlement Agreement, onJune 21, 2005, the Company filed a dismissal with prejudice of all claims inthis action except against the Excluded Parties.

This settlement was subject to the approval of, andhas been approved by, the Bankruptcy Court. Various parties have challenged and sought appellate review orreconsideration of the order of the Bankruptcy Court approving this settlement.  The appeals of the Bankruptcy Court’sapproval remain pending.

*RigasCriminal Action. *Inconnection with an investigation conducted by the U. S. Department of Justice(the “DoJ”), on July 24, 2002, certain members of the Rigas Family and certainalleged co-conspirators were arrested, and on September 23, 2002, were indictedby a grand jury on charges including fraud, securities fraud, bank fraud andconspiracy to commit fraud (the “Rigas Criminal Action”).  On November 14, 2002, one of the Rigas Family’salleged co-conspirators, James Brown, pleaded guilty to one count each ofconspiracy, securities fraud and bank fraud. On January 10, 2003, another of the Rigas Family’s alleged co-conspirators,Timothy Werth, who had not been arrested with the others on July 24, 2002,pleaded guilty to one count each of securities fraud, conspiracy to commitsecurities fraud, wire fraud and bank fraud. The trial in the Rigas Criminal Action began on February 23, 2004 in theDistrict Court.  On July 8, 2004, thejury returned a partial verdict in the Rigas Criminal Action.  John J. Rigas and Timothy J. Rigas were eachfound guilty of conspiracy (one count), bank fraud (two counts), and securitiesfraud (15 counts) and not guilty of wire fraud (five counts).  Michael J. Mulcahey was acquitted of all 23counts against him.  The jury foundMichael J. Rigas not guilty of conspiracy and wire fraud, but remainedundecided on the securities fraud and bank fraud charges against him.  On July 9, 2004, the court declared amistrial on the remaining charges against Michael J. Rigas after the jurorswere unable to reach a verdict as to those charges.  The bank fraud charges against Michael J.Rigas have since been dismissed with prejudice. On March 17, 2005, the District Court denied the motion of John J. Rigasand Timothy J. Rigas for a new trial.  OnJune 20, 2005, John J. Rigas and Timothy J. Rigas were convicted and sentencedto 15 years and 20 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 November23, 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 (a form required to befiled with the SEC), and on March 3, 2006, was sentenced to two years ofprobation, including ten months of home confinement.

The indictmentagainst the Rigas Family included a request for entry of a money judgment in anamount exceeding $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 anapplication for a preliminary order of forfeiture finding John J. Rigas andTimothy J. Rigas jointly and severally liable for personal money judgments inthe amount of $2,533,000,000.

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

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 Forfeited Entities; (ii) certainspecified real estate and other property; and (iii) all securities in theCompany directly or indirectly owned by the Rigas Family.  The U.S. Attorney agreed: (i) not to seekadditional monetary penalties from the Rigas Family, including the request fora money judgment 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 agreement atthe 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 Forfeited Entities, certain specified real estate andother property and any securities of the Company were forfeited to the UnitedStates.  On August 19, 2005, the Companyfiled a petition with the District Court seeking an order transferring title tothese assets and securities to the Company.  Since that time, petitionshave been filed by three lending banks, each asserting an interest in theForfeited Entities for the purpose, according to the petitions, of protectingagainst the contingency that the Bankruptcy Court approval of certainsettlement agreements is overturned on appeal. In addition, petitions have been filed by two local franchisingauthorities with respect to two of the Forfeited Entities, by two mechanic’slienholders with respect to two of the forfeited real properties and by aschool district with respect to one of the forfeited real properties.  The Company’s petition also asserted claimsto the forfeited properties on behalf of several entities (Century/ML Cable,Super Cable ALK International, A.A. (Venezuela), Century-TCI California, L.P.,Century-TCI California Communications, L.P., Century-TCI Holdings, LLC,Parnassos, L.P., Parnassos Communications, L.P., Parnassos Holdings, LLC,Western NY Cablevision, L.P., Adlink Cable Advertising, LLC, and South FloridaCable Advertising) in which the Company no longer holds an interest.  Pursuant to the RME Forfeiture Orders, onMarch 29, 2006, all right, title and interest in the Forfeited Entities held bythe Rigas Family and by the Rigas Family Entities prior to the Forfeiture Orderwere transferred to certain subsidiaries of the Company free and clear of allliens, claims, encumbrances and adverse interests in accordance with the RMEForfeiture Orders, subject to certain limitations set forth in the RME ForfeitureOrders.  On July 28, 2006, the DistrictCourt entered the Real Property Forfeiture Orders pursuant to which all right,title and interest previously held by the Rigas Family and the Rigas FamilyEntities in certain specified real estate and other property were transferredto certain subsidiaries of the Company free and clear of all liens, claims,encumbrances and adverse interests in accordance with the Real PropertyForfeiture Orders, subject to certain limitations set forth in the RealProperty Forfeiture Orders.  The transferin furtherance of the Non-Prosecution Agreement of all right, title andinterest previously held by the Rigas Family and by the Rigas Family Entitiesin certain other property and in any of the Company’s securities is expected tooccur in accordance with separate, subsequent court documentation.  The government has requested that its nextstatus report to the District Court regarding the forfeiture proceedings besubmitted on November 17, 2006.

The Company wasnot a defendant in the Rigas Criminal Action, but was under investigation bythe DoJ regarding matters related to alleged wrongdoing by certain members ofthe Rigas Family.  Upon approval of theNon-Prosecution Agreement, Adelphia and specified subsidiaries are no longer subjectto criminal prosecution (other than for criminal tax violations) by the U.S.Attorney for any conduct related to the Rigas Criminal Action or theallegations contained in the SEC Civil Action, so long as the Company complieswith its obligations under the Non-Prosecution Agreement.

*Securitiesand Derivative Litigation*. Certain of the Debtors and certain former officers, directors andadvisors have been named as defendants in a number of lawsuits allegingviolations of federal and state securities laws and related claims.  These actions generally allege that thedefendants made materially misleading statements understating the Company’sliabilities and exaggerating the Company’s financial results in violation ofsecurities laws.

In particular,beginning on April 2, 2002, various groups of plaintiffs filed more than 30class action complaints, purportedly on behalf of certain of the Company’sshareholders and bondholders or classes thereof in federal court inPennsylvania.  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 andTexas.  Seven derivative suits were alsofiled in federal and state courts in Pennsylvania, and four derivative suitswere filed in state court in Delaware. On May 6, 2002, a notice and proposed order of dismissal withoutprejudice was filed by the plaintiff in one of these four Delaware derivativeactions.  The remaining three Delawarederivative actions were consolidated on May 22, 2002.  On February 10, 2004, the parties stipulatedand agreed to the dismissal of these consolidated actions with prejudice.

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

The complaints,which named as defendants the Company, certain former officers and directors ofthe Company and, in some cases, the Company’s former auditors, lawyers, as wellas financial 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 public filings.The majority of these actions assert claims under Sections 10(b) and 20(a) ofthe Securities Exchange Act of1934 and SEC Rule 10b-5.  Certainbondholder actions assert claims for violation of Section 11 and/or Section12(a) (2) of the Securities Act of 1933. 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 aconsolidated class action complaint. Motions to dismiss have been filed by various defendants.  Beginning in the spring of 2005, the court inthe MDL Proceedings granted in part various motions to dismiss relating to manyof the actions, while granting leave to replead some claims.  As a result of the filing of the Chapter 11Cases and the protections of the automatic stay, the Company is not named as adefendant in the amended complaint, but is a non-party.  The parties have continued to brief pleadingmotions, and no answer to the consolidated class action complaint, or the otheractions, has been filed.  On August 22,2006, the District Court granted summary judgment on some issues in favor ofplaintiff Los Angeles County Employees Retirement Association and against John J.Rigas and Timothy J. Rigas based upon their criminal convictions.

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 individualactions against the Company also seek damages of an unspecified amount.

On May 23, 2006,the lead plaintiffs, the named plaintiffs and the class reached a settlementwith Deloitte & Touche LLP (“Deloitte”). On June 7, 2006, the lead plaintiffs, the named plaintiffs and the classreached a settlement with the financial institutions.  The District Court entered an orderpreliminarily approving the settlements and set a hearing date of November 10,2006 to consider final approval of the settlements.  At the hearing, the District Court approvedthe class settlement with Deloitte and the financial institutions.

Pursuant toSection 362 of the Bankruptcy Code, all of the securities and derivative claimsthat were filed against the Company before the bankruptcy filings areautomatically stayed and not proceeding as to the Company.

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe Company’s net liabilities in liquidation.

*AcquisitionActions.*  After thealleged misconduct of certain members of the Rigas Family was publiclydisclosed, three actions were filed in May and June 2002 against the Company byformer shareholders of companies that the Company acquired, in whole or inpart, through stock transactions.  Theseactions allege that the Company improperly induced these former shareholders toenter into these stock transactions through misrepresentations and omissions,and the plaintiffs seek monetary damages and equitable relief through rescissionof the underlying acquisition transactions.

Two of theseproceedings have been filed with the American Arbitration Association allegingviolations of federal and state securities laws, breaches of representationsand warranties and fraud in the inducement. One of these proceedings seeks rescission, compensatory damages andpre-judgment relief, and the other seeks specific performance.  The third action alleges fraud and seeksrescission, damages and attorneys’ fees. This action was originally filed in a Colorado State Court, andsubsequently was removed by the Company to the United States District Court forthe District of Colorado.  The ColoradoState Court action was closed administratively on July 16, 2004, subject toreopening if and when the automatic bankruptcy stay is lifted or for other goodcause shown.  These actions have beenstayed pursuant to the automatic stay provisions of Section 362 of theBankruptcy Code.

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe Company’s net liabilities in liquidation.

*DibbernAdversary Proceeding.* On or about August 30, 2002, Gerald Dibbern, individually andpurportedly on behalf of a class of similarly situated subscribers nationwide,commenced an adversary proceeding in the Bankruptcy Court against Adelphiaasserting claims for violation of the Pennsylvania Consumer Protection Law,breach of contract, fraud, unjust enrichment, constructive trust, and anaccounting.  This complaint alleges thatAdelphia charged, and continues to charge, subscribers for cable set-top boxequipment, including set-top boxes and remote controls, that is unnecessary forsubscribers that receive only basic cable service and have cable-readytelevisions.  The complaint furtheralleges that Adelphia failed to adequately notify affected subscribers that theyno longer needed to rent this equipment. The complaint seeks a number of remedies including treble money damagesunder the Pennsylvania Consumer Protection Law, declaratory and injunctiverelief, imposition of a constructive trust on Adelphia’s assets, and punitivedamages, 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 BankruptcyCourt granted Adelphia’s motion to dismiss and dismissed the adversaryproceeding on May 3, 2005.  In theBankruptcy Court, Mr. Dibbern has also objected to the provisional disallowanceof his proofs of claim, which comprised a portion of the Bankruptcy Court’s May3, 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 the dismissal of Mr. Dibbern’s claims for violationof the Pennsylvania Consumer Protection Law, a constructive trust and anaccounting, but reversed the dismissal of Mr. Dibbern’s breach of contract,fraud and unjust enrichment claims. These three claims will proceed in the Bankruptcy Court.  Adelphia filed its answer on October 14, 2005and discovery commenced.  On March 15,2006, the Debtors moved the Bankruptcy Court for an order staying discovery inseveral adversary proceedings, including the Dibbern adversary proceeding.  On March 16, 2006, the Bankruptcy Courtgranted the order staying discovery in the Dibbern adversary proceeding.

On January 9,2006, the Debtors filed a Notice of Estimation of Disputed Claims seeking toplace a maximum allowed amount of $500,000 on the claims filed by Dibbern.  On January 17, 2006, the Debtors filed theirtenth omnibus claims objection to certain claims, including claims filed byDibbern totaling more than $7.9 billion (including duplicative claims).  Through the objections, the Debtors sought todisallow and expunge each of the Dibbern claims.  On February 7, 2006, Dibbern filed anobjection to the Notice of Estimation of Disputed Claims.  On February 23, 2006, Dibbern responded tothe Debtors’ objections and requested that the Bankruptcy Court require theDebtors to establish additional reserves for Dibbern’s claims or to reclassifythe claims as claims against the operating companies.  On April 21, 2006, the Debtors filed a motionestablishing supplemental procedures for estimating certain disputed claims,including Dibbern’s claims.  Dibbernobjected to the Debtors’ motion on April 27, 2006.  On May 4, 2006, the Bankruptcy Court enteredan order granting the motion establishing supplemental procedures forestimating certain disputed claims, and on May 9, 2006, the Debtors filed anestimation notice seeking to estimate the claims filed by Dibbern for purposesof plan feasibility and reserves only. The Debtors and Dibbern then entered into a stipulation and agreed orderon May 25, 2006 to cap Dibbern’s claims at $15,000,000 for purposes of planfeasibility and reserves only.  TheCompany has not recorded any loss contingencies associated with Dibbern’sclaims.  The Bankruptcy Court signed thestipulation and agreed order on July 19, 2006.

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe Company’s net liabilities in liquidation.

*Creditors’Committee Lawsuit Against Pre-Petition Banks.*  Pursuant to the Bankruptcy Court orderapproving the DIP Facility (the “Final DIP Order”), the Company made certainacknowledgments (the “Acknowledgments”) with respect to the extent of itsindebtedness under the pre-petition credit facilities, as well as the validityand extent of the liens and claims of the lenders under such facilities.  However, given the circumstances surroundingthe filing of the Chapter 11 Cases, the Final DIP Order preserved the Debtors’right to prosecute, among other things, avoidance actions and claims againstthe pre-petition lenders and to bring litigation against the pre-petitionlenders based on any wrongful conduct. The Final DIP Order also provided that any official committee appointedin the Chapter 11 Cases would have the right to request that it be grantedstanding by the Bankruptcy Court to challenge the Acknowledgments and to bringclaims belonging to the Company and its estates against the pre-petitionlenders.

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

Pursuant to astipulation dated July 2, 2003, among the Debtors, the Creditors’ Committee andthe Equity 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 suchaction.  This stipulation also preservesthe Company’s ability to compromise and settle the claims against thepre-petition lenders.  By motion datedJuly 6, 2003, the Creditors’ Committee moved for Bankruptcy Court approval ofthis stipulation and simultaneously filed a complaint (the “Bank Complaint”)against the agents and lenders under certain pre-petition credit facilities,and related entities, asserting, among other things, that these entities knewof, and participated in, the alleged improper actions by certain members of theRigas Family and Rigas Family Entities (the “Pre-petition Lender Litigation”).  The Debtors are nominal plaintiffs in thisaction.

The Bank Complaintcontains 52 claims for relief to redress the claimed wrongs and abusescommitted by the agents, lenders and other entities.  The Bank Complaint seeks to, among otherthings: (i) recover as fraudulent transfers the principal and interest paid bythe Company to the defendants; (ii) avoid as fraudulent obligations the Company’sobligations, if any, to repay the defendants; (iii) recover damages forbreaches of fiduciary duties to the Company and for aiding and abetting fraudand breaches of fiduciary duties by the Rigas Family; (iv) equitably disallow,subordinate or recharacterize each of the defendants’ claims in the Chapter 11Cases; (v) avoid and recover certain allegedly preferential transfers made tocertain defendants; and (vi) recover damages for violations of the Bank HoldingCompany Act.  Numerous motions seeking todefeat the Pre-petition Lender Litigation were filed by the defendants and theBankruptcy Court held a hearing on such issues. The Equity Committee filed a motion seeking authority to bring anintervenor complaint (the “Intervenor Complaint”) against the defendantsseeking to, among other things, assert additional contract claims against theinvestment banking affiliates of the agent banks and claims under the RICO Actagainst various defendants (the “Additional Claims”).

On October 3 andNovember 7, 2003, certain of the defendants filed both objections to approvalof the stipulation and motions to dismiss the bulk of the claims for reliefcontained in the Bank Complaint and the Intervenor Complaint.  The Bankruptcy Court heard oral argument onthese objections and motions on December 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.  The Bankruptcy Court also granted a separatemotion of the Equity Committee to file and prosecute the Additional Claims onbehalf of the Debtors.  The motions todismiss are still pending.  Subsequent toissuance of this decision, several defendants filed, among other things, motionsto transfer the Pre-petition Lender Litigation from the Bankruptcy Court to theDistrict Court.  By order dated February9, 2006, the Pre-petition Lender Litigation was transferred to the DistrictCourt, except with respect to the pending motions to dismiss.

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe Company’s net liabilities in liquidation.

*DevonMobile 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 wireless telephonebusinesses in several states.  DevonMobile had certain business and contractual relationships with the Company andwith former subsidiaries or divisions of the Company that were spun off asTelCove, Inc. in January 2002.

In late May 2002,the Company notified Devon G.P., Inc. (“Devon G.P.”), the general partner ofDevon Mobile, that it would likely terminate certain discretionary operationalfunding to Devon Mobile.  On August 19,2002, Devon Mobile and certain of its subsidiaries filed voluntary petitionsfor relief under Chapter 11 of the Bankruptcy Code with the United StatesBankruptcy Court for the District of Delaware (the “Devon Mobile BankruptcyCourt”).

On January 17,2003, the Company filed proofs of claim and interest against Devon Mobile andits subsidiaries for approximately $129,000,000 in debt and equity claims, aswell as an additional claim of approximately $35,000,000 relating to theCompany’s guarantee of certain Devon Mobile obligations (collectively, the “CompanyClaims”).  By order dated October 1,2003, the Devon Mobile Bankruptcy Court confirmed Devon Mobile’s First AmendedJoint Plan of Liquidation (the “Devon Plan”). The Devon Plan became effective on October 17, 2003, at which time theCompany’s limited partnership interest in Devon Mobile was extinguished.  Under the Devon Plan, the Devon Mobile

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

CommunicationsLiquidating Trust (the “Devon Liquidating Trust”) succeeded to all of therights of Devon Mobile, including prosecution of causes of action againstAdelphia.

On or aboutJanuary 8, 2004, the Devon Liquidating Trust filed proofs of claim in theChapter 11 Cases seeking, in the aggregate, approximately $100,000,000 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 DevonLiquidating Trust commenced an adversary proceeding in the Chapter 11 Cases(the “Devon Adversary Proceeding”) through the filing of a complaint (the “DevonComplaint”) which incorporates the Devon Claims.  On August 20, 2004, the Company filed ananswer 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 Company filed amotion for 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 and theDevon Adversary Proceeding, granted a recusal request made by counsel to DevonG.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 Motion for Leave and a subsequent motion forreconsideration.

On March 6, 2006,the Bankruptcy 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 Courtdenied in its entirety the summary judgment motion filed by the DevonLiquidating Trust.  Trial commenced on April 17, 2006.  On April 18,2006, the parties agreed on the record in the Bankruptcy Court to settle theirdisputes.  The Devon Liquidating Trust agreed to release all claims it hasagainst the Company, and the Company agreed to release all claims it hasagainst the Devon Liquidating Trust.  Neither party will pay any money tothe other party as a result of this settlement.

The Company andthe Devon Liquidating Trust have executed a settlement agreement memorializingthe terms of the settlement described above. The settlement agreement was noticed in the bankruptcy proceeding, withan objection deadline of August 31, 2006. As no objections to approval of the settlement agreement were received,the settlement agreement is deemed to have been approved by the BankruptcyCourt.

*NFHLPClaim.*  On January 13,2003, Niagara Frontier Hockey, L.P., a Delaware limited partnership owned bythe Rigas Family (“NFHLP”) and certain of its subsidiaries (the “NFHLP Debtors”)filed voluntary petitions to reorganize under Chapter 11 in the United StatesBankruptcy Court of the Western District of New York (the “NFHLP BankruptcyCourt”) seeking protection under the U. S. bankruptcy laws.  Certain of the NFHLP Debtors entered into anagreement dated March 13, 2003 for the sale of certain assets, including theBuffalo Sabres National Hockey League team, and the assumption of certainliabilities.  On October 3, 2003, theNFHLP Bankruptcy Court approved the NFHLP joint plan of liquidation.  The NFHLP Debtors filed a complaint, datedNovember 4, 2003, against, among others, Adelphia and the Creditors’ Committeeseeking to enforce certain prior stipulations and orders of the NFHLPBankruptcy Court against Adelphia and the Creditors’ Committee related to thewaiver of Adelphia’s right to participate in certain sale proceeds resultingfrom the sale of assets. Certain of the NFHLP Debtors’ pre-petition lenders,which are also defendants in the adversary proceeding, have filedcross-complaints against Adelphia and the Creditors’ Committee asking the NFHLPBankruptcy Court to enjoin Adelphia and the Creditors’ Committee fromprosecuting their claims against those pre-petition lenders.  Although proceedings as to the complaintitself have been suspended, the parties have continued to litigate the cross-complaints.  Discovery closed on November 1, 2005 andcross-motions for summary judgment were filed in January 2006 and have beenfully briefed.  Oral argument on themotions was held on September 19, 2006 and has been continued to November 28,2006.

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe Company’s net liabilities in liquidation.

*Adelphia’sLawsuit Against Deloitte.* On November 6, 2002, Adelphia sued Deloitte, Adelphia’s formerindependent auditors, in the Court of Common Pleas for PhiladelphiaCounty.  The lawsuit seeks damagesagainst Deloitte based on Deloitte’s alleged failure to conduct an audit incompliance with generally accepted auditing standards, and for providing anopinion that Adelphia’s financial statements conformed with GAAP when Deloitteallegedly knew

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

orshould have known that they did not conform. The complaint further alleges that Deloitte knew or should have known ofalleged misconduct and misappropriation by the Rigas Family, and other allegedacts of self-dealing, but failed to report these alleged misdeeds to the boardof directors of Adelphia (the “Board”) or others who could have and would havestopped the Rigas Family’s misconduct. 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 andvarious counterclaims in response to the complaint.  In its counterclaims, Deloitte assertedcauses of action against Adelphia for breach of contract, fraud, negligentmisrepresentation and contribution.  Alsoon September 15, 2003, Deloitte filed a related complaint naming as additionaldefendants John J. Rigas, Timothy J. Rigas, Michael J. Rigas, and James P.Rigas.  In this complaint, Deloittealleges causes of action for fraud, negligent misrepresentation andcontribution.  The Rigas defendants, inturn, have claimed a right to contribution and/or indemnity from Adelphia forany damages Deloitte may recover against the Rigas defendants.  On January 9, 2004, Adelphia answeredDeloitte’s counterclaims.  On September5, 2006, discovery was substantially completed and closed.  On September 11, 2006, the court signed anorder extending certain pretrial deadlines by approximately 30 days and statingthat the case will be ready for trial by February 2, 2007.

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe Company’s net liabilities in liquidation.

*ArahovaMotions*.  Substantialdisputes exist between creditors of the Debtors that principally affect therecoveries to the holders of certain notes due September 15, 2007, issued byFrontierVision Holdings, L.P. (an indirect subsidiary of Adelphia), thecreditors of Olympus Communications, L.P. (“Olympus”) and the creditors ofArahova and Adelphia (the “Inter-Creditor Dispute”).  On November 7, 2005, the *ad hoc*committee of Arahova noteholders (the “Arahova Noteholders’ Committee”) filedfour emergency motions for relief with the Bankruptcy Court seeking, amongother things, to: (i) appoint a trustee for Arahova and its subsidiaries(collectively, the “Arahova/Century Debtors”) who may not receive payment infull under the Debtors’ plan of reorganization or, alternatively, appointindependent officers and directors, with the assistance of separately retainedcounsel, to represent the Arahova/Century Debtors in connection with theInter-Creditor Dispute; (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) terminate the exclusive periods during which the Arahova/CenturyDebtors may file and solicit acceptances of a Chapter 11 plan ofreorganization and related disclosure statement (the previous three motions,the “Arahova Emergency Motions”); and (iv) authorize the ArahovaNoteholders’ Committee to file confidential supplements containing certaininformation.  The Bankruptcy Court held asealed hearing on the Arahova Emergency Motions on January 4, 5 and 6, 2006.

Pursuant to anorder dated January 26, 2006 (the “Arahova Order”), the Bankruptcy Court: (i)denied the motion to terminate the Arahova/Century Debtors’ exclusivity; (ii)denied the motion to appoint a trustee for the Arahova/Century Debtors, or,alternatively, to require the appointment of nonstatutory fiduciaries; and(iii) granted the motion for an order disqualifying WF&G from representingthe Arahova/Century Debtors and any of the other Debtors in the Inter-CreditorDispute.  Without finding that presentmanagement or WF&G have in any way acted inappropriately to date, theBankruptcy Court found that WF&G’s voluntary neutrality in such disputesshould be mandatory, except that the Bankruptcy Court stated that WF&Gcould continue to act as a facilitator privately to assist creditor groups thatare parties to the Inter-Creditor Dispute reach a settlement.  The Arahova Noteholders’ Committee appealedthe Arahova Order to the District Court, and on March 30, 2006, theDistrict Court affirmed the Arahova Order. On April 7, 2006, the Arahova Noteholders’ Committee appealed theArahova Order to the Second Circuit.  OnJuly 26, 2006, the Second Circuit entered a stipulation and order between theDebtors and the Arahova Noteholders’ Committee withdrawing the ArahovaNoteholders’ Committee’s appeal from active consideration.  The Arahova Noteholders’ Committee mayreactivate its appeal on or before January 19, 2007.

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe Company’s net liabilities in liquidation.

*Bank Fee Claims.*  Under the terms of Adelphia’s pre-petitioncredit facilities (the “Credit Facilities”), Adelphia was obligated toreimburse and/or indemnify its pre-petition lenders (the “Non-Agent Lenders”)and administrative agents (the “Administrative Agents”) for certain fees andexpenses incurred by such Non-Agent Lenders and Administrative

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

Agents.  Claims for such fees and expenses will beresolved in connection with the consummation of Adelphia’s plan ofreorganization, except as otherwise ordered by the Bankruptcy Court.  Pursuant to the Final DIP Order, Adelphia hasbeen making monthly payments of all fees and expenses payable to theAdministrative Agents under the Credit Facilities. The Company has recordedbank lender fees only to the extent it expects to pay such amounts during theChapter 11 proceedings.

On April 28, 2006,the Creditors’ Committee filed a motion (subsequently joined by the EquityCommittee) seeking to estimate the fees and expenses of the Non-Agent Lendersand the Administrative Agents, including all bank fees paid to theAdministrative Agents pursuant to the Final DIP Order, at $50 million (the “EstimationMotion”).  The Estimation Motion remainspending with respect to the four Credit Facilities not addressed in the JVPlan.

Under the terms ofthe JV Plan, Adelphia is required to pay all bank lender fee claims incurredprior to the effective date of the JV Plan for the two Credit Facilities of the JV Debtors. Pursuant to the JV Plan, afund of $10 million was created for the reimbursement and/or indemnification ofpost-effective date fees and expenses, which is the sole source of payment forsuch reimbursement and/or indemnification. The bank lenders have submitted claims purportedly for the pre-effectivedate bank fees described under the terms of the JV Plan.  Adelphia has submitted timely objections tosubstantially all of such fees based on, among other reasons, the feessubmitted pursuant to the JV Plan related to all fees incurred by such lenders,and did not allocate such fees among all six Credit Facilities. As the Companycannot estimate the amount of the pre-effective date bank fees for the JVDebtors, no accrual for such fees has been made in the accompanying financialstatements.

Under the terms ofthe Plan, if such plan becomes effective, Adelphia will be required to pay thepre-effective date Non-Agent Lender bank fees, subject to certain limitations.  Adelphia has estimated such fees to bebetween $50 million and $75 million.  Inaddition, the Plan proposes the creation of a fund for post-effective date bankfees of up to approximately $80 million. If the Plan is confirmed and becomes effective by its terms, theEstimation Motion also would be settled. The deadline by which creditors must vote to accept or reject the Planis November 27, 2006 (and November 20, 2006 for creditors voting throughintermediaries). The Company has not accrued for the aforementioned bank feesas, there can be no assurance as to whether or when the Plan will becomeeffective and there can be no assurance as to the outcome of the EstimationMotion.

*City ofMartinsville and Henry County, Virginia — Right of Purchase Claim.*  Pursuant to the asset purchase agreementbetween TW NY and Adelphia, the Company filed Federal Communications Commission(“FCC”) Form 394 franchise transfer requests with the City of Martinsville,Virginia (“Martinsville”) and County of Henry, Virginia (“Henry County”).  In response to the Company’s request forfranchise transfer approval, Martinsville asserted a right under its franchiseagreement with Multi-Channel T.V. Cable Company, an Adelphia subsidiary and aDebtor (“Multi-Channel T.V.”), to purchase the Adelphia systems serving itscommunity.  In addition, Henry Countyallegedly denied the Company’s request for franchise transfer approval within120 days of such request and thereafter purportedly assigned to Martinsvilleits purported right to purchase the Adelphia systems serving its communityunder its franchise agreement with Multi-Channel T.V.  As of June 30, 2006, the combined numberof Company subscribers in the two communities was approximately 16,000.

On April 26, 2006,Martinsville Cable, Inc. (“Martinsville Cable”) filed a complaint againstMulti-Channel T.V. with the Bankruptcy Court in the Chapter 11 Cases seeking,among other things, a declaration that the alleged purchase rights ofMartinsville and Henry County (which purportedly were assigned to Martinsville)are valid and enforceable.  The complaintalso seeks an order requiring Multi-Channel T.V. to specifically performpursuant to the terms of the franchise agreements to sell such systems toMartinsville Cable or, in the event the request for specific performance isdenied, judgment for all damages suffered by Martinsville Cable as a result ofMulti-Channel T.V.’s alleged material breach of the franchise agreements.  The complaint further seeks a permanentinjunction prohibiting Multi-Channel T.V. from transferring such systems to TWNY or any third party.  The Companybelieves that there are significant legal barriers to Martinsville enforcingits alleged purchase rights under the Bankruptcy Code, the Cable CommunicationsPolicy Act of 1984, as amended, and Virginia state law.

On June 14, 2006, Martinsville Cable filed a complaint against TWNY and TWC in Virginia state court seeking a declaratory judgmentthat the alleged purchase rights are enforceable and have been properly exercisedwith regard to a subsequent proposed sale of the Martinsville and Henry Countycable assets by TW NY to Comcast (the “Virginia Action”).  The complaintin the Virginia Action also requests an injunction prohibiting TW NY and TWCfrom transferring the Martinsville and Henry County cable assets to Comcast orany other third party, in the event that TW NY acquires the relevant cablesystems from Adelphia.  On June 26, 2006,the action was removed from Virginia state court to the United States District Courtfor the Western District of Virginia (the “Virginia District Court”).

 

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

On July 20, 2006,the Virginia District Court entered an agreed order in the Virginia Action (the“Agreed Order”) providing that Comcast Cable Communications Holdings, Inc. (“ComcastCable Communications”) and Comcast of Georgia, Inc. (“Comcast Georgia,”together with Comcast Cable Communications, “Comcast Cable”), each a subsidiaryof Comcast, will operate the cable systems in such communities from the ClosingDate until the resolution of the Virginia Action.  Pursuant to the Agreed Order, during suchinterim period, Comcast Cable is prohibited from selling any of the system assetsor making any physical, material, administrative or operational change thatwould tend to (i) degrade the quality of services to the subscribers,(ii) decrease income or (iii) diminish the material value of thesystem assets without the prior written consent of Martinsville Cable, Martinsvilleand Henry County.

On August 1, 2006,the Bankruptcy Court entered a stipulated order by the parties providing forthe interim management of the systems by Comcast Cable upon terms andconditions substantially similar to those in the Virginia District Court AgreedOrder.  The Company will continue to ownthe systems until a final resolution of Martinsville Cable’s Bankruptcy Courtcomplaint.

On August 24, 2006, in the Virginia Action, the Virginia District courtissued an order denying Martinsville Cable’s motion for summary judgment andgranting the motion for summary judgment filed by TW NY and Comcast.  The Virginia District Court ruled thatneither Martinsville Cable nor Martinsville is legally qualified to exercisethe purchase rights provided for in the applicable franchise agreements.  Martinsville Cable did not appeal thisdecision.

On September 19,2006, the Bankruptcy Court entered an order authorizing the assignment of theDebtors’ franchise agreements with Martinsville and Henry County, which wereassigned Cable Holdco Exchange III, LLC, an afiliate of TW NY.  Such order reserves the rights ofMartinsville and Henry County to assert that certain defaults under suchfranchise agreements have not been cured, which issue may be the subject offurther adjudication by the Bankruptcy Court.

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe Company’s net liabilities in liquidation.

*TheAmerica Channel Litigation.* On May 30, 2006, The America Channel, LLC (“TAC”), a Delaware limitedliability company organized to own and operate a television programmingnetwork, filed a lawsuit in the United States District Court for the Districtof Minnesota (the “Minnesota District Court”) against TWC, TW NY, Time Warnerand Comcast (together, the “Purchasers”), alleging that the Purchasers hadviolated sections 1 and 2 of the Sherman Antitrust Act and section 7 of theClayton Antitrust Act (the “TAC Action”).  TAC alleged that completion ofthe Sale Transaction by the Purchasers, as well as certain other transactions,would constitute further violations of the Sherman and Clayton AntitrustActs.  TAC, among other things, requested as relief an injunctionenjoining the Purchasers from consummating the Sale Transaction.

On June 1, 2006,the Debtors filed an adversary proceeding in the Bankruptcy Court seeking(i) a declaration that TAC and its attorneys (the “TAC Defendants”)impermissibly interfered with the Bankruptcy Court’s jurisdiction and mandate,(ii) a declaration that the TAC Defendants should have commenced the TACAction, if at all, in the Bankruptcy Court, (iii) a declaration that the TACAction violates the automatic stay embodied in 11 U.S.C. Section 362(a)(3), and(iv) a preliminary and permanent injunction enjoining the TAC Defendantsfrom interfering with the Bankruptcy Court’s jurisdiction over the Debtors’Chapter 11 Cases and the Sale Transaction by prosecuting the TAC Action in anycourt other than the Bankruptcy Court.

On June 2, 2006,the Bankruptcy Court issued a temporary restraining order that, among otherthings, prohibited the TAC Defendants from continuing any further proceedingsin the TAC Action.  Following the Bankruptcy Court’s issuance of thetemporary restraining order, also on June 2, 2006, the TAC Defendantsfiled, in the Minnesota District Court, a motion to vacate the Bankruptcy Court’sJune 2, 2006 order (the “Motion to Vacate”).  On June 5, 2006, on theDebtors’ motion, the Bankruptcy Court held the TAC Defendants in contempt forviolating the temporary restraining order by filing the Motion to Vacate. The contempt hearing has been continued so that the Bankruptcy Court maydetermine the scope of the TAC Defendants’ contempt, as well as what, if any,sanctions to impose.

On June 19, 2006,the Bankruptcy Court heard argument from the Debtors and the TAC Defendants onthe Debtors’ motion for a preliminary injunction.  The Debtors and the TACDefendants agreed that any preliminary injunction entered would be treated as apermanent injunction.  On June 26, 2006,the Bankruptcy Court entered a judgment declaring that the TAC Defendants’efforts to enjoin the Sale Transaction in the TAC Action violated the

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

automatic stay under 11 U.S.C. section362(a)(3).  Also on that date, theBankruptcy Court entered a permanent injunction (the “TAC Injunction”)enjoining the TAC Defendants from: (a) continuation of any further proceedingsin the TAC Action; (b) taking any other action, with the exception of anyaction taken in the Bankruptcy Court, to interfere with the Debtors’disposition of their assets; and (c) taking any other action, with theexception of any action taken in the Bankruptcy Court, to interfere with theBankruptcy Court’s jurisdiction over the Debtors’ chapter 11 cases.  The TAC Injunction does, however, permit theTAC Defendants to proceed with the TAC Action in the Minnesota District Court,or elsewhere, but only to the extent that the TAC Defendants seek no reliefother than: (a) damages; (b) an order requiring the Debtors and/or thePurchasers to carry TAC on their cable systems; and/or (c) post-SaleTransaction divestiture.

On June 26, 2006,the TAC Defendants filed a notice of appeal from the Bankruptcy Court’sjudgment and permanent injunction.  OnOctober 10, 2006, pursuant to a stipulation among the parties to the appeal,the District Court dismissed the TAC Defendants’ appeal with prejudice.  Dismissal of the TAC Defendants’ appeal didnot affect the Bankruptcy Court’s earlier finding that the TAC Defendants werein contempt, or the continued contempt hearing.

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe Company’s net liabilities in liquidation.

*TheCompany’s Claims Against Motorola, Inc.*  On June 22, 2006, the Debtors filed anadversary complaint (the “Complaint”) against Motorola, Inc. and certain of itssubsidiaries (collectively, “Motorola”), as well as three transferees of claimsfiled by Motorola (the “Claim Transferees”), in the Bankruptcy Court.  The Complaint seeks recovery on behalf of theDebtors’ estates on various affirmative claims against Motorola and,additionally, raises certain objections and defenses of the Debtors to claimsof approximately $66,000,000 (the “Motorola Claims”) asserted by Motorola inthe Debtors’ bankruptcy proceedings. Among other relief, the Complaint seeks damages from Motorola for aidingand abetting breaches of fiduciary duty by the Company’s former management inmanipulating the Company’s consolidated financial statements and performanceresults for the fiscal years 2000 and 2001. The Complaint also seeks avoidance and recovery of preferential andfraudulent transfers of more than $60,000,000 made to Motorola pursuant toSections 544, 547, 548 and 550 of the Bankruptcy Code and applicable statelaw.  The Complaint further seeksavoidance of purported (but unperfected) liens asserted by Motorola againstproperty of the Debtors pursuant to Section 544 of the Bankruptcy Code.  The Complaint also seeks disallowance of someor all of the Motorola Claims to the extent that the claims are improperlyasserted against subsidiaries of the Company rather than the Companyitself.  The Complaint further seeksequitable subordination under Bankruptcy Code Section 510(c) of the MotorolaClaims, including claims held by the Claim Transferees, to the extent, if any,that such claims are allowed.

On August 14,2006, Motorola filed its answer to the Complaint, denying all allegations ofwrongdoing on Motorola’s part and asserting various affirmative defenses.  On September 6, 2006, the Claim Transfereesalso answered the Complaint.  The partieshave made an initial exchange of documents and are proceeding with formulationof a discovery plan.  No trial date hasbeen set.

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe Company’s net liabilities in liquidation.

*RembrandtTechnologies Adversary Proceeding. *Onor about September 13, 2006, Rembrandt Technologies LP (“Rembrandt”) commencedan adversary proceeding in the Bankruptcy Court against Adelphia and certain ofits current and former subsidiaries and affiliates claiming that between thefiling of certain bankruptcy petitions for such entities and July 31, 2006,they infringed certain patents by providing high-speed cable modem Internetproducts and services to subscribers (the “Rembrandt Action”).  The complaint seeks a number of remediesincluding an award of damages for patent infringement, increased damages foralleged willful infringement and costs, attorneys’ fees and interest.  The complaint states that other affiliates ofAdelphia may also be liable for infringement of such patents and that Rembrandtintends to amend its complaint to add such other affiliates or, if appropriate,to dismiss defendants who are shown not to have engaged in any infringingactivity.  Also on September 13, 2006,Rembrandt filed proofs of administrative claim against the same entities thatare named in the Rembrandt Action, premised on the same allegations made in theRembrandt Action (the “Rembrandt Administrative Claim”), seeking, according tosuch claim, an amount not less than $130.3 million.  On September 20, 2006, Rembrandt’s counselsent a letter (the “September 20 Letter”) to Adelphia’s counsel requesting thatAdelphia establish a separate reserve in the amount of $130.3 million under thePlan to be used solely for purposes of satisfying the Rembrandt AdministrativeClaim to the extent that it is allowed as an

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

administrative expenseclaim. Adelphia has informed Rembrandt that the September 20 Letter andRembrandt’s court filings did not contain information that would permitAdelphia to conclude that the named debtors have any liability to Rembrandt,that any reserve is appropriate, or what the amount of any appropriate reserveshould be and requested additional information relating to the bases forRembrandt’s claims and requested reserve. In a letter dated October 27, 2006,counsel for Rembrandt advised Adelphia that the total amount of its claim was$131.5 million (as opposed to the $130.3 million figure specified when thecomplaint was filed).  On November 13,2006, Rembrandt's counsel submitted an expert damages report that revised the claimdownward to a figure between $92 million and $115 million.  If Adelphia and Rembrandt do not agree on orbefore November 29, 2006 on a value for the reserve that Rembrandt requests, anestimation hearing will be conducted on December 12, 2006.

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe Company’s net liabilities in liquidation.

*Series Eand F Preferred Stock Conversion Postponements.*  On October 29, 2004, Adelphia filed amotion to postpone the conversion of Adelphia’s 7.5% Series E MandatoryConvertible Preferred Stock (“Series E Preferred Stock”) into shares ofClass A Common Stock from November 15, 2004 to February 1, 2005,to the extent such conversion was not already stayed by the Debtors’ bankruptcyfiling, in order to protect the Debtors’ net operating loss carryovers.  On November 18, 2004, the BankruptcyCourt entered an order approving the postponement effective November 14,2004.

Adelphia hassubsequently entered into several stipulations further postponing, to theextent applicable, the conversion date of the Series E Preferred Stock.  Adelphia has also entered into severalstipulations postponing, to the extent applicable, the conversion date ofAdelphia’s 7.5% Series F Mandatory Convertible Preferred Stock, which wasinitially convertible into shares of Class A Common Stock on February 1, 2005.

**EPA Self Disclosure and Audit. **OnJune 2, 2004, the Company orally self-disclosed potential violations ofenvironmental laws to the United States Environmental Protection Agency (“EPA”),and notified EPA that it intended to conduct an audit of its operations toidentify and correct violations of certain environmental requirements. Thepotential violations primarily concern reporting and record keepingrequirements arising from the Company’s storage and use of petroleum andbatteries to provide backup power for its cable operations.  On July 6, 2006, the Company executed anagreement with EPA to settle EPA’s civil and administrative claims with respectto environmental violations that are identified by the Company, disclosed toEPA, and corrected in accordance with the agreement.  The agreement caps the Company’s totalliability for civil and administrative fines for such violations at $233,000subject to certain restrictions.  OnJuly 24, 2006, the Bankruptcy Court approved the agreement.  Pursuant to the agreement, on July 26, 2006,the Company submitted the results of its environmental self-audit to EPA.  On August 7, 2006, EPA proposed a finalsettlement agreement that would resolve the Company’s liability for civil andadministrative fines for the violations disclosed and corrected by the Companyin exchange for a payment of $143,000. The Company executed the settlementagreement on August 15, 2006 and made the required payment of $143,000 onAugust 17, 2006.  The Company will submita supplemental audit report to EPA upon completion of certain remainingcorrective actions described in the July 6, 2006 agreement with EPA.

Based on current facts,the Company does not anticipate that this matter will have a material adverseeffect on the Company’s net liabilities in liquidation.

*Other.*  The Company may be subject to various otherlegal proceedings and claims which arise in the ordinary course ofbusiness.  Management believes, based oninformation currently available, that the amount of ultimate liability, if any,with respect to any of these other actions will not materially affect theCompany’s net liabilities in liquidation.

## **Note 9:  Employee Benefit Plans**

Pursuant to their employment agreements, Adelphia’s Chief ExecutiveOfficer (the “CEO”), William T. Schleyer, and Chief Operating Officer (the “COO”),Ron Cooper, were eligible to receive equity awards of Adelphia stock upon theDebtors’ emergence from bankruptcy with a minimum aggregate fair value of$17,000,000, which could have been increased up to a maximum aggregate fairvalue of $25,500,000 at the discretion of the Board.

OnJune 9, 2006, the Debtors filed a motion (the “CEO/COO Motion”) with theBankruptcy Court seeking authority to amend the provisions of these employmentagreements with Mr. Schleyer and Mr. Cooper relating to Emergence Awards (a fixedamount Initial Equity Award of restricted shares and a discretionary EmergenceDate Special Award of restricted shares, each as defined in their respectiveemployment agreements).  OnAugust 8, 2006, the Bankruptcy Court authorized and approved the employmentagreement amendment relating to Mr. Cooper, which

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

authorized the Company to pay Mr. Cooper $6,800,000 in cash in lieu ofthe Initial Equity Award of restricted shares and, subject to the discretion ofthe Board, up to $3,400,000 in cash in lieu of the Emergence Date Special Awardof restricted shares.  In exchange forthe Emergence Awards, on August 14, 2006, Mr. Cooper executed a release of anyclaims for additional compensation other than such Emergence Awards.  On August 16, 2006, Mr. Cooper received acash payment from the Company of $6,800,000 in lieu of the Initial Equity Awardof restricted shares.  On August 17,2006, the Board approved the payment of $3,400,000 to Mr. Cooper in lieu of theEmergence Date Special Award of restricted shares, and such payment was made toMr. Cooper on August 17, 2006.  Mr.Cooper resigned his employment with the Company on August 17, 2006, and theCompany paid his severance pursuant to the terms of his employment agreement inthe amount of $5,100,000.

On September 1,2006, the Debtors filed a motion (the “Extended Post-Closing Incentive Motion”)requesting approval of (i) certain amendments to Mr. Schleyer’s employmentagreement, similar to those described in the CEO/COO Motion, (ii) theimplementation of an extended post-closing incentive program for the ExecutiveVice Presidents, and (iii) the implementation of an extended post-closingincentive program for certain of the Debtors’ other employees.  Thehearing on the Extended Post-Closing Incentive Motion was held on September 14,2006.

By order datedSeptember 21, 2006 (the “Extended Post-Closing Incentive Order”), theBankruptcy Court authorized and approved certain amendments to Mr. Schleyer’semployment  agreement (the “Amendment”)executed on January 17, 2003, as amended on February 21, 2003 and March 10,2003 (together with the Amendment, the “Amended Employment Agreement”),providing for certain cash payments in lieu of equity awards of restrictedstock to Mr. Schleyer, compensation during the post-close period and theimmediate payment of Mr. Schleyer’s severance in connection with theconsummation of the Sale Transaction pursuant to the terms of Mr. Schleyer’semployment agreement.  The Amendment established March 31, 2007 (the “SchleyerTermination Date”) as the date of termination of Mr. Schleyer’s employmentwith the Company, unless such employment is extended by mutual agreement orterminated prior to such date.  TheAmendment also provides that should the effective date of a plan ofreorganization for the Company or the date of commencement of liquidatingdistributions under chapter 7 of the Bankruptcy Code (the earlier of thetwo dates, “Emergence”) occur before the Schleyer Termination Date,Mr. Schleyer will immediately resign as Chief Executive Officer andChairman of the Board and continue as a consultant to the Company until theSchleyer Termination Date.  Pursuant tothe Amended Employment Agreement, after Emergence, the Company may terminateMr. Schleyer’s employment as a consultant prior to the SchleyerTermination Date upon 30 days’ prior written notice.

The Amendment alsoprovides that Mr. Schleyer shall be paid a bonus equal to 100% of his basesalary for the period from July 31, 2006 until the Schleyer Termination Date(the “Bonus”).  By the terms of the Amendment, Mr. Schleyer shall be paidbi-weekly an amount equal to his prorated base salary and the Bonus.

Pursuant to theAmendment, Mr. Schleyer received a cash payment from the Company of $10,200,000in connection with the consummation of the Sale Transaction in lieu of thegrant of restricted shares that were to be awarded upon the Company’s emergencefrom bankruptcy as originally contemplated in his employment agreement, asamended through March 2003 (“2003 Employment Agreement”).  The 2003Employment Agreement contemplated that Mr. Schleyer may be awarded adiscretionary bonus of up to $5,100,000 in stock of the reorganized Companypost-emergence (the “Discretionary Equity Award”).  The Amendment providesthat Mr. Schleyer is entitled to receive a cash payment from the Companyof $5,100,000 in lieu of such Discretionary Equity Award, which will be paidupon Emergence.

Pursuant to theAmendment, the Company has paid Mr. Schleyer a severance payment in anamount equal to three times the sum of his base salary and target bonus, or$7,650,000.

The ExtendedPost-Closing Incentive Order also authorized the Company to enter into andimplement an extended Executive Vice President post-closing incentive program(the “Extended EVP Post-Closing Incentive Program”) that provides incentivesfor Brad Sonnenberg, the Company’s Executive Vice President and GeneralCounsel, and Vanessa Wittman, the Company’s Executive Vice President and ChiefFinancial Officer (together, the “EVPs”), to remain employed by the Companyafter the period contemplated by the original post-closing incentiveprogram.  The Extended Post-Closing Incentive Order provides that the EVPswill participate in the Extended EVP Post-Closing Incentive Program andcontinue their employment with the Company from August 1, 2006 through December31, 2006 (the “Post-Close Period”).  If the Company is required to file aForm 10-K for the year ended December 31, 2006, at the

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**ADELPHIA COMMUNICATIONS CORPORATION ANDSUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

discretion of theCreditors’ Committee, the EVPs may continue to be employed by the Company fromJanuary 1, 2007 through March 31, 2007 (the “Extended Post-Close Period”).

The Extended EVPPost-Closing Incentive Program provides that EVPs employed during thePost-Close Period will receive a bonus (the “Post-Close Bonus”) equal to fivemonths of EVP Adjusted Base Salary (defined as base salary, short-termincentive plan award opportunities at target and performance retention planaward opportunities at target), and EVPs employed during the Extended Post-ClosePeriod will receive a bonus (the “Extended Post-Close Bonus”) equal to threemonths of EVP Adjusted Base Salary.  Pursuant to the Extended EVPPost-Closing Incentive Program, the Company or the administrator of the Debtors’plan of reorganization (the “Plan Administrator”) (as applicable) may terminateone or both EVPs prior to the end of the Post-Close Period (or the end of theExtended Post-Close Period, as applicable) only (i) for cause, (ii) upon mutualagreement between the EVP and the Company (“Mutual Termination”), or (c) as aresult of the EVP’s death or disability.  Following any termination of anEVP’s employment during the Post-Close Period or Extended Post-Close Period (asapplicable), each EVP will be entitled to receive his or her accrued but unpaidEVP Adjusted Base Salary and benefits through the date of termination. Following a Mutual Termination or termination for death or disability, an EVPwill be entitled to receive his or her aggregate Post-Close Bonus (and ExtendedPost-Close Bonus, as applicable).  In the event that the Company or PlanAdministrator seeks to terminate one or both EVPs without cause, and suchtermination is not a Mutual Termination, such EVP may be required to foregoproviding services to the Company, but will remain an employee of the Companyand will still be entitled to receive his or her EVP Adjusted Base Salary andbenefits through the Post-Close Period (or the Extended Post-Close Period, asapplicable).

Pursuant to theExtended EVP Post-Closing Incentive Program, if the Effective Date (defined asthe effective date of a plan of reorganization for substantially all of theDebtors) occurs prior to the end of the Post-Close Period (or the extendedPost-Close Period, as applicable), the EVPs may elect to voluntarily terminatetheir employment (an “Effective Date Termination”).  Upon an EffectiveDate Termination, if requested by the Creditors’ Committee in its solediscretion and appropriate notice is given, the EVPs have agreed to remainavailable to consult for the Company for three months following the EffectiveDate Termination.  If an Effective Date Termination occurs, the EVPs areentitled to receive the pro rata share of the Post-Close Bonus and/or ExtendedPost-Close Bonus, as applicable, that relates to the period between August 1,2006 and the date of the Effective Date Termination.  Pursuant to the EVPPost-Closing Incentive Program, if an EVP terminates his or her employment for “goodreason” (other than an Effective Date Termination), he or she will be paid hisor her aggregate Post-Close Bonus (and Extended Post-Close Bonus, asapplicable) and his or her aggregate EVP Adjusted Base Salary from suchtermination through the end of the Post-Close Period (and Extended Post-ClosePeriod, as applicable).  However, except in the event of an Effective DateTermination or termination for “good reason,” an EVP who voluntarily terminateshis or her employment prior to the end of either the Post-Close Period orExtended Post-Close Period, as applicable, will forfeit any unpaid bonusamounts.

The Extended EVPPost-Closing Incentive Program also provides that 50% of an EVP’s Post-CloseBonus will be paid on the date that is the earlier of (i) the end of thePost-Close Period and (ii) the effective date of a plan of reorganization forsubstantially all of the Debtors.  Theremaining 50% of each EVP’s Post-Close Bonus will be paid at the end of thePost-Close Period.  The Extended EVPPost-Closing Program further provides that 100% of an EVP’s Extended Post-CloseBonus (if applicable) will be paid at the end of the Extended Post-ClosePeriod.

The EVPs’ currentemployment agreements provide for the payment of severance upon a terminationby the Company without cause.  TheExtended EVP Post-Closing Incentive Program provides that the EVPs will beentitled to receive such severance payment upon approval of the implementationof such program, and such severance payments, in the amounts of $672,750 forMr. Sonnenberg and $1,242,000 for Ms. Wittman, have been made.

The ExtendedPost-Closing Incentive Order also authorized the Company to enter into andimplement an extended employee post-closing incentive program (the “ExtendedEmployee Post-Closing Incentive Program”) for approximately 45 senior managers(the “Key Managers”).  The Key Managers who are selected to participate inthe Extended Employee Post-Closing Incentive Program (the “Participants”)participate in such program in lieu of participation in the previously approvedpost-closing incentive program.  EachParticipant will be offered participation in the Extended Employee Post-ClosingIncentive Program for an assigned period of time (the “EKERP Period”). Theprogram provides that Participants will be entitled to receive a bonus (the “EKERPBonus”) equal to a percentage of their Adjusted Base Salary (defined as basesalary, short-term incentive plan award opportunities at target and, ifapplicable, performance retention plan award opportunities at target).  The bonus percentage and amount will increase

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

for longer periods ofemployment with the Company. Specifically, Participants assigned an EKERP Period from August 1, 2006through November 30, 2006 or earlier will receive a bonus equal to 50% of anamount equal to the aggregate Adjusted Base Salary for the period from August1, 2006 through the earlier of the end of the Participant’s EKERP Period orNovember 30, 2006.  Participants assignedan additional EKERP Period from December 1, 2006 through April 30, 2007 orearlier will receive a bonus equal to 75% of an amount equal to the aggregateAdjusted Base Salary for the period from December 1, 2006 through the earlierof the end of such EKERP Period or April 30, 2007.  Participants employed on or after May 1, 2007will receive a bonus equal to 100% of an amount equal to the aggregate AdjustedBase Salary for the period from May 1, 2007 until the end of their assignedEKERP Period.

Pursuant to theExtended Employee Post-Closing Incentive Program, 50% of a Participant’saggregate EKERP Bonus will be paid on the date that is the earlier of (i) theend of the Participant’s EKERP Period, (ii) the effective date of a plan ofreorganization for substantially all of the Debtors, and (iii) January 31,2007.  The remaining 50% of eachParticipant’s aggregate EKERP Bonus will be paid at the end of the Participant’sEKERP Period.  The Extended EmployeePost-Closing Incentive Program provides that Participants who are terminatedwithout cause prior to the end of their EKERP Period will be entitled toreceive their aggregate EKERP Bonus on their date of termination and theiraggregate Adjusted Base Salary through the end of their EKERP Period.  However, Participants who voluntarilyterminate their employment prior to the end of their EKERP Period will forfeitany unpaid EKERP Bonus amounts.

Under the ExtendedEmployee Post-Closing Incentive Program, Messrs. Schleyer and Sonnenbergand Ms. Wittman will be authorized to award incremental awards (each, a “DiscretionaryEKERP Award”) in addition to EKERP Bonuses to up to ten Company employees.  The Company has agreed to consult with theCreditors’ Committee prior to making any Discretionary EKERP Award greater than50% of the applicable employee’s proposed aggregate EKERP Bonus.  Each Discretionary EKERP Award is alsosubject to the approval of the Plan Administrator.

In connection with theSale Transaction, the Company accrued $43,488,000 of severance, including theabove described awards to the CEO, COO and EVPs at July 31, 2006.  At September 30, 2006, the Company had made$40,148,000 of such severance payments, leaving remaining accruals of$3,340,000.

## **Note 10:  Other FinancialInformation**

### *Cash and Cash Equivalents*

The Company’s cashand cash equivalents are maintained in U.S. financial institutions that areinsured by the Federal Deposit Insurance Corporation up to $100,000.  The Company has not experienced any losseswith respect to amounts maintained in excess of the insured amounts.

### *Short-term Investments*

Short-term investments are carried at fair market value.  Changes in the fair market value of theCompany’s investments are reflected in changes in fair values of assets andliabilities in the accompanying consolidated statement of changes in netliabilities in liquidation.

### *Supplemental Cash Flow Information*

The table belowsets forth the Company’s supplemental cash flow information under the goingconcern basis prior to August 1, 2006 (amounts in thousands):

|                         | ** ** | **Seven months   ended July 31,** | ** ** | **Nine months ended  September 30,** | ** ** |
|-------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **              | ** ** | **2006**                                              | ** ** | **2005**                                            | ** ** |
| Cash paid for  interest |       | $                                                     | 393,504    |                                                | $          | 454,369 |   |
| Capitalized interest    |       | $                                                     | (4,236     | )                                                   | $          | (7,781 | ) |

 

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

### *Preferred Stock*

Contractualdividends applicable to the Company’s preferred stock were $20,021,000 for thetwo months ended September 30, 2006.

### *Stock-Based Compensation*

In December 2004, theFASB issued SFAS No. 123-R, *Share-Based Payment*(“SFAS No. 123-R”), which is a revision of SFAS No. 123, *Accountingfor Stock-Based Compensation* (SFAS No. 123”), and supersedesAccounting Principles Board Opinion No. 25, *Accounting for StockIssued to Employees*, and related interpretations.  SFAS No.123-R requires all share-based payments to employees, including grants ofemployee stock options, to be valued at fair value on the date of grant, and tobe expensed over the employee’s requisite service period.  EffectiveJanuary 1, 2006, the Company adopted the provisions of SFAS No. 123-R using themodified prospective application method.  Under the modified prospectiveapplication method, the Company is required to recognize compensation cost forall stock option awards granted after January 1, 2006 and for all existingawards for which the requisite service had not been rendered as of the date ofadoption.

As of January 1, 2006,there were 23,250 fully vested options outstanding under the Company’s onlyshare based payment plan, the 1998 Long-Term Incentive Compensation Plan (the “1998Plan”).  No awards were issued since 2001 pursuant to the 1998 Plan andthe Company does not intend to grant any new awards pursuant to the 1998 Plan. As no share based awards were granted after January 1, 2006, the adoptionof SFAS No. 123-R did not have any impact on the Company’s financial position,results of operations or net liabilities in liquidation.

### *Recent Accounting Pronouncements*

In June 2005, theEmerging Issues Task Force (“EITF”) reached a consensus on Issue No. 04-5, *Determining Whether a General Partner, or the General Partners as aGroup, Controls a Limited Partnership or Similar Entity When the LimitedPartners Have Certain Rights*(“EITF 04-5”).  EITF 04-5 provides guidance in assessing whena general partner controls and consolidates its investment in a limitedpartnership or similar entity.  Thegeneral partner is assumed to control the limited partnership unless thelimited partners have substantive kick-out or participating rights.  The provisions of EITF 04-5 were required tobe applied beginning June 30, 2005 for partnerships formed or modifiedsubsequent to June 30, 2005 and were effective for general partners in allother limited partnerships beginning January 1, 2006.  EITF 04-5 had no impact on the Company’sfinancial position, results of operations or net liabilities in liquidation.

In July 2006,the FASB issued FASB Interpretation 48, *Accountingfor Income Tax Uncertainties*(“FIN 48”).  FIN 48 defines the threshold for recognizingthe benefits of tax return positions in the financial statements as “more-likely-than-not”to be sustained by the taxing authority. The recently issued literature also provides guidance on thederecognition, measurement and classification of income tax uncertainties,along with any related interest and penalties. FIN 48 also includes guidance concerning accounting for income taxuncertainties in interim periods and increases the level of disclosuresassociated with any recorded income tax uncertainties.  FIN 48 is effective for fiscal yearsbeginning after December 31, 2006. Management has not yet determined the impact, if any, of adopting theprovisions of FIN 48 on the Company’s net liabilities in liquidation.

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*(“SFAS No. 157”).  SFAS No. 157 definesfair value, establishes guidelines for measuring fair value in generallyaccepted accounting principles, and expands disclosures regarding fair valuemeasurements.  SFAS No. 157 does notrequire any new fair value measurements but rather eliminates inconsistenciesin guidance found in various prior accounting pronouncements.  SFAS No. 157 is effective for fiscal yearsbeginning after November 15, 2007. The Company is currently evaluating the impact of SFAS No. 157, but doesnot expect the adoption of SFAS No. 157 to have a material impact on theconsolidated financial statements.

In September 2006,the FASB issued SFAS No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Retirement Plans - an amendment of FASBStatements No. 87, 88, 106, and 132(R)* (“SFAS No. 158”).  SFAS No. 158 requires employers to recognizethe overfunded or underfunded status of a defined benefit post-retirement planas an asset or liability in its statement of financial position.  Further, this statement requires employers torecognize changes in

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

the funded status in theyear in which the changes occur through comprehensive income.  SFAS No. 158 is effective for the fiscal yearending after December 15, 2006.  TheCompany is currently evaluating the impact that SFAS No. 158, but does notexpect the adoption of SFAS No. 158 to have a material impact on theconsolidated financial statements.

In September 2006,the SEC Staff issued Staff Accounting Bulletin No. 108, *Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in the Current Year Financial Statements* (“SABNo. 108”).  SAB No. 108requires the use of two alternative approaches in quantitatively evaluatingmateriality of misstatements.  If themisstatement as quantified under either approach is material to the currentyear financial statements, the misstatement must be corrected.  In the year of adoption (fiscal years endingafter November 15, 2006 or calendar year 2006 for Adelphia), themisstatements may be corrected as an accounting change by adjusting openingretained earnings rather than being included in the current year statement ofoperations.  The Company is currentlyevaluating the requirements of SAB No. 108 and the impact it may have on theconsolidated financial statements.

### *Earnings (Loss) Per Common Share (“EPS”)*

Prior to theadoption of a liquidation basis of accounting, the Company used the two-classmethod for computing basic and diluted EPS. Basic and diluted EPS for the Class A Common Stock and the Class BCommon Stock was computed by allocating the income applicable to commonstockholders to Class A common stockholders and Class B common stockholders asif all of the earnings for the period had been distributed.  This allocation, and the calculation of thebasic and diluted net income (loss) applicable to Class A common stockholdersand Class B common stockholders, did not reflect any adjustment for interest onthe convertible subordinated notes and did not reflect any declared oraccumulated dividends on the convertible preferred stock, as neither had beenrecognized since the Petition Date. Under the two-class method for computing basic and diluted EPS, losseswere not allocated to each class of common stock, as security holders were notobligated to fund such losses.  Thefollowing table provides the income applicable to common stockholders that wereallocated to the Class A Common Stock and Class B Common Stock for purposes ofcomputing basic and diluted EPS for the periods in which the Company reportedincome (amounts in thousands):
| ** **                                                                       | ** ** | **Month ended  July 31, 2006** | ** ** | **Seven months ended  July 31, 2006** | ** ** | **Nine months ended  September 30, 2005** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| Basic EPS:                                                                       |       |                                          |       |                                                      |       |                                                          |       |
| Income applicable to common stockholders allocated  to Class A Common Stock | ** ** | $                                             | 5,333,315  |                                                      | $          | 5,167,685                                                     |       | $ | 55,377 |   |
| Income applicable to common stockholders allocated  to Class B Common Stock | ** ** | $                                             | 556,489    |                                                      | $          | 539,207                                                       |       | $ | 5,778 |   |
| Diluted EPS:                                                                     |       |                                          |       |                                                      |       |                                                          |       |
| Income applicable to common stockholders allocated  to Class A Common Stock | ** ** | $                                             | 5,273,550  |                                                      | $          | 5,109,776                                                     |       | $ | 54,756 |   |
| Income  applicable to common stockholders allocated to Class B Common Stock | ** ** | $                                             | 616,254    |                                                      | $          | 597,116                                                       |       | $ | 6,399 |   |

 

Diluted EPS ofClass A and Class B Common Stock considers the potential impact of dilutivesecurities.  For the three-month periodended September 30, 2005, the inclusion of potential common shares would havehad an anti-dilutive effect. Accordingly, potential common shares of 86,798,548 were excluded fromthe diluted EPS calculations for the three-month period ended September 30,2005.  For the one-and seven-monthperiods ended July 31, 2006, 19,090 and 22,560, respectively, and for thethree-and nine-month periods ended September 30, 2005, 30,448 and 187,418,respectively, of potential common shares subject to stock options have beenexcluded from the diluted EPS calculation as the option exercise price isgreater than the average market price of the Class A Common Stock.

The Company’spotential common shares consist of Adelphia’s 5 1/2% Series D ConvertiblePreferred Stock (“Series D Preferred Stock”), 7 1/2% Series E MandatoryConvertible Preferred Stock (“Series E Preferred Stock”), 7 1/2% Series FMandatory Convertible Preferred Stock (“Series F Preferred Stock”), 6%subordinated convertible notes, 3.25% subordinated convertible notes and stockoptions.  As a result of the filing ofthe Debtors’ Chapter 11 Cases, Adelphia, as of the Petition Date, discontinuedaccruing dividends on all of its outstanding preferred stock and has excludedthose dividends from the diluted EPS calculations.  The debt instruments are convertible intoshares of Class A and Class B Common Stock. The preferred securities and stock options are convertible into Class ACommon Stock.

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

The basic and dilutedweighted average shares outstanding used for EPS computations for the periodspresented are as follows:
| ** **                                               | ** ** | **Month ended  July 31,** | ** ** | **Three months  ended  September 30,** | ** ** | **Seven months  ended July 31,** | ** ** | **Nine months  ended  September 30,** | ** ** |
|----------------------------------------------------------|------------|-------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                               | ** ** | **2006**                            | ** ** | **2005**                                         | ** ** | **2006**                                        | ** ** | **2005**                                        | ** ** |
| Basic weighted  average shares of Class A Common Stock   |       | 228,692,414                         |       | 228,692,414                                      |       | 228,692,414                                     |       | 228,692,414                                     |       |
| Potential common  shares:                                |       |                                |       |                                             |       |                                            |       |                                            |       |
| Convertible preferred stock                              |       | 45,924,486                          |       | —                                           |       | 45,924,486                                      | ** ** | 45,924,486                                      | ** ** |
| Convertible subordinated notes                           |       | 28,683,846                          |       | —                                           |       | 28,683,846                                      | ** ** | 28,683,846                                      | ** ** |
| Diluted weighted  average shares of Class A Common Stock |       | 303,300,746                         |       | 228,692,414                                      |       | 303,300,746                                     | ** ** | 303,300,746                                     | ** ** |
|                                                     |       |                                |       |                                             |       |                                            |       |                                            |       |
| Basic weighted  average shares of Class B Common Stock   |       | 25,055,365                          |       | 25,055,365                                       |       | 25,055,365                                      | ** ** | 25,055,365                                      | ** ** |
| Potential common  shares:                                |       |                                |       |                                             |       |                                            |       |                                            |       |
| Convertible subordinated notes                           |       | 12,159,768                          |       | —                                           |       | 12,159,768                                      | ** ** | 12,159,768                                      | ** ** |
| Diluted weighted  average shares of Class B Common Stock |       | 37,215,133                          |       | 25,055,365                                       |       | 37,215,133                                      | ** ** | 37,215,133                                      | ** ** |

 

### *Intangible Assets*

The carrying value andaccumulated amortization of intangible assets at December 31, 2005 aresummarized below (amounts in thousands):

|                                   | ** ** | **Gross  carrying  value** | ** ** | **Accumulated  amortization** | ** ** | **Net  carrying  value** | ** ** |
|-----------------------------------|------------|----------------------------|------------|-------------------------------|------------|--------------------------|------------|
| Customer  relationships and other |       | $                          | 1,641,146  |                          | $          | (1,186,540               | )          | $ | 454,606 |   |
| Franchise rights                  |       |                       |       |                          |       | 5,440,173                |       |
| Goodwill                          |       |                       |       |                          |       | 1,634,385                |       |
|                              |       |                       |       |                          |       | $                        | 7,529,164  |   |
|                                   |            |                            |            |                               |            |                          |            |  |  |  |

 

Goodwill and franchiserights were not amortized as their lives were determined to be indefinite.  Customer relationships represent the valueattributed to customer relationships acquired in business combinations and wereamortized over a 10-year period.  The Companyamortized its customer relationships using the double declining balance method,which reflected the attrition patterns of its customer relationships.  Amortization of intangible assets aggregated$8,849,000 for the month ended July 31, 2006; $29,373,000 for the three monthsended September 30, 2005; $63,415,000 for the seven months ended July 31, 2006;and $88,300,000 for the nine months ended September 30, 2005.

### *Accrued Liabilities*

The details ofaccrued liabilities at December 31, 2005 are set forth below (amounts inthousands):

|                                  | ** ** | **December 31,** | ** ** |
|----------------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2005**              | ** ** |
| Programming  costs               |       | $                     | 116,239    |   |
| Interest                         |       | 51,627                |       |
| Payroll                          |       | 92,162                |       |
| Property, sales and  other taxes |       | 51,181                |       |
| Franchise fees                   |       | 63,673                |       |
| Other                            |       | 176,717               |       |
| Total                            |       | $                     | 551,599    |   |

 

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

### *Tax Matters*

The details of theCompany’s income tax expense (benefit) are set forth below (amounts inthousands):
| ** **                       | ** ** | **Month ended  July 31, 2006** | ** ** | **Three months  ended  September 30,  2005** | ** ** | **Seven months  ended July 31,  2006** | ** ** | **Nine months  ended  September 30,  2005** | ** ** |
|----------------------------------|------------|-----------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| Current tax  expense:            |       |                                          |       |                                                   |       |                                                  |       |                                                  |       |
| Federal                          |       | $                                             | 165,000    |                                                   | $          | —                                                |       | $                                                     | 165,000    |   | $ | — |   |
| State                            |       | 390,155                                       |       | 484                                                    |       | 390,996                                               |       | 1,550                                                 |       |
| Deferred tax expense  (benefit): |       |                                          |       |                                                   |       |                                                  |       |                                                  |       |
| Federal                          |       | (307,966                                      | )          | 33,500                                                 |       | (246,466                                              | )          | 88,660                                                |       |
| State                            |       | (45,241                                       | )          | 5,000                                                  |       | (36,141                                               | )          | 13,240                                                |       |
| Total tax expense                |       | $                                             | 201,948    |                                                   | $          | 38,984                                                |       | $                                                     | 273,389    |   | $ | 103,450 |   |

 

The federal current taxexpense in 2006 represents alternative minimum tax on the Sale Transactionprimarily due to the limitation on the use of existing federal net operatingloss carryforwards.  The state currenttax expense in 2006 represents estimated taxes due on the Sale Transaction inthe various states in which the Company does business.  All available state net operating loss carryforwardshave been utilized in determining the state tax expense calculations.  These state net operating loss carryforwardshave been adjusted for certain effects of filing the state income tax returnsand the reevaluation of uncertain tax positions.  Based on these adjusted amounts, the Company’spreviously recorded December 31, 2005 deferred tax asset for state netoperating loss carryforwards and offsetting valuation allowance would have been$210,080,000 less than the amount originally recorded.  The Company expects to file amended returnsfor years 1999 through 2005.  Suchreturns are subject to examination by federal and state taxing authorities,generally, for a period of three years after the net operating loss isutilized.

Prior to the Sale Transaction,income tax expense primarily related to the increase in the deferred taxliability for franchise rights and goodwill intangible assets that were notamortized for financial reporting purposes, but were amortized for income taxpurposes.  This deferred tax liabilitywas reversed concurrent with the Sale Transaction and resulted in a deferredtax benefit of $913,141,000 for the one and seven months ended July 31,2006.  SFAS 109, *Accountingfor Income Taxes*, requires that any valuation allowance establishedfor an acquired entity’s deductible temporary differences at the date ofacquisition that is subsequently recognized, first reduces goodwill and othernoncurrent assets related to the acquisition and then reduces income taxexpense.  As a result of the SaleTransaction, the Company’s current tax expense was reduced by $547,935,000 as aresult of the reversal of its valuation allowances attributable to the acquiredtemporary differences.  This reductionalso resulted in a $547,935,000 reduction in the carrying value of historicalgoodwill and a corresponding increase in each of the gain on the SaleTransaction and deferred tax expense.

The Company has a taxableloss for the two months ended September 30, 2006.  The Company has recorded a full valuation allowanceon the deferred tax asset associated with this loss.  As such, no current or deferred tax expensehas been reflected in the accompanying consolidated statement of changes in netliabilities in liquidation.

### *Transaction with Former Director*

In a letter agreementbetween Adelphia and FPL Group, Inc. (“FPL Group”) dated January 21,1999, Adelphia agreed to (i) repurchase 20,000 shares of 8 1/8% Series CCumulative Preferred Stock (“Series C Preferred Stock”) and 1,091,524 shares ofClass A Common Stock owned by Telesat Cablevision, Inc., a subsidiaryof FPL Group (“Telesat”) and (ii) transfer all of the outstanding commonstock of West Boca Security, Inc. (“WB Security”), a subsidiary ofOlympus, to FPL Group in exchange for FPL Group’s 50% voting interest and1/3 economic interest in Olympus. The Company owned the economic and voting interests in Olympus that werenot then owned by FPL Group. At the time this agreement was entered into,Dennis Coyle, then a member of the Adelphia Board of Directors, was the GeneralCounsel and Secretary of FPL Group. WB Security was a subsidiary of Olympus andWB Security’s sole asset was a $108,000,000 note receivable (the “WB Note”)from a subsidiary of Olympus that was secured by the FPL Group’s ownershipinterest in Olympus and due September 1, 2004.  On January 29, 1999, Adelphia purchasedall of the aforementioned shares of Series C Preferred Stock andClass A Common Stock described above from Telesat for aggregate cashconsideration of $149,213,000, and on October 1, 1999, the Companyacquired FPL Group’s interest in

44

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**ADELPHIACOMMUNICATIONS CORPORATION AND SUBSIDIARIES(Debtors-In-Possession)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued(unaudited)**

Olympus inexchange for all of the outstanding common stock of WB Security.  The acquired shares of Class A CommonStock are presented as treasury stock in the accompanying condensedconsolidated balance sheet.  The acquiredshares of Series C Preferred Stock were returned to their original statusof authorized but unissued.  OnJune 24, 2004, the Creditors’ Committee filed an adversary proceeding inthe Bankruptcy Court, among other things, to avoid, recover and preserve thecash paid by Adelphia pursuant to the repurchase of its Series C PreferredStock and Class A Common Stock together with all interest paid withrespect to such repurchase.  A hearingdate relating to such adversary proceeding has not yet been set. Interest onthe WB Note is calculated at a rate of 6% per annum (or after default at avariable rate of LIBOR plus 5%).  FPLGroup has the right, upon at least 60 days prior written notice, torequire repayment of the principal and accrued interest on the WB Note on orafter July 1, 2002.  As of September30, 2006 and December 31, 2005, the aggregate principal and interest dueto the FPL Group pursuant to the WB Note was $127,537,000. The Company has notaccrued interest on the WB Note for periods subsequent to the Petition Date.

 

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

**OVERVIEW**

***General***

On July 31, 2006, we completed the saleof assets, which in the aggregate comprise substantially all of our U.S.assets, to TW NY and Comcast.  Proceedsfrom the Sale Transaction totaled approximately $17.4 billion, consisting ofcash in the amount of approximately $12.5 billion (including approximately $503million of cash held in escrow) and approximately 156 million shares of TWCClass A Common Stock (including approximately 6.1 million shares of suchstock held in escrow) with an estimated fair value as of the Closing Date ofapproximately $4.9 billion.  Such estimated fair value of the TWCClass A Common Stock as of July 31, 2006 was determined by us based onmanagement’s review of projected discounted cash flows for TWC and marketcomparable data.  Such value isconsistent with the approximately $4.9 billion value agreed with TW NY forpurposes of the April 20, 2005 TW NY asset purchase agreement and the$4.85 billion value contained in the Plan Agreement agreed to by us, theCreditors’ Committee and certaincreditors and *ad hoc*creditor committees inJuly 2006.  We recognized apreliminary gain on the Sale Transaction of approximately $6.1 billion.  The preliminary gain on the Sale Transactionis subject to adjustment.

Theaggregate purchase price is subject to certain post-closing adjustments.  Upon consummation of the Sale Transaction, aportion of the aggregate purchase price, consisting of approximately $503million of cash and 6,148,283 shares of TWC Class A Common Stock, was depositedin escrow accounts to secure our indemnification obligations and anypost-closing purchase price adjustments that may be due to TW NY or Comcastfrom us pursuant to the Purchase Agreements. Pursuant to the Purchase Agreements, the post-closing purchase priceadjustments, if any, are likely to be finalized by no later than the end of thefirst quarter 2007.  To the extent suchpost-closing adjustments are in favor of TW NY or Comcast, the amount of theescrow released to us will be reduced. To the extent such post-closing adjustments are in our favor, TW NY orComcast, as applicable, is required under the Purchase Agreement to contributethe amount of such post-closing adjustment into escrow.  On October 27, 2006, TW NY andComcast delivered to us their calculations of the purchase price adjustmentspursuant to the Purchase Agreements. Based on TW NY’s and Comcast’s calculations, the net adjustmentasserted would result in a payment of approximately $133 million to TW NY andComcast.  The Company believes thatadditional post-closing adjustments of approximately $23 million are due from TW NYand Comcast. While we are stillreviewing TW NY’s and Comcast’s calculations, at this time we believe thatwe will be sending a formal objection to TW NY and Comcast at the beginning ofnext month that challenges at a minimum, substantially all of the amount claimed.  As a result, we have not adjusted the gain onthe Sale Transaction for these potential post-closing adjustments, and any suchadjustments are not considered material to the gain that we recognized in theaccompanying consolidated financial statements. Additionally, we have not been provided with notice of any claims beingasserted pursuant to the indemnification provisions of the respective Purchase Agreements,nor are we aware of any basis for such claims. To the extent that we determine additional amounts are owed to either TWNY or Comcast in the future under the Purchase Agreements, the amount of thegain recognized on the Sale Transaction will be adjusted.  For additional information regardingthe Sale Transaction, see Note 2, “Bankruptcy Proceedings and Sale of Assets ofthe Company,” to the accompanying consolidated financial statements.

As a result of theSale Transaction, we no longer have any continuing operations.  Following the Sale Transaction, our principalfocus is to obtain confirmation of the Plan, complete all Bankruptcy Courtproceedings, settle pre-petition liabilities and liquidate the Company.  Therefore, as a result of the SaleTransaction, complete liquidation of the Company is imminent and on August 1,2006 we adopted a liquidation basis of accounting.  Under the liquidation basis of accounting,assets are recorded at their estimated realizable amounts and liabilities thatwill be paid in full are recorded at the present value of amounts to bepaid.  Liabilities subject to compromiseare recorded at their face amounts until they are settled, at which time theywill be adjusted to their settlement amounts. In connection with the adoption of a liquidation basis of accounting, wewrote down certain assets (primarily prepaid insurance) by approximately $13million to reflect such assets at their net realizable value and recorded anestimated accrual for costs during the liquidation period of approximately $213million.  The net realizable value of theTWC Class A Common Stock is equal to its estimated fair value as we expect todistribute such shares to our creditors upon emergence from bankruptcy.  Under the liquidation basis of accounting,the net present value of the estimated remaining costs to be incurred duringliquidation (exclusive of interest expense) is accrued.  Our estimate for liquidation costs as ofSeptember 30, 2006 includes professional fees associated with the Chapter 11proceedings, litigation matters and other legal matters ($109.8 million),compensation and benefits for the remaining employees ($49.7 million), andother miscellaneous general and administrative costs.  Such estimated costs are subject tochange.  We expect that changes will bemade to our estimated costs of liquidation, and such changes in estimates willbe recognized in future periods as a change in net liabilities inliquidation.  The estimated costs as ofSeptember 30, 2006 are based in large part on assumptions regarding the timingof emergence from bankruptcy, the resolution of litigation matters and thepost-emergence length of time required to settle all matters of theCompany.  If there are delays in these 

46

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matters, actual costs incurred during liquidationcould increase as a result of the need for additional internal and externalresources.  A hearing to considerconfirmation of the Plan is currently scheduled for December 7, 2006.

## ***Bankruptcy Proceedings***

In June 2002,Adelphia and substantially all of its domestic subsidiaries filed voluntarypetitions to reorganize under Chapter 11 of the Bankruptcy Code in theBankruptcy Court.  On June 10, 2002,Century filed a voluntary petition to reorganize under Chapter 11.  On October 6 and November 15, 2005, certain additionalsubsidiaries of Adelphia filed voluntary petitions to reorganize under Chapter11.  On March 31, 2006, the ForfeitedEntities and certain other entities filed voluntary petitions to reorganizeunder Chapter 11.  The bankruptcyproceedings for Century and the subsequent filers are being jointlyadministered with the Debtors and are included in the Chapter 11 Cases.  On June 29, 2006, the Bankruptcy Courtconfirmed the JV Plan for the JV Debtors. On July 31, 2006, the JV Plan became effective by its terms.  Accordingly, from and after July 31, 2006,the Debtors no longer include the JV Debtors. For additional information, see Note 2, “Bankruptcy Proceedings and Saleof Assets of the Company,” to the accompanying consolidated financialstatements.

On May 26, 2006,the Debtors filed the 363 Motion with the Bankruptcy Court seeking, among otherthings, approval to proceed with the Sale Transaction without first confirminga Chapter 11 plan of reorganization (other than with respect to the JVDebtors).  A hearing to consider certainamended bid protections proposed in the 363 Motion was held on June 16,2006, and on that date the Bankruptcy Court entered an order approving newprovisions for termination, for the payment of the breakup fee, a reduction inthe purchase price under certain circumstances and reaffirming the effectivenessof the “no-shop provision” and overruling all objections thereto.  On June 28, 2006, the Bankruptcy Courtentered the 363 Approval Order approving the balance of the 363 Motion,including the approval of the sale of the Debtors’ assets in connection withthe Sale Transaction.

On June 22, 2006,the Debtors filed the JV Plan for the JV Debtors with the Bankruptcy Court withrespect to our partnerships with Comcast. In response to the Debtors’ Plan Modification Motion, the BankruptcyCourt approved the information in the 363 Motion and the Plan ModificationMotion as containing “adequate information” pursuant to Section 1125 ofthe Bankruptcy Code.  On June 29, 2006,the Bankruptcy Court entered the JV Confirmation Order confirming the JVPlan.  Together the JV Confirmation Orderand the 363 Approval Order authorized, among other things, consummation of theSale Transaction.  On July 31, 2006, theJV Plan became effective by its terms. Accordingly, from and after July 31, 2006, the Debtors no longerinclude the JV Debtors.  We paidapproximately $1.8 billion of bankruptcy claims in the third quarter of 2006 inaccordance with the JV Plan, of which approximately $1.6 billion relates topre-petition debt obligations.

Effective July 21,2006, we entered into the Plan Agreement with the Settlement Parties.  Subsequently, on October 11, 2006, the PSAParties entered into the Plan Support Agreement.  The Plan Support Agreement, among otherthings, sets forth the terms on which the PSA Parties have committed to supportthe Plan.  The Plan Support Agreementprovides, among other things, that the PSA Parties will support a plan ofreorganization that incorporates the terms of the Plan Agreement, assubsequently modified by the Plan Support Agreement, that provides for thetransfer of value from certain unsecured creditors of various Adelphiasubsidiaries to certain of Adelphia’s unsecured senior and trade creditors andis effective by December 22, 2006, unless extended in writing by the parties tothe Plan Support Agreement.

On October 16,2006, the Debtors and the Creditors’ Committee filed the Plan and the DSS withthe Bankruptcy Court.  The Plan is basedon the terms of the Plan Agreement and the Plan Support Agreement and proposesa global compromise and settlement of all disputes among the creditors, not allof whom are parties to these agreements. By order dated October 17, 2006, the Bankruptcy Court approved the DSSas containing “adequate information” pursuant to Section 1125 of the BankruptcyCode.  The voting deadline for beneficialholders holding securities through intermediaries is November 20, 2006.  The voting deadline for all other parties ininterest is November 27, 2006.  A hearingto consider confirmation of the Plan is scheduled for December 7, 2006.

For additionalinformation, see Note 2, “Bankruptcy Proceedings and Sale of Assets of theCompany,” to the accompanying consolidated financial statements.

***Terminationof Third Extended DIP Facility***

In connection with thecompletion of the Sale Transaction, on the Closing Date, we terminated theThird Extended DIP Facility.  Inconnection with the termination of the Third Extended DIP Facility, we repaidall loans outstanding under the Third Extended DIP Facility and all accrued andunpaid interest thereon, with such payments 

47

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totaling approximately $986 million.  In addition, in connection with thetermination of the Third Extended DIP Facility we paid all accrued and unpaidfees of the lenders and agent banks under the Third Extended DIP Facility.  In connection with these payments, effectiveas of the Closing Date, the collateral agent under the Third Extended DIPFacility released any and all liens and security interests on the assets thatcollateralized the obligations under the Third Extended DIP Facility.

# **CHANGES IN NET LIABILITIES INLIQUIDATION**

## ***Two Months Ended September 30, 2006***

The following tablesummarizes the changes in net liabilities in liquidation for the periodpresented (dollars in thousands):

|                                                                         | ** ** | **Two months ended  September 30,** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                              | ** ** | **2006**                                           | ** ** |
|                                                                    |       |                                               |       |
| Effects of  adopting a liquidation basis of accounting:                 |       |                                               |       |
| Accrual of liquidation costs                                            |       | $                                                  | (212,605   | ) |
| Initial adjustment of assets to estimated realizable  values            |       | (13,441                                            | )          |
| Net effect of adopting a liquidation basis of  accounting               |       | (226,046                                           | )          |
|                                                                    |       |                                               |       |
| Changes in net  liabilities in liquidation:                             |       |                                               |       |
| Change in estimate of net realizable value of TWC  Class A Common Stock |       | 756,173                                            |       |
| Change in estimate of net realizable value of other  assets             |       | (1,004                                             | )          |
| Settlement of liabilities subject to compromise                         |       | (762                                               | )          |
| Interest income                                                         |       | 83,289                                             |       |
| Interest expense                                                        |       | (84,334                                            | )          |
| Net change in fair values of assets and liabilities                     |       | 753,362                                            |       |
|                                                                    |       |                                               |       |
| Net change in net  liabilities in liquidation                           |       | $                                                  | 527,316    |   |

 

The following is adiscussion of our changes in net liabilities in liquidation and includes ananalysis of significant changes for the two months ended September 30, 2006.

*Effects of adopting a liquidationbasis of accounting*

Inconnection with the adoption of a liquidation basis of accounting, we wrotedown certain assets (primarily prepaid insurance) by approximately $13 millionto reflect such assets at their net realizable value and recorded an estimatedaccrual for costs during the liquidation period of approximately $213million.  The net realizable value of theTWC Class A Common Stock is equal to its estimated fair value as we expect todistribute such shares to our creditors upon emergence from bankruptcy.  Under the liquidation basis of accounting,the net present value of the estimated remaining costs to be incurred duringliquidation (exclusive of interest expense) is accrued.  Our estimate for liquidation costs as ofSeptember 30, 2006 includes professional fees associated with the Chapter 11proceedings, litigation matters and other legal matters ($109.8 million),compensation and benefits for the remaining employees ($49.7 million) and othermiscellaneous general and administrative costs. Such estimated costs are subject to change.  We expect that changes will be made to our estimatedcosts of liquidation, and such changes in estimates will be recognized infuture periods as a change in net liabilities in liquidation.  The estimated costs as of September 30, 2006are based in large part on assumptions regarding the timing of emergence frombankruptcy, the resolution of litigation matters and the post-emergence lengthof time required to settle all matters of the Company.  If there are delays in these matters, actualcosts incurred during liquidation could increase as a result of the need foradditional internal and external resources. A hearing to consider confirmation of the Plan is currently scheduledfor December 7, 2006.

*Changes in net liabilities inliquidation*

During the two monthsended September 30, 2006, we recorded a $756 million increase in the estimatedfair value of the TWC Class A Common Stock that we received in the SaleTransaction.  Such increase reflectschanges in market comparable data which was driven by the recent upwardmovement in the price of publicly-traded cable companies’ stocks.

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# **RESULTS OF OPERATIONS**

## ***One Month Ended July 31, 2006 Compared toThree Months Ended September 30, 2005***

As a result of theSale Transaction, we no longer have any continuing operations, and we are nolonger operating as a going concern.  Weadopted a liquidation basis of accounting on August 1, 2006.  As such, the following discussion does notcontain comparable periods.

The following tablesummarizes the results of operations for the periods presented prior to theadoption of a liquidation basis of accounting (dollars in thousands):
| ** **                                                                                                                               | ** ** | **One Month Ended   July 31, 2006** | ** ** | **Three Months Ended  September 30, 2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                                                                               | ** ** | **$**                                                        | ** ** | **% of  Revenue**                                         | ** ** | **$** | ** ** | **% of  Revenue** | ** ** |
|                                                                                                                                     |       |                                                         |       |                                                           |       |   |   |   |   |
| Revenue                                                                                                                                  |       | $                                                            | 397,438    |                                                           | 100        | % | $ | 1,088,568 |   | 100 | % |
|                                                                                                                                     |       |                                                         |       |                                                           |       |   |   |   |   |
| Costs and  expenses:                                                                                                                     |       |                                                         |       |                                                           |       |   |   |   |   |
| Direct operating and programming                                                                                                         |       | 246,870                                                      |       | 62                                                             |       | 680,614 |   | 63 |   |
| Selling, general and administrative                                                                                                      |       | 26,903                                                       |       | 7                                                              |       | 90,285 |   | 8 |   |
| Investigation, re-audit and sale transaction costs                                                                                       |       | 2,295                                                        |       | —                                                         |       | 15,832 |   | 1 |   |
| Depreciation                                                                                                                             |       | 62,729                                                       |       | 16                                                             |       | 193,017 |   | 18 |   |
| Amortization                                                                                                                             |       | 10,639                                                       |       | 3                                                              |       | 32,795 |   | 3 |   |
| Impairment of long-lived assets                                                                                                          |       | 16,560                                                       |       | 4                                                              |       | 23,063 |   | 2 |   |
| Gain on disposition of long-lived assets                                                                                                 |       | (339                                                         | )          | —                                                         |       | (331 | ) | — |   |
| Total costs and expenses                                                                                                                 |       | 365,657                                                      |       | 92                                                             |       | 1,035,275 |   | 95 |   |
|                                                                                                                                     |       |                                                         |       |                                                           |       |   |   |   |   |
| Operating income                                                                                                                         |       | 31,781                                                       |       | 8                                                              |       | 53,293 |   | 5 |   |
| Other income  (expense), net:                                                                                                            |       |                                                         |       |                                                           |       |   |   |   |   |
| Gain on Sale Transaction                                                                                                                 |       | 6,129,718                                                    |       | NM                                                             |       | — |   |   |   |
| Interest expense, net of amounts capitalized                                                                                             |       | (60,877                                                      | )          | (15                                                            | )          | (138,329 | ) | (13 | ) |
| Other income (expense), net                                                                                                              |       | 83                                                           |       | —                                                         |       | (2,998 | ) | — |   |
| Total other income (expense), net                                                                                                        |       | 6,068,924                                                    |       | NM                                                             |       | (141,327 | ) | (13 | ) |
| Income (loss) before reorganization expenses, income  taxes, share of income (losses) of equity affiliates, and minority’s interest |       | 6,100,705                                                    |       | NM                                                             |       | (88,034 | ) | (8 | ) |
| Reorganization  expenses due to bankruptcy, net                                                                                          |       | (9,535                                                       | )          | 2                                                              |       | (21,230 | ) | (2 | ) |
| Income tax  expense                                                                                                                      |       | (201,948                                                     | )          | NM                                                             |       | (38,984 | ) | (4 | ) |
| Share of income  (losses) of equity affiliates, net                                                                                      |       | (1,081                                                       | )          | —                                                         |       | 393 |   | — |   |
| Minority’s  interest in loss of subsidiary                                                                                          |       | 1,663                                                        |       | —                                                         |       | 1,297 |   | — |   |
| Net income  (loss)                                                                                                                       |       | $                                                            | 5,889,804  |                                                           | NM         |   | $ | (146,558 | ) | (14 | )% |

----

NM — Not meaningful

The following is adiscussion of our results of operations prior to the adoption of a liquidationbasis of accounting that covers the one month period ended July 31, 2006 andthe three month period ended September 30, 2005.  We adopted a liquidation basis of accountingon August 1, 2006.  Therefore, we cautionreaders that the following summary of historical operating results discussesnon-comparable time periods.  We alsocaution readers that the following summary discusses operating results forperiods in which we operated as a going concern, which are no longer meaningfulnow that we are no longer operating as a going concern and have adopted aliquidation basis of accounting.

### *Revenue*

Prior to the adoption ofa liquidation basis of accounting, revenue decreased $691 million, or 63%,during the one month ended July 31, 2006 as compared to the three months endedSeptember 30, 2005.  The decrease inrevenue is primarily attributable to the Sale Transaction.  As a result of the Sale Transaction, we areno longer operating as a going concern and thus are no longer generatingrevenue.  We adopted a liquidation basisof accounting on August 1, 2006.

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Revenue for the one monthended July 2006 was $397 million as compared to $363 million for the sameperiod in 2005.  The increase in revenuewas primarily attributable to higher rates for basic and expanded basic servicetiers and increased revenue from HSI services, enhanced product offerings andmedia services.  The positive impact ofhigher rates for basic and expanded basic service tiers was partially offset bya decrease in our basic subscriber base. An increase in HSI subscribers accounted for the majority of theincrease in HSI revenue.  The increase inmedia services revenue was attributable to an increase in both the average ratereceived and the volume of advertising sold.

### *Direct operating and programming costs*

Prior to the adoption ofa liquidation basis of accounting, direct operating and programming costsdecreased $434 million, or 64%, during the one month ended July 31, 2006 ascompared to the three months ended September 30, 2005.  The decrease in direct operating andprogramming costs is primarily attributable to the Sale Transaction.  Direct operating and programming costsrepresented 62% of revenue for both the month ended July 31, 2006 and2005.  As a result of the SaleTransaction, we are no longer operating as a going concern and thus do not haveany continuing operations.  We adopted aliquidation basis of accounting on August 1, 2006.

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

Prior to the adoption ofa liquidation basis of accounting, SG&A expenses decreased approximately$63 million, or 70%, during the one month ended July 31, 2006 as compared tothe three months ended September 30, 2005. The decrease in SG&A expenses isprimarily attributable to the Sale Transaction. SG&A expenses represented 7% and 8% of revenue for the month endedJuly 31, 2006 and 2005, respectively.  Asa result of the Sale Transaction, we are no longer operating as a going concernand thus do not have any continuing operations. We adopted a liquidation basis of accounting on August 1, 2006.

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

 Prior to theadoption of a liquidation basis of accounting, investigation,re-audit and sale transaction costs decreased by $14 million, or 86%,during the one month ended July 31, 2006 as compared to the three months endedSeptember 30, 2005. The decrease in these costs is primarily attributable tothe Sale Transaction, which was consummated on July 31, 2006.  We adopted a liquidation basis of accountingon August 1, 2006.

### *Depreciation*

Prior to the adoption ofa liquidation basis of accounting, depreciation expense decreased by$130 million, or 68%, during the one month ended July 31, 2006 as comparedto the three months ended September 30, 2005. The decrease in depreciationexpense is primarily attributable to the Sale Transaction. We adopted a liquidationbasis of accounting on August 1, 2006.

### *Amortization*

Prior to the adoption ofa liquidation basis of accounting, amortization expense decreased by$22 million, or 68%, during the one month ended July 31, 2006 as comparedto the three months ended September 30, 2005. The decrease in amortizationexpense is primarily attributable to the Sale Transaction. We adopted aliquidation basis of accounting on August 1, 2006.

*Impairmentof long-lived assets*

Impairment of long-livedassets was $17 million for the one month ended July 31, 2006 as compared to $23million for the three months ended September 30, 2005.  Impairments for the one month ended July 31,2006 included a $12 million charge for a building that was not sold in the SaleTransaction and $5 million related to the impairment of our franchiseintangibles.  The $23 million impairmentfor 2005 relates to the impairment of our franchise intangibles.  The impairment of our franchise intangiblesrelates primarily to the loss of basic subscribers in certain geographicareas.  Prior to the Sale Transaction, weassessed impairment of our franchise and goodwill intangibles annually on July1.  As a result of the Sale Transaction,we no longer have any franchise or goodwill intangible assets.

*Gain onSale Transaction*

On July 31, 2006, wecompleted the sale of substantially all of our assets to TW NY andComcast.  Proceeds from the saletransaction totaled approximately $17.4 billion.  We recognized a gain on the Sale Transaction 

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of approximately $6.1 billion.  For additional information regarding the SaleTransaction, see Note 2, “Bankruptcy Proceedings and Sale of Assets of theCompany,” to the accompanying consolidated financial statements.  As a result of the Sale Transaction, weadopted a liquidation basis of accounting on August 1, 2006.

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

Prior to the adoption ofa liquidation basis of accounting, interest expense, net of amountscapitalized, decreased by $77 million, or 56%, during the one month endedJuly 31, 2006 as compared to the three months ended September 30, 2005.  The decrease in interest expense, net ofamounts capitalized, is primarily attributable to the non-comparability of theperiods which resulted from the adoption of a liquidation basis of accountingon August 1, 2006.  Higher averagemonthly outstanding debt balances and higher average interest rates for themonth of July 2006 partially offset this decrease.  In connection with the Sale Transaction, weterminated the Third Extended DIP Facility. In connection with the termination of the Third Extended DIP Facility,we repaid all loans outstanding under the Third Extended DIP Facility and allaccrued and unpaid interest.  As such,interest expense will decrease for periods after July 31, 2006.  We have been paying interest on amountsoutstanding under the pre-petition credit agreements, including the entireprincipal balance outstanding under the Co-Borrowing Facilities.  These payments will continue until suchpre-petition obligations are settled. See “Liquidity and Capital Resources” below.

### *Reorganization expenses due to bankruptcy, net*

Prior to the adoption ofa liquidation basis of accounting, certain income and expenses directly relatedto the Chapter 11 filings were included in reorganization expenses due tobankruptcy, net.  Reorganization expensesdue to bankruptcy, net decreased by $12 million, or 55%, during the onemonth ended July 31, 2006 as compared to the three months ended September 30,2005.  The decrease in reorganizationexpenses due to bankruptcy, net is primarily attributable to thenon-comparability of the periods which resulted from the adoption of aliquidation basis of accounting on August 1, 2006.  We will continue to incur significantreorganization costs until we emerge from bankruptcy.  The estimated reorganization costs during theliquidation period have been included in our August 1, 2006 accrual ofliquidation costs under the liquidation method of accounting.  For additional information, see “Changes inNet Liabilities in Liquidation” below and Note 2, “Bankruptcy Proceedingsand Sale of Assets of the Company,” to the accompanying consolidated financialstatements.

### *Income tax expense*

We recorded income taxexpense of $202 million and $39 million for the one month ended July 31, 2006and the three months ended September 30, 2005, respectively.  The increase in income tax expense isattributable to the gain on the Sale Transaction.  In 2006, income tax expense differs from theamount that would have resulted from the application of statutory tax ratesprimarily due to the utilization of net operating loss carryforwards and thereversal of $365 million of deferred tax liabilities.  In 2005, income tax expense differs from theamount that would have resulted from the application of statutory tax ratesprimarily due to increases in the valuation allowance provided against our netoperating loss carryforwards.  Income taxexpense for 2005 primarily relates to the increase in our deferred taxliability for franchise rights and goodwill intangible assets that are notamortized for financial reporting purposes, but are amortized for income taxpurposes.

*Minority’sinterest in loss of subsidiary*

As part of the SaleTransaction, Comcast acquired the remaining ownership interest in certainpartnerships in which Comcast held the minority interest and we held themajority interest.  As such, subsequentto the Sale Transaction, we no longer have an interest in these partnerships.  For additional information, see Note 2, “BankruptcyProceedings and Sale of Assets of the Company,” to the accompanyingconsolidated financial statements.

*Share ofincome (losses) of equity affiliates, net*

As part of the SaleTransaction, we sold certain of our investments in equity affiliates to TW NYand Comcast.  In connection with theadoption of a liquidation basis of accounting on August 1, 2006, our remaininginvestments in equity affiliates have been accounted for as assets held forsale in which we no longer recognize our share of earnings or losses.

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## ***Seven Months Ended July 31, 2006 Compared toNine Months Ended September 30, 2005***

As a result of theSale Transaction, we no longer have any continuing operations.  We adopted a liquidation basis of accountingon August 1, 2006.  As such, thefollowing discussion does not contain comparable periods.

The following tablesummarizes the results of operations for the periods presented (dollars inthousands):
| ** **                                                                                                                        | ** ** | **Seven Months Ended  July 31, 2006** | ** ** | **Nine Months Ended  September 30, 2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                                        | ** ** | **$**                                                     | ** ** | **% of  Revenue**                                        | ** ** | **$** | ** ** | **% of  Revenue** | ** ** |
|                                                                                                                              |       |                                                      |       |                                                          |       |   |   |   |   |
| Revenue                                                                                                                           |       | $                                                         | 2,745,439  |                                                          | 100        | % | $ | 3,260,793 |   | 100 | % |
|                                                                                                                              |       |                                                      |       |                                                          |       |   |   |   |   |
| Costs and expenses:                                                                                                               |       |                                                      |       |                                                          |       |   |   |   |   |
| Direct operating and  programming                                                                                                 |       | 1,641,343                                                 |       | 60                                                            |       | 2,001,202 |   | 61 |   |
| Selling, general and  administrative                                                                                              |       | 204,156                                                   |       | 7                                                             |       | 261,899 |   | 8 |   |
| Investigation, re-audit  and sale transaction costs                                                                               |       | 32,527                                                    |       | 1                                                             |       | 54,317 |   | 2 |   |
| Depreciation                                                                                                                      |       | 442,636                                                   |       | 16                                                            |       | 606,839 |   | 19 |   |
| Amortization                                                                                                                      |       | 77,170                                                    |       | 3                                                             |       | 106,827 |   | 3 |   |
| Impairment of  long-lived assets                                                                                                  |       | 16,560                                                    |       | 1                                                             |       | 23,063 |   | 1 |   |
| Provision for  uncollectible amounts due from the Rigas Family and Other Rigas Entities                                           |       | —                                                    |       | —                                                        |       | 13,338 |   | — |   |
| Gain on disposition of  long-lived assets                                                                                         |       | (1,697                                                    | )          | —                                                        |       | (6,102 | ) | — |   |
| Total costs and  expenses                                                                                                         |       | 2,412,695                                                 |       | 88                                                            |       | 3,061,383 |   | 94 |   |
|                                                                                                                              |       |                                                      |       |                                                          |       |   |   |   |   |
| Operating income                                                                                                                  |       | 332,744                                                   |       | 12                                                            |       | 199,410 |   | 6 |   |
| Other income (expense), net:                                                                                                      |       |                                                      |       |                                                          |       |   |   |   |   |
| Gain on Sale  Transaction                                                                                                         |       | 6,129,718                                                 |       | NM                                                            |       | — |   | — |   |
| Interest expense, net  of amounts capitalized                                                                                     |       | (438,172                                                  | )          | (16                                                           | )          | (441,064 | ) | (13 | ) |
| Other income (expense),  net                                                                                                      |       | (107,983                                                  | )          | (4                                                            | )          | 457,941 |   | 14 |   |
| Total other income, net                                                                                                           |       | 5,583,563                                                 |       | NM                                                            |       | 16,877 |   | 1 |   |
| Income before  reorganization income (expenses), income taxes, share of losses of equity  affiliates and minority’s interest |       | 5,916,307                                                 |       | NM                                                            |       | 216,287 |   | 7 |   |
| Reorganization income (expenses) due to bankruptcy, net                                                                           |       | 53,104                                                    |       | 2                                                             |       | (52,804 | ) | (2 | ) |
| Income tax expense                                                                                                                |       | (273,389                                                  | )          | (10                                                           | )          | (103,450 | ) | (3 | ) |
| Share of losses of equity affiliates, net                                                                                         |       | (1,899                                                    | )          | —                                                        |       | (975 | ) | — |   |
| Minority’s interest in loss of subsidiary                                                                                    |       | 12,769                                                    |       | —                                                        |       | 2,680 |   | — |   |
| Net income                                                                                                                        |       | $                                                         | 5,706,892  |                                                          | NM         |   | $ | 61,738 |   | 2 | % |

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NM — Not meaningful

The following is adiscussion of our results of operations prior to the adoption of a liquidationbasis of accounting that covers the seven-month period ended July 31, 2006 andthe nine-month period ended September 30, 2005. We adopted a liquidation basis of accounting on August 1, 2006.  Therefore, we caution readers that thefollowing summary of historical operating results discusses non-comparable timeperiods.  We also caution readers thatthe following summary discusses operating results for periods in which weoperated as a going concern, which are no longer meaningful now that we are nolonger operating as a going concern and have adopted a liquidation basis ofaccounting.

### *Revenue*

Prior to the adoption ofa liquidation basis of accounting, revenue decreased $515 million, or 16%,during the seven months ended July 31, 2006 as compared to the nine monthsended September 30, 2005.  The decreasein revenue is primarily attributable to the Sale Transaction.  As a result of the Sale Transaction, we areno longer operating as a going concern and thus are no longer generatingrevenue.  We adopted a liquidation basisof accounting on August 1, 2006.

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Revenue for the sevenmonths ended July 2006 was $2,745 million as compared to $2,535 million for thesame period in 2005.  The increase inrevenue was primarily attributable to higher rates for basic and expanded basicservice tiers and increased revenue from HSI services, enhanced productofferings and media services.  Thepositive impact of higher rates for basic and expanded basic service tiers waspartially offset by a decrease in our basic subscriber base.  An increase in HSI subscribers accounted forthe majority of the increase in HSI revenue. The increase in media services revenue was attributable to an increasein both the average rate received and the volume of advertising sold.

### *Direct operating and programming costs*

Prior to the adoption ofa liquidation basis of accounting, direct operating and programming costsdecreased $360 million, or 18%, during the seven months ended July 31, 2006 ascompared to the nine months ended September 30, 2005.  The decrease in direct operating andprogramming costs is primarily attributable to the Sale Transaction.  Direct operating and programming costsrepresented 60% and 61% of revenue for the seven months ended July 31, 2006 and2005, respectively.  As a result of theSale Transaction, we are no longer operating as a going concern and thus do nothave any continuing operations.  Weadopted a liquidation basis of accounting on August 1, 2006.

### *Selling, general and administrative expenses*

Prior to the adoption ofa liquidation basis of accounting, SG&A expenses decreased approximately$58 million, or 22%, during the seven months ended July 31, 2006 as compared tothe nine months ended September 30, 2005. The decrease in SG&A expenses isprimarily attributable to the Sale Transaction. SG&A expenses represented 7% and 8% of revenue for the seven monthsended July 31, 2006 and 2005, respectively. As a result of the Sale Transaction, we are no longer operating as agoing concern and thus do not have any continuing operations.  We adopted a liquidation basis of accountingon August 1, 2006.

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

Prior to the adoption ofa liquidation basis of accounting, investigation,re-audit and sale transaction costs decreased by $22 million, or 40%,during the seven months ended July 31, 2006 as compared to the nine monthsended September 30, 2005. The decrease in these costs is primarily attributableto the Sale Transaction.  These costsprimarily related to costs associated with the Sale Transaction.  We adopted a liquidation basis of accountingon August 1, 2006.

### *Depreciation*

Prior to the adoption ofa liquidation basis of accounting, depreciation expense decreased by$164 million, or 27%, during the seven months ended July 31, 2006 ascompared to the nine months ended September 30, 2005. The decrease indepreciation expense is primarily attributable to the Sale Transaction. Weadopted a liquidation basis of accounting on August 1, 2006.

### *Amortization*

Prior to the adoption ofa liquidation basis of accounting, amortization expense decreased by$30 million, or 28%, during the seven months ended July 31, 2006 ascompared to the nine months ended September 30, 2005. The decrease inamortization expense is primarily attributable to the Sale Transaction. Weadopted a liquidation basis of accounting on August 1, 2006.

*Impairmentof long-lived assets*

Impairment of long-livedassets was $17 million for the seven months ended July 31, 2006 as compared to$23 million for the nine months ended September 30, 2005.  Impairments for the seven months ended July31, 2006 included a $12 million charge for a building that was not sold in theSale Transaction and $5 million related to the impairment of our franchiseintangibles.  The $23 million impairmentfor 2005 relates to the impairment of our franchise intangibles.  The impairment of our franchise intangiblesrelates primarily to the loss of basic subscribers in certain geographic areas.  Prior to the Sale Transaction, we assessedimpairment of our franchise and goodwill intangibles annually on July 1.  As a result of the Sale Transaction, we nolonger have any franchise or goodwill intangible assets.

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*Provision for uncollectibleamounts due from the Rigas Family and Other Rigas Entities*

During the nine monthsended September 30, 2005, we recorded a $13 million provision for uncollectibleamounts due from the Rigas Family and Other Rigas Entities due to furtherdeclines in the fair value of underlying securities.  For additional information, see Note 4, “Transactions with the Rigas Family and OtherRigas Entities,” to the accompanying consolidated financial statements.  We adopted a liquidation basis of accountingon August 1, 2006.

*Gain onSale Transaction*

On July 31, 2006, wecompleted the sale of substantially all of our assets to TW NY andComcast.  Proceeds from the saletransaction totaled approximately $17.4 billion.  We recognized a gain on the Sale Transactionof approximately $6.1 billion.  Foradditional information regarding the Sale Transaction, see Note 2, “BankruptcyProceedings and Sale of Assets of the Company,” to the accompanyingconsolidated financial statements.  As aresult of the Sale Transaction, we adopted a liquidation basis of accounting onAugust 1, 2006.

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

Prior to the adoption ofa liquidation basis of accounting, interest expense, net of amountscapitalized, decreased by $3 million or 1% during the seven months endedJuly 31, 2006 as compared to the nine months ended September 30, 2005.  The decrease in interest expense, net ofamounts capitalized, is primarily attributable to the non-comparability of theperiods which resulted from the adoption of a liquidation basis of accountingon August 1, 2006.  Higher averagemonthly outstanding debt balances and higher averaged interest rates in 2006partially offset this decrease.  Inaddition, during the seven months ended July 31, 2006, we recorded $50 millionof interest expense on allowed claims in connection with the confirmation ofthe JV Plan.  Interest expense for thenine months ended September 30, 2005 included $58 million of deferred financingcosts which were written off as a result of the termination of our exitfinancing commitment in May 2005.  Inconnection with the Sale Transaction, we terminated the Third Extended DIPFacility.  In connection with thetermination of the Third Extended DIP Facility, we repaid all loans outstandingunder the Third Extended DIP Facility and all accrued and unpaid interest.  As such, interest expense has decrease forperiods after July 31, 2006.  We havebeen paying interest on amounts outstanding under the pre-petition creditagreements, including the entire principal balance outstanding under the Co-BorrowingFacilities.  These payments will continueuntil such pre-petition obligations are settled.  See “Liquidity and Capital Resources” below.

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

Other expense, net was$108 million versus other income, net of $458 million during the seven monthsended July 31, 2006 and the nine months ended September 30, 2005,respectively.  This change was primarilydue to a $64 million charge we recorded during 2006 in connection with ourdispute with ML Media and a $39 million charge associated with claims assertedby Verizon Media Ventures in connection with two separate asset purchaseagreements which were not consummated. In connection with the 2005 Government Settlement Agreements, werecorded a $458 million net benefit related to the settlement of, among othermatters, net amounts payable from us (including the Rigas Co-BorrowingEntities) to the Rigas Family and Other Rigas Entities during the six monthsended June 30, 2005.  For additionalinformation, see Note 4, “Transactions with the Rigas Family and OtherRigas Entities,” to the accompanying consolidated financial statements.

### *Reorganization income (expenses) due to bankruptcy, net*

Reorganization expensesdue to bankruptcy, net decreased by $106 million during the seven monthsended July 31, 2006 as compared to the nine months ended September 30, 2005.

Prior to the adoption ofa liquidation basis of accounting, certain income and expenses directly relatedto the Chapter 11 filings were included in reorganization income (expenses) dueto bankruptcy, net.  Reorganization income(expenses) due to bankruptcy, net aggregated $53 million of net income and$53 million of net expense for the seven months ended July 31, 2006 andthe nine months ended September 30, 2005, respectively.  The net reorganization income in 2006resulted primarily from the net impact of the reversal of $127 million ofaccrued interest resulting from the Bankruptcy Court’s disallowance of suchinterest, $82 million of professional fees incurred in connection with theChapter 11 Cases, $10 million of expense related to adjustments of liabilitiessubject to compromise to reflect the allowed claims for the JV Plan, $13million of interest income earned during reorganization and $5 million ofincome related to settlements.  The netreorganization expense in 2005 resulted primarily from the net impact of $63million of professional fees incurred in connection with the Chapter 11 Cases,$7 million of interest income earned during reorganization and $3 million ofincome related to settlements.  We willcontinue to incur significant reorganization costs 

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until we emerge from bankruptcy.  The estimated reorganization costs during theliquidation period have been included in our August 1, 2006 accrual ofliquidation costs under the liquidation method of accounting.  For additional information, see “Changes inNet Liabilities in Liquidation” below and Note 2, “Bankruptcy Proceedingsand Sale of Assets of the Company,” to the accompanying consolidated financialstatements.

### *Income tax expense*

We recorded income taxexpense of $273 million and $103 million for the seven months ended July 31,2006 and the nine months ended September 30, 2005, respectively.  The increase in income tax expense isattributable to the gain on the Sale Transaction.  In 2006, income tax expense differs from theamount that would have resulted from the application of statutory tax ratesprimarily due to the utilization of net operating loss carryforwards and thereversal of $365 million of deferred tax liabilities.  In 2005, income tax expense differs from theamount that would have resulted form the application of statutory tax ratesprimarily due to increases in the valuation allowance provided against our netoperating loss carryforwards.  Income taxexpense for 2005 primarily relates to the increase in our deferred taxliability for franchise rights and goodwill intangible assets that are notamortized for financial reporting purposes, but are amortized for income taxpurposes.

*Minority’sinterest in loss of subsidiary*

As part of the SaleTransaction, Comcast acquired the remaining ownership interest in certainpartnerships in which Comcast held the minority interest and we held themajority interest.  As such, subsequentto the Sale Transaction, we no longer have an interest in these partnerships.  For additional information, see Note 2, “BankruptcyProceedings and Sale of Assets of the Company,” to the accompanyingconsolidated financial statements.

*Share ofincome (losses) of equity affiliates, net*

As part of the Sale Transaction, we sold certain ofour investments in equity affiliates to TW NY and Comcast.  In connection with the adoption of aliquidation basis of accounting on August 1, 2006, our remaining investments inequity affiliates have been accounted for as assets held for sale in which weno longer recognize our share of earnings or losses.

**LIQUIDITY ANDCAPITAL RESOURCES**

OnJuly 31, 2006, we completed the sale of assets, which in the aggregatecomprise substantially all of our U.S. assets, to TW NY and Comcast.  Proceeds from the Sale Transaction totaledapproximately $17.4 billion, consisting of cash in the amount of approximately$12.5 billion and approximately 156 million shares of TWC Class A Common Stockwith an estimated fair value as of the Closing Date of approximately $4.9 billion.  The aggregate purchase price is subject tocertain post-closing adjustments.  Uponconsummation of the Sale Transaction, a portion of the aggregate purchaseprice, consisting of approximately $503 million of cash and 6,148,283 shares ofTWC Class A Common Stock, was deposited in escrow accounts to secure ourindemnification obligations and any post-closing purchase price adjustmentsthat may be due to TW NY or Comcast from us pursuant to the PurchaseAgreements.  Pursuant to the PurchaseAgreements, the post-closing purchase price adjustments, if any, are likely tobe finalized by no later than the end of the first quarter 2007.  On October 27, 2006, TW NY andComcast delivered to us their calculations of the purchase price adjustmentspursuant to the Purchase Agreements. Based on TW NY’s and Comcast’s calculations, the net adjustmentasserted would result in a net payment of approximately $133 million to TW NYand Comcast.  The Company believes thatadditional post-closing adjustments of approximately $23 million are duefrom TW NY and Comcast. While we are still reviewing TW NY’s andComcast’s calculations, at this time we believe that we will be sending aformal objection to TW NY and Comcast at the beginning of next month thatchallenges at a minimum, substantially all of the amount claimed.  As a result, we have not adjusted the gain onthe Sale Transaction for these potential post-closing adjustments and, any suchadjustments are not considered material to the gain that we recognized in theaccompanying consolidated financial statements. Additionally, we have not been provided with notice of any claims beingasserted pursuant to the indemnification provisions of the respective assetpurchase agreements, nor are we aware of any basis for such claims.  To the extent that we determine additionalamounts are owed to either TW NY or Comcast in the future under the PurchaseAgreements, the amount of the gain recognized on the Sale Transaction will beadjusted.  For additionalinformation regarding the Sale Transaction, see Note 2, “Bankruptcy Proceedingsand Sale of Assets of the Company,” to the accompanying consolidated financialstatements.

On March 17, 2006, theLoan Parties entered into the $1,300 million Third Extended DIP Facility, whichsuperseded and replaced in its entirety the Second Extended DIP Facility.  The Third Extended DIP Facility was approvedby the Bankruptcy Court on March 16, 2006 and closed on March 17, 2006.  In connection with the completion of the SaleTransaction, on the Closing Date, we terminated the Third Extended DIPFacility.  In connection with the

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termination of the Third Extended DIP Facility, werepaid all loans outstanding under the Third Extended DIP Facility and allaccrued and unpaid interest thereon, with such payments totaling approximately$986 million.  In addition, in connectionwith the termination of the Third Extended DIP Facility we paid all accrued andunpaid fees of the lenders and agent banks under the Third Extended DIPFacility.  In connection with thesepayments, effective as of the Closing Date, the collateral agent under theThird Extended DIP Facility released any and all liens and security interestson the assets that collateralized the obligations under the Third Extended DIPFacility.

We also paidapproximately $1.8 billion of claims in the third quarter of 2006 in accordancewith the JV Plan, of which approximately $1.6 billion relates to pre-petitiondebt obligations.  In addition, atSeptember 30, 2006, $80 million of cash has been reserved under the JV Plan forexpenses and claims of the JV Debtors.

The remaining proceedsfrom the Sale Transaction will be used to fund our future liquidityrequirements which consist primarily of pre-petition liabilities that aresubject to compromise, fees and other items directly related to the Chapter 11filings and costs associated with certain corporate functions that willcontinue either in part or in whole for some period of time following the SaleTransaction.  At September 30, 2006, ourcash and cash equivalents and short-term investments totaled approximately $9.3billion.  Our investment policy isdesigned to provide for short-term liquidity and low levels of risk.  We do not have any additional sources ofliquidity.

At September 30,2006, we had total liabilities of $17,688 million, which includes $16,633million of pre-petition liabilities that are subject to compromise.  We currently cannot predict the amount ofcash that will be required to settle pre-petition liabilities subject tocompromise, as the rights and claims of the Debtors’ various creditors will bedetermined by a plan of reorganization that is ultimately subject toconfirmation by the Bankruptcy Court. Proceeds from the Sale Transaction are not sufficient to provide a fullpayout of all outstanding claims in the Chapter 11 Cases.  As ofSeptember 30, 2006, our liabilities exceeded our assets resulting in netliabilities in liquidation of $1,956 million.

**CRITICAL ACCOUNTING ESTIMATES**

Our critical accountingpolicies have changed from those reported in Management’s Discussion andAnalysis of Financial Condition and Results of Operations in the 2005 Form 10-Kas the result of the Sale Transaction and the adoption of the liquidation basisof accounting in August 2006.

As of September 30, 2006,we believe the following accounting policies are critical in that they areimportant to the determination of net liabilities in liquidation and theyrequire significant judgment and estimates.

*CarryingAmounts of Liabilities Subject to Compromise*

The ultimate amount ofthe Debtors’ liabilities will be determined during the Debtors’ claimsresolution process.  The Bankruptcy Courtestablished a bar date of January 9, 2004 for filing proofs of claimagainst the Debtors’ estates.  A bar dateis the date by which proofs of claim must be filed if a claimant disagrees withhow 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 of claims filed with theBankruptcy Court far exceeds the Debtors’ estimate of ultimate liability.  The Debtors currently are in the process ofreviewing, analyzing and reconciling the scheduled and filed claims.  The Debtors expect that the claims resolutionprocess will take significant time to complete.

The Debtors have filednumerous omnibus objections that address $3.88 trillion in claims, consistingprimarily of duplicative claims.  Certainclaims addressed in such objections were either: (i) reduced and allowed; (ii)disallowed and expunged; or (iii) subordinated by orders of the BankruptcyCourt.  Hearings on certain claimsobjections are ongoing.  Certain other objectionshave been adjourned to allow the parties to continue to reconcile suchclaims.  Additional omnibus objectionsmay be filed as the claims resolution process continues.

Accordingly, the amountspresented as liabilities subject to compromise may be subject to futureadjustments depending on Bankruptcy Court actions, completion of thereconciliation process with respect to disputed claims, determinations of thesecured status of certain claims, the values of any collateral securing suchclaims or other events.  Such adjustmentsmay be material to the amounts reported as liabilities subject to compromise.

## *Assessment of Loss Contingencies*

We have legal and othercontingencies that could result in significant losses upon the ultimateresolution of such contingencies.  Wehave 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 significantamount of judgment is involved in 

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determining whether a loss is probable and reasonablyestimable due to the uncertainty involved in determining the likelihood offuture events and estimating the financial statement impact of suchevents.  Accordingly, it is possible thatupon the further development or resolution of a contingent matter, asignificant charge could be recorded in a future period related to an existingcontingent matter.  For additionalinformation, see Note 8, “Contingencies,” to the accompanying consolidatedfinancial statements.

*EstimatedCosts to be Incurred During Liquidation*

 In connection with the adoption of aliquidation basis of accounting, we recorded an estimated accrual for costsduring the liquidation period of approximately $213 million.  Under the liquidation basis of accounting,the net present value of the estimated remaining costs to be incurred duringliquidation (exclusive of interest expense) is accrued.  Our estimate for liquidation costs as ofSeptember 30, 2006 includes professional fees associated with the Chapter 11proceedings, litigation matters and other legal matters ($109.8 million),compensation and benefits for the remaining employees ($49.7 million), andother miscellaneous general and administrative costs.  Such estimated costs are subject tochange.  We expect that changes will bemade to our estimated costs of liquidation, and such changes in estimates willbe recognized in future periods as a change in net liabilities inliquidation.  The estimated costs as ofSeptember 30, 2006 are based in large part on assumptions regarding the timingof emergence from bankruptcy, the resolution of litigation matters and thepost-emergence length of time required to settle all matters of theCompany.  If there are delays in thesematters, actual costs incurred during liquidation could increase as a result ofthe need for additional internal and external resources.

*Valuationof TWC Class A Common Stock*

The estimated fair valueof the TWC Class A Common Stock requires management to make significant estimatesand assumptions that have a material impact on the carrying value of ourinvestment.  The estimates andassumptions used are based on factors that management believes to bereasonable.

**NEW ACCOUNTINGPRONOUNCEMENTS**

In June 2005, the EITFreached a consensus on EITF 04-5.  EITF04-5 provides guidance in assessing when a general partner controls andconsolidates its investment in a limited partnership or similar entity.  The general partner is assumed to control thelimited partnership unless the limited partners have substantive kick-out orparticipating rights.  The provisions ofEITF 04-5 were required to be applied beginning June 30, 2005 for partnershipsformed or modified subsequent to June 30, 2005, and are effective for generalpartners in all other limited partnerships beginning January 1, 2006.  EITF 04-5 had no impact on our financialposition, results of operations or net liabilities in liquidation.

In July 2006,the FASB issued FIN 48.  FIN 48 definesthe threshold for recognizing the benefits of tax return positions in thefinancial statements as “more-likely-than-not” to be sustained by the taxingauthority.  The recently issuedliterature also provides guidance on the derecognition, measurement andclassification of income tax uncertainties, along with any related interest andpenalties.  FIN 48 also includes guidanceconcerning accounting for income tax uncertainties in interim periods andincreases the level of disclosures associated with any recorded income taxuncertainties.  FIN 48 is effective forfiscal years beginning after December 31, 2006.  We have not yet determined the impact, ifany, of adopting the provisions of FIN 48 on our net liabilities inliquidation.

In September 2006,the FASB issued SFAS No. 157.  SFAS No.157 defines fair value, establishes guidelines for measuring fair value ingenerally accepted accounting principles, and expands disclosures regardingfair value measurements.  SFAS No. 157does not require any new fair value measurements but rather eliminates inconsistenciesin guidance found in various prior accounting pronouncements.  SFAS No. 157 is effective for fiscal yearsbeginning after November 15, 2007. We are currently evaluating the impact of SFAS No. 157, but we do notexpect the adoption of SFAS No. 157 to have a material impact on ourconsolidated financial statements.

In September 2006,the FASB issued SFAS No. 158.  SFAS No.158 requires employers to recognize the overfunded or underfunded status of adefined benefit post-retirement plan as an asset or liability in its statementof financial position.  Further, thisstatement requires employers to recognize changes in the funded status in theyear in which the changes occur through comprehensive income.  SFAS No. 158 is effective for the fiscal yearending after December 15, 2006.  We arecurrently evaluating the impact of SFAS No. 158, but we do not expect theadoption of SFAS No. 158 to have a material impact on our consolidatedfinancial statements.

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In September 2006,the SEC Staff issued SAB No. 108. SAB No. 108 requires the use of two alternative approaches inquantitatively evaluating materiality of misstatements.  If the misstatement as quantified under eitherapproach is material to the current year financial statements, the misstatementmust be corrected.  In the year ofadoption (fiscal years ending after November 15, 2006 or calendar year2006 for Adelphia), the misstatements may be corrected as an accounting changeby adjusting opening retained earnings rather than being included in the currentyear statement of operations.  We arecurrently evaluating the requirements of SAB No. 108 and the impact it may haveon our consolidated financial statements.

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

Ourexposure to market risk associated with changes in interest rates relatesprimarily to our debt obligations. As of September 30, 2006, all of ouroutstanding debt was subject to compromise. We continue to pay interest on our pre-petition bank debt, all of whichbears interest at variable rates and subjects us to interest rate risk. We had$5,194 million outstanding variable rate debt (for which we continue topay interest) at September 30, 2006. Assuming a hypothetical 100 basis point increase (or decrease) ininterest rates, there would have been an increase or decrease in our interestexpense of approximately $8.7 million for the two months endedSeptember 30, 2006.

As of September 30,2006, our short-term investments include U.S. Treasuries, federal agencies andgovernment sponsored enterprises, commercial paper and repurchase agreementswith weighted average maturities of 62 days. At September 30, 2006, the carrying value of cash and cash equivalentsand short-term investments were $6,240 million and $3,092 million, respectively,and approximates the fair value of such investments.

 The estimated fair value of the TWC Class ACommon Stock we received in the Sale Transaction may increase or decrease basedon the financial performance of TWC, movements in the price of publicly tradedcable company stocks and general market conditions.

**ITEM 4.  CONTROLS AND PROCEDURES**

## *Evaluation of Disclosure Controls andProcedures*

The Company maintainsdisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in our reports filed under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms.  Disclosurecontrols and procedures include controls and procedures designed to ensure thatsuch information is accumulated and communicated to our management, includingour CEO, Chief Financial Officer (“CFO”) and Chief Accounting Officer (“CAO”),as appropriate, to allow timely decisions regarding required financialdisclosure.

Our management,under the supervision and with the participation of our CEO, CFO and CAO, hascompleted an evaluation of the effectiveness of the design and operation of ourdisclosure controls and procedures (as defined in Rule 13a-15(e) under theExchange Act) as of the end of the quarter ended September 30, 2006.  Based on our evaluation of the effectivenessof the design and operation of our disclosure controls and procedures, ourmanagement, including our CEO, CFO and CAO, concluded that as of September 30,2006, our disclosure controls and procedures were effective.

### *Changes in Internal Control Over Financial Reporting*

During the quarterended September 30, 2006, there were no changes in our internal control overfinancial reporting identified in connection with the evaluation of ourdisclosure controls and procedures for the quarter ended September 30, 2006that have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting. ** **However, as a result of ourdisposition of assets in the Sale Transaction, certain of our processes andcontrols are no longer applicable to our internal control over financialreporting.

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**PART II.  OTHER INFORMATION**

**ITEM 1.   LEGAL PROCEEDINGS**

*BankruptcyProceedings. *OnJune 25, 2002, Adelphia and substantially all of its wholly owned,domestic subsidiaries filed voluntary petitions to reorganize underChapter 11 in the Bankruptcy Court. Previously, on June 10, 2002, Century filed a voluntary petition toreorganize under Chapter 11.  On October6 and November 15, 2005, certain additional subsidiaries of Adelphia filedvoluntary petitions to reorganize under Chapter 11 and, on March 31, 2006, theForfeited Entities and certain other entities filed voluntary petitions toreorganize under Chapter 11.  The Debtorsare currently operating their businesses as debtors-in-possession under Chapter11.  These cases are jointly administeredunder the caption “In re: Adelphia Communications Corporation, et al., CaseNo. 02-41729.”

As furtherdescribed in Note 2, “Bankruptcy Proceedings and Sale of Assets of the Company,”to the accompanying consolidated financial statements, on the Closing Date,Adelphia consummated the Sale Transaction and the JV Plan becameeffective.  Accordingly, from and afterthe Closing Date, the Debtors no longer include the JV Debtors.

Under theBankruptcy Code, actions to collect pre-petition indebtedness, as well as mostother pending litigation, are stayed and other contractual obligations againstthe Company generally may not be enforced. Subject to certain exceptions, thePlan, which must be voted upon by holders of claims and equity interests andapproved by the Bankruptcy Court, will release and bar prosecution of actionsbased on pre-petition contractual liabilities, including certain of theproceedings described in Note 8, “Contingencies — Litigation Matters,” to theaccompanying consolidated financial statements.

The Company cannotpredict the outcome of these proceedings or estimate the possible effects onthe Company’s net liabilities in liquidation.

*OtherLegal Proceedings.*  SeeNote 8, “Contingencies — Litigation Matters,” to the accompanying consolidatedfinancial statements.

**ITEM 1A.  RISK FACTORS**

#### ***Factors Relating to the Chapter 11 Cases***

***If a plan ofreorganization is not confirmed or is not confirmed in a timely manner for theDebtors (other than the JV Debtors), we will continue to incur substantialcosts as a result of the Chapter 11 bankruptcy proceeding, which will reducethe amount available for distribution to the stakeholders under such plan.***

If we are unable to obtain the Bankruptcy Court’sconfirmation of a plan of reorganization for the Debtors (other than the JVDebtors) or do so in a timely manner, we will continue to incur substantialcosts and fees as a result of the continuation of the Chapter 11 bankruptcyproceedings and our obligations under the Registration Rights Agreement.  Such continued incurrence of costs and feeswill reduce the amount available for distribution to the stakeholders under aplan of reorganization.

***Theactual costs incurred during liquidation may exceed our current estimates,which will reduce the amount available for distribution to the stakeholdersunder a plan of reorganization.***

We recorded an estimated accrual for costs during theliquidation period of approximately $213 million.  Under the liquidation basis of accounting,the net present value of the estimated remaining costs to be incurred duringliquidation (exclusive of interest) is accrued. Our estimate for liquidation costs as of September 30, 2006includes professional fees associated with the Chapter 11 proceedings, litigationmatters and other legal matters, compensation for the remaining employees,accounting and audit fees and other miscellaneous general and administrativecosts.  Such estimated costs are subjectto change.  We expect that changes willbe made to our estimated costs of liquidation, and such changes in estimateswill be recognized in future periods as a change in the Company’s netliabilities in liquidation.  Theestimated costs as of September 30, 2006 are based in large part onassumptions regarding the timing of emergence from bankruptcy, the resolutionof litigation matters and the post-emergence length of time required to settleall matters of the Company.  If there aredelays in these matters, actual costs incurred during liquidation couldincrease as a result of 

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theneed for additional internal and external resources, which would reduce theamount available for distribution to the stakeholders under a plan ofreorganization.

#### ***Allowance of claims may substantiallydilute the recovery to holders of claims and equity interests under a plan oforganization.***

As of January 9, 2004, approximately 17,000 proofs ofclaim asserting in excess of $3.20 trillion in claims were filed and, as ofSeptember 30, 2006, approximately 19,700 proofs of claim assertingapproximately $3.98 trillion in claims were filed, in each case includingduplicative claims but excluding any estimated amounts for unliquidatedclaims.  The Debtors are in the processof reviewing, analyzing and reconciling the scheduled and filed claims and havefiled several omnibus objections that address approximately $3.88 trillion ofsuch claims.  Hearings on certain claimsobjections are ongoing.  Although certainclaims addressed in such omnibus objections have been reduced and allowed,disallowed and expunged or subordinated by orders of the Bankruptcy Court, theultimate number and allowed amounts of such claims are not determinable atpresent, and the Debtors expect that the claims resolution process will takesignificant time to complete and will continue following consummation of a planof reorganization. The failure to obtain disallowance of a substantial majorityof these proofs of claims would substantially dilute the recoveries to theDebtors’ stakeholders under a plan of reorganization.

#### ***Risk Factors relating to the SaleTransaction***

#### ***The aggregate purchase price we received in the SaleTransaction is subject to certain post-closing adjustments, which, if anybecome payable  to TW NY or Comcast,would reduce the amount available for distribution to the stakeholders under aplan of reorganization.***

On the Closing Date, we completed the sale of assets, which inthe aggregate comprise substantially all of our U.S. assets, to TW NY andComcast.  Proceeds from the SaleTransaction totaled approximately $17.4 billion, consisting of cash in theamount of approximately $12.5 billion and approximately 156 million shares ofTWC Class A Common Stock with an estimated fair value as of the Closing Date ofapproximately $4.9 billion.  Theaggregate purchase price is subject to certain post-closing purchase priceadjustments.  Upon consummation of theSale Transaction, a portion of the aggregate purchase price, consisting ofapproximately $503 million of cash and 6,148,283 shares of TWC Class A CommonStock, was deposited in escrow accounts to secure Adelphia’s indemnificationobligations and any post-closing purchase price adjustments that may be due toTW NY or Comcast from Adelphia pursuant to the Purchase Agreements.  Pursuant to the Purchase Agreements, thepost-closing purchase price adjustments, if any, are likely to be finalized byno later than the end of the first quarter 2007.  To the extent such post-closing adjustmentsare in favor of TW NY or Comcast, the amount of the escrow ultimately releasedto us will be reduced, and the amount available for distribution to thestakeholders under a plan of reorganization would be reduced.

#### ***The fair value of the TWC Class A Common Stock we receivedin the Sale Transaction may decrease, which would reduce the amount availablefor distribution to the stakeholders under a plan of reorganization.***

#### The fair value of the TWC Class A Common Stock we received in the SaleTransaction may decrease based on the financial performance of TWC, movementsin the price of publicly traded cable company stocks and general market conditions.  Any decrease would reduce the amountavailable for distribution to the stakeholders under a plan of reorganization.

***Asubstantial portion of the cash we received in the Sale Transaction is investedin short-term investments.  Suchinvestments are subject to credit exposure and interest rate fluctuations,which could result in the increase or decrease in the value of theinvestment.  Any decrease would reducethe amount available for distribution to the stakeholders under a plan ofreorganization.***

A substantialportion of the cash we received in the Sale Transaction is invested inshort-term money market instruments, including U.S. Treasuries, federalagencies and government sponsored enterprises, commercial paper and repurchaseagreements.  The investments are done inaccordance with an investment policy approved by the Board and the BankruptcyCourt in July 2006.  Although ourinvestment policy is designed to provide for short-term liquidity and lowlevels of risk, such investments are subject to credit exposure and interestrate fluctuations.  Consequently, thevalue of such investments could increase or decrease accordingly.  Any decrease would reduce the amountavailable for distribution to the stakeholders under a plan of reorganization.

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#### ***We are at risk of experiencing increasedlevels of employee attrition in the period subsequent to the closing of theSale Transaction, which could result in our inability to complete our quarterlyfinancial reporting and 2006 audit and year-end financial reporting.***

On the Closing Date, we completed the Sale Transactionwith TW NY and Comcast.  Although webelieve that we have retained sufficient senior management and other employeesto complete our 2006 audit and year-end financial reporting, we are at risk ofexperiencing increased levels of employee attrition in the period following theclosing of the Sale Transaction.  We believe that recruiting replacement employees ofthe caliber required to complete this work will be extremely difficult as we donot expect to have sufficient employment opportunities at the Company toattract such individuals in the future.  Thefailure to replace our departing personnel, if any, in a timely manner couldresult in our inability to complete our 2006 audit and year-end financial reporting,which could have a material adverse affect on us.

***Ourincome and franchise tax liabilities in connection with the Sale Transactionand consummation of a plan of reorganization could be materially more thanestimated.***

We will be liablefor federal, state and local income and franchise taxes as a result of the SaleTransaction. We recorded a tax liability of approximately $600 million inconnection with the Sale Transaction, which we believe is the better estimateof our probable liability. Our estimated range of potential tax liability isapproximately between $200 million and $800 million.  This liability,however, is based on incomplete information as a result of deficiencies in ourtax records.  Accordingly, this liability issubject to change, and by the time of the consummation of a plan ofreorganization, our income and franchise tax liabilities resulting from theSale Transaction may be materially in excess of the recorded liability. We expect that we will distribute on or as soon as reasonably possibleafter the effective date of a plan of reorganization all of our materialnon-cash assets to our creditors and certain equity holders and to reserves,funds, holdbacks and escrows created pursuant to a plan of reorganization. As such, we do not expect to be subject to asset tax basis reduction. However, there can be no assurance that the Internal Revenue Service (the “IRS”)will not seek to require basis reduction with respect to the assets then heldby us or assert that we actually or constructively hold additional assetssubject to basis reduction (such as those assets held by any reserves, funds,holdbacks or escrows created pursuant to a plan of reorganization).  Ifthe IRS were successful in requiring such basis reduction, we could be subjectto additional income and franchise tax liability potentially in a materialamount.

#### ***Risk Factors Relating to Legal andRegulatory Matters***

#### ***We are defendants in significant pendinglitigation, which could subject us to substantial damages and other penaltiesand reduce the amount available for distribution to stakeholders under a planof reorganization.***

We are defendants in certain significant litigation,described in more detail in Note 8, “Contingencies—Litigation Matters,” to thenotes to the accompanying consolidated financial statements.  If any ofthese proceedings is decided against us, we could be subject to substantialdamages, 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, would reduce the amount available for distributionto stakeholders under a plan of reorganization.

#### ***If court approval of the GovernmentSettlement Agreements is overturned or vacated, we may face the risk ofindictment by the U.S. Attorney and the SEC’s claim against us may be fixed bythe District Court and allowed by the Bankruptcy Court, which could materiallydilute the recoveries to the other creditors under a plan of organization.***

The Government Settlement Agreements were approved bythe Bankruptcy Court.  Our consent to thefinal judgment in the SEC Civil Action has been approved by both the BankruptcyCourt and the District Court. Various parties have challenged and soughtappellate review or reconsideration of the orders of the Bankruptcy Courtapproving the Government Settlement Agreements. The District Court affirmed the Bankruptcy Court’s approval of theNon-Prosecution Agreement, Adelphia’s consent to the final judgment in the SECCivil Action and the Adelphia-Rigas Settlement Agreement.  On March 24, 2006, various partiesappealed the District Court’s order affirming the Bankruptcy Court’s approvalto the Second Circuit. If the Bankruptcy Court order is overturned or vacated,then the Government Settlement Agreements may not remain effective and we mayface the risk of indictment by the U.S. Attorney, and the SEC’s claim againstus may be fixed by the District Court and allowed by the Bankruptcy Court,which could materially dilute the recoveries of other creditors.

***There is uncertainty regarding the amount of our taxattributes and our potential tax liabilities.***

As a result of thefraud and other alleged improper acts committed by Rigas Management (asexplained in greater detail in Item 1 of our 2005 Form 10-K titled, “Business —Certain Business and Other Developments Relating 

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to the Chapter 11 Cases —Certain Events Leading to the Installation of Interim Management andCommencement of the Chapter 11 Cases in 2002”), we corrected our books andrecords for the years 1999-2003.  We expect to file certain amendedfederal, state and local income and franchise tax returns to conform to ourcorrected books and records. This may entail the preparation and filing of over3,600 federal, state and local income and franchise tax returns.  Althoughwe have begun the process of preparing these amended returns, this undertakingwill take a substantial amount of time to complete. We expect that theamendment of these income tax and franchise tax returns will result insubstantial changes to the amount and location of our tax attributes (such asasset tax basis and net operating loss carryovers) for federal, state and localincome and franchise tax purposes.  It is possible that the amended taxreturns will reflect additional federal, state and local income tax andfranchise tax liabilities for these periods that were not reflected on theoriginal returns and that will become payable.

In addition, thereis currently uncertainty related to our tax attributes and historical taxliability. We recorded reserves to reflect this uncertainty; however, ourultimate tax liability for these periods may exceed such reserves by a materialamount.

***The tax consequences of certain advances by us to the RigasFamily and the Rigas Family Entities, our settlements with the U.S. Attorneyand the SEC and our acquisition of the Rigas Co-Borrowing Entities (other thanCoudersport and Bucktail) and subsequent sale of the assets of those entitiesin the Sale Transaction with TW NY and Comcast are uncertain.***

The propercharacterization for federal, state and local income and franchise tax purposesof amounts advanced by the Company to the Rigas Family and the Rigas FamilyEntities is uncertain.  Also uncertain isthe proper tax treatment for federal, state and local income and franchise taxpurposes of our settlements with the U.S. Attorney and the SEC and ouracquisition of the Rigas Co-Borrowing Entities (other than Coudersport andBucktail) and subsequent sale of the assets of those entities to TW NY andComcast in the Sale Transaction.  Accordingly, the amount and timing ofincome, gain, loss or deduction resulting from these various transactions isnot known with certainty.  It is possible that the acquisition of suchRigas Co-Borrowing Entities and the subsequent sale of the assets of thoseentities in the Sale Transaction may result in income and franchise taxliability to us, which could be material.

**ITEM 3.  DEFAULTS UPON SENIOR SECURITIES**

(b)  See Note 12, “Stockholders’ Deficit,” to thenotes to the consolidated financial statements contained in the Company’s 2005Form 10-K.

**ITEM 6.  EXHIBITS**
| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                  | ** ** |
|------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|  2.01       |       | 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).                                                 |       |
|  2.02       |       | Third Modified Fourth Amended Joint Plan of  Reorganization Under Chapter 11 of the Bankruptcy Code for Century-TCI  Debtors and Parnassos Debtors, dated as of June 28, 2006 (Incorporated  herein by reference to Exhibit 2.1 to the Company’s Current Report on  Form 8-K field on July 5, 2006) (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).          |       |

 

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| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                     | ** ** |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|  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     |       | Amendment No. 2,  dated June 21, 2006, to Asset Purchase Agreement 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 June 27, 2006) (File No. 0-16014).               |       |
|  2.03.5     |       | Amendment No. 3,  dated June 26, 2006, to Asset Purchase Agreement Between Adelphia  Communications Corporation and Time Warner NY Cable LLC (Incorporated by  reference to Exhibit 2.03.5 to the Company’s Quarterly Report on Form 10-Q  for the period ended June 30, 2006) (File No. 0-16014).                             |       |
|  2.03.6     |       | Amendment No. 4,  dated July 31, 2006, to Asset Purchase Agreement Between Adelphia  Communications Corporation and Time Warner NY Cable LLC (Incorporated by  reference to Exhibit 2.03.6 of the Company’s Quarterly Report on Form 10-Q  for the period ended June 30, 2006) (File No. 0-16014).                             |       |
|  2.03.7     |       | 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).                               |       |
|  2.03.8     |       | 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). |       |
|  2.03.9     |       | 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).        |       |
|  2.03.10    |       | Amendment No. 2,  dated June 21, 2006, to Asset Purchase Agreement 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 June 27, 2006) (File No. 0-16014).                    |       |
|  2.03.11    |       | Letter  Agreement, dated June 21, 2006, with Comcast Corporation (Incorporated herein  by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K  filed on June 27, 2006) (File No. 0-16014).                                                                                                |       |
|  2.03.12    |       | Amendment No. 3,  dated June 26, 2006, to Asset Purchase Agreement Between Adelphia  Communications Corporation and Comcast Corporation (Filed herewith).                                                                                                                                                                           |       |
|  2.03.13    |       | Amendment No. 4,  dated July 31, 2006, to Asset Purchase Agreement Between Adelphia  Communications Corporation and Comcast Corporation (Filed herewith).                                                                                                                                                                           |       |
|  2.03.14    |       | 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).            |       |
|  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       |       | 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).                                                  |       |
|  4.02       |       | Certificate of  Designations with respect to the Company’s 51¤2%  Series D Convertible Preferred Stock (Incorporated herein 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).                                  |       |

 

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| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                               | ** ** |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|  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).    |       |
|  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). |       |
|  4.04.1     |       | 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).     |       |

 

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| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | ** ** |
|------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|  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).                                                                                                                                                    |       |
|  10.01      |       | Second Amended  and Restated Agreement Concerning Terms and Conditions of a Modified  Chapter 11 Plan, dated as of July 21, 2006 (subject to Bankruptcy Court  approval) (Incorporated herein by reference to Exhibit 10.1 to the Company’s  Current Report on Form 8-K filed on July 24, 2006) (File No.  0-16014).                                                                                                                                    |       |
|  10.02      |       | In re Adelphia  Communications Corp. et al., Plan Support Agreement, dated as of  October 11, 2006, by and among the Debtors and certain creditors  (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on  Form 8-K filed on October 17, 2006) (File No. 0-16014).                                                                                                                                                                        |       |
|  10.03      |       | Registration  Rights and Sale Agreement, dated as of July 31, 2006, by and between  Adelphia Communications Corporation and Time Warner Cable Inc. (Incorporated  herein by reference to Exhibit 10.1 to the Company’s Current Report on  Form 8-K filed on August 4, 2006) (File No. 0-16014).                                                                                                                                                         |       |
|  10.04      |       | Stipulation and  Consent Order Among JPMorgan Chase Bank, N.A.; Adelphia Communications Corp.  and its Affiliated Debtors and Debtors in Possession; and Official Committee  of Unsecured Creditors Providing Terms and Conditions for Withdrawal of  Appeal of JPMorgan Chase Bank, N.A. from Sale Order, dated July 27, 2006  (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current  Report on Form 8-K filed on August 2, 2006) (File No. 0-16014). |       |
|  10.05      |       | Escrow  Agreement, dated as of July 31, 2006, by and among Adelphia Communications  Corporation, Time Warner NY Cable LLC and Deutsche Bank Trust Company  Americas (Incorporated by reference to Exhibit 10.04 to the Company’s  Quarterly Report on Form 10-Q for the period ended June 30, 2006) (File No.  0-16014).                                                                                                                                                    |       |
|  10.06      |       | Escrow  Agreement, dated as of July 31, 2006, by and among Adelphia Communications  Corporation, Comcast Corporation and Deutsche Bank Trust Company Americas  (Filed herewith).                                                                                                                                                                                                                                                                                                 |       |
|  10.07      |       | Amendment No. 2  to the Terms and Conditions of Employment Between Ronald Cooper and Adelphia  Communications Corporation executed on January 17, 2003 and amended by  Amendment No. 1 thereto on February 21, 2003 (Incorporated by  reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K  filed on August 14, 2006) (File No. 0-16014).                                                                                              |       |
|  10.08      |       | Amendment No. 3  to the Terms and Conditions of Employment Between William T. Schleyer and  Adelphia Communications Corporation executed on January 17, 2003 and  amended by Amendment No. 1 thereto on February 21, 2003 and further  amended by Revised Amendment No. 2 thereto on March 10, 2003 (Filed  herewith).                                                                                                                                       |       |
|  10.09      |       | First Amendment,  effective as of May 31, 2006, to Employment Agreement between Adelphia  Communications Corporation and Vanessa Wittman, dated May 8, 2003 (Filed  herewith).                                                                                                                                                                                                                                                                                                   |       |
|  10.10      |       | First Amendment,  effective as of May 31, 2006, to Employment Agreement between Adelphia  Communications Corporation and Brad Sonnenberg, dated July 21, 2003  (Filed herewith).                                                                                                                                                                                                                                                                                       |       |
|  10.11      |       | Second  Amendment, effective as of October 11, 2006, to Employment Agreement  between Adelphia Communications Corporation and Vanessa Wittman, dated May 8,  2003, as amended May 31, 2006 (Filed herewith).                                                                                                                                                                                                                                                           |       |
|  10.12      |       | Second  Amendment, effective as of October 11, 2006, to Employment Agreement  between Adelphia Communications Corporation and Brad Sonnenberg, dated July  21, 2003, as amended on May 31, 2006 (Filed herewith).                                                                                                                                                                                                                                                           |       |
|  10.13      |       | Terms of  Extended EVP Post-Close Incentive Program between Adelphia Communications and  Vanessa Wittman, dated October 10, 2006 (Filed herewith).                                                                                                                                                                                                                                                                                                                               |       |

 

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| Exhibit   Number | ** ** | **Description**                                                                                                                                                                    | ** ** |
|------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|  10.14      |       | Terms of  Extended EVP Post-Close Incentive Program between Adelphia Communications and  Brad Sonnenberg, dated October 4, 2006 (Filed herewith).                                  |       |
|  31.1       |       | Certification of  Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the  Securities Exchange Act of 1934, as amended (Filed herewith).                       |       |
|  31.2       |       | Certification of  Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the  Securities Exchange Act of 1934, as amended (Filed herewith).                            |       |
|  32.1       |       | Certification of  Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed  herewith).      |       |
|  32.2       |       | Certification of  Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed  herewith). |       |

 

 

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Pursuant to the requirements of the Securities Exchange Actof 1934, the registrant has duly caused this report to be signed on its behalfby the undersigned thereunto duly authorized.

 
|                    | ADELPHIA COMMUNICATIONS  CORPORATION |
|-------------------------|--------------------------------------|
|                    | (Registrant)                         |
|                    |                                 |   |   |
|                    |                                 |   |   |
|                    |                                 |   |   |
| Date: November 14, 2006 | By:                                  | /s/  | Vanessa A. Wittman |
|                    |                                 |   | Vanessa A. Wittman |
|                    |                                 |   | Chief Financial Officer |
|                    |                                 |   | (Principal Financial Officer) |
|                    |                                 |   |   |
|                    |                                 |   |   |
|                    |                                 |   |   |
| Date: November 14, 2006 | By:                                  | /s/  | Janet L. Dickinson |
|                    |                                 |   | Janet L. Dickinson |
|                    |                                 |   | Chief Accounting Officer |
|                    |                                 |   | (Principal Accounting Officer) |

 

 

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