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Adelphia Communications Corporation, Abridged 1996 Annual Report

(Dollars in thousands, except per-share amounts)

The selected consolidated ¬nancial data as of and for each of the ¬ve years in the period ended March 31,
1996 have been derived from the audited consolidated ¬nancial statements of the Company.

Year Ended March 31,
1992 1993 1994 1995 1996
Statement of Operations Data:
Revenues $273,630 $305,222 $319,045 $361,505 $403,597
Direct operating and programming
expenses 74,787 82,377 90,547 106,993 124,116
Selling, general, and administrative
expenses 44,427 49,468 52,801 63,487 68,357
Operating income before depreciation,
amortization, and rate regulation
expenses 154,416 173,377 175,697 191,025 211,124
Depreciation and amortization 84,817 90,406 89,402 97,602 111,031
Rate regulation charge ” ” ” ” 5,300

Operating income 69,599 82,971 86,295 93,423 94,793
Interest income from af¬liates 3,085 5,216 9,188 11,112 10,623
Other income (expenses) 968 1,447 (299) 1,453 -
Priority investment incomea 22,300 22,300 22,300 22,300 28,852
Cash interest expense (129,237) (164,695) (180,456) (180,942) (194,403)
Noncash interest expense (35,602) (164) (1,680) (14,756) (16,288)
Equity in loss of joint ventures (52,718) (46,841) (30,054) (44,349) (46,257)

Loss before income taxes, extraordinary loss
and cumulative effect of change in
accounting principleb (121,605) (99,766) (94,706) (111,759) (122,680)
Income tax (expense) bene¬t ” (3,143) (2,742) 5,475 2,786
Loss before extraordinary loss and cumula-
tive effect of change in accounting
principle (121,605) (102,909) (97,448) (106,284) (119,894)
Extraordinary loss on early retirement of
debtb ” (14,386) (752) ” ”
Cumulative effect of change in accounting
for income taxesb ” (59,500) (89,660) ” ”
Net loss ($121,605) ($176,795) ($187,860) ($106,284) ($119,894)
Loss per weighted average share of com-
mon stock before extraordinary loss and
cumulative effect of change in accounting
principle $ (8.80) $ (6.80) $ (5.66) $ (4.32) $ (4.56)
Net loss per weighed average share of
common stock (8.80) (11.68) (10.91) (4.32) (4.56)
Cash dividends declared per common share ” ” ” ” ”
580 Credit Analysis and Distress Prediction

Credit Analysis and Distress Prediction


Adelphia Communications Corporation
Year Ended March 31,
1992 1993 1994 1995 1996
Other Data:
EBITDAd $ 180,769 $ 202,340 $ 207,936 $ 225,890 $ 257,999

Balance Sheet Data:
Cash and cash equivalents $ 11,173 $ 38,671 $ 74,075 $ 5,045 $ 10,809
Investment in and amounts due from
(to) Olympusa 64,972 7,692 9,977 11,943 (33,656)
Total assets 925,791 949,593 1,073,846 1,267,291 1,333,923
Total debt 1,554,270 1,731,099 1,793,711 2,021,610 2,175,473
Debt net of cashc 1,543,097 1,692,428 1,719,636 2,016,565 2,164,664
Stockholders™ equity (de¬ciency) (713,544) (868,614) (918,064) (1,011,575) (1,128,239)

(a) On March 28, 1996, ACP Holdings, Inc. (“ACP”), a wholly owned subsidiary and managing general partner of Olympus Communications,
L.P. (“Olympus”), various Telesat Entities (“Telesat”), wholly owned subsidiaries of FPL Group Inc., Olympus, Adelphia and certain sharehold-
ers of Adelphia entered into an agreement which provided for a distribution of Adelphia of $40,000 and the repayment of certain amounts
owed Telesat totaling $20,000. See “Management™s Discussion and Analysis of Financial Condition and Results of Operations” for further de-
tails. Investment in and amounts due from Olympus at March 31, 1996 are comprised of the following:

Gross investment in PLP interests and general partners™ equity $298,402
Excess of ascribed value of contributed property over historical cost (98,303)
Cumulative equity in net loss of Olympus (359,584)
Additional investment in Olympus”net of distributions 65,922
Investment in Olympus (93,563)
Amounts due from Olympus 59,907

(b) “Extraordinary loss” relates to loss on the early retirement of debt. “Cumulative Effect of Change in Accounting Principle” refers to a change
in accounting principle for Olympus and the Company. Effective January 1, 1993 and April 1, 1993, respectively. Olympus and the Company
adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes,” which requires
an asset and liability approach for financial accounting and reporting for income taxes. SFAS No. 109 resulted in the cumulative recognition
of an additional liability by Olympus and the Company of $59,500 and $89,660, respectively.
(c) Represents total debt less cash and cash equivalents.
(d) Earnings before interest, income taxes, depreciation and amortization, equity in loss of joint ventures, other noncash charges, extraordinary
loss and cumulative effect of change in accounting principle (“EBITDA”). EBITDA and similar measurements of cash flow are commonly used
in the cable television industry to analyze and compare cable television companies on the basis of operating performance, leverage and
liquidity. While EBITDA is not an alternative indicator of operating performance to operating income as defined by generally accepted ac-
counting principles, the Company™s management believes EBITDA is a meaningful measure of performance as substantially all of the Com-
pany™s financing agreements contain financial covenants based on EBITDA.
Credit Analysis and Distress Prediction

14-29 Part 2 Business Analysis and Valuation Tools

Adelphia Communications Corporation

(Dollars in thousands)
Results of Operations tions in recent years, the recent upgrading and
expansion of systems and interest costs associated
GENERAL with ¬nancing activities will continue to have a nega-
tive impact on the reported results of operations.
Adelphia Communications Corporation and its
Also, signi¬cant charges for depreciation, amortiza-
subsidiaries (“Adelphia” or the “Company”) earned
tion and interest are expected to be incurred in the
substantially all of its revenues in each of the last
future by the Olympus joint venture, which will also
three ¬scal years from monthly subscriber fees for
adversely impact Adelphia™s future results of opera-
basic, satellite, premium and ancillary services (such
tions. Adelphia expects to report net losses for the
as installations and equipment rentals), local and
next several years.
national advertising sales, pay-per-view program-
An 89% owned unrestricted subsidiary of the
ming, home shopping networks and competitive
Company, Hyperion Telecommunications, Inc.
local exchange carrier (“CLEC”) telecommunications
(“Hyperion”), together with its subsidiaries owns cer-
services. Certain changes in the way the Company
tain investments in CLEC joint ventures and man- Business Analysis and 2
offers and charges for subscriber services were
Valuation Tools
ages those ventures. Hyperion is an unrestricted
implemented as of September 1, 1993 under the
subsidiary for purposes of the Company™s inden-
1992 Cable Act and under the Company™s revised
tures. Excluding the impact of Hyperion™s operating
method of offering certain services. See “Regulatory
results, the Company™s EBITDA (see de¬nition
and Competitive Matters.”
below) would increase by $1,941, $2,138, and
The changes in Adelphia™s results of operations
$2,254 for the years ended March 31, 1994, 1995,
for the years ended March 31, 1995 and 1996,
and 1996, respectively. On April 14, 1996, Hyper-
compared to the same period of the prior year, were
ion realized gross proceeds of $175,265 upon issu-
primarily the result of acquisitions, expanding exist-
ance of notes and warrants (see “Liquidity and 14
ing cable television operations and, for the year
Capital Resources”).
ended March 31, 1996, the impact of increased Credit Analysis and Distress Prediction

The following table is derived from Adelphia™s
advertising sales and other service offerings as well
Consolidated Financial Statements and sets for the Communica-
as an increase in cable rates which became effective
historical percentage relationship of operating tions Corpo-
October 1, 1995.
income contained in such ¬nancial statements for ration
The high level of depreciation and amortization
the years indicated.
associated with the signi¬cant number of acquisi-

Percentage of Revenues for Year Ended March 31,

1994 1995 1996
Revenues 100.0% 100.0% 100.0%
Operating expenses:
Direct operating and programming 28.4% 29.6% 30.8%
Selling, general and administrative 16.5% 17.6% 16.9%
Operating income before depreciation,
amortization, and rate regulation expenses 55.1% 52.8% 52.3%
Depreciation and amortization 28.0% 27.0% 27.5%
Rate regulation 0.0% 0.0% 1.3%
Operating income 27.1% 25.8% 23.5%
582 Credit Analysis and Distress Prediction

Credit Analysis and Distress Prediction


Adelphia Communications Corporation
MARCH 31, 1994, 1995 AND 1996 Administrative Expenses.
These expenses, which are mainly comprised of
costs related to system of¬ces, customer service rep-
Revenues increased approximately 13.3% for the
resentatives, and sales and administrative employ-
year ended March 31, 1995 and 11.6% for the year
ees, increased 20.2% and 7.7% in the years ended
ended March 31, 1996 compared with the prior ¬s-
March 31, 1995 and 1996, respectively, compared
cal year. The increases were attributable to the fol-
with the respective prior years. The increases were
primarily due to incremental costs associated with
acquisitions, subscriber growth and implementation
Year Ended March 31,
of the 1992 Cable Act and regulations thereunder.
1995 1996
Selling, general and administrative expenses
Acquisitions 87% 36%
increased as a percentage of revenues for the year
Basic subscriber growth 10% 20%
ended March 31, 1995, as compared with ¬scal
Rate increases 0% 20%
1994, primarily due to wage and bene¬t increases
Advertising sales and other services 3% 24%
without a corresponding increase in revenues as a
Effective October 1, 1995, certain rate increases result of the rate freeze enacted by the 1992 Cable
related to regulated cable services were imple- Act. For the year ended March 31, 1996, selling,
mented in substantially all of the Company™s sys- general and administrative expenses decreased as a
tems. No rate increases were implemented during percentage of revenues compared to the prior year,
the 1995 ¬scal year. Advertising revenues and reve- primarily due to the favorable impact on revenues of
nues derived from other strategic service offerings the above mentioned October 1, 1995 rate
such as paging and CLEC services also had a posi- increases.
tive impact on revenues for the year ended March
31, 1996. Operating Income Before Depreciation,
Amortization and Rate Regulation Expenses.
Direct Operating and
Operating income before depreciation, amortiza-
Programming Expenses.
tion and rate regulation settlement was $175,697,
Direct operating and programming expenses,
$191,025 and $211,124 for the years ended
which are mainly basic and premium programming
March 31, 1994, 1995 and 1996, respectively. The
costs and technical expenses, increased 18.2% and
increase for the year ended March 31, 1995 was
16.0% for the years ended March 31, 1995 and
due primarily to the impact of acquisitions, offset by
1996, respectively, compared with the respective
cost increases at a rate greater than increases in
prior years. Such increases were primarily due to
revenues due largely to the above noted rate freeze.


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