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dation preference to the remaining shareholders™ located in western Pennsylvania at the acquisition
25% common stock ownership interest on demand date and were purchased for an aggregate price of
subject to certain regulatory approvals. Debt $43,000.
590 Credit Analysis and Distress Prediction

Credit Analysis and Distress Prediction

Investment in Olympus Joint Venture cable labor and overhead, and interest. Capitalized

Adelphia Communications Corporation
Partnership interest amounted to $1,345, $1,736, and $1,766
for the years ended March 31, 1994, 1995, and
The investment in the Olympus joint venture
1996, respectively.
partnership comprises both limited and general
partner interests. The general partner interest repre- Intangible Assets
sents a 50% voting interest in Olympus Communica-
Intangible assets, net of accumulated amortiza-
tions, L.P (“Olympus”) and is being accounted for
tion, are comprised of the following:
using the equity method. Under this method, Adel-
phia™s investment, initially recorded at the historical March 31,
cost of contributed property, is adjusted for subse- 1995 1996
quent capital contributions and its share of the
Purchased franchises $ 493,249 $ 465,983
losses of the partnership as well as its share of the Goodwill 38,805 58,377
accretion requirements of the partnership™s interests. Non-compete agreements 13,495 11,240
The limited partner interest represents a preferred Purchased subscriber lists 567 33,298
interest (“PLP interests”) entitled to a 16.5% annual $ 546,116 $ 568,898
A portion of the aggregate purchase price of
The PLP interests are nonvoting, are senior to
cable television systems acquired has been allocated
claims of certain other partner interests, and provide
to purchased franchises, purchased subscriber lists,
for an annual priority return of 16.5%. Olympus is
goodwill and non-compete agreements. Purchased
not required to pay the entire 16.5% return currently
franchises and goodwill are amortized on the
and priority return on PLP interests is recognized as
straight-line method over 40 years. Purchased sub-
income by Adelphia when received. Correspond-
scriber lists are amortized on the straight-line
ingly, equity in net loss of Olympus excludes accu-
method of periods which range from 5 to 10 years.
mulated unpaid priority return (see Note 2).
Non-compete agreements are amortized on the
Subscriber Revenues straight-line method over their contractual lives
which range from 4 to 12 years. Accumulated
Subscriber revenues are recorded in the month
amortization of intangible assets amounted to
the service is provided.
$107,914 and $137,012 at March 31, 1995 and
Property, Plant and Equipment 1996, respectively.
Property, plant and equipment are comprised of
Cash and Cash Equivalents
the following:
Adelphia considers all highly liquid investments
March 31,
with original maturities of three months or less to be
1995 1996
cash equivalents. Interest on liquid investments was
Operating plant and equipment $ 786,917 $ 863,957 $2,020, $1,230 and $1,859 for the years ended
Real estate and improvements 46,453 51,147
March 31, 1994, 1995, and 1996, respectively.
Support equipment 28,242 30,076
Construction in progress 77,026 105,158
938,638 1,050,338
The equity method of accounting is generally
Accumulated depreciation (420,233) (489,962)
$ 518,405 $ 560,376 used to account for investments in af¬liates which
are greater than 20% but not more than 50%
Depreciation is computed on the straight-line owned. Under this method, Adelphia™s initial invest-
method using estimated useful lives of 5 to 12 years ment is recorded at cost and subsequently adjusted
for operating plant and equipment and 3 to 20 for the amount of its equity in the net income or
years for support equipment and buildings. Addi- losses of its af¬liates. Dividends or other distribu-
tions to property, plant and equipment are recorded tions are recorded as a reduction of Adelphia™s
at cost which includes amounts for material, appli- investment.
Credit Analysis and Distress Prediction

14-39 Part 2 Business Analysis and Valuation Tools

Investments in af¬liates accounted for using the return has been increased to 14%. During the year
Adelphia Communications Corporation

equity method generally re¬‚ect Adelphia™s equity in ended March 31, 1996, the Company funded
their underlying assets. $7,681 of the $12,500 and by April 24, 1996 the
entire $12,500 had been funded. The Sabres Part-
Investments in entities in which Adelphia™s own-
nership manages and will receive allocations of
ership is less than 20% and investments greater than pro¬ts, losses, and distributions from the Marine
20% in which Adelphia does not in¬‚uence the oper- Midland Arena, a new sports and entertainment
ating or ¬nancial decisions of the entity are gener-
facility expected to be completed by the opening of
ally accounted for using the cost method. Under the the 1996-1997 NHL season. Adelphia believes this
cost method, Adelphia™s initial investment is
investment will be a competitive advantage in the
recorded at cost and subsequently adjusted for the Buffalo cable television market.
amount of its equity in net income or losses of the
investee only to the extent distributed by the investee Subscriber Receivables
as dividends or other distributions. Dividends
An allowance of doubtful accounts of $3,503
received in excess of earnings subsequent to the
and $1,216 has been deducted from subscriber
date the investment was made are recorded as
receivables at March 31, 1995 and 1996, respec-
reductions of the cost of the investment.
tively. The decrease in the allowance for doubtful
accounts as of March 31, 1996 resulted from a
The balance of Adelphia™s investment is as
change in procedure for writing off doubtful
accounts. This change had no effect on bad debt
March 31,
1995 1996
Amortization of Other Assets
Investments accounted for using
and Debt Discounts
the equity method:
Gross investment:
Deferred debt ¬nancing costs, included in pre-
Alternate access ventures 15,764 $28,754
paid expenses and other assets, and debt discounts,
Page Call, Inc. 6,915 11,187
a reduction of the carrying amount of the debt, are
Other 2,847 800
amortized over the term of the related debt. The
Cumulative equity in net losses (1,458) (6,814)
Total 24,068 33,927 unamortized amounts included in prepaid expenses
and other assets were $23,355 and $25,274 at
Investments accounted for using
March 31, 1995 and 1996, respectively.
the cost method:
Niagara Frontier Hockey, L.P. 15,000 22,681
Asset Impairments
Commonwealth Security, Inc. 4,200 4,200
SuperCable 3,000 3,171
Adelphia periodically reviews the carrying value
Other 2,700 4,168
of its long-lived assets for impairment whenever
Total 24,900 34,220
events or changes in circumstances indicate that the
Total investments $48,968 $68,147
carrying value of assets may not be recoverable.
Measurement of any impairment would include a
On April 12, 1994, Adelphia purchased for comparison of estimated future operating cash ¬‚ows
$15,000 (i) convertible preferred units in Niagara anticipated to be generated during the remaining
Frontier Hockey, L.P (the “Sabres Partnership”),
. life of the assets with their carrying value. An impair-
which owns the Buffalo Sabres National Hockey ment loss would be recognized as the amount by
League (“NHL”) franchise, convertible to a 34% which the carrying value of the assets exceeds their
equity interest and (ii) warrants allowing Adelphia to fair value.
increase its interest to 40%. Adelphia has also com-
Noncash Financing and Investing Activities
mitted to advance $12,500 to the Sabres Part-
nerhsip in the form of 14% convertible capital Capital leases entered into during the year
funding notes. In connection with the $12,500 com- ended March 31, 1994 totaled $7,186. There were
mitment, Adelphia™s convertible preferred units™ no material capital leases entered into the years
592 Credit Analysis and Distress Prediction

Credit Analysis and Distress Prediction

ended March 31, 1995 and 1996. Reference is Borrowings under most of these credit arrange-

Adelphia Communications Corporation
made to Notes 1, 2, 5 and 9 for descriptions of addi- ments of subsidiaries are collateralized by a pledge
tional non-cash ¬nancing and investing activities. of the stock in their respective subsidiaries, and, in
some cases, by assets. These agreements stipulate,
Derivative Financial Instruments among other things, limitations on additional bor-
rowings, investments, transactions with af¬liates and
Net settlement amounts under interest rate
other subsidiaries, and the payment of dividends
swap agreements are recorded as adjustments to
and fees by the subsidiaries. They also require
interest expense during the period incurred.
maintenance of certain ¬nancial ratios by the sub-
sidiaries. Several of the subsidiaries™ agreements,
Use of Estimates in the Preparation
along with the notes of the parent company, contain
of Financial Statements
cross default provisions. At March 31, 1996 approx-
The preparation of ¬nancial statements in con- imately $219,000 of the net assets of subsidiaries
formity with generally accepted accounting princi- would be permitted to be transferred to the parent
ples requires management to make estimates and company in the form of dividends, priority return
assumptions that affect the reported amounts of and loans without the prior approval of the lenders
assets and liabilities and disclosure of contingent based upon the results of operations of such subsid-
assets and liabilities at the date of the ¬nancial iaries for the quarter ended March 31, 1996. The
statements and the reported amounts of revenues subsidiaries are permitted to pay fees to the parent
and expenses during the reporting period. Actual company or other subsidiaries. Such fees are limited
results could differ from those estimates. to a percentage of the subsidiaries™ revenues.
Bank debt interest rates are based upon one or
more of the following rates at the option of Adel-
Certain 1994 and 1995 amounts have been phia: prime rate plus 0% to 1.5%; certi¬cate of
reclassi¬ed for comparability with the 1996 presen- deposit rate plus 1.25% to 2.75%; or LIBOR rate
tation. plus 1% to 2.5%. At March 31, 1995 and 1996, the
weighted average interest rate on notes payable to
banks and institutions was 9.33% and 8.36%,
3. Debt:
respectively. The rates on 36% of Adelphia™s notes
payable to banks and institutions were ¬xed for at
Notes Payable of Subsidiaries to
least one year through the terms of the notes or
Banks and Institutions
interest rate swap agreements.
Notes payable of subsidiaries to banks and
institutions are comprised of the following:
March 31,

1995 1996

Credit agreements with banks payable through 2003 (weighted average
interest rate 8.16% and 7.51% at March 31, 1995 and 1996, respectively) $ 584,250 $ 758,975
10.66% Senior Secured Notes due 1996 through 1999 250,000 245,000
9.95% Senior Secured Notes due through 1997 9,600 3,200
10.80% Senior Secured Notes due 1996 through 2000 45,000 36,000
10.50% Senior Secured Notes due 1997 through 2001 16,000 16,000
9.73% Senior Secured Notes due 1998 through 2001 37,500 37,500
10.25% Senior Subordinated Notes due 1996 through 1998 72,000 56,000
11.85% Senior Subordinated Notes due 1998 through 2000 60,000 60,000
11.13% Senior Subordinated Notes due 1999 through 2002 12,000 12,000
$1,086,350 $1,224,675
Credit Analysis and Distress Prediction

14-41 Part 2 Business Analysis and Valuation Tools

9 7/8% Senior Debentures Due 2005
12 1/2% Senior Notes Due 2002
Adelphia Communications Corporation


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