<<

. 128
( 208 .)



>>




On March 11, 1993, Adelphia issued 9 7/8%
On May 14, 1992, Adelphia issued at face
Senior Debentures due March 2005 in the aggre-
value to the public $400,000 aggregate principal
gate principal amount of $130,000. Interest on the
amount of unsecured 12 1/2% Senior Notes due
debentures is payable semi-annually. The deben-
May 15, 2002. Interest is due on the notes semian-
tures, which are effectively subordinated to all liabil-
nually. The notes, which are effectively subordinated
ities of the subsidiaries, contain restrictions and
to all liabilities of the subsidiaries, contain restric-
covenants similar to the restrictions on the 12 1/2%
tions on, among other things, the incurrence of
Senior Notes. The debentures are not redeemable
indebtedness, mergers and sale of assets, certain
prior to the maturity date of March 1, 2005.
restricted payments by Adelphia, investments in af¬l-
iates and certain other af¬liate transactions. The
9 1/2% Senior Pay-in-Kind Notes Due 2004
notes further require that Adelphia maintain a debt
On February 15, 1994, Adelphia issued
to annualized operating cash ¬‚ow ratio of not
$150,000 aggregate 9 1/2% Senior Pay-in-Kind
greater than 8.75 to 1.00, based on the latest ¬scal
Notes due February 2004. On or prior to February
quarter, exclusive of the incurrence of $50,000 in
1999, all interest on the notes, which is due semi-
additional indebtedness which is not subject to the
annually, may at the option of Adelphia be paid in
required ratio. Adelphia may redeem the notes in
cash or through the issuance of additional notes val-
whole or in part on or after May 15, 1997, at 106%
ued at 100% of their principal amount. The notes
of principal, declining to 100% of principal on or
will bear cash interest from February 1999 through
after May 15, 1999.
maturity. The notes, which are effectively subordi-
nated to all liabilities of the subsidiaries, contain
10 1/4% Senior Notes Due 2000
restrictions and covenants similar to the 12 1/2%
On July 28, 1993, Adelphia issued $110,000 Senior Notes. Adelphia may redeem the notes in
aggregate principal amount of unsecured 10 1/4% whole or in part on or after February 15, 1999, at
Senior Notes due July 2000. Interest is due on the 103.56% of principal, declining to 100% of princi-
notes semiannually. The notes, which are effectively pal on or after February 15, 2002.
subordinated to all liabilities of the subsidiaries,
contain restrictions and covenants similar to the 13% Senior Subordinated Notes Due 1996
restrictions on the 12 1/2% Senior Notes. The notes
On February 14, 1994, Adelphia redeemed all
are not callable prior to the maturity date of July 15,
of the 13% Senior Subordinated Notes for 100% of
2000. During ¬scal 1995, $10,000 of notes were
the $100,000 aggregate principal amount.
retired through open market purchases.
Maturities of Debt
11 7/8% Senior Debentures Due 2004
Maturities of debt for the ¬ve years after March
31, 1996 are as follows:
On September 10, 1992, Adelphia issued to
the public $125,000 aggregate principal amount of
unsecured 11 7/8% Senior Debentures due Septem- 1997 $127,906
ber 2004. Interest is due on the debentures semi- 1998 177,475
annually. The debentures, which are effectively sub- 1999 162,791
ordinated to all liabilities of the subsidiaries, contain 2000 82,483
2001 157,381
restrictions and covenants similar to the restrictions
on the 12 1/2% Senior Notes. Adelphia may
The maturities of debt listed above have been
redeem the debentures in whole or in part on or
adjusted to re¬‚ect changed maturity dates resulting
after September 15, 1999, at 104.5% of principal,
from repayment of certain debt during April 1996
declining to 100% of principal on or after Septem-
from borrowings under a new credit facility (see
ber 15, 2002.
594 Credit Analysis and Distress Prediction




14-42
Credit Analysis and Distress Prediction




Note 11). Management intends to fund its require- During ¬scal 1996, Adelphia received $11,526




Adelphia Communications Corporation
ments for maturities of debt through borrowings upon termination of several interest rate swap
under new and existing credit arrangements and agreements having a stated notional principal
internally generated funds. Changing conditions in amount of $270,000. The amount received will be
the ¬nancial markets may have an impact on how amortized as a reduction of interest expense through
Adelphia will re¬nance its debt in the future. November 1998. At March 31, 1996, the unamor-
tized balance is $10,027. Also during ¬scal 1996,
the Company received $4,900 and assumed the
Interest Rate Swaps and Caps
obligations as a counterparty under certain interest
rate swap agreements with Olympus. These interest
Adelphia has entered into interest rate swap
rate swap agreements have a notional principal
agreements and interest rate cap agreements with
amount of $140,000 and expire through November
banks, Olympus and Managed Entities to reduce the
1998.
impact of changes in interest rates on its debt. Sev-
eral of Adelphia™s credit arrangements include pro-
visions which require interest rate protection for a 7. Taxes on Income:
portion of its debt. Adelphia enters into pay-¬xed
agreements to effectively convert a portion of its
Adelphia and its corporate subsidiaries ¬le a
variable-rate debt to ¬xed-rate debt to reduce the
consolidated federal income tax return, which
risk of incurring higher interest costs due to rising
includes its share of the subsidiary partnerships and
interest rates. Adelphia enters into receive-¬xed
joint venture partnership results. At March 31, 1996,
agreements to effectively convert a portion of its
Adelphia had net operating loss carryforwards for
¬xed-rate debt to a variable-rate debt which is
federal income tax purposes of approximately
indexed to LIBOR rates to reduce the risk of incurring
$1.1 billion expiring through 2011. Depreciation
higher interest costs in periods of falling interest
and amortization expense differs for tax and ¬nan-
rates. Interest rate cap agreements are used to
cial statement purposes due to the use of prescribed
reduce the impact of increases in interest rates on
periods rather than useful lives for tax purposes and
variable rate debt. Adelphia is exposed to credit loss
also as a result of differences between tax basis and
in the event of nonperformance by the banks, by
book basis of certain acquisitions.
Olympus or by the Managed Entities. Adelphia does
not expect any such nonperformance. The following Adelphia adopted Statement of Financial
table summarizes the notional amounts of outstand- Accounting Standards (“SFAS”) No. 109, “Account-
ing and weighted average interest rate data, based ing for Income Taxes,” effective April 1, 1993.
on variable rates in effect at March 31, 1995 and Under SFAS No. 109, deferred tax assets and liabili-
1996, for all swaps and caps which expire 1996 ties are recognized for differences between the
through 1998. ¬nancial statement amounts of assets and liabilities
and their respective tax bases. The cumulative effect
March 31,
of adopting SFAS No. 109 at April 1, 1993 was to
1995 1996
increase the net loss by $89,660 for the year ended
March 31, 1994. The effect of adopting SFAS No.
Pay Fixed Swaps:
Notional amount $396,000% $416,000% 109 on loss before extraordinary loss and cumula-
Average receive rate 6.19% 5.68%
tive effect of a change in accounting principle was
Average pay rate 7.50% 7.94%
not signi¬cant for the year ended March 31, 1994.
Receive Fixed Swaps:
As a result of applying SFAS No. 109,
Notional amount $406,000% $108,500%
$110,498 of previously unrecorded deferred tax
Average receive rate 6.77% 6.66%
Average pay rate 6.30% 5.74% bene¬ts from operating loss carryforwards incurred
by Adelphia were recognized at April 1, 1993 as
Interest Rate Caps:
part of the cumulative effect of adopting the state-
Notional amount $ 50,000%
Average cap rate 9.00% ment. Under prior accounting, a portion of these
595
Credit Analysis and Distress Prediction




14-43 Part 2 Business Analysis and Valuation Tools




bene¬ts would have been recognized as a reduction
Adelphia Communications Corporation




of income tax expense from continuing operations in
the year ended March 31, 1994.

The tax effects of signi¬cant items comprising
Adelphia™s net deferred tax liability are as follows:
March 31,
April 1,
1993 1994 1995 1996

Deferred tax liabilities:
Differences between book and tax basis of property, plant
and equipment and intangible assets $192,444 $210,816 $232,639 $234,312
Other 8,401 9,703 11,783 ”
Subtotal 200,845 220,519 244,422 234,312

Deferred tax assets:
Reserves not currently deductible 687 15,576 12,326 14,467
Operating loss carryforwards 307,001 337,924 381,377 415,121
307,688 353,500 393,703 429,588
Valuation allowance (196,503 ) (224,702) (259,420) (301,485)
Subtotal 111,185 128,798 134,283 128,103

$ 89,660 $ 91,721 $110,139 $106,209
Net deferred tax liability



The net change in the valuation allowance for 8. Disclosures about Fair Value of
the years ended March 31, 1995 and 1996 was an Financial Instruments:
increase of $34,718 and $42,065, respectively.
Included in Adelphia™s ¬nancial instrument
Income tax (expense) bene¬t for the years
portfolio are cash, notes payable, debentures and
ended March 31, 1994, 1995, and 1996 is as fol-
interest rate swaps and caps. The carrying values of
lows:
notes payable approximate their fair values at
Year Ended March 31,
March 31, 1995 and 1996. The carrying cost of the
public notes and debentures at March 31, 1995 and
1994 1995 1996
1996 of $915,845 and $932,135, respectively,
Current $(681) $(500) $(1,144)
exceeded their fair value by $95,628 and $1,420,
Deferred (2,061) 5,975 3,930
respectively. At March 31, 1995 and 1996, Adel-
Total $(2,742) $5,475 $2,786
phia would have been required to pay approxi-
mately $6,929 and $14,225, respectively, to settle
A reconciliation of the statutory federal income
its interest rate swap and cap agreements, repre-
tax rate and Adelphia™s effective income tax rate is
senting the excess of carrying cost over fair value of
as follows:
these agreements. The fair values of the debt and
Year Ended March 31, interest rate swaps and caps were based upon
quoted market prices of similar instruments or on
1994 1995 1996
rates available to Adelphia for instruments of the
Statutory federal income tax return 35% 35% 35%
same remaining maturities.
Change in valuation allowance (30%) (31%) (37%)
State taxes, net of federal bene¬t (2%) 4% (1%)
Other (6%) (3%) 5%
Effective income tax (expense)
bene¬t rate (3%) 5% 2%
596 Credit Analysis and Distress Prediction




14-44
Credit Analysis and Distress Prediction




EXHIBIT 5




Adelphia Communications Corporation
Adelphia Communications Corporation, Status of Cable Plant”

<<

. 128
( 208 .)



>>