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ADELPHIA COMMUNICATIONS CORPORATION TABLE OF CONTENTS
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2003

oTransition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period

Commission File Number: 0-16014

ADELPHIA COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)

303-268-6300
(Registrant's telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.01 par value; and
5¹/2% Series D Convertible Preferred Stock, $0.01 par value.

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

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to the Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes o No ý

        Aggregate market value of outstanding Class A Common Stock, par value $0.01, held by non-affiliates of the registrant at June 30, 2003 was approximately $61.7 million and as of June 30, 2004 was approximately $116.6 million, based on the closing sale price as reported on the Pink Sheets as of each such date. For purposes of this calculation only, affiliates are deemed to be directors and executive officers of the registrant.

        At September 30, 2004, 228,692,414 shares of Class A Common Stock, par value $0.01, and 25,055,365 shares of Class B Common Stock, par value $0.01, of the registrant were outstanding.

ADELPHIA COMMUNICATIONS CORPORATION

TABLE OF CONTENTS

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CAUTIONARY STATEMENTS

        This Annual Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements regarding Adelphia Communications Corporation's ("Adelphia") and its subsidiaries' (collectively, the "Company," "we," "our" or "us") expected future financial position, results of operations, cash flows, process for the sale of the business, restructuring and financing plans, expected emergence from bankruptcy, business strategy, budgets, projected costs, capital expenditures, network upgrades, products and services, competitive positions, growth opportunities, plans and objectives of management for future operations are forward-looking statements. In some instances, you can identify these forward-looking statements by the presence of words such as "anticipate," "if," "believe," "plan," "estimate," "expect," "intend," "may," "could," "should," "will," and other similar expressions. Such forward-looking statements are inherently uncertain, and readers must recognize that actual results may differ materially from the Company's expectations. The Company does not undertake a duty to update such forward-looking statements. Factors that may cause actual results to differ materially from those in the forward-looking statements include the risk factors set forth in this Annual Report under the heading "Business—Risk Factors," and the Company's pending bankruptcy proceeding, results of litigation against the Company and government investigations of the Company, the effects of government regulation including the actions of local cable franchising authorities, the availability of financing, actions of the Company's competitors, results and impacts of the process to sell the Company or its assets, pricing and availability of programming, equipment, supplies, and other inputs, the Company's ability to upgrade its cable network, technological developments, and changes in general economic conditions. Many of these factors are outside of the Company's control.

INTRODUCTORY NOTES

        All financial, statistical and operating data of the Company in this Annual Report, including data relating to subscribers, includes information only with respect to Adelphia and its subsidiaries that are consolidated for financial reporting purposes. The statistical and operating data of the Company in this Annual Report includes 100% of such data from less than wholly-owned consolidated subsidiaries. The financial, statistical and operating data of the Company in this Annual Report does not include data with respect to various cable systems that are owned or controlled by members of John J. Rigas' family and for which the Company provides management services or with respect to the Company's Puerto Rican joint venture. The Company is considering whether the applicable provisions of generally accepted accounting principles will make it appropriate effective January 1, 2004, for the Company to consolidate for financial reporting purposes, certain Rigas-owned or controlled entities that had access, along with the Company, to certain credit facilities and the subsidiaries of such Rigas-owned or controlled entities.

        Through May 2002, John J. Rigas, his sons and members of his immediate family constituted a majority of the board of directors of Adelphia (the "Board") and held all of the senior executive positions with the Company. The Company has filed a lawsuit against members of the John J. Rigas' family and their controlled entities which generally alleges that the defendants misappropriated billions of dollars from the Company in breach of their fiduciary duty to the Company. In addition, John J. Rigas and Timothy J. Rigas have been found guilty in the United States District Court for the Southern District of New York (the "District Court") of conspiracy, securities fraud and bank fraud in connection with certain actions taken by them during their tenure as officers and directors of Adelphia. All statements in this report regarding improper actions of Rigas Management (as defined herein), except to the extent relating to the subject matter of the guilty verdicts, constitute allegations on the part of the Company. Readers should not rely on Adelphia's periodic and other reports filed prior to May 24, 2002.

        A glossary of certain defined terms is included at the end of this report.

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PART I

ITEM 1. BUSINESS

OVERVIEW

General

        We are the fifth largest operator of cable systems in the United States. Our operations primarily consist of providing analog and digital video services, high-speed Internet access and other advanced services over our broadband networks. These services are generally provided to residential subscribers. As of December 31, 2003, our consolidated cable operations served approximately 5,085,000 basic cable subscribers, of which approximately 1,802,000 also received digital cable service. Our consolidated cable systems also provided high-speed Internet ("HSI") services to approximately 954,000 subscribers as of December 31, 2003. With the exception of 47,000 basic cable subscribers that were located in Brazil, all of our consolidated basic cable subscribers as of December 31, 2003 were located in the United States. Our domestic consolidated cable operations are located in 31 states, with large clusters in Los Angeles, New England, Western New York, West Palm Beach, Cleveland, Western Pennsylvania, Northern Virginia and Colorado Springs.

        In addition to our consolidated operations, we managed certain cable operations that we did not consolidate for financial reporting purposes at December 31, 2003. These cable operations consisted primarily of various entities that are owned or controlled by members of John J. Rigas' family (collectively, the "Rigas Family") that operate cable systems and for which the Company provides management services (collectively, the "Managed Cable Entities") and cable properties owned by a joint venture in Puerto Rico in which the Company has a 50% interest. At December 31, 2003, the Managed Cable Entities and Puerto Rico operations served approximately 238,000 and 140,000 basic cable subscribers, respectively.

        In June 2002, Adelphia and substantially all of its domestic subsidiaries (the "Debtors") filed voluntary petitions to reorganize (the "Chapter 11 Cases") under Chapter 11 of Title 11 ("Chapter 11") of the United States Code (the "Bankruptcy Code") and are currently operating as debtors-in-possession. On February 25, 2004, the Debtors filed their proposed joint plan of reorganization under Chapter 11 of the Bankruptcy Code (the "Stand-Alone Plan") and related draft disclosure statement with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") that contemplated that the Debtors emerge from bankruptcy as a stand-alone entity. On April 22, 2004, Adelphia announced that it intended to pursue a possible sale of the Company while simultaneously pursuing the Stand-Alone Plan. On September 21, 2004, Adelphia formally launched its sale process in which potential bidders were invited to submit preliminary indications of interest in the Company or one or more Company-designated clusters of cable systems. On November 1, 2004, Adelphia, based on the non-binding indications of interest it received from bidders, invited qualified bidders to further participate in the sale process and to submit final legally binding bids in accordance with the bidding procedures approved by the Bankruptcy Court. The Company is pursuing the dual track process to determine which alternative is in the best interest of the Debtors' constituents in the Chapter 11 Cases.

Period During Which Members of the Rigas Family Held Executive Positions

        The predecessor cable business of the Company was founded in 1952 in Coudersport, Pennsylvania. Adelphia was incorporated in Delaware in July 1986 for the purpose of reorganizing five cable television companies, which were then principally owned by the Rigas Family, into a holding company structure in connection with the initial public offering of Adelphia's Class A Common Stock, par value $0.01 per share (the "Class A Common Stock").

        Prior to May 2002, members of the Rigas Family held all of the senior executive positions at Adelphia and constituted five of the nine members of the Board (collectively, "Rigas Management").

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In addition, Adelphia's Class B Common Stock, par value $0.01 per share (the "Class B Common Stock," and together with the Class A Common Stock, the "Adelphia Common Stock"), is owned by members of the Rigas Family and entities in which members of the Rigas Family directly or indirectly held controlling interests (such entities collectively referred to as the "Rigas Family Entities"). The Class B Common Stock is a "super-voting" common stock that entitles the holders to 10 votes per share and, prior to the commencement of the Chapter 11 Cases, effectively enabled the Rigas Family to elect eight of the nine members of the Board. As described in greater detail below, beginning in 2002 the Company alleged that among other wrongdoing, Rigas Management had issued false and misleading public disclosures, consolidated financial statements and compliance certificates, improperly capitalized operating expenses, engaged in allegedly improper transactions, failed to reflect indebtedness for which the Company was liable on the Company's accounting records or in the Company's public disclosure, allegedly engaged in improper self-dealing transactions, allowed members of the Rigas Family to utilize Company assets for their personal benefit, and allegedly took other improper actions. Following the discovery of Rigas Management's alleged misconduct, a special committee of the Board obtained the agreement of all of the members of Rigas Management to resign from their positions as officers and directors of Adelphia. Beginning in May 2002, the Board began reconstituting itself, and as of January 1, 2004, the Board was composed of seven directors, none of whom had served as directors during the period when Rigas Management ran the Company. Although members of the Rigas Family and Rigas Family Entities continue to own shares of the Class B Common Stock with a majority of the voting power in Adelphia, the Rigas Family has been unable to exercise such voting power since they resigned from their positions as officers and directors of Adelphia and are effectively precluded from exercising such voting power during the pendency of the Chapter 11 Cases.

New Management

        Effective March 18, 2003, William T. Schleyer was appointed as our Chairman and Chief Executive Officer ("CEO") and Ron Cooper was appointed as our President and Chief Operating Officer ("COO"). Shortly after the appointments of Messrs. Schleyer and Cooper, the Board and these new officers hired a new senior management team. These executives have implemented new internal controls and procedures designed, among other things, to prevent a recurrence of the improper acts that allegedly occurred during the tenure of Rigas Management. Following the resignation of Rigas Management, the Company performed an extensive review of its historical public disclosures, books and records, accounting policies and practices and consolidated financial statements and determined that certain of its public disclosures, books and records and consolidated financial statements as of and for the years ended December 31, 2000 and 1999, were materially misstated as a result of the actions taken by Rigas Management.

Available Information

        Our Internet address is www.adelphia.com. In addition, our website contains a hyperlink to the Adelphia page on the Securities and Exchange Commission (the "SEC") website (www.sec.gov). Thus, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are all available free of charge through our Internet website as soon as reasonably practicable after filing such reports with, or furnishing them to, the SEC. Readers are advised that our periodic and other reports filed with or furnished to the SEC prior to May 24, 2002 were prepared by Rigas Management and do not reflect the results of the subsequent investigation of actions taken by Rigas Management, the implementation of our new corporate governance policies and procedures or other steps subsequently taken by the Company. Therefore, readers should not rely on our periodic and other reports filed prior to May 24, 2002.

        Our principal executive offices are located at 5619 DTC Parkway, Greenwood Village, Colorado 80111, telephone number (303) 268-6300.

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CORPORATE GOVERNANCE

        Since May 2002, the Board and senior management extensively reformed the Company's corporate governance practices. Although the Board and management's work in this area is ongoing, they have implemented corporate governance policies and procedures that meet or exceed the requirements of the Sarbanes-Oxley Act of 2002 and other applicable rules, and have incorporated corporate governance principles from stock exchange listing requirements, suggestions from various shareholder advocacy groups and best practices and procedures from other major public corporations. We have kept the SEC apprised of our corporate governance reforms.

Reorganization of the Board Committees

        As part of Adelphia's corporate governance initiatives, the Board has made substantial changes with respect to its various committees. Prior to May 2002, the Board had three standing committees, the Audit Committee, the Nominating Committee and the Compensation Committee. During the tenure of Rigas Management, the Nominating Committee was comprised of four non-independent directors, John J. Rigas, Michael J. Rigas, Timothy J. Rigas and James P. Rigas, and the Audit Committee included Timothy J. Rigas until June 2001.

        Following the departure of the Rigas Family members from the Board, the Board created a Corporate Governance Committee, which was later combined with the Nominating Committee to form the Corporate Governance and Nominating Committee. The Board also has adopted written charters for the Corporate Governance and Nominating Committee and the Compensation Committee, and has amended the previous Audit Committee charter. Each of these charters was prepared to meet or exceed applicable legal and stock exchange requirements, and to incorporate progressive corporate governance practices. Pursuant to each committee charter, each of the Corporate Governance and Nominating Committee, the Audit Committee and the Compensation Committee are to be comprised solely of independent directors as determined in accordance with Adelphia's corporate governance guidelines.

        The Corporate Governance and Nominating Committee assists the Board by: (i) recommending to the Board, carrying out and maintaining the Company's corporate governance policies and processes; (ii) identifying qualified individuals for membership on the Board and its committees; (iii) recommending the composition and procedures of the Board and its committees; and (iv) assessing the effectiveness of the Board and its committees.

        The Audit Committee assists the Board by: (i) monitoring the integrity of Adelphia's financial statements (and audits thereof) and its financial and accounting reporting processes, audit process, procedures and systems of internal controls regarding finance, accounting and legal and regulatory compliance which management and the Board have established; (ii) monitoring the independence, qualifications and performance of Adelphia's independent public accountants and internal auditing department; and (iii) providing an open avenue of communication among the independent public accountants, management, the internal auditing department and the Board.

        The Compensation Committee assists the Board by: (i) providing a forum for independent judgment as to the fairness of director, executive and employee compensation arrangements at the Company; and (ii) determining the terms of such compensation arrangements.

Creation of Lead Director Position

        In April 2003, the Board established the position of Lead Director to be elected on an annual basis by a majority of the independent members of the Board. Adelphia's independent directors elected Anthony Kronman as the Lead Director in December 2003. In light of current best governance practices, the Board created the Lead Director position for periods when Adelphia's CEO also serves

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as the chairperson of the Board, as is currently the case. The Lead Director is responsible for, among other things:

•

calling and presiding over executive sessions of the independent directors;



•

serving as a liaison between the independent directors and the non-independent directors and management regarding matters addressed in executive sessions;



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acting as chairperson of the Board in the absence of the chairperson of the Board;



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advising the chairperson of the Board and the committee chairpersons as to the agenda for meetings of the Board and its committees;



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serving as the director contact for shareholder communications; and



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

Corporate Governance Guidelines

        Pursuant to the recommendation of the Corporate Governance and Nominating Committee, the Board in July 2004 approved corporate governance guidelines for Adelphia (the "Corporate Governance Guidelines"). The Corporate Governance Guidelines, together with all applicable laws, Adelphia's Certificate of Incorporation and Bylaws, the Code of Business Conduct and Ethics (the "Code of Ethics") and the various committee charters, are intended to provide a comprehensive framework for the governance of Adelphia. The Corporate Governance Guidelines incorporate new legal requirements and best practices with respect to the function and composition of the Board, selection of new directors, tenure of directors, Lead Director position, meetings of the Board, executive sessions of independent directors, committees of the Board, access of the Board to management and outside advisors, compensation of directors, director and officer conduct, evaluation of the Board, evaluation of senior management, management succession, director orientation and continuing education, stock ownership and conflicts.

Code of Business Conduct and Ethics

        In April 2003, the Board adopted the Code of Ethics, which sets forth Adelphia's policies for directors, officers (including Adelphia's principal executive officer, principal financial officer and principal accounting officer) and employees in connection with, among other things, the maintenance of accurate company records, communications with the public, conflicts of interest, treatment of confidential information, use of company assets, anti-nepotism, the reporting of accounting complaints and illegal and unethical behavior, compliance with laws relating to discrimination and harassment, commercial bribery, competition and fair dealing, and insider trading. The Code of Ethics has been disseminated to all of our employees, and employees are required to certify their agreement to abide by the Code of Ethics. The Code of Ethics has been filed as Exhibit 14.1 to this Annual Report.

Corporate Governance Officer

        The Code of Ethics contemplates the appointment of a corporate governance officer ("CGO"). The role of the CGO is to assist with the administration and implementation of the Code of Ethics and, among other things, to serve as the central point of contact for employees wishing to report any illegal or unethical behavior. Brad M. Sonnenberg, Adelphia's General Counsel, serves as the CGO.

Complaints Regarding Accounting Matters or Other Wrongdoing

        As part of our implementation of the Code of Ethics, we have established procedures for the receipt of all complaints regarding any alleged wrongdoings. These procedures include the

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establishment of a dedicated toll-free hotline number, a U.S. mailing address and an e-mail address to facilitate such communications, whether from employees or outside interested parties. The CGO receives and oversees the investigation of all such complaints in the first instance.

        Furthermore, our Audit Committee and Board have adopted a whistleblower policy, which links the Code of Ethics and the existing Sarbanes-Oxley requirements by addressing the receipt, retention and handling of all complaints received by the Company (whether audit-related or not).

BUSINESS STRATEGY

        Since the current management team was hired in early 2003, we have implemented a strategy designed to increase revenue, profitability and competitiveness, reduce costs and improve the overall efficiency of our business. Our objective is to maintain and leverage our position as a leading provider of analog and digital video and HSI services. Key elements of our strategy include:

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Own and operate an upgraded high-bandwidth, two-way network—The upgrade of our broadband network allows us to introduce advanced products and services including high definition television ("HDTV"), digital video recorders ("DVR") and video-on-demand ("VOD"), and to extend the reach of our HSI services. The broadband network upgrade has been ongoing over the past several years. The introduction of advanced services such as HDTV, DVR and VOD began in late 2003. As of December 31, 2003, approximately 89% of homes passed had bandwidth capacity of at least 550 megahertz ("MHz") with two-way capacity, and approximately 79% of homes passed had bandwidth capacity of at least 750-MHz with two-way capacity. We are able to offer HSI services and a more robust digital offering to homes at 550-MHz with two-way capacity. For homes with bandwidth capacity of at least 750-MHz, we are able to drive incremental revenue and customer choice by offering HDTV, DVR and VOD and, in the future, voice over Internet protocol ("VoIP") services. We will utilize the advanced services and packages to attract and retain customers and compete against video services offered by direct broadcast satellite ("DBS") providers and HSI services offered by digital subscriber line ("DSL") providers. We expect that our ability to offer a competitively priced package of video and HSI services will be a key factor in improving customer retention and competing effectively against DBS and DSL providers.



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Offer Bundled Services—We offer a bundled package of video and HSI services to subscribers. Bundling of video and HSI services and VoIP, when launched, is an important part of our strategy. Competitive pressures from DBS and DSL providers have increased subscriber movement, or churn, away from cable operators. We believe the ability to offer a competitively priced bundle of services through one contact and one bill can reduce overall churn, improve operating efficiencies, reduce customer calls and drive subscriber and revenue growth.



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Deliver a quality customer experience—Customer service is an important element of our business strategy. Prior to 2003, we had many small call centers serving our customers. In 2003, we initiated a plan to reduce the number of call centers, expand the scale of existing centers and improve the training, skills and product knowledge of our call center employees. We made significant improvements in this area in 2003 with the introduction of interactive voice response ("IVR") technology that allows customers to resolve issues quickly and leads to improvements in our internal operating efficiencies. In addition, we opened an inbound call center in Orlando, Florida in April 2004 staffed with customer representatives focused on sales, including opportunities to sell additional services to existing customers (upselling), and on assisting customers with self-installation of HSI.

        We believe that the combination of a broadband cable network, expanded service offerings and customer choice and commitment to customer service should enable the Company to expand its business, develop new revenue streams, increase profitability and effectively compete in the marketplace.

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CUSTOMER STATISTICS

        The following table summarizes the Company's consolidated end of year customer statistics for basic and digital video and HSI for each of the three years ended December 31, 2003 (numbers in thousands, except percentage data):

(a)

A home is deemed to be "passed" by cable if it can be connected to the cable network without any further extension of the cable network. Due to actions taken by Rigas Management, we cannot verify the accuracy of homes passed information prior to 2003 and therefore, are unable to present such information in this Annual Report.

(b)

Excludes systems that are managed by the Company, but not consolidated for financial reporting purposes.

(c)

A residential subscriber who has at a minimum broadcast service, regardless of any other services taken, is counted as one basic cable subscriber. "Basic cable subscribers" excludes complimentary accounts (such as our employees) and includes promotional accounts. Subscribers in commercial, multi-dwelling or other bulk establishments are counted as an equivalent bulk unit ("EBU"), based on the prevailing rate for the franchise area. EBUs are calculated by dividing the total basic and expanded basic revenue from the commercial, multi-dwelling or other bulk establishment by the prevailing rate for the franchise area. The EBU method of estimating basic video subscribers is consistent with the methodology used in determining costs paid to programmers and has been consistently applied for all periods. If we increase our effective basic rates to residential subscribers without a corresponding increase in the rates charged to commercial, multi-dwelling or other bulk establishments, our EBU count will decline even if there is no decrease in commercial, multi-dwelling or other bulk establishment subscribers.

(d)

Basic cable subscribers as a percentage of homes passed. As described in (c) above, basic cable subscribers includes an adjustment for subscribers in commercial, multi-dwelling or other bulk establishments. Homes passed does not include a similar adjustment. As a result, relative to commercial, multi-dwelling or other bulk establishments, the calculation results in penetration of less than 100% even when such establishment is fully penetrated. Due to actions taken by Rigas Management, we cannot verify the accuracy of homes passed information prior to 2003 and therefore are unable to present basic cable penetration rates prior to 2003 in this Annual Report.

(e)

A residence or business with one or more active digital set-top boxes is counted as one digital cable subscriber. "Digital cable subscribers" excludes complimentary accounts (such as our employees) and includes promotional accounts.

(f)

Digital cable subscribers as a percentage of basic cable subscribers.

(g)

A residence or business with one or more active HSI modems is counted as one HSI subscriber. "HSI subscribers" excludes complimentary accounts (such as our employees) and includes promotional accounts.

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(h)

HSI subscribers as a percentage of HSI-ready homes. HSI-ready homes were approximately 8.3 million at December 31, 2003. Due to actions taken by Rigas Management, we cannot verify the accuracy of HSI-ready homes information prior to 2003 and therefore are unable to present HSI penetration rates prior to 2003 in this Annual Report.

(i)

Total revenue generating units is a statistic developed by the National Cable & Telecommunications Association ("NCTA") and is calculated as the sum of basic cable subscribers, digital subscribers and HSI subscribers.

SERVICES

Video Services

        Video services represented approximately 82%, 85% and 77% of our total revenue in 2003, 2002 and 2001, respectively. We typically offer these services to our customers for a monthly subscription fee. Our video services consist of the following:

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



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



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Premium Services.    Our premium service channels provide, without commercial interruption, movies, live and taped concerts, sporting events and other programming.



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Pay-Per-View Programming.    Our pay-per-view programming service allows our customers to order special events or movies on a per event basis for a fee.



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Digital Cable.    Our digital cable services offer customers more channels and choices than our basic cable service. As of December 31, 2003, approximately 35% of our basic cable subscribers were also digital cable subscribers. Subscribers to our digital cable service receive one or more of the following:



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an interactive program guide;



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multiple channels of digital video programming and music;



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"multiplexes" of premium video channels that are varied as to time of broadcast or programming content theme; and



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

In October 2003, we introduced new digital cable and HSI packages in most markets. These new packages are designed to increase revenue through more profitable price points and higher penetration of digital and HSI services and to reduce churn by offering customers compelling bundled packages as compared to services offered by our competitors.

•

Advanced Services.    Many of our upgraded homes are able to receive enhanced offerings such as VOD, HDTV and DVR.



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Video on Demand—VOD is an interactive service that provides access to hundreds of movies and other programming with functionality similar to VCRs. There are three types of VOD services: (i) those that customers pay for on a per-selection basis and have access to the programming for a 24-hour period, (ii) programming that is provided as part of a premium package at no incremental charge to the customer and (iii) free, on demand content that features a variety of subjects and that is available to all digital subscribers.

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•

High Definition Television—HDTV is high resolution digital television and, through an HDTV set-top box, offers customers better picture quality and enhanced audio.



•

Digital Video Recorders—DVR services allow customers to store programming on a hard disk drive for viewing at a later time. The DVR functions like a VCR except there is no tape and DVR offers greater ease of use and enhanced recording and playback options.

High-Speed Internet Services

        Our HSI services represented approximately 10%, 6% and 3% of our total revenue for 2003, 2002 and 2001, respectively. Our HSI services were available to approximately 82% of our homes passed for a monthly fee as of December 31, 2003. HSI services are provided through cable modems and represent a more robust alternative to Internet access over analog modems using dial-up connections. Our HSI services currently include virus protection, firewall and pop-up blockers, and home networking is currently available on a limited basis. In addition, our HSI services provide constant Internet connectivity without needing to tie up a telephone line. The network capability also allows us to offer tiered services at different speeds and price points, providing customers with choices more closely tailored to their needs and potentially expanding our customer base and revenue opportunity.

Media Services

        Media services sell television advertising that we insert into certain of the programming services we carry on our networks. The sale of such advertising represented approximately 6%, 6% and 6% of our total revenue for 2003, 2002 and 2001, respectively. Such revenue was generated primarily from the sale of local, regional and national advertising and promotional opportunities on national and regional cable networks. Our advertising sales organization covers more than 60 designated market areas across the United States.

Other Services

        We also provide home security monitoring services and long distance services in certain markets. We entered into an asset purchase agreement with a third party in November 2004, pursuant to which we agreed to sell substantially all of the assets of our home security business. This sale is subject to the approval of the Bankruptcy Court and to customary closing conditions. Prior to 2003, the Company offered wireless messaging services that were discontinued in early 2003. Revenue for other services represented approximately 2%, 3% and 14% of our total revenue for 2003, 2002 and 2001, respectively. For 2001, revenue for other services includes revenue attributable to TelCove, Inc. ("TelCove"), a former majority-owned subsidiary of the Company which provided various telecommunications services. The Company completed a spin-off of TelCove in January 2002. See Note 9, "TelCove," to the accompanying consolidated financial statements.

Voice-over Internet Protocol (VoIP) Services

        Our upgraded network will support the delivery of a competitive alternative to traditional switched telephone service using VoIP. Our proposed VoIP service will offer many of the most desirable features and functionality as traditional residential telephone service. It will support 911 emergency services and will comply with the Communications Assistance to Law Enforcement Act ("CALEA"), and interoperate with the public switched telephone network ("PSTN"). In 2004, we began preparations for offering VoIP service, including product development, securing the necessary commercial agreements, initiation of a technical trial and interoperability testing with our information systems and the PSTN. We anticipate commercial launch of VoIP during 2005, with the specific date dependent on completion of operational readiness tests.

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PRICING FOR SERVICES

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

        In accordance with the rules of the Federal Communications Commission (the "FCC"), the prices we charge for basic cable service and cable-related equipment, such as set-top boxes and remote control devices, and for installation services in those communities where the local franchise authority (the "LFA") has elected to regulate such prices, are based on actual costs plus a permitted rate of return.

NETWORK TECHNOLOGY

        Cable television delivers multiple channels of video and audio programming to subscribers that pay a monthly fee for the services they receive. Cable systems receive at "headends" video, audio and data signals transmitted by nearby television broadcast stations, terrestrial microwave relay services and communications satellites. These signals are amplified and distributed by optical fiber and coaxial cable to the premises of customers.

        We are engaged in an ongoing effort to upgrade the network capabilities of our cable plant and to increase channel capacity for the delivery of additional programming and new services. As of December 31, 2003, approximately 89% of our homes passed were upgraded to a capacity of 550-MHz or greater and had two-way capability. Homes upgraded to a capacity of 550-MHz or greater and having two-way capability are capable of receiving two-way digital video and HSI services. Of our total homes passed, approximately 79% were upgraded to 750-MHz or higher at December 31, 2003. These homes are now capable of receiving advanced services such as VOD and HDTV. Our cable systems generally carry up to 80 analog channels. We are able to offer additional video services through digital video technology which converts, on average, ten analog channels into a digital format and compresses these signals into the space normally occupied by one analog channel.

        Hybrid fiber coaxial cable ("HFC") architecture is the standard for our system upgrades. HFC architecture combines the use of fiber optic cable with coaxial cable. Fiber optic cable is a communication medium that utilizes glass fibers to transmit signals over long distances with minimal signal loss or distortion. Fiber optic cable has high capacity and reliability and can carry hundreds of video, data and voice channels over extended distances. Coaxial cable is less expensive but requires extensive signal amplification in order to maintain the desired transmission levels for delivering channels to homes. In most systems, we deliver channels via fiber optic cable from the headend to a group of nodes and use coaxial cable to deliver the channels from an individual node to the homes served by that node. Our system design enables a group of segmented homes to be served by a single node. Currently, our existing nodes (in 750-MHz and 860-MHz systems) serve an average of 250 homes passed. We believe that this hybrid network design provides high capacity and a high quality signal at a reasonable cost as well as additional capacity for future video, data and voice services.

MANAGEMENT OF OUR CABLE SYSTEMS

        Many of the functions associated with the management of our cable operations are centralized at our corporate offices in Greenwood Village, Colorado or Coudersport, Pennsylvania, including accounting and finance, billing, payroll and benefit administration, information system design and support, internal audit, purchasing, product development, programming and HSI network administration.

        In addition to our centralized corporate offices, we have several regional offices. Current management consolidated the number of regional headquarters from seven to five during

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2003: California, Central, Northeast, Southeast and Western. The consolidation has improved operating efficiencies and placed more decision-making authority in the field, closer to customers, communities and front-line employees.

Operating Regions

        Operationally, the five regions are each managed by a regional senior vice president ("SVP") and include a leadership team of operations, finance, marketing, legal, human resources and engineering personnel. These regional teams manage day-to-day operations, including sales, installations, customer service, technical support and local regulatory relations, and have profit and loss responsibility.

California Region

        Headquartered in Santa Monica, California, the California region operates in the Los Angeles metropolitan area, the second largest designated market area in the United States. Key communities include Los Angeles, Anaheim, East San Fernando Valley, Redlands, Santa Monica, Carlsbad, Simi Valley and Ventura County. A portion of the region's basic cable subscribers (primarily in the Los Angeles area) is served by a joint venture with Comcast Corporation ("Comcast") in which the Company owns a 75% interest in two partnerships and manages the day-to-day operations ("Century-TCI"). The California region is characterized by a fast-growing ethnically diverse population and high digital penetration. The region has low basic penetration due to the availability of a significant amount of free-over-the-air television channels, including channels in Spanish and strong competition from DBS providers, who have captured over 20% of the multichannel market.

Central Region

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

Northeast Region

        Headquartered in Andover, Massachusetts, the Northeast region operates across the seven states of Connecticut, Maine, Massachusetts, New Hampshire, New York, Pennsylvania and Vermont. A portion of the region's basic cable subscribers (primarily in the Buffalo, New York area) are served by a joint venture with Comcast in which the Company holds a 66.67% interest in two partnerships and manages the day-to-day operations (collectively, "Parnassos"). The largest markets in this region are the Western New York area and the greater Boston/Cape Cod/Martha's Vineyard area.

Southeast Region

        Headquartered in West Palm Beach, Florida, the Southeast region covers systems in Alabama, Florida, Georgia, Mississippi, North Carolina, Puerto Rico and South Carolina. Much of the region is characterized by a significant amount of multi-dwelling units ("MDU") and master planned communities that are under bulk agreements, which led to an EBU adjustment for subscribers. A bulk agreement, in general, provides for a long-term, guaranteed penetration for a discount off retail rates. Given the large geographic area served by the region, there is much diversity among the systems due to differing demographics and competitive situations. The largest market in this region is the West Palm Beach area, encompassing systems in West Palm Beach, Boca Raton, Delray Beach, Palm Beach Gardens and Stuart, Florida. In addition to having a MDU concentration, certain areas of the Southeast region have high seasonal and retiree populations.

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Western Region

        Headquartered in Colorado Springs, Colorado, the Western region covers systems in Arizona, California (covering cable systems not included in the California region), Colorado, Idaho, Kansas, Montana, Oklahoma, Washington and Wyoming. The largest market in this region is Colorado Springs.

CUSTOMER SERVICE

        We currently serve all of our domestic customers through national call centers. Sales and retention calls are handled on a company-wide basis in two separate call centers. HSI technical assistance calls are handled at three different call centers which are linked. All billing and video repair calls are handled in seven call centers that are aligned with specific regional operations. One of the billing and video call centers is operated through a domestic outsourcing arrangement. We began utilizing IVR technology at the end of 2003.

        Historically, the Company has fielded customer service requests, inquiries and complaints through a large number of customer service centers. In an effort to improve customer satisfaction and provide consistent service to our customers, we made the decision to consolidate local call centers during 2003 and 2004. As of December 31, 2003, we served approximately 65% of our video customer base in nine regional call centers located across the country, and all of our HSI customers in three regional call centers. The remaining video customers were served in 66 local call centers of varying sizes.

SALES AND MARKETING

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

PROGRAMMING SUPPLIERS

        We have contracts to obtain the programming we provide to our customers from various programming suppliers. We generally compensate these suppliers based on a fixed fee per customer or a percentage of our gross receipts for specific programming services. Our programming contracts are generally for a fixed period of time and are subject to negotiated renewal periods. Programming costs have historically been, and are expected to continue to be, our largest single expense item. Increases in programming expenses are driven by increased costs to produce or purchase programming, especially sports programming, inflationary increases and expansion of product offerings due to the upgraded cable network and the introduction of advanced services and new channels.

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COMPETITION

        The broadband communications industry in which we operate is highly competitive. Our cable systems compete with a number of different sources that provide information, news, entertainment programming and broadband services to consumers. In some instances, we compete with companies that have greater access to financing, greater personnel resources, better brand name recognition and/or less extensive regulatory obligations. The following businesses offer some or all of the services that are offered by us and, therefore, are in direct competition with us in some or all of our markets:

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DBS operators that transmit video and audio programming, data and other information by high-powered satellites to consumers' receiving dishes on a nationwide basis;



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local telephone companies that provide voice and data services in direct competition with cable operators. Local telephone companies are now fully deploying DSL service that provides Internet access to subscribers at data transmission speeds substantially greater than that of conventional analog modems. In addition, certain regional Bell operating companies ("RBOCs") have announced plans to more broadly compete with cable operators by offering video services in the near future;



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



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other program distributors, such as satellite master antenna television systems ("SMATV systems") and wireless cable operators;



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utilities that may soon enter the Internet access and data transmission markets; and



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municipalities that provide video, Internet access and data transmission services through their own distribution facilities.

Direct Broadcast Satellite

        DBS is a significant competitor to cable systems. The DBS industry has grown rapidly over the last several years, far exceeding the growth rate of the cable television industry, and now serves more than 22 million subscribers nationwide. Two companies, DIRECTV, Inc. ("DirecTV") and EchoStar Communications Corporation ("EchoStar"), provide service to substantially all of these DBS subscribers.

        DBS service allows the subscriber to receive video services directly via satellite using a relatively small dish antenna. News Corp., one of the world's largest media companies, recently acquired a controlling interest in DirecTV, the largest domestic DBS company. This business combination could significantly strengthen DirecTV's competitive posture. In addition to the two established DBS providers, DirecTV and EchoStar, Cablevision Systems Corp. ("Cablevision") launched a new satellite DBS service known as Voom, which commenced offering high definition programming services in the fall of 2003. Additionally, EchoStar and DirecTV both have entered into joint marketing agreements with RBOCs to offer bundled packages combining telephone service, DSL and DBS services.

        Video compression technology and high-powered satellites allow DBS providers to offer more than 200 digital channels, thereby surpassing the typical analog cable system. In 2003, major DBS competitors offered a greater variety of channel packages, and were especially competitive at the lower end of the pricing spectrum. In addition, while we continue to believe that the initial investment by a DBS customer exceeds that of a cable customer, the initial equipment cost for DBS has decreased substantially, as the DBS providers have aggressively marketed to new customers by offering incentives such as discounted or free equipment, installation and multiple equipment units. DBS providers are able to offer service nationwide and are able to establish a national image and branding with standardized offerings, which together with their ability to avoid franchise fees of up to 5% of revenue and property taxes, leads to greater efficiencies and lower costs in the lower tiers of service. However,

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we believe that cable-delivered VOD and subscription VOD are superior to DBS service because cable headends can store thousands of titles which customers can access and control independently, whereas DBS technology can only make available a much smaller number of titles with DVR-like customer control. We also believe that our higher tier products, particularly our bundled offerings, are price-competitive with DBS packages.

        DBS companies historically were prohibited from retransmitting popular local broadcast programming. However, a change to the copyright laws in 1999 eliminated this legal impediment. As a result, DBS companies now may retransmit such programming, once they have secured retransmission consent from the popular local broadcast stations they wish to carry, and honor mandatory carriage obligations of less popular local broadcast stations in the same television markets. In response to the legislation, DirecTV and EchoStar have begun carrying the major network stations across many of the nation's television markets. In contrast, however, to some cable operators, DBS is not currently carrying the high definition signals of all local broadcasters.

Telephone Companies and Utilities

        The deployment of DSL by local phone companies allows Internet access to subscribers at data transmission speeds greater than those available over analog modems using dial-up connections. DSL service therefore is competitive with HSI access over cable systems. Several telephone companies which already have plant, an existing customer base, and other operational functions in place (such as billing, service personnel, etc.) and other companies offer DSL service. The telephone companies actively market DSL service and many providers have offered promotional pricing with a one-year service agreement. The FCC has initiated a rulemaking proceeding that could materially reduce existing regulation of DSL service, essentially freeing such service from traditional telecommunications regulation. It is also possible that federal legislation could reduce regulation of Internet services offered by incumbent telephone companies. Legislative action and the FCC's decisions and policies in this area are subject to change. We expect DSL and other forms of HSI access to remain a significant competitor to our HSI services.

        We believe that pricing for residential and commercial data services on our systems is generally comparable to that for similar DSL services and that some residential customers prefer our ability to bundle HSI services with video services. However, DSL providers are increasingly discounting DSL services within their voice bundles. DSL providers also may currently be in a better position to offer data services to businesses since their networks tend also to service commercial areas whereas our networks primarily service residential areas. They also have the ability to bundle telephony with HSI services for a higher percentage of their customers, and that ability is appealing to many consumers.

        We cannot predict the magnitude of success of the broadband and video services offered by our competitors or the impact on us of such competitive services. The entry of telephone companies as direct competitors in the video marketplace may become more widespread and could adversely affect the profitability and valuation of established cable systems.

        We are also subject to competition from utilities that possess fiber optic transmission lines capable of transmitting signals with minimal signal distortion. Utilities are also developing broadband over power line technology, which is intended to allow the provision of Internet and other broadband services to homes and offices.

        Although telephone companies can lawfully provide video services, activity in this area is currently limited. Recently, however, Verizon Communications, Inc., SBC Communications Inc. and BellSouth Corp. announced plans to provide video services to a significant portion of their service area over the next several years. Competitive local exchange carriers ("CLECs") do provide facilities for the transmission and distribution of voice and data services, including Internet services, in competition with our existing or potential product offerings.

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Broadcast Television

        Cable television has long competed with broadcast television, which consists of television signals that the viewer is able to receive without charge using an "off-air" antenna. The extent of such competition is dependent upon the quality and quantity of broadcast signals available through "off-air" reception compared to the services provided by the local cable system. Traditionally, cable television has provided a higher picture quality and more channel offerings than broadcast television. However, the licensing of digital spectrum by the FCC is providing traditional broadcasters with the ability to deliver high definition television pictures and multiple digital-quality program streams, as well as advanced digital services such as subscription video and data transmission. Broadcasters in certain markets are also utilizing their digital spectrum to offer competitive multichannel video subscription services.

Traditional Overbuilds

        Cable systems are operated under non-exclusive franchises granted by local authorities. More than one cable system may legally be built in the same area. The existence of more than one cable system operating in the same territory is referred to as an "overbuild." It is possible that a franchising authority might grant a second franchise to another cable operator and that such a franchise might contain terms and conditions more favorable than those afforded to us. Although an infrequent occurrence, franchising authorities will in certain circumstances seek to promote competition by offering a less demanding franchise to a new entrant. In a number of states this practice is prohibited by "level playing field" statutes. In addition, entities willing to establish an open video system, under which they offer unaffiliated programmers non-discriminatory access to a portion of the system's cable system, may be able to avoid local franchising requirements. There are a number of cities that have constructed their own cable systems, in a manner similar to city-provided utility services. There also has been interest in traditional overbuilds by private companies. Constructing a competing cable system is a capital intensive process which involves a high degree of risk. We believe that in order to be successful, a competitor's overbuild would need to be able to serve the homes and businesses in the overbuilt area on a more cost-effective basis than we can. Any such overbuild operation would require either significant access to capital or access to facilities already in place that are capable of delivering cable television programming.

        We estimate that, as of December 31, 2003, less than 5% of our total homes passed were overbuilt by other cable operators. As of December 31, 2003, we have upgraded many of these systems to at least 550-MHz two-way HFC architecture and have the ability to effectively compete by offering advanced services.

Private Cable

        Additional competition is posed by SMATV systems serving MDUs, such as condominiums, apartment complexes, and private residential communities. These private cable systems may enter into exclusive agreements with such MDUs, which may preclude operators who hold franchises with local franchising authorities from serving residents of such private complexes. Private cable systems can offer both improved reception of local television stations and many of the same satellite-delivered program services that are offered by cable systems. SMATV systems currently benefit from operating advantages not available to franchised cable systems, including fewer regulatory burdens and no requirement to service low density or economically depressed communities. Exemption from regulation may provide a competitive advantage to certain of our current and potential competitors.

Wireless Distribution

        Cable systems also compete with wireless program distribution services such as multi-channel multipoint distribution systems ("MMDS"), known as "wireless cable," which uses low-power

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microwave frequencies to transmit television programming over-the-air to paying customers. Wireless distribution services generally provide many of the programming services provided by cable systems, and digital compression technology increases significantly the channel capacity of their systems. Both analog and digital MMDS services, however, require unobstructed "line of sight" transmission paths and MMDS ventures have been quite limited to date. The FCC recently completed its auction of Multichannel Video Distribution & Data Service ("MVDDS") licenses. MVDDS is a new terrestrial video and data fixed wireless service that the FCC hopes will spur competition in the cable and DBS industries. MVDDS will utilize a point-to-multipoint, line-of-sight technology, similar to MMDS; however, MVDDS licensees have significantly more spectrum in each market to provide service. MVDDS licensees do not, however, have exclusive use of the 12.2 to 12.7 gigahertz spectrum band, and will be required to share the band with DBS providers, and are required to protect DBS from harmful interference.

REGULATION AND LEGISLATION

        Laws and regulations affect various aspects of our businesses, including, among other things, the prices for basic cable service and equipment, the costs associated with attaching wires to utility and telephone poles and customer service requirements. In general, our video operations are subject to regulation by federal, state and local governments. Although our HSI business is currently subject to less extensive regulation, that status could change in the near future, as discussed in more detail below.

        The FCC is the lead federal agency for regulating the cable business, and its rules and regulations, adopted pursuant to the Communications Act of 1934, as amended (the "Communications Act"), affect our ability to pursue business plans, raise capital, and compete with other companies in the communications industry. The FCC may enforce its regulations through fines and other penalties, including the revocation of licenses needed to operate our cable-related transmission facilities. We believe that we are currently in substantial compliance with all applicable statutory and regulatory requirements imposed by, or under, the Communications Act.

        The rules and laws affecting our businesses are subject to change. The FCC may interpret its rules and regulations in enforcement proceedings in a manner that is inconsistent with the judgments we have made. Regulators and legislators may change existing rules or establish new rules. Congress, for example, considers new legislative requirements for cable operators virtually every year, and there is always a risk that such proposals will be enacted. Changes in existing laws and regulations could occur that are inconsistent with our expectations and the expectations of investors.

        Congress and the FCC have adopted measures in recent years to increase competition in all communications services, including the cable industry. For example, local telephone companies may now offer cable service in their local service areas; satellite providers may now deliver local broadcast stations as part of their video offerings; and the FCC has assigned spectrum for MVDDS. We could be materially disadvantaged if we were subject to new regulations that do not equally affect these and other competitors.

        There are potential risks associated with proceedings currently underway, or that may be underway in the future, at the FCC, in the courts, and before federal and state legislatures and LFAs. We summarize below those proceedings that hold the greatest potential to materially affect our ability to conduct our cable business.

Pricing

        The Communications Act and the FCC's regulations impose limits on the prices cable systems may charge for basic services and related equipment in franchise areas that are not subject to effective competition (as defined by federal law) where the LFA has elected to regulate such rates. Congress sometimes considers imposing new price and packaging regulations on the cable industry. For example, Congressional committees have held hearings this year on cable television, and some parties have

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proposed to require cable operators to offer individual programming services on an "a la carte" basis rather than as part of a programming service tier. At the request of some members of Congress, the FCC issued a report to Congress in November 2004 which concluded that a la carte requirements would: (i) result in higher rates for most multichannel video programming distributor ("MVPD") subscribers; (ii) raise equipment, customer support, and other costs for cable operators and other MVPDs; and (iii) significantly harm programmers, particularly independently-owned and niche programmers. In addition, some competitors have urged Congress, the FCC, and the United States Department of Justice (the "DoJ") to restrict cable operators' flexibility to offer promotions or other discounts to retain existing subscribers or regain lost subscribers. We believe our competitive pricing practices are lawful and pro-competitive. We cannot predict the outcome of these pricing-related initiatives.

Must-Carry/Retransmission Consent

        The Communications Act and the FCC's rules regulate the carriage of local broadcast stations by cable operators. Under the "must-carry" rules, cable operators are required to carry the signal of most local broadcast stations. Alternatively, under the "retransmission consent" rules, local broadcast stations may choose to negotiate with cable operators over the terms and conditions under which such operators transmit the station's signal. As part of the transition from analog to digital broadcast transmission, Congress and the FCC have given local broadcast stations a digital channel in addition to their current analog channel. The FCC is considering whether to require cable companies to simultaneously carry both the analog and digital signals of each broadcaster during the transition (at the end of which, broadcasters must return their analog channel to the government). The FCC is also considering whether, both during the transition and after the transition is complete, cable operators will be required to carry a single program stream of a local broadcaster or the multiple program streams that can be transmitted in a digital signal. If the FCC were to adopt such expanded must-carry requirements, we would have less flexibility to allocate our cable capacity among video and non-video services that our subscribers might prefer. Such an outcome might affect our ability to attract and retain subscribers. It is uncertain whether and when the FCC will rule on these expanded must-carry proposals.

High-Speed Internet Service

        Some local governments and various competitors have advocated the imposition of regulatory requirements on how cable operators deal with third-party Internet service providers ("ISPs"). Only a few local governments have actually imposed such requirements, and, in each case, the courts have invalidated them. The FCC has classified cable HSI as an "interstate information service," rather than a "telecommunications service." Traditionally, classification as an interstate information service has meant that traditional telecommunications regulations do not apply. However, the FCC's decision to classify cable HSI as an interstate information service was vacated by a federal appellate court. This appellate court found that cable HSI service is, in part, a telecommunications service. If this decision is not overturned, it could significantly impact cable operators' regulatory obligations in providing cable HSI service, including possible pricing and resale restrictions and obligations to allow third party ISP access to our broadband networks. However, the appellate court has stayed its mandate pending a decision by the United States Supreme Court, which agreed to hear the appeal. Thus, it is unclear how our HSI service may ultimately be classified for regulatory purposes.

        In addition, the FCC is considering whether it should impose any regulatory requirements on cable HSI (even if the interstate information service classification is upheld), and also whether local franchising authorities should be permitted to do so. A number of parties have also urged the FCC to adopt certain "nondiscrimination" principles related to cable's provision of cable Internet service. We cannot predict whether or when the FCC might adopt such principles or what effects, if any, they would have on our business. In addition, Congress and federal regulators have adopted and continue to

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consider a variety of laws and regulations affecting the Internet, including regulations in the areas of privacy, copyright, defamation, taxation, and obscenity. State and local governments have adopted Internet regulations, as well. Some of these governmental jurisdictions are also considering additional regulations in these and other areas, such as service pricing, service and product quality, and intellectual property ownership. The adoption of new Internet laws or the amendment of existing laws could have a material adverse effect on our Internet business.

Voice Over Internet Protocol

        Our upgraded network will support the delivery of voice communications services using VoIP technology. In 2004, we began preparations for offering this service, including product development, negotiating commercial agreements, technical trials, marketing trials, and interoperability testing with our information and billing systems and with the PSTN. We anticipate commercial launch of VoIP in selected markets during 2005, with the specific date dependent on completion of operational readiness tests.

        Communications services are generally subject to the Communications Act. The FCC has initiated a rulemaking to consider whether and how to regulate VoIP. It is likely that the FCC will have some regulatory authority with respect to VoIP. States regulate traditional telephone services, but the scope of state regulation of VoIP is unsettled. Several states have attempted to impose traditional common-carrier regulation on VoIP services. In addition, the Communications Act empowers states to supervise the terms under which competitors interconnect with incumbent local exchange carriers ("ILECs"). These same provisions call for removal of barriers to entry while imposing on ILECs duties to negotiate reasonable and nondiscriminatory interconnection agreements with CLECs.

        The FCC adopted an order in November 2004 declaring that one particular VoIP service is not subject to traditional state public utility regulation. The order did not preempt state laws of general applicability, such as those relating to taxation, fraud, commercial dealings, marketing, advertising, and other business practices. The FCC indicated that other types of Internet protocol ("IP")-enabled telephone services, such as those offered by cable companies, would not be subject to traditional state public utility regulation if they require a broadband connection from the user's location; require the use of IP-compatible customer premises equipment; and include a suite of integrated capabilities and features, able to be invoked sequentially or simultaneously, that allows customers to manage personal communications dynamically. It is unclear how this ruling and other VoIP-related proceedings at the federal and state levels, and the related judicial proceedings that will ensue, might affect our VoIP service.

        The Telecommunications Act of 1996 anticipates that competing wireline telephone companies will enter the market in three different ways: by reselling the services of the ILEC; by purchasing "network elements" from the ILEC at discounted rates and combining them with each other and/or competitor-supplied facilities to offer a finished service; or by deploying a separate network and interconnecting it with that of the ILEC. For approximately five years (1996-2001) the FCC supported policies and rules that allowed CLECs to use unbundled network elements ("UNEs") from ILECs. Following repeated court and other challenges by the ILECs, in 2001 the FCC began revising its policies to encourage "facilities-based" competition, i.e., competition from firms that own and operate their own networks. These actions have affected the traditional CLEC business models that evolved pursuant to the 1996 Act. The FCC's current policies generally favor the type of facilities-based competition provided by cable operators via cable-system-delivered VoIP services.

        The specific rules applicable to VoIP are unclear, although some issues may be resolved by the time our service is operational. Under federal law, some services are regulated as "telecommunications services" and others as "information services." Information services are subject to less regulation than telecommunications services. It is not clear how VoIP will ultimately be classified. So, while less

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regulation for "information services" is beneficial, classifying VoIP as an "information service" might lead some ILECs to resist providing interconnection arrangements.

        These issues are pending before the FCC in a number of proceedings. In the meantime, VoIP providers can obtain indirect interconnection to ILEC networks by contracting with existing CLECs, whose right to deal with ILECs is clear under the Communications Act and FCC regulations.

        Depending upon the regulatory classification the FCC ultimately imposes on VoIP service, we could be subject to numerous regulatory obligations that apply to telecommunications carriers. For instance, we could be required to contribute to the universal service programs and be subject to the statutory and regulatory obligations to make our service accessible to persons with disabilities. The following is a discussion of several key regulatory issues arising in connection with cable-system provided VoIP.

        Intercarrier Compensation.    "Intercarrier compensation" refers to payments made from one telecommunications carrier to another when they exchange traffic. Under present rules it is often unclear whether VoIP should be treated as local, interstate long distance, intrastate long distance, or excluded from the compensation system altogether. Very different compensation rates apply to each classification, with much higher rates applying to intrastate long distance traffic.

        CALEA.    Under a 1994 federal law, the CALEA, telecommunications carriers must implement certain network capabilities to assist law enforcement in conducting surveillance of those suspected of criminal activity. It is widely expected that the FCC will require VoIP providers (including cable operators) to comply with CALEA, and the cable industry's principal trade association has formally told the FCC that cable-delivered VoIP services would do so. We believe that our VoIP service will fully comply with CALEA.

        911 Emergency Services.    Enhanced 911 refers to a system in which a call to 911 is not merely connected to an emergency answering center, but in which the telephone number of the calling party or other information is provided to the answering center so that the actual physical location of the caller is available to the answering center. The legal obligation of VoIP providers to provide enhanced 911 is unsettled. In addition, unlike traditional circuit-switched telephony, the technical arrangements necessary to provide enhanced 911 for calls produced by VoIP technology are not fully resolved. The NCTA has said that all VoIP providers should offer enhanced 911 services.

        Universal Service.    "Universal Service" refers to a set of federal and state policies designed to subsidize telecommunications services in rural and high cost areas of the United States, services provided to low-income households, and services provided to schools and libraries. In general, federal-level Universal Service is funded by means of a percentage fee applied to a service provider's interstate telecommunications services revenue. It is unclear whether VoIP services ultimately will be deemed to be covered by the "Universal Service" policies. This question is pending before the FCC.

        Access to Telephone Numbers.    A subscriber needs a telephone number in order to receive telephone calls. Blocks of telephone numbers are assigned by federally-established authorities to telecommunications carriers, for individual assignment to their subscribers. It is unclear whether VoIP providers will be treated as telecommunications carriers for the purpose of receiving telephone numbers. This question is also pending before the FCC, which has permitted an ILEC-affiliated VoIP service to receive numbers on a trial basis. Until the issue is resolved, VoIP providers normally rely on relationships with CLECs (which, as carriers, have the right to receive telephone numbers) to obtain numbers for reassignment to VoIP subscribers.

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Other Regulatory Issues

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

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Tier Buy Through: Cable operators must allow subscribers to purchase premium or pay-per-view services without having to subscribe to any tier of service, other than the basic service tier. The FCC has yet to clarify the applicability of this rule in a variety of situations involving the offering of digital services. For example, the FCC is now considering a complaint alleging that another cable operator's plan requiring customers to buy a digital program guide and digital music services to receive premium services violates the tier buy through rule. Adverse decisions by the FCC on this issue could affect the pricing and packaging of our services.



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Set-Top Box Regulation: FCC rules prohibit cable operators from leasing integrated digital set-top boxes (which combine security with other functions) to subscribers beginning on July 1, 2006. The cable industry has urged the FCC to eliminate the ban because it would limit consumer choice and increase set-top box equipment costs. The FCC is conducting a rulemaking on the ban, but the FCC may not accept the industry's position.



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Broadcast Flag: FCC rules require cable operators to implement the "broadcast flag," a code embedded in digital broadcast programming that directs digital televisions and other consumer electronics equipment to block the redistribution of such content over the Internet. It is unclear how these rules, which are the subject of challenges at the FCC and in the courts, might affect the future design of cable-related equipment and home-networking technologies.



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MDU Access: The FCC has adopted rules to promote competition between existing cable operators and new multichannel video service providers in MDUs. However, the FCC declined to prohibit exclusive MDU service agreements.



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



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Leased Access Channels: The Communications Act requires a cable system with 36 or more activated channels to designate a significant portion of its channel capacity for commercial leased access by third parties to provide programming that may compete with services offered by the cable operator.



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Obscenity: The Communications Act prohibits the transmission of obscene programming over cable systems. Obscene programming typically consists of graphic sexual conduct that lacks any serious literary, artistic, political or scientific value. Some members of Congress and the FCC and some consumers have expressed concerns about the distribution of certain adult programming over cable systems. Additionally, some parties have proposed that new rules regulating "indecent" programming be imposed on cable operators. It is uncertain whether and when any such regulations will be adopted, or if enacted, the magnitude of the impact on the Company.



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Copyright Regulation. Cable operators carry television broadcast stations pursuant to a federal copyright compulsory license. The fees required by this compulsory license and the carriage rights under the license are subject to change by legislation or Copyright Office rulemakings. Cable operators also pay standard industry licensing fees for the music used in the programming they provide to their customers, including local origination programming, local advertising, and pay-per-view events. These fees have been the source of litigation between the cable industry and music performance rights organizations in the past, and we cannot predict whether such disputes may arise in the future.

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Consumer Electronics Equipment Compatibility: The FCC has adopted rules aimed at promoting the manufacture of "plug-and-play" TV sets that can connect directly to the cable network without the need for a set-top box. The rules, for example, direct cable operators to implement technical standards in their networks to support digital television sets, require operators to provide conditional access devices to subscribers who want to receive scrambled programming services on their digital television sets, and require operators to support home recording rights and copy protection rules for digital programming content. These rules are subject to further rulemakings at the FCC and to challenges in the courts, and we cannot predict the outcome of these rulemaking proceedings and challenges.



•

Program Access: The Communications Act and the FCC's "program access" rules prevent satellite delivered programming services affiliated with cable operators from discriminating among competing multichannel video distributors. The rules also limit the ability of such programmers to offer exclusive programming arrangements to cable operators. The FCC has extended the exclusivity restrictions through October 2007. These rules apply to Empire Sports Network, a regional sports programming service in which we own an equity interest.



•

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

FRANCHISES

        The Cable Communications Policy Act of 1984, as amended (the "1984 Cable Act"), provides that cable operators may not offer cable service to a particular community without a franchise unless the operator was lawfully providing service to the community on July 1, 1984 and the relevant franchising authority does not require a franchise. Our cable systems operate pursuant to franchises or other authorizations issued by governmental authorities, all of which are nonexclusive. As of December 31, 2003, we held approximately 2,700 franchises. Most of these franchises may be terminated prior to their stated expiration date by the relevant governmental authority, after due process, for breach of material provisions of the franchise.

        Under the terms of most of our franchises, a franchise fee is payable to the governmental authority. These fees vary by franchise up to the federal law maximum of 5% of gross revenue derived from the provision of cable services over the relevant cable system. In addition, many franchises have both financial and non-financial requirements related to public, educational and government access channels and facilities.

        The franchises are subject to periodic renewal. Generally, within the 30 to 36 month period prior to the applicable expiration date, we are required to notify the relevant franchising authority of our intent to seek formal 1984 Cable Act renewal of the franchise in order to benefit from the renewal protections and the procedures set forth in the 1984 Cable Act. If such notice is given, the 1984 Cable Act requires that the relevant governmental authority consider the franchise holder's renewal proposal on its own merits in light of the franchise holder's past performance and the community's cable-related needs and interests, without regard to the presence of competing applications. In renewal hearings, the franchising authorities consider and evaluate, pursuant to federal standards, whether the franchise holder has provided adequate service, substantially complied with franchise terms and offered a renewal proposal that is reasonable and meets the community's cable related needs and interests. The failure to meet any one of these standards may be grounds for denial of the franchise renewal. In connection

25

with a renewal, the franchise authority may attempt to impose different and more stringent terms, the impact of which cannot be predicted.

        At December 31, 2003, the majority of our franchises have been renewed, extended or are in the process of renegotiation, generally on modified terms. Such modified terms generally have not been, in the aggregate, materially adverse to us. We believe that the majority of our franchises are in good standing. As of December 31, 2003, we had approximately 230 franchises, representing approximately 710,000 of our subscribers, that have expired but for which notice of renewal was timely provided to the franchising authority and for which we are entitled to the renewal protections and procedures of the 1984 Cable Act. As of December 31, 2003, notice of renewal under the 1984 Cable Act had not been timely provided for: (i) approximately 71 franchises representing approximately 80,000 subscribers that have expired; and (ii) approximately 100 franchises representing approximately 254,000 subscribers that have less than 30 months until expiration. We are working to reduce the number of expired franchises.

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

TELCOVE

        Prior to January 11, 2002, the Company provided various telecommunications services through a majority-owned subsidiary, Adelphia Business Solutions, Inc. ("Adelphia Business Solutions"), which has since changed its name to TelCove. All references in this Annual Report to "TelCove" refer to both TelCove and Adelphia Business Solutions. Prior to January 11, 2002, TelCove provided facilities-based integrated communications services to business, governmental and educational customers in various markets within the United States. The Company previously owned approximately 78% of the outstanding common stock of TelCove and held approximately 96% of the total voting power in TelCove. On January 11, 2002, the Company distributed all of the shares of TelCove common stock owned by the Company to the holders of its Class A Common Stock and Class B Common Stock in the form of a dividend (the "TelCove Spin-off"). See Note 9, "TelCove," to the accompanying consolidated financial statements.

PARTNERSHIPS AND VENTURES

        We have interests in a number of partnerships and ventures, the most significant of which are described below.

Consolidated Partnerships and Ventures

Comcast Partnerships

        The Company and Comcast are partners in the two joint ventures described below. The results and operating statistics of these partnerships are consolidated in our financial statements:

•

Century-TCI—We hold a 75% interest in the Century-TCI partnerships and manage their day-to-day operations, subject to certain specified rights of our partner, Comcast. As of December 31, 2003, the Century-TCI partnerships had approximately 721,000 basic cable subscribers, substantially all of which were in the Los Angeles area.



•

Parnassos—We hold a 66.67% interest in the Parnassos partnerships and manage their day-to-day operations, subject to certain specified rights of our partner, Comcast. As of December 31, 2003, the Parnassos partnerships had approximately 434,000 basic cable subscribers, primarily in Western New York and Northeast Ohio. Through our interest in Parnassos, we also own an equity interest in Empire Sports Network, a regional sports

26

programming service that carries the Buffalo Sabres hockey games, among other sports-related programming.

Tele-Media Ventures

        We hold interests ranging from 75% to 82% in three ventures (the "Tele-Media Ventures") with certain affiliates of Tele-Media Corporation of Delaware ("TMCD") and manage their day-to-day operations. The results and operating statistics of these ventures are consolidated in our financial statements. As of December 31, 2003, the Tele-Media Ventures served approximately 145,000 basic cable subscribers located in Connecticut, West Virginia, Virginia, Florida and Maryland.

        Each Tele-Media Venture was previously operated by TMCD pursuant to certain management agreements. In September 2003, Tele-Media Ventures entered into services agreements with TMCD that terminated and superceded the management agreements. These services agreements expired in accordance with their respective terms on March 31, 2004. Accordingly, as of such date, TMCD stopped providing any services to the Tele-Media Ventures and we assumed full day-to-day operations of the Tele-Media Venture cable systems.

Nonconsolidated Joint Venture

Century/ML Cable Venture

        We hold a 50% interest in Century/ML Cable Venture ("Century/ML Cable") and manage its day-to-day operations, subject to certain specified rights of our partner, ML Media Partners, L.P. ("ML Media"). As of December 31, 2003, Century/ML Cable had approximately 140,000 basic cable subscribers located in Puerto Rico. The results and operating statistics of this joint venture are not consolidated in our financial statements.

        On September 30, 2002, Century/ML Cable filed with the Bankruptcy Court a voluntary petition to reorganize under Chapter 11 of the Bankruptcy Code. This bankruptcy proceeding has been administered separately from the Chapter 11 Cases. Century/ML Cable is continuing to serve its subscribers in San Juan (through Century/ML Cable's subsidiary, which is not a debtor) and Levittown, Puerto Rico as a debtor and debtor-in-possession. Adelphia and Century/ML Cable are involved in litigation with ML Media concerning various matters. See Item 3, "Legal Proceedings—ML Media Litigation."

        On March 17, 2004, ML Media presented a non-binding written indication of interest (the "Vaughn Indication of Interest") for the acquisition of 100% of Century/ML Cable by an investor group led by James C. Vaughn. The Vaughn Group has since indicated that it is not prepared to proceed with a transaction on the terms set forth in the Vaughn Indication of Interest, and has submitted a revised bid at a lower price. ML Media and the Company are engaged in a process exploring the potential sale of the venture to a third party, and from time to time have explored other potential transactions relating to Century/ML Cable. See Note 21, "Commitments and Contingencies—Contingencies—Litigation Matters," to the accompanying consolidated financial statements.

EMPLOYEES

        As of December 31, 2003, we had approximately 14,300 employees, approximately 800 of whom were covered by collective bargaining agreements at 28 locations. As of November 30, 2004, we had approximately 475 employees covered by collective bargaining agreements at 18 locations. We consider relations with our employees to be good.

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CERTAIN SIGNIFICANT BUSINESS DEVELOPMENTS OCCURRING SINCE 1999

Acquisitions and Financings

        From 1999 through 2001, the Company, under the direction of Rigas Management, undertook a series of acquisition and financing transactions that dramatically increased the size of the Company and its indebtedness. During this period, the Company grew from approximately 1,528,000 basic cable subscribers and $3,754 million of total debt at January 1999 to approximately 5,256,000 basic cable subscribers and $17,417 million of total debt (including liability under co-borrowing agreements, as described below) at December 2001. The Company issued Class A Common Stock and entered into significant new financing arrangements in connection with these acquisitions. The effects of the acquisitions have been included in our accompanying consolidated financial statements effective with the purchase date. See Note 8, "Acquisitions," to the accompanying consolidated financial statements. The table below summarizes the Company's acquisition activity during 2001, 2000 and 1999 (dollars in thousands):

*

Consideration paid per subscriber is total consideration divided by approximate number of basic cable subscribers acquired.

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        During this period of acquisitions, the Company incurred substantial amounts of debt and sold a substantial amount of equity securities, including the following:

•

bank debt, reaching $7,167 million in principal amount of senior secured debt under six different credit facilities (collectively, the "Credit Facilities"), $5,040 million of which was borrowed under the Co-Borrowing Facilities (as defined below);



•

the issuance of $3,780 million in aggregate principal amount of debt securities under several series of senior notes or debentures;



•

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



•

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

        During this period, to demonstrate compliance with financial covenants in its outstanding debt obligations, to overstate revenue and other measures of its operating results, to artificially reduce reported debt and increase reported equity, and generally to cover their misappropriation of corporate assets, Rigas Management allegedly engaged in sham transactions and record-keeping and other financial manipulations. These financial manipulations also allegedly included: issuing false and misleading consolidated financial statements and compliance certificates, inappropriately capitalizing operating expenses, engaging in improper transactions, and failing to reflect indebtedness for which the Company was liable on the Company's accounting records or in the Company's public disclosure. In addition, Rigas Management engaged in allegedly improper self-dealing transactions and allegedly utilized Company assets for their personal benefit.

        As a part of these actions, Rigas Management established four credit facilities accessible by both the Company and certain Rigas Family Entities (such Rigas Family Entities and their subsidiaries are collectively referred to as the "Rigas Co-Borrowing Entities"), of which $4,576 million in principal amount (collectively, the "Co-Borrowing Facilities") was outstanding in June 2002. The Co-Borrowing Facilities allowed the Rigas Co-Borrowing Entities, based on the creditworthiness of the Company, to incur indebtedness beyond their ability to repay, as the Company was jointly and severally liable for all borrowing under each Co-Borrowing Facility regardless of whether the Company actually borrowed the total indebtedness. Under the terms of each of the Co-Borrowing Facilities, each of the Rigas Co-Borrowing Entities that were co-borrowers could borrow up to the entire amount of available credit under the applicable Co-Borrowing Facility.

        During the period from 1999 to 2001, Rigas Management caused the Company to issue the following securities to certain Rigas Family Entities: 4,000,000 shares of Class A Common Stock, 14,220,889 shares of Class B Common Stock, $567.4 million aggregate principal amount of convertible subordinated notes and $100 million aggregate principal amount of TelCove senior subordinated notes. The Company believes that Rigas Management caused these securities to be issued to avoid dilution of the Rigas Family's direct and indirect ownership in the Company and to artificially remove indebtedness from the Company's balance sheet. Although the Company, during the tenure of Rigas Management, previously reported that the Rigas Family Entities paid cash for such securities, current management has determined that Rigas Management arranged these transactions to provide that the Rigas Family Entities assumed a portion of the co-borrowing indebtedness that appeared on the Company's books and records and, with the exception of $70 million paid in 1999, the Company's cash balance did not increase as a result of the issuance of the foregoing securities to the Rigas Family Entities.

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Events Leading to the Installation of Interim Management and Commencement of the Chapter 11 Cases in 2002

Public Disclosure of the Co-Borrowing Facility Contingent Liabilities

        On March 27, 2002, the Company disclosed that it was jointly and severally liable for more than $2 billion of borrowings under the Co-Borrowing Facilities attributed to various Rigas Co-Borrowing Entities that were not reflected as debt on the Company's publicly disclosed consolidated financial statements. A portion of the borrowings for which the Company was jointly and severally liable had been advanced to the Rigas Co-Borrowing Entities to finance purchases of the Company's securities by other Rigas Family Entities. In response to this disclosure, the SEC began an informal inquiry into the Co-Borrowing Facilities and asked the Company to provide it with further information and documentation relating to the facilities. The Company was informed in April 2002 that the SEC had issued a formal order of investigation in connection with the Co-Borrowing Facilities. In the wake of these disclosures, Adelphia failed to file its Annual Report on Form 10-K for the year ended December 31, 2001 (the "2001 Annual Report"). Also in April 2002, Adelphia received a NASD Staff Determination Letter indicating that Adelphia was not in compliance with certain NASD rules because of Adelphia's failure to timely file with the SEC its 2001 Annual Report and, consequently, that the Class A Common Stock was subject to delisting from the Nasdaq Stock Market.

Discovery of the Alleged Rigas Family Improper Acts, the Restatement and Related Events

        The March 2002 disclosure of more than $2 billion in off-balance sheet liabilities led to the disclosure of numerous alleged improprieties of the Rigas Family. In early May 2002, the Company announced that it expected to restate its consolidated financial statements for the years ended December 31, 1999 and 2000, its quarterly consolidated financial statements for 2001 and possibly its consolidated financial statements for other periods. Deloitte & Touche LLP ("Deloitte"), the Company's independent auditors at that time, suspended its auditing work on the Company's consolidated financial statements for the year 2001. As further discussed below, Deloitte was terminated as the Company's auditors on June 9, 2002. In these circumstances, the Company was unable to: (i) deliver audited consolidated financial statements as required under its then outstanding Credit Facilities; (ii) comply with certain information delivery and other requests made pursuant to the Credit Facilities and the notes issued by the Company (the "Notes"); and (iii) file its 2001 Annual Report with the SEC. The failure to comply with these obligations resulted in default under these Credit Facilities and Notes. On May 15, 2002, the Company failed to make interest payments totaling approximately $38.3 million under certain of the Notes and a dividend payment of approximately $6.5 million on its Series E Mandatory Convertible Preferred Stock ("Series E Preferred Stock"). These payment defaults in turn triggered cross-defaults among certain of the Credit Facilities and Notes.

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

        In May 2002, the four members of the Board who were not members of the Rigas Family, Dennis Coyle, Leslie Gelber, Erland Kailbourne and Pete Metros (collectively, the "Carryover Directors"), began to take action to deal with the Rigas Family's alleged misconduct. A special committee of the Board, composed solely of three Carryover Directors (the "Special Committee"), Dennis Coyle, Leslie Gelber and Erland Kailbourne, began to investigate the allegations against the Rigas Family. In furtherance of its investigation, the Special Committee had its counsel, the law firm of Covington & Burling, conduct an independent investigation of the allegations against the Rigas Family, which included an investigation of transactions between the Company, on the one hand, and certain members of the Rigas Family and certain Rigas Family Entities, on the other hand. The investigation was primarily conducted from May 2002 through March 2003. Covington & Burling based its investigation on numerous interviews and a review of documents. As a result of this investigation, Covington & Burling alleged certain misconduct on the part of the Rigas Family, including: (i) using Company funds

30

and resources for personal expenses and purchases, including real estate; (ii) misusing the Company's centralized cash management system (the "CMS" or "Cash Management System"); (iii) obtaining the Company's securities without payment; (iv) manipulating the Company's financial disclosures, accounting records and operational data; and (v) causing the Company to incur debt that was not disclosed on the Company's consolidated financial statements.

The Rigas Agreement

        On May 15, 2002, the Company announced that John J. Rigas agreed to resign as President and CEO of Adelphia and to step down as Chairman of the Board. At that time, one of the Carryover Directors, Erland Kailbourne, assumed the position of Chairman and became Adelphia's interim CEO (together with the Carryover Directors and certain officers engaged by the Company after May 2002, "Interim Management"). As further evidence of the Rigas' alleged improper acts was uncovered, by agreement dated May 23, 2002 (the "Rigas Family Agreement") the Special Committee obtained the agreement of certain members of the Rigas Family to resign from their positions as officers and directors of Adelphia. Subsequently, certain other Adelphia officers and employees who were alleged to have willfully participated in the alleged wrongdoings were dismissed. The Company has not assumed or rejected the Rigas Family Agreement in the Chapter 11 Cases (to the extent such agreement is executory).

The Alleged Rigas Improper Acts and Transactions with the Rigas Family and Rigas Family Entities

        Adelphia's investigations in the period following the resignation of members of the Rigas Family from their positions as officers and directors of Adelphia, and other events, including the jury verdict of guilty against John J. Rigas and Timothy J. Rigas on, among other charges, bank fraud and securities fraud as described below, support a variety of allegations against Rigas Management, including those described below and in certain actions the Company has instituted against the Rigas Family and the Rigas Family Entities in the Rigas Civil Action (defined below). Rigas Management materially misstated the Company's operating performance, levels of debt and other significant information to, among other things, enhance the Company's reported financial results. Rigas Management failed to disclose the extent of this highly leveraged capital structure to investors, the Company's auditors and the SEC by failing to report the total borrowings under the Co-Borrowing Facilities for which the Company was jointly and severally liable. Rigas Management also failed to disclose that the Rigas Family and the Rigas Family Entities used a substantial portion of $2,800 million in indebtedness under the Co-Borrowing Facilities to purchase the Company's securities, and represented that the Company received cash or other consideration for such purchases when it did not. A short time after these disclosures, the Debtors commenced the Chapter 11 Cases.

        Rigas Management commingled Company funds with funds from the Rigas Family Entities through operation of the Cash Management System. Rigas Management misused the CMS and the Rigas Family Entities to access money from the Company and the Company's credit for personal use. The improper operation of the CMS resulted in continuous commingling of funds among the participants in the CMS, which included Adelphia and its subsidiaries, the Rigas Family Entities and members of the Rigas Family. Among other transactions, Rigas Management allegedly misused the CMS to purchase cable and other assets for their personal benefit, including the acquisition of real estate, Adelphia debt and equity securities, and other assets.

        The alleged misuse of the CMS by Rigas Management permitted the Rigas Family Entities to "settle" their debts to the Company through journal entries that purported to "reclassify" debt from the books of an Adelphia subsidiary to the books of one of the Rigas Family Entities even though the Adelphia subsidiary in fact remained jointly and severally liable for this debt even after "reclassification." Thus, Rigas Management deemed the Rigas Family Entities to have satisfied their

31

obligations to the Company, even though the Company was not released from the underlying debt and did not receive equivalent consideration, if any, in return.

        Other improprieties allegedly committed by Rigas Management included:

•

failing to apply the proper accounting or provide required disclosures with respect to a variety of related party transactions, including (i) the Co-Borrowing Facilities pursuant to which certain subsidiaries of Adelphia and the Rigas Co-Borrowing Entities were jointly and severally liable, and (ii) purchases of Adelphia securities by the Rigas Family Entities;



•

engaging in sham transactions and record keeping and other financial manipulations in order to (i) overstate revenue, understate expenses and manipulate other measures of the Company's operating results, (ii) artificially reduce reported debt and increase reported equity, and (iii) meet financial covenants of debt facilities;



•

otherwise misappropriating and improperly using corporate assets; and



•

covering up such misappropriations.

        On July 8, 2004, the jury returned a partial verdict related to the criminal charges brought against certain members of the Rigas Family and certain co-conspirators (the "Rigas Criminal Action"). John J. and Timothy J. Rigas were each found guilty of conspiracy (one count), bank fraud (two counts), and securities fraud (15 counts) and not guilty of wire fraud (five counts). Michael C. Mulcahey was acquitted of all 23 counts against him. The jury found Michael J. Rigas not guilty of conspiracy and wire fraud but remained undecided on the securities fraud and bank fraud charges against him. On July 9, 2004, the court declared a mistrial on the remaining charges against Michael J. Rigas after the jurors were unable to reach a verdict as to those charges. The bank fraud charges against Michael J. Rigas have since been dismissed with prejudice, but the DoJ has requested that a new trial date be set to retry Michael J. Rigas on the securities fraud charges. On November 1, 2004, Michael J. Rigas' post-trial motion for dismissal of all charges was denied. The post-trial motions of John J. and Timothy J. Rigas in which they sought to overturn the guilty verdicts were denied on November 15, 2004. Both have stated that they intend to appeal the guilty verdicts. A hearing is scheduled for January 5, 2005, at which time the District Court is expected to consider the DoJ's request to set a retrial date for Michael J. Rigas. The sentencing of John J. Rigas and Timothy J. Rigas is currently scheduled for February 23, 2005.

Nasdaq Delisting, Dismissal of Deloitte and Determination to Seek Chapter 11 Protection

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

        The Company dismissed Deloitte as its independent auditors on June 9, 2002. Based on the Company's decision to restate certain of its historical consolidated financial statements, Deloitte subsequently withdrew the audit report it had issued with respect to the Company's consolidated financial statements. As described below, in November 2002, the Company brought an action against Deloitte for professional negligence, breach of contract, fraud and other wrongful conduct in connection with its work auditing the Company's consolidated financial statements during the time of the Rigas Family's alleged wrongdoing (the "Deloitte Litigation"), and this action is currently pending. See Item 3, "Legal Proceedings—The Company's Lawsuit Against Deloitte."

        As a consequence of Rigas Management's alleged misrepresentations in the Company's books, records and public disclosures, among other issues, the Company had no borrowing availability under

32

its various Credit Facilities and no access to traditional sources of liquidity in the capital markets. In addition, the Company's efforts to generate liquidity through the sale of certain of its assets were unsuccessful. Moreover, the Company faced governmental agency investigations (as more fully described below), mounting litigation and the risk of collection and foreclosure actions by creditors. Accordingly, the Company determined that the continued viability of its businesses required immediate access to debtor-in-possession financing, a respite from creditors to resolve its financial reporting and related issues and the restructuring of its highly leveraged capital structure that would only be available through the filing of a voluntary petition for protection under the Bankruptcy Code.

Events Occurring During the Pendency of the Chapter 11 Cases under Interim Management and Current Management

Chapter 11 Filing and Events in the Chapter 11 Cases

        On June 25, 2002, the Debtors filed voluntary petitions to reorganize under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. Previously, on June 10, 2002, Century Communications Corp. ("Century") filed a voluntary petition to reorganize under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors are currently operating their businesses as debtors-in-possession under Chapter 11. See Note 2, "Bankruptcy," to the accompanying consolidated financial statements.

        On July 11, 2002, the United States Trustee for the Southern District of New York (the "U.S. Trustee") appointed a committee to represent the interests of unsecured creditors of the Debtors (the "Creditors Committee"). On July 31, 2002, the U.S. Trustee appointed a committee to represent the interests of equity holders of the Debtors (the "Equity Committee" and, together with the Creditors Committee, the "Committees").

        Under the Bankruptcy Code, actions to collect pre-petition indebtedness, as well as most other pending litigation, are stayed and other contractual obligations against the Debtors generally may not be enforced. Substantially all pre-petition liabilities are subject to settlement under a plan of reorganization to be voted upon by holders of claims against and equity interests in the Debtors and approved by the Bankruptcy Court.

        In connection with the Chapter 11 filings, Adelphia and certain of its subsidiaries (the "Loan Parties") entered into a $1,500 million debtor-in-possession credit facility (as amended, the "DIP Facility"). On August 23, 2002, the Bankruptcy Court approved the DIP Facility, and on September 3, 2002, the Loan Parties consummated the DIP Facility. On May 10, 2004, the Loan Parties entered into a $1,000 million extended debtor-in-possession credit facility (the "Extended DIP Facility"), which was approved by the Bankruptcy Court on May 6, 2004 and which amends and restates the DIP Facility in its entirety. The terms of the Extended DIP Facility provide for, among other things, (i) the extension of the maturity date from June 25, 2004 to March 31, 2005 and (ii) a decrease in the aggregate commitments of the lenders from $1,500 million to $1,000 million as the Company no longer required a facility in the amount of $1,500 million. See Note 14, "Debt," to the accompanying consolidated financial statements.

Claims Process and Bar Dates

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

        The Bankruptcy Court established a bar date for filing proofs of claim against the Debtors' estates of January 9, 2004. A bar date is the date by which proofs of claims must be filed if a claimant disagrees with how its claim appears on the Debtors' Schedules of Liabilities, subject to certain limited

33

exceptions. As of the bar date, over 18,000 proofs of claim asserting approximately $3.2 trillion in claims had been filed, including duplicative claims, but excluding any estimated amounts for unliquidated claims. The Debtors currently are in the process of reviewing, analyzing and reconciling the scheduled and filed claims. The Debtors have filed one omnibus objection to claims and anticipate filing additional omnibus objections addressing a substantial portion of the proofs of claims filed. At present, the ultimate number and allowed amounts of such claims are not determinable, and the Debtors expect that the claims resolution process will take significant time to complete.

Rejection and Amendment of Executory Contracts and Unexpired Leases

        As of the commencement of the Chapter 11 Cases, the Debtors were party to approximately 1,000 unexpired real property leases and approximately 21,000 executory contracts. The Debtors are performing an extensive review and analysis of such leases and executory contracts in order to reduce operating costs and expenses through the rejection of contracts and leases as authorized under the Bankruptcy Code.

Procedures for Settlement of Disputed Claims

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

        The Settlement Procedures Order provides for the expedited claims settlement procedure based on either (i) the proposed settlement amount agreed upon by the Debtors and the claimant (the "Settlement Amount") and/or (ii) the difference between the allowed unsecured claim listed on the Debtors' Schedules of Liabilities and the amount listed on the claimant's proof of claim (the "Claim Difference").

        If the Settlement Amount or Claim Difference is less than or equal to $1.5 million, the Debtors are required to provide written notice of the proposed settlement to the Debtors' key constituents pursuant to the terms of the Settlement Procedures Order. If no objections are received within ten days of sending such notice, the Debtors are authorized to settle the claim without prior approval of the Bankruptcy Court. If the Settlement Amount or Claim Difference is greater than $1.5 million but less than $5 million, the Settlement Procedures Order outlines procedures for providing notice to the Debtors' key constituents through the filing of a proposed order by the Debtors. The Bankruptcy Court may then enter such an order approving the proposed settlement of the claim without a hearing, provided no objections are received. If objections are received, the Bankruptcy Court may require the Debtors to seek approval of the settlement by way of a motion. If the Settlement Amount is equal to or greater than $5 million, the Debtors will also be required to seek Bankruptcy Court approval of the settlement. In addition, for any compromise or settlement of claims by or against any former or current insider of the Debtors or any of the defendants in the case Adelphia Communications Corp., et al. v. Bank of America, N.A. et al., the Debtors must request the Bankruptcy Court's approval of such compromise and settlement by way of a motion. Except if other authority for immediate payment exists pursuant to other orders entered by the Bankruptcy Court, amounts with respect to any of the claims that are settled will be paid only in accordance with a confirmed plan of reorganization in the Debtors' Chapter 11 Cases.

The Plan of Reorganization

        On February 25, 2004, the Debtors filed the proposed Stand-Alone Plan and related draft disclosure statement with the Bankruptcy Court. The Debtors believe that there is substantial opposition to the terms of the Stand-Alone Plan as filed on February 25, 2004 from many of their

34

constituents. The Debtors are in the process of amending the Stand-Alone Plan to address the opposition of certain constituents. In addition, if the Stand-Alone Plan is rejected by certain classes of claims or equity interests, the Bankruptcy Court may determine not to confirm it.

        To successfully emerge from bankruptcy, the Debtors must, among other things:

•

obtain an order of the Bankruptcy Court approving a disclosure statement as containing "adequate information;"



•

solicit acceptance of a plan of reorganization from the holders of claims and equity interests in each class that is impaired and not deemed by the Bankruptcy Court to have rejected the plan of reorganization;



•

obtain an order from the Bankruptcy Court confirming the plan of reorganization; and



•

consummate the plan of reorganization.

        To complete these steps, the Bankruptcy Court must first hold a hearing to determine if the disclosure statement contains adequate information. No date for such hearing to approve the disclosure statement has been scheduled at this time. Second, before it can issue a confirmation order, the Bankruptcy Court must find that either (i) each class of impaired claims or equity interests has accepted the plan of reorganization or (ii) the plan of reorganization meets the requirements of the Bankruptcy Code to confirm the plan of reorganization over the objections of dissenting classes. In addition, the Bankruptcy Court must find that the plan of reorganization meets certain other requirements specified in the Bankruptcy Code. Confirmation of a plan of reorganization would resolve, among other things, the Debtors' pre-petition obligations, determine the revised capital structure of the newly reorganized Company and provide for the Company's corporate governance following emergence from bankruptcy.

Sale Process

        On April 22, 2004, Adelphia announced that it intended to pursue a possible sale of the Company while simultaneously continuing to prepare to emerge from bankruptcy as a stand-alone company pursuant to the proposed Stand-Alone Plan. The Company is pursuing the dual track process to determine which alternative is in the best interest of the Debtors' constituents in the Chapter 11 Cases.

        On July 14, 2004, Adelphia announced that it had engaged UBS Securities LLC and Allen & Company LLC (collectively, the "M&A Advisors") as financial advisors and Sullivan & Cromwell LLP as legal advisor in connection with a possible sale of the Company. On July 21, 2004 and September 14, 2004, the Bankruptcy Court approved Adelphia's engagement of Sullivan & Cromwell LLP as legal advisor and the M&A Advisors as financial advisors, respectively.

        In consultation with the M&A Advisors, Adelphia developed a two-phase process for the sale process in one or a series of transactions: (i) a solicitation of initial indications of interest in a possible acquisition of the Company or one or more designated clusters of assets ("Phase I"); and (ii) a formal bid process in which selected bidders from Phase I have been invited by Adelphia to submit final and binding offers to acquire the Company or one or more designated clusters of assets ("Phase II"). The clusters were configured and designed to create a competitive dynamic by (i) attracting the interest of multiple bidders, including members of the private equity and broader financial community, for one or more clusters, (ii) making cable systems suitable to strategic buyers on a less than entire Company basis, and (iii) maintaining flexibility by providing the Debtors with the option of confirming the Stand-Alone Plan or confirming a plan of reorganization involving the sale of all of the Debtors' assets, or confirming a plan of reorganization involving the sale of some but not all clusters and the emergence on a stand-alone basis of the remaining assets of the Debtors.

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        Prior to Phase I, the M&A Advisors engaged in informal discussions with potential bidders and also developed a list of potential bidders, each of which was sent a form non-disclosure agreement ("NDA").

        On September 21, 2004, Adelphia formally launched Phase I, and each potential bidder who had executed an NDA received a confidential information memorandum describing the Company's business, assets and related items and instructions on submitting a non-binding indication of interest. Potential bidders were invited to submit a non-binding indication of interest with respect to the Company as a whole, or one or more of the Company-designated clusters of assets.

        Based on the non-binding indications of interest, on November 1, 2004, the Company invited qualified bidders to participate in Phase II in accordance with the bidding procedures approved by the Bankruptcy Court on October 22, 2004 (the "Bid Procedures Order"). The Bid Procedures Order, among other things, (i) established the method for the submission of bids in Phase II for all or a portion of the Company in a one-step auction, (ii) authorized Adelphia to agree to a no-shop requirement that prohibits Adelphia and its professionals from soliciting or encouraging (other than with respect to a plan of reorganization not involving the sale of any material amount of assets of the Debtors) third party proposals with respect to at least 10% of the assets that are the subject of a transaction with the successful bidder, except as required by the Board of Directors in the exercise of its fiduciary duties, and (iii) authorized under certain conditions the awarding of a breakup fee to the successful bidder based on a percentage of the successful bidder's purchase price if either the successful bidder or Adelphia terminates the purchase agreement between the parties. Adelphia has established January 2005 as the deadline for the submission of final, legally-binding bids; however, Adelphia has reserved the right to change the deadline if such a change is deemed to be warranted.

Exit Financing Facility

        We have received commitments from four financial institutions for an $8,800 million fully-committed exit financing facility (the "Exit Financing Facility") that will be used to finance cash payments to be made under our proposed Stand-Alone Plan. This facility will include $4,750 million of senior secured credit facilities, a $3,300 million bridge facility and a $750 million secured revolving credit facility that would be available following our emergence from bankruptcy. The commitments were approved by the Bankruptcy Court on June 30, 2004. Funding under the commitments is subject to certain other conditions.

Appointment of the New Board

        As discussed above, prior to May 2002, the Rigas Family held a majority of the positions on the Board. At that time, the Board consisted of John J. Rigas, Michael J. Rigas, Timothy J. Rigas, James P. Rigas, Peter L. Venetis (the son-in-law of John J. Rigas) and the four Carryover Directors. In May 2002, John J., Michael J., Timothy J. and James P. Rigas resigned from the Board and, in June 2002, Peter L. Venetis resigned from the Board. During the pendency of the Chapter 11 Cases, Adelphia has appointed seven new directors, and all of the Carryover Directors have resigned.

        Adelphia's seven new directors, the first six of whom have been determined by the Board to be independent pursuant to the listing standards of Nasdaq, are: (i) E. Thayer Bigelow, former President and CEO of Time Warner Cable Programming, Inc. and former Acting CEO of Courtroom Television Network LLC; (ii) Rodney Cornelius, a former cable industry executive and investor; (iii) Anthony Kronman, Sterling Professor of Law and former Dean of Yale Law School; (iv) Philip Lochner, former SVP and Chief Administrative Officer of Time Warner, Inc. and a former Commissioner of the SEC; (v) Susan Ness, a former Commissioner of the FCC; (vi) Kenneth Wolfe, former Chairman and CEO of Hershey Foods Corporation; and (vii) William Schleyer, CEO of Adelphia.

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Appointment of New Management

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

        Shortly after the appointments of Messrs. Schleyer and Cooper, the Board and these new officers hired a new senior management team, including Vanessa A. Wittman, as Executive Vice President and Chief Financial Officer ("CFO"), Brad Sonnenberg, as Executive Vice President, General Counsel and Secretary, and Scott D. Macdonald, as Chief Accounting Officer ("CAO"). Each of these officers has in turn hired new executives who report to them. These executives, among other things, have implemented new internal controls and procedures designed to prevent a recurrence of the alleged improper acts that occurred during the tenure of Rigas Management.

Headquarters Move

        The Board authorized the relocation of our corporate headquarters to Greenwood Village, Colorado in January 2003, subject to confirmation of the appointments of Messrs. Schleyer and Cooper, to better enable us to attract and assemble a high-caliber management team with the strong cable experience needed to lead an effective restructuring effort. The Bankruptcy Court approved the relocation of the corporate headquarters on March 28, 2003. Despite the relocation of our corporate headquarters, we maintain a significant portion of our corporate operations in Coudersport, Pennsylvania.

Restructuring of the Company's Businesses

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

Asset Dispositions

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

Buffalo Sabres

        The Company made an aggregate of approximately $187 million in loans and advances, including accrued interest, to Niagara Frontier Hockey, L.P., a Delaware limited partnership owned by the Rigas Family ("NFHLP"), which owned the Buffalo Sabres hockey team.

        On January 13, 2003, NFHLP and certain of its subsidiaries (the "NFHLP Debtors") filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Western District of New York (the "NFHLP Bankruptcy Court"). Certain of the NFHLP Debtors entered into an asset purchase agreement with Hockey Western New York LLC in March 2003 with respect to the sale of certain assets and the assumption of certain liabilities of the NFHLP Debtors. The sale was consummated on April 23, 2003. In connection with this transaction and

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the joint plan of liquidation of the NFHLP Debtors, which was approved by the NFHLP Bankruptcy Court on October 3, 2003, we are to receive, among other things, a distribution of certain causes of actions against the Rigas Family, Deloitte and others, certain contingent residual interests in assets of the estates of the NFHLP Debtors and releases from certain financial obligations. We cannot predict what, if any, recovery we will receive from these interests at this time.

TelCove

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

        On February 21, 2004, the Company and TelCove executed a global settlement agreement (the "Global Settlement") which resolves, among other things, certain of the parties' claims against each other. Pursuant to the Global Settlement which was consummated on April 7, 2004, we transferred to TelCove certain settlement consideration, including approximately $60 million in cash plus an additional payment of up to $2.5 million related to certain outstanding payables, as well as certain vehicles, real property and intellectual property licenses used in the operation of TelCove's businesses. The Global Settlement also provides for the transfer by us to TelCove of certain CLEC market assets, together with the various licenses, franchises and permits related to the operation and ownership of such assets, and for the execution of various annexes to the Global Settlement (the "Annex Agreements"), which provide, among other things, for (i) a five-year business commitment to TelCove by us; (ii) future use by TelCove of certain fiber capacity in assets owned by us; (iii) the mutual release by the parties from any and all liabilities, claims and causes of action which either party has or may have against the other party; and (iv) TelCove's management, pending transfer, of our active CLEC markets pursuant to a master management agreement that amended and superceded pre-existing management agreements between us and TelCove. On March 23, 2004, the Bankruptcy Court approved the Global Settlement. We recorded a $98 million liability during the fourth quarter of 2003 to provide for the estimated costs to be incurred by us in connection with the Global Settlement.

        On August 20, 2004, the Company paid TelCove an additional $2.5 million pursuant to the Global Settlement in connection with the resolution and release of certain claims. On August 21, 2004, the CLEC market assets were transferred to TelCove.

Other

        The Company has entered into agreements to sell its interest in its Venezuelan and Colombian cable systems, as well as substantially all of its interest in its home security business, and has filed motions seeking Bankruptcy Court approval of such sales. The Company is also marketing its interest in its Brazilian cable systems and certain other non-core assets for sale.

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RISK FACTORS

Risk Factors Relating to Legal Matters

Adelphia is subject to civil claims filed by the SEC and an ongoing investigation by the Department of Justice.

        On July 24, 2002 the SEC filed a civil enforcement action (the "SEC Civil Action") against Adelphia, certain members of the Rigas Family and others, alleging various securities fraud and improper books and records claims arising out of actions allegedly taken or directed by certain members of the Rigas Management (none of whom remain with the Company). This case is pending in the District Court and settlement discussions are in progress among Adelphia and representatives of the SEC and the DoJ. The SEC's proof of claim filed in the Chapter 11 Cases includes claims for penalties, disgorgement and prejudgment interest in an unspecified amount. The staff of the SEC has told our advisors that its asserted claims for disgorgement and civil penalties under various legal theories could amount to billions of dollars. The SEC Civil Action is stayed by order of the District Court until April 29, 2005. The SEC Civil Action is not subject to the automatic stay provisions of the Bankruptcy Code. In addition, the Company remains subject to continuing investigation and further action by the DoJ. The outcome of the SEC Civil Action and the investigation by the DoJ cannot be determined at this time. The outcome of the SEC Civil Action could include civil penalties, disgorgement, and the imposition of mandatory governance guidelines or other restrictions imposed on Adelphia. The outcome of the investigation by the DoJ could include the criminal indictment of Adelphia and/or the Managed Cable Entities, monetary remedies, including fines and restitution, criminal and/or civil forfeiture, and remedies restricting the Company's conduct. Adelphia has offered $300,000,000 in value to settle the SEC Civil Action and to resolve the DoJ's ongoing investigation of the Company, of which $125,000,000 would be funded from potential proceeds from litigation by or on behalf of Adelphia. The Creditors' Committee has filed an adversary proceeding seeking, in effect, to subordinate the SEC's claims based on the SEC Civil Action.

        The Company cannot predict the ultimate resolution of the SEC Civil Action or the DoJ investigation or determine the ultimate effect on its financial condition or results of operations. Although the Company cannot estimate its total liabilities in these matters, the Company has recorded a $175,000,000 reserve in the accompanying consolidated financial statements reflecting the aforementioned offer.

        Other governmental agencies, such as the FCC or LFAs might also take action against the Company in response to or based on the outcome of, or developments in, the SEC Civil Action or the investigation by the DoJ. The outcome of, or developments in, the SEC Civil Action and the investigation by the DoJ could have a material adverse effect on the Company, including possible liquidation of the Company.

We are unable to produce audited financial statements for certain of our subsidiaries, and such subsidiaries will be unable, therefore, to comply with applicable law.

        Because of record keeping and financial reporting practices employed during the tenure of Rigas Management, we cannot obtain the data required to produce reliable financial statements for certain of our subsidiaries that are reporting companies under the Exchange Act due to issues associated with intercompany transfers of assets during the tenure of Rigas Management. As a result, certain of our subsidiaries will not be able to comply with the rules and regulations of the Exchange Act. Failure by these subsidiaries to comply with the Exchange Act could subject them to civil and criminal penalties. In addition, the inability to produce such financial statements may increase the likelihood of substantive consolidation of our Chapter 11 Cases, which could materially adversely alter the recovery to creditors of our subsidiaries from the recovery contemplated by the Stand-Alone Plan.

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We may not obtain full ownership of the Managed Cable Entities and may not retain operational control of the Managed Cable Entities.

        We have filed a civil action against certain members of the Rigas Family and certain Rigas Family Entities with respect to, among other things, the funds borrowed by the Rigas Family Entities under the Co-Borrowing Facilities for which the Company is jointly and severally liable and which we anticipate will be satisfied by us under the terms of any plan of reorganization. We may not be successful in this litigation or, if successful, may obtain relief that does not include the transfer of ownership of the Managed Cable Entities to us. The timing of a resolution of this litigation is also uncertain. In addition, other claimants against the Rigas Family and the Rigas Family Entities, including the Internal Revenue Service (the "IRS"), the DoJ and securities class action plaintiffs, may seek to attach the assets or equity interests of the Managed Cable Entities in satisfaction of their claims. On December 10, 2004, the DoJ filed an application for a preliminary order of forfeiture finding John J. Rigas and Timothy J. Rigas jointly and severally liable for personal money judgments in the amount of $2,533,000,000. If we do obtain a judgment against the Rigas Family or the Rigas Family Entities, such persons may not have sufficient assets to satisfy the judgment. In addition, although we currently have operational control of the Managed Cable Entities, we may not continue to maintain operational control of the Managed Cable Entities. The failure to acquire ownership of the Managed Cable Entities and to maintain operational control would have a material adverse effect on the Company.

We are not in compliance with the Exchange Act.

        We are not current in our periodic reporting obligations under the Exchange Act. Failure to comply with the Exchange Act affects the ability of our securityholders to utilize the safe harbor provided by Rule 144 under the Securities Act, lengthens the period of time we are precluded from using a short-form registration statement (which permits quicker access to the capital markets), and could subject us to civil and criminal penalties.

Risk Factors Relating to Our Business

Our basic cable subscribers have declined in recent years, and such decline is continuing.

        We lost approximately 106,000 basic cable subscribers in 2003, and we expect materially greater subscriber loss in 2004. This decline was driven primarily by competitive pressures from DBS providers, brand impairment and the implementation of new packaging with increased pricing. In addition, seasonality issues (college communities, warm/cold weather community migrations) can increase churn and subscriber loss. Also, a significant portion of our subscribers on promotions disconnect their service when the promotion expires. Increases in churn result in higher operating costs through increased service calls, higher customer call volume and added marketing expense. If we are not able to stop or slow the decrease in basic cable subscribers, the loss of such subscribers may result in a material adverse effect on our financial condition and results of operations.

Our average revenue per unit lags behind industry averages, and we may not be able to narrow the difference.

        Although our average revenue per unit ("ARPU") increased approximately 12% in fiscal year 2003 over our ARPU in fiscal year 2002, we believe that as of December 31, 2003, our ARPU was below the industry average. Future ARPU growth depends upon several factors, including basic video price increases and continued growth in HSI subscribers at historic pricing levels. Competitive pressures, principally from DBS and DSL providers, may limit our ability to increase or maintain video and HSI prices and may cause us to match greater promotional offerings from other video and HSI service providers. As a result of these competitive pressures, our ARPU increases may not continue and we may not be able to achieve ARPU levels obtained by other major cable companies.

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Increases in ARPU may not result in improvement to our financial condition and results of operations.

        Although we have made progress in increasing overall ARPU in 2003, due to increased expenses necessary to improve the performance of our cable operations, these ARPU increases have not resulted in equivalent improvements in our financial condition and results of operations. While we believe that these near term investments in operations will, over time, result in more efficient operations and improved customer service, subsequent improvements in ARPU may not result in corresponding improvements in our financial condition and results of operations.

Our business is subject to extensive governmental legislation and regulation, which could materially adversely affect our business by increasing our expenses or limiting our pricing flexibility.

        Various laws and regulations affect our business. The key regulatory risks currently facing us are set forth below:

•

Pricing. The Communications Act and the FCC's regulations and policies limit the prices that cable systems may charge for basic services and equipment in communities that are not subject to effective competition, as defined by federal law. Some parties have proposed imposing new regulations on the pricing and packaging of cable services. The FCC and the DoJ have certain cable pricing matters under review. We cannot now predict the outcome of these pricing-related initiatives.



•

Must-Carry. Cable companies are currently subject to a requirement that they carry, without compensation, the programming transmitted by most commercial and non-commercial local television stations which have not elected retransmission consent. The FCC is now considering whether to expand these must-carry obligations, as broadcasters transition from analog to digital transmission technologies, to include both broadcasters' analog and digital signals during the transition and/or broadcasters' digital multicast services. Any decision by the FCC to adopt such expanded must-carry requirements would limit our flexibility in allocating our cable spectrum to other video and non-video services.



•

HSI. The FCC has classified high-speed cable Internet service as an "interstate information service," which has historically meant that fewer regulations apply to the provision of this service. However, the FCC's decision was vacated by a federal appellate court. If this decision, which has been stayed pending a decision by the United States Supreme Court, is not overturned, it could significantly impact cable operators' regulatory obligations in providing cable HSI service, including possible pricing and resale restrictions and obligations to allow third party ISP access to our cable networks. We may also have to incur material costs to comply with such regulatory obligations. Moreover, even if the FCC's decision is upheld, the FCC is still considering whether to impose any federal regulations on high-speed cable Internet service and whether to permit LFAs to impose fees or other requirements on such service.



•

VoIP. There is considerable uncertainty surrounding the regulatory treatment of VoIP service at the federal and state levels, and regulatory and related judicial proceedings on the issue may ultimately affect our VoIP plans. The FCC recently initiated a rulemaking to consider regulatory issues related to VoIP, and decisions by the FCC and the courts may affect our VoIP plans.

        Increased regulation or changes in existing regulation may require us to change our business practices and may increase the costs of providing services to our customers, which could have a material adverse effect on the Company's financial condition and results of operations.

        Cable operators are also subject to other requirements covering a variety of operations areas, such as technical standards and customer service requirements. In addition, many aspects of these regulations currently are the subject of judicial proceedings and administrative or legislative proposals. There also are ongoing efforts to amend or expand the state and local regulation of some cable

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systems, which may compound the regulatory risks we already face. We cannot predict whether in response to these efforts any of the states or localities in which we now operate will expand the regulation of our cable systems in the future or how they will do so.

        In addition, we are required to obtain federal, state and local licenses and other authorizations in connection with our offering of communications services. We may not be able to obtain these licenses and authorizations in a timely manner, or at all, and conditions that are unfavorable to us could be imposed upon these licenses or authorizations. We are subject to risks associated with the regulation of our communications services by the FCC and state and/or local authorities. Furthermore, telecommunications companies generally are subject to significant regulation as well as higher fees for pole attachments.

We may not be able to pass increases in our programming costs on to our customers, which could materially adversely affect our financial condition and results of operations.

        Programming costs have historically been, and are expected to continue to be, our largest single expense item. In recent years, the cable and satellite video industries have experienced a rapid escalation in the cost of programming, particularly sports programming. This escalation may continue, and we may not be able to pass programming cost increases on to our customers due to competitive constraints. In addition, as we upgrade the channel capacity of our systems and add programming to our basic, expanded basic and digital programming tiers, we may face increased programming costs. This, in conjunction with the additional market constraints on our ability to pass programming costs on to our customers, may have a material adverse effect on our financial condition and results of operations.

        We are also party to retransmission consent agreements with broadcasters under which we are required to obtain the consent of the broadcasters prior to retransmitting broadcast programming to our subscribers. We expect broadcasters to increasingly make demands for financial and other concessions in order to obtain their consent, and we may not be able to reach agreements with these broadcasters to obtain retransmission consents on acceptable terms, if at all. We cannot predict the magnitude of the financial effect should we fail to obtain retransmission consents on reasonable terms and be unable to provide certain broadcast programming to our subscribers.

Competition from program distributors and other communications providers could adversely affect the future results of our operations.

        The broadband communications industry in which we operate is highly competitive. Our cable systems' video services compete with a number of different sources, principally DBS providers that provide information, news and entertainment programming. DBS providers may offer a broader channel selection, better picture quality and lower prices than the video services of our cable systems and are subject to substantially less regulation than our cable systems. In addition, several of the RBOCs have recently announced plans to upgrade their networks and provide video services to consumers. Our HSI services compete with DSL services and dial-up services provided by telephone companies. To the extent our competitors are able to bundle the services they offer to consumers with other services, such as bundling video, HSI and/or wireless telephony services, it will be more difficult for us to sell our services to consumers who are purchasing these bundled services from our competitors, as well as retain current customers to whom such competing bundles are available. Many of the companies with which we compete have better financial resources, greater access to financing, more operational experience, better brand name recognition and less extensive regulatory obligations. This competition may adversely impact our ability to attract and retain subscribers, generate incremental revenue through upgrades and selling of advanced services and increase or maintain prices for our services, any of which could have a material adverse effect on our financial condition and results of operations.

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Our cable systems are operated under franchises that are subject to non-renewal or termination.

        Our cable systems generally operate pursuant to franchises that are typically granted by a municipality or other state or local government that controls the public rights-of-way. Many franchises establish comprehensive requirements, including as to documentation, facilities and services, and specific customer service standards, and impose monetary penalties for non-compliance. At any given time, various of our franchises may be out of compliance with such requirements. In many cases, franchises are terminable if the franchisee fails to comply with material provisions set forth in the franchise agreement. Franchises generally are granted for fixed terms and must be periodically renewed. LFAs may resist granting or deny a renewal or transfer of a franchise if either past performance or compliance or the prospective operating proposal is considered inadequate. LFAs often demand concessions or other commitments as a condition to renewal or transfer, which concessions or other commitments have been and may continue to be costly.

        We have a number of franchises that are nearing expiration or have already expired. Although the majority of such franchises are entitled to the 1984 Cable Act formal renewal procedures and protections, a number of such franchises are not. As of December 31, 2003, we had approximately 230 franchises, representing approximately 710,000 basic cable subscribers that have expired, but for which notice of renewal was timely provided to the franchising authority and for which we are entitled to the renewal protections and procedures of the 1984 Cable Act. However, notice of renewal under the 1984 Cable Act was not timely provided for: (i) approximately 71 franchises representing approximately 80,000 subscribers that had expired; and (ii) approximately 100 franchises representing approximately 254,000 subscribers that had less than 30 months until expiration. If a franchise is terminated or is not renewed, it could materially adversely affect our business in the affected market, and if multiple franchises are terminated or not renewed, this could have a material adverse effect on our financial condition and results of operations.

We operate cable systems under franchises that are nonexclusive, which could lead to overdevelopment of areas where we hold franchises, reducing the potential profitability of those markets.

        Our cable systems are operated under non-exclusive franchises granted by LFAs. Consequently, these LFAs can grant additional franchises to competitors in the same geographic area. As a result, competing operators may build systems in areas in which we may hold franchises. In some cases municipal utilities may legally compete with us without obtaining a franchise from the relevant LFA. These overbuilds could materially adversely affect our business in the affected market.

LFAs have the ability to impose additional regulatory constraints on our business, which can further increase our expenses.

        In addition to the relevant franchise agreements, cable authorities in some jurisdictions have adopted cable regulatory ordinances that further regulate the operation of cable systems. These additional regulations have the effect of increasing our expenses in operating our business. LFAs may impose new and more restrictive requirements on us. LFAs also have the ability to reduce rates and order refunds of basic service and associated equipment rates paid in prior periods determined to be in excess of the maximum permitted rates. In 2003, the City of Los Angeles required us to recertify rate filings made under prior management. We were not in the position to do so and as a result, the city ordered rate refunds of more than $5 million as well as rate reductions. It is possible that additional franchising authorities will challenge our past and current rate filings in the future based on similar allegations of earlier financial misreporting or otherwise.

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We will have substantial capital requirements, and the failure to obtain necessary financing would have a material adverse effect on the Company.

        We have incurred substantial capital expenditures and are likely to continue to incur substantial capital expenditures in future years. The majority of these capital expenditures are expected to be used to acquire customer premises equipment (such as set-top boxes, cable modems and telephony equipment) and to pay for installation costs for additional video and advanced services customers. In addition, capital is expected to be used to upgrade and rebuild existing systems, to expand bandwidth capacity and to add two-way capability.

        We also have commitments under certain franchise agreements with LFAs that require us to expand, upgrade or rebuild certain network systems. These commitments may require capital expenditures in order to avoid defaults and/or penalties. Such capital expenditures may divert funds from other priorities.

        Our strategy and business plan may continue to require substantial financing, which we may not be able to obtain on favorable terms, or at all. The actual amount of funds necessary to implement our strategy and business plan may materially exceed management's current estimates. In addition, our ability to obtain financing may be adversely affected due to our history of net losses, our current non-compliant status under the Exchange Act reporting requirements and the effects of our bankruptcy case. A failure to obtain necessary financing would result in the delay, modification or abandonment of our development and expansion plans and would have a material adverse effect on the Company.

We may substantially increase our debt level following emergence, which could subject us to various restrictions and higher interest costs and decrease our cash flow and earnings.

        We may substantially increase our debt level in the future to finance acquisitions, to fund the expansion, maintenance and upgrade of our systems and to deploy new services. Any increase in debt could subject us to various restrictions and higher interest costs and decrease our cash flow and earnings. It also may be difficult for us to obtain all of the financing we will need to fund our business and our growth strategy on desirable terms. In addition, any such financings may include restrictive covenants or other provisions that may constrain our ability to conduct our business or may impose other costs.

We are defendants in significant pending litigation.

        We are defendants in significant litigation, which is described in more detail in Item 3, "Legal Proceedings." If any of these proceedings is decided against us, we could be subject to substantial damages or other penalties. These penalties and other effects of litigation, including the significant legal fees and expenses we are incurring and will continue to incur, could have a material adverse effect on our financial condition and results of operations. In addition, our participation in such proceedings require the use of a significant amount of management resources, which is likely to continue as we seek to resolve these matters. The failure to quickly resolve such litigation could have a significant adverse impact on the availability of our management resources.

The simultaneous pursuit of a potential sale of the Company and a stand-alone reorganization plan consumes a substantial portion of the time and attention of management, which may have an adverse effect on our business and results of operations.

        Since April 2004, we have been simultaneously proceeding with both a potential sale of the Company and the potential emergence from bankruptcy as a stand-alone company. The requirements of this dual-track process, the Chapter 11 Cases and pending litigation consume a substantial portion of management's time and attention, and leave them with less time to devote to the operations of our

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business. This diversion of management's attention is expected to continue in 2005 and may have a material adverse effect on the conduct of our business, and, as a result, on our financial condition and results of operations.

We are exposed to physical and economic events outside of our control that affect the regions which we serve.

        Our financial condition and results of operations can be adversely affected by physical and economic events outside of our control that affect the regions that we serve. For example, the multiple hurricanes that made landfall in or near our geographic cluster in Palm Beach, Florida in 2004 had an adverse effect on our results of operations and damaged our equipment located in this area. Similar events beyond our control may result in a material adverse effect on our financial condition and results of operations in the future.

We may experience increased levels of employee attrition due to the proposed sale of the Company.

        Because we are pursuing a possible sale of the Company or one or more designated clusters of systems as an alternative to the Stand-Alone Plan, a substantial risk exists that we will experience increased levels of employee attrition. A loss of key personnel or a substantial reduction in our workforce could have a material adverse effect on our business, including but not limited to, our sales, marketing, customer care, product development and management. We have already experienced difficulty in recruiting replacement employees with appropriate qualifications in light of the dual track process and such difficulties are likely to increase in the future. If we are unable to replace employees quickly, we may be forced to hire contractors or consultants at higher rates than the salaried employees whom they replace. The failure to replace our workforce quickly or the loss of the services of any members of our senior management could impair our ability to execute our business strategy, and as a result, could have a material adverse effect on our financial condition and results of operations.

The use of net operating loss carryforwards may be limited or subject to challenge.

        The Company's ability to use its net operating loss ("NOL") carryforwards and other tax attributes may be subject to certain statutory and other limitations. One such limitation is the required reduction of certain tax attributes due to the cancellation of indebtedness. The United States Treasury Department and the IRS have issued temporary regulations that provide for tax attribute reduction when the debt of a member of a consolidated group is cancelled. It is uncertain at this time how much of the NOL carryforwards or other tax attributes will survive after this reduction.

        In addition, Internal Revenue Code Section 382 limits the future use of NOL carryforwards and certain other tax attributes when a prescribed ownership change occurs. These limitations are less burdensome when a company undergoes an applicable ownership change pursuant to a confirmed Chapter 11 bankruptcy plan. If the Debtors consummate a stand-alone bankruptcy reorganization plan, the Company will undergo an ownership change. We cannot reasonably ascertain at this time what the applicable limitation on our use of NOL carryforwards will be.

        The amount of the Company's NOL carryforwards (which as of December 31, 2003 were $6.7 billion) may be affected by our financial restatement. We are not able at this time to determine with specificity the impact of the restatement on the amount of the NOL carryforwards.

        The IRS may challenge the ability of the Company to use its NOL carryforwards or contend that such carryforwards are subject to other limitations.

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We may be subject to cash payments for state and local taxes for historical periods as a result of the Company's reevaluation of its historical positions.

        The Company's reevaluation of its numerous financial and legal positions, including its financial statements for historical periods, is expected to require the Company to refile over 3,000 state and local income and franchise tax returns. The Company is unable to predict at this time the nature and extent of any cash payments required for state and local income and franchise taxes, interest and penalties arising out of the amended state and local tax filings.

We may not be able to keep pace with technological developments or customers' demand for advanced services.

        We may not be able to keep pace with technological developments and may not be able to successfully anticipate the demand of customers for services requiring new technology. This type of rapid technological change could materially adversely affect our plans to upgrade or expand our systems and respond to competitive pressures. For example, our cable business may be adversely affected by competition from alternate technologies for delivering video, data and voice services, such as new and emerging wireless and IP-based distribution platforms. Our inability to upgrade, maintain and expand our systems and provide advanced services in a timely manner or to anticipate the demands of the marketplace could materially adversely affect our ability to compete effectively. Likewise, our business may be adversely affected if new equipment, such as digital set-top boxes or DVRs, or new services, such as digital cable, HSI service or VOD, fail to appeal to enough consumers, are unavailable at prices consumers are willing to pay, do not function as expected, or are not delivered in a timely fashion. Finally, while we believe that providing bundled service offerings will be increasingly important as new services are provided, we currently have limited ability to provide unified customer care and billing. Consequently, our financial condition and results of operations could be materially and adversely affected.

The failure to develop future business opportunities may have a material adverse effect on our growth potential.

        We intend to pursue a number of new growth opportunities beyond our core video service and HSI service, such as VOD and VoIP. The ability to deploy and deliver these services depends in certain instances on new and unproven technology. Our existing technology may not perform as expected, and we may not be able to successfully develop new technology to effectively and economically deliver these services. In addition, these opportunities require substantial capital outlays and network capacity availability to deploy on a large scale. This capital or capacity may not be available to support these services. In particular, the introduction of telephony service requires substantial expansion in billing and customer care service, which we may not be able to provide or which may prove more costly than currently anticipated.

        Furthermore, these services may not be widely introduced and fully implemented in a timely fashion or at all. These services may not be successful when they are in place, and customers may not purchase the services offered. If these services are not successful or costs associated with implementation and completion of the roll-out of these services materially exceed those currently estimated, our financial condition and results of operations could be materially adversely affected.

Risk Factors Relating to the Chapter 11 Cases

The terms on which we may emerge from bankruptcy are uncertain, and we may not be able to emerge from bankruptcy.

        In February 2004, we filed a proposed plan of reorganization which contemplated the emergence of Adelphia from bankruptcy as a stand-alone entity. That Stand-Alone Plan met with substantial opposition from the Debtors' constituents, both as to the valuation of the Company contained in the

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Stand-Alone Plan and as to the allocation of that value among the constituents. On April 22, 2004, at the request of the Debtors' constituents we announced that we would consider a sale of the Company as an alternative to a stand-alone restructuring. The process for the sale of the Company will extend at least into the first quarter of 2005 before the Company can determine whether an acceptable offer or offers for all or certain parts of the Company will be made. If such an offer is made and accepted, it could take a year or more to reach closing. During that time we will be subject to the added expense and risk of operating in Chapter 11. Consummation of such an offer would likely be subject to a number of conditions outside of our control, which could result in the sale not being consummated. We may not receive an acceptable offer for the Company, and, whether or not such an offer is received, a plan of reorganization may not be confirmed and consummated. The failure to promptly consummate a plan of reorganization would likely have a material adverse effect on the Company.

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

        Adverse publicity and news coverage relating to the wrongful conduct of the Rigas Family, the criminal indictment of certain members of the Rigas Family, the guilty verdicts against John J. and Timothy J. Rigas and the other circumstances surrounding the Company's Chapter 11 filing as well as the pendency of the Chapter 11 Cases may negatively impact our efforts to maintain our existing customer base, obtain new customers, maintain our relationships with vendors, and retain employees, as well as reestablish and promote name recognition and a positive image. In addition, the effect, if any, that reorganization proceedings under Chapter 11 may have on our business, financial condition and results of operations cannot be accurately predicted or quantified. If confirmation and consummation of a plan of reorganization do not occur expeditiously, the Chapter 11 Cases could further adversely affect our relationships with our customers, employees and vendors.

If the obligation of the lenders to make loans under the Extended DIP Facility expires prior to our emergence from bankruptcy, it may have a material adverse effect on the Company.

        The obligation of the lenders to make loans under the Extended DIP Facility currently expires on March 31, 2005. We will need to seek an amendment of the Extended DIP Facility to extend the maturity date. We may not be successful in obtaining such an amendment on terms that are acceptable to us, if at all, and the failure to do so would have a material adverse effect on the Company.

If the commitment of the exit lenders under the exit financing commitment expires prior to our emergence from bankruptcy, it may have a material adverse effect on the Company.

        The commitment of the exit lenders under the exit financing commitment expires on June 30, 2005. If a plan of reorganization is confirmed by the Bankruptcy Court on or before 5:00 p.m., New York City time, on June 30, 2005, then Adelphia has the right to extend the exit financing commitment for up to 90 calendar days. If the exit financing commitment expires prior to the Company's emergence from bankruptcy pursuant to the Stand-Alone Plan, the Company will need to seek an amendment of the exit financing commitment letter to extend the expiration date of the exit lenders' commitments thereunder. The Company may not be successful in obtaining such an amendment on terms that are acceptable to the Company, if at all, and the failure to do so would have a material adverse effect on the Company.

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The Creditors' Committee lawsuit against pre-petition banks and related financial institutions may preclude consummation of the Stand-Alone Plan and may delay our acquisition of the Managed Cable Entities.

        The Creditors' Committee lawsuit against pre-petition banks and related financial institutions implicates the treatment of more than $6.8 billion of our pre-petition debt. This lawsuit has the potential to raise complicated issues of law and fact involving hundreds of separate entities which could take many months, if not years, to resolve and delay confirmation of a plan of reorganization. In addition, the pendency of the lawsuit may delay or prevent our acquisition of the Managed Cable Entities the equity of which is pledged to the lenders under the Co-Borrowing Facilities who are defendants in the Creditors' Committee lawsuit. Although the Company has retained the right to settle this litigation, any such settlement would be subject to the approval of the Bankruptcy Court.

More than $3.2 trillion in claims have been filed against the Debtors' estate in the Chapter 11 Cases.

        Over 18,000 proofs of claim asserting in the aggregate approximately $3.2 trillion in claims have been filed against the Debtors' estates in the Chapter 11 Cases, including duplicative claims, but excluding any estimated amounts for unliquidated claims. The Debtors currently are in the process of reviewing, analyzing and reconciling the scheduled and filed claims, and have filed their first omnibus objections to certain of the claims. The Debtors anticipate filing additional objections in the future addressing a substantial portion of the remaining proofs of claim. At present, the allowed amounts of such claims are not determinable, and the Debtors expect that the claims resolution process will take significant time to complete. The failure to obtain disallowance of a substantial majority of these proofs of claims would substantially dilute the recoveries to the Debtors' stakeholders.

SEGMENT OPERATIONS AND CERTAIN FINANCIAL INFORMATION

        Certain information concerning the Company's segments is included in Note 20, "Segments," to the accompanying consolidated financial statements. The Company does not have significant operations in foreign countries.

ITEM 2. PROPERTIES

        Our principal physical assets consist of cable television operating plant and equipment, including signal receiving, encoding and decoding devices, headends and distribution systems and subscriber house drop equipment for each of our cable systems. The signal receiving apparatus typically includes a tower, antenna, ancillary electronic equipment and earth stations for reception of satellite signals. Headends, consisting of associated electronic equipment necessary for the reception, amplification and modulation of signals, are located near the receiving devices. Our distribution system consists primarily of coaxial and fiber optic cables and related electronic equipment. Subscriber devices consist of decoding set-top boxes. The physical components of cable systems require maintenance and periodic upgrading to keep pace with technological advances. Such properties do not lend themselves to description by character and location of principal units.

        Our cables and related equipment are attached in certain cases, to utility poles under pole rental agreements with local public utilities or the distribution cable is buried in underground ducts or trenches. See Item 1, "Business—Regulation and Legislation."

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

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

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ITEM 3. LEGAL PROCEEDINGS

BANKRUPTCY PROCEEDINGS

        On June 25, 2002, Adelphia and substantially all of its wholly-owned, domestic subsidiaries filed voluntary petitions to reorganize under Chapter 11 in the Bankruptcy Court. Previously, on June 10, 2002, Century filed a voluntary petition to reorganize under Chapter 11, seeking protection under the U.S. bankruptcy laws. These cases are being jointly administered under the caption "In re: Adelphia Communications Corporation, et al., Case No. 02-41729." We are currently operating as debtors in possession.

        Under the Bankruptcy Code, actions to collect pre-petition indebtedness, as well as most other pending litigation, are stayed and other contractual obligations against the Company generally may not be enforced. Absent an order of the Bankruptcy Court, substantially all pre-petition contractual liabilities can only be settled under a plan of reorganization to be voted upon by holders of claims and equity interests and approved by the Bankruptcy Court.

        The Company cannot predict the outcome of these legal proceedings or estimate the possible effects on the financial condition or results of operations of the Company.

SEC CIVIL ACTION AND DOJ INVESTIGATION

        On July 24, 2002 the SEC filed a civil enforcement action (the "SEC Civil Action") against Adelphia, certain members of the Rigas Family and others, alleging various securities fraud and improper books and records claims arising out of actions allegedly taken or directed by certain members of the Rigas Management (none of whom remain with the Company). This case is pending in the District Court and settlement discussions are in progress among Adelphia and representatives of the SEC and the DoJ. The SEC's proof of claim filed in the Chapter 11 Cases includes claims for penalties, disgorgement and prejudgment interest in an unspecified amount. The staff of the SEC has told our advisors that its asserted claims for disgorgement and civil penalties under various legal theories could amount to billions of dollars. The SEC Civil Action is stayed by order of the District Court until April 29, 2005. The SEC Civil Action is not subject to the automatic stay provisions of the Bankruptcy Code. In addition, the Company remains subject to continuing investigation and further action by the DoJ. The outcome of the SEC Civil Action and the investigation by the DoJ cannot be determined at this time. The outcome of the SEC Civil Action could include civil penalties, disgorgement, and the imposition of mandatory governance guidelines or other restrictions imposed on Adelphia. The outcome of the investigation by the DoJ could include the criminal indictment of Adelphia and/or the Managed Cable Entities, monetary remedies, including fines and restitution, criminal and/or civil forfeiture, and remedies restricting the Company's conduct. Adelphia has offered $300,000,000 in value to settle the SEC Civil Action and to resolve the DoJ's ongoing investigation of the Company, of which $125,000,000 would be funded from potential proceeds from litigation by or on behalf of Adelphia. The Creditors' Committee has filed an adversary proceeding seeking, in effect, to subordinate the SEC's claims based on the SEC Civil Action.

        The Company cannot predict the ultimate resolution of the SEC Civil Action or the DoJ investigation or determine the ultimate effect on its financial condition or results of operations. Although the Company cannot estimate its total liabilities in these matters, the Company has recorded a $175,000,000 reserve in the accompanying consolidated financial statements reflecting the aforementioned offer.

        Other governmental agencies, such as the FCC or LFAs might also take action against the Company in response to or based on the outcome of, or developments in, the SEC Civil Action or the investigation by the DoJ. The outcome of, or developments in, the SEC Civil Action and the investigation by the DoJ could have a material adverse effect on the Company, including possible liquidation of the Company.

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SECURITIES AND DERIVATIVE LITIGATION

        The Company and certain former officers, directors and advisors have been named as defendants in a number of lawsuits alleging violations of federal and state securities laws and related claims. These actions generally allege that the defendants made materially misleading statements understating the Company's liabilities and exaggerating the Company's financial results in violation of securities laws.

        In particular, beginning on April 2, 2002, various groups of plaintiffs filed more than 30 class action complaints, purportedly on behalf of certain Company shareholders and bondholders or classes thereof in federal court in Pennsylvania. Several non-class action lawsuits were brought on behalf of individuals or small groups of security holders in federal courts in Pennsylvania, New York, South Carolina and New Jersey, and in state courts in New York, Pennsylvania, California and Texas. Seven derivative suits were also filed in federal and state courts in Pennsylvania, and four derivative suits were filed in state court in Delaware. On May 6, 2002, a notice and proposed order of dismissal without prejudice was filed by the plaintiff in one of these four Delaware derivative actions. The remaining three Delaware derivative actions were consolidated on May 22, 2002. On February 10, 2004, the parties stipulated and agreed to the dismissal of these consolidated actions with prejudice.

        The complaints, which named as defendants the Company, and certain former Company officers and directors, and, in some cases, the Company's former auditors, lawyers, as well as financial institutions who worked with the Company, generally allege that, among other improper statements and omissions, defendants misled investors regarding 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) of the Exchange Act and SEC Rule 10b-5. Certain bondholder actions assert claims for violation of Section 11 and/or Section 12(a) (2) of the Securities Act. Certain of the state court actions allege various state law claims.

        On July 23, 2003, the Judicial Panel on Multidistrict Litigation issued an order transferring numerous civil actions to the District Court for consolidated or coordinated pretrial proceedings (the "MDL Proceedings").

        On September 15, 2003, proposed lead plaintiffs and proposed co-lead counsel in the consolidated class action were appointed in the MDL Proceedings. On December 22, 2003 lead plaintiffs filed a consolidated class action complaint. Motions to dismiss have been filed by various defendants. As a result of the filing of the Chapter 11 Cases and the protections of the automatic stay, the Company is not named as a defendant in the amended complaint, but is a non-party. The consolidated class action complaint seeks monetary damages of an unspecified amount, rescission and reasonable costs and expenses and such other and future relief as the court may deem just and proper. The individual actions against the Company also seek damages of an unspecified amount.

        Pursuant to Section 362 of the Bankruptcy Code, all of the securities and derivative claims that were filed against the Company before the bankruptcy filings are automatically stayed and not proceeding as to the Company.

        The Company cannot predict the outcome of the pending legal proceedings or estimate the possible effects on the financial condition or results of operations of the Company.

ACQUISITION ACTIONS

        After the Rigas Family's alleged misconduct was publicly disclosed, three actions were filed in May and June 2002, against the Company by former shareholders of companies that the Company acquired, in whole or in part, through stock transactions. These actions allege that the Company induced these former shareholders to enter into these stock transactions through improper misrepresentations and omissions, and the plaintiffs seek monetary damages and equitable relief through rescission of the underlying acquisition transactions.

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        Two of these proceedings have been filed with the American Arbitration Association alleging violations of federal and state securities laws, breaches of representations and warranties and fraud in the inducement. One of these proceedings seeks rescission, compensatory damages and pre-judgment relief, and the other seeks specific performance. The third action alleges fraud and seeks rescission, damages and attorneys fees. This action was originally filed in a Colorado State Court, and subsequently was removed by the Company to the United States District Court for the District of Colorado. The Colorado State Court action was administratively closed on July 16, 2004, subject to reopening if and when the automatic bankruptcy stay is lifted or for other good cause shown. These actions have been stayed pursuant to the automatic stay provisions of Section 362 of the Bankruptcy Code.

        The Company cannot predict the outcome of these legal proceedings or estimate the possible effects on the financial condition or results of operations of the Company.

EQUITY COMMITTEE SHAREHOLDER LITIGATION

        Adelphia is a defendant in an adversary proceeding in the Bankruptcy Court consisting of a declaratory judgment action and a motion for a preliminary injunction brought on January 9, 2003 by the Equity Committee, seeking, among other relief, a declaration as to how the shares owned by the Rigas Family and Rigas Family Entities would be voted should a consent solicitation to elect members of the Board be undertaken. Adelphia has opposed such requests for relief.

        The claims of the Equity Committee are based on shareholder rights the Equity Committee claims should be recognized even in bankruptcy, coupled with continuing claims, as of the filing of the lawsuit, of historical connections between the Board and the Rigas Family. Motions to dismiss filed by Adelphia and others are fully briefed in this action, but no argument date has been set. If this action survives these motions to dismiss, resolution of disputed fact issues will occur in two phases pursuant to a schedule set by the Bankruptcy Court. Determinations regarding fact questions relating to the conduct of the Rigas Family will not occur until, at a minimum, after the resolution of the Rigas Criminal Action.

        No pleadings have been filed in the adversary proceeding since September 2003, rendering the adversary proceeding inactive.

        The Company cannot predict the outcome of these legal proceedings or estimate the possible effects on the financial condition or results of operations of the Company.

ML MEDIA LITIGATION

        The Company and ML Media, its joint venture partner in Century/ML Cable, a joint venture that owns and operates cable systems in Puerto Rico, have been involved in a longstanding dispute concerning Century/ML Cable's management, the rights of ML Media and various other matters.

State Court Litigation

        In March 2000, ML Media brought suit against Adelphia and Century's immediate parent, Arahova Communications, Inc. ("Arahova") in the Supreme Court of the State of New York, seeking, among other things: (i) the dissolution of Century/ML Cable and the appointment of a receiver to sell Century/ML Cable's assets; (ii) if no receiver was appointed, an order authorizing ML Media to conduct an auction for the sale of Century/ML Cable's assets to an unrelated third party and enjoining Adelphia from interfering with or participating in that process; (iii) an order directing the defendants to comply with the Century/ML Cable joint venture agreement with respect to provisions relating to governance matters and the budget process; and (iv) compensatory and punitive damages. The parties negotiated a consent order that imposed consultative and reporting requirements on Adelphia and Century as well as restrictions on Century's ability to make capital expenditures without ML Media's

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approval. On April 26, 2001, ML Media obtained a court order holding Century's Century/ML Cable management board designee in contempt for violating the consent order.

        In connection with the December 13, 2001 settlement of the above dispute, Adelphia, Century, Century/ML Cable, ML Media and Highland Holdings ("Highland"), a general partnership owned and controlled by members of the Rigas Family, entered into a Leveraged Recapitalization Agreement (the "Recap Agreement") pursuant to which Century/ML Cable agreed to redeem ML Media's 50% interest in Century/ML Cable (the "Redemption") on or before September 30, 2002 for a purchase price between $275 million and $279.8 million, depending on the timing of such redemption, plus interest. Among other things, the Recap Agreement provided that (i) Highland would arrange debt financing for the Redemption, (ii) Highland, Adelphia and Century would jointly and severally guarantee debt service on and after the closing, and (iii) Highland and Century would own 60% and 40% interests respectively, in the recapitalized Century/ML Cable. Under the terms of the Recap Agreement, Century's 50% interest in Century/ML Cable was pledged to ML Media as collateral for Adelphia's obligations.

Century/ML Cable Bankruptcy and Recap Agreement Rejection

        On September 30, 2002, Century/ML Cable filed a voluntary petition to reorganize under Chapter 11 in the Bankruptcy Court. Century/ML Cable is operating its business as a debtor-in-possession.

        By an order of the Bankruptcy Court dated September 17, 2003, Adelphia and Century rejected the Recap Agreement, effective as of such date. If the Recap Agreement is enforceable, the effect of the rejection of the Recap Agreement is the same as a prepetition breach of the Recap Agreement. Therefore, Adelphia and Century are potentially exposed to "rejection damages," which may include the revival of ML Media's claims under the state court actions described above.

        Adelphia, Century, Highland Holdings, Century/ML and ML Media are engaged in litigation regarding the enforceability of the Recap Agreement. On April 15, 2004, the Bankruptcy Court indicated that it would dismiss all counts of Adelphia's challenge to the enforceability of the Recap Agreement except for its allegation that ML Media aided and abetted a breach of fiduciary duty in connection with the execution of the Recap Agreement. The Bankruptcy Court also indicated that it would allow Century/ML Cable's action to avoid the Recap Agreement as a fraudulent conveyance to proceed.

        ML Media has alleged that it is entitled to elect a recovery of either: (i) up to $279.8 million plus costs and interest in exchange for its interest in Century/ML Cable; or (ii) up to the difference between $279.8 million and the fair market value of its interest in Century/ML Cable plus costs, interest and revival of the state court claims described above. Adelphia, Century and Century/ML Cable have disputed ML Media's claims, and the Stand-Alone Plan contemplates that ML Media will receive no distribution until such dispute is resolved. The parties have from time to time engaged in settlement discussions relating to a potential settlement of their disputes, but no agreement has been reached and the parties may not be able to reach a settlement agreement.

        The Company cannot predict the ultimate resolution of these legal proceedings or determine the ultimate effects on its financial condition or results of operations.

THE X CLAUSE LITIGATION

        On December 29, 2003, the Ad Hoc Committee of holders of Adelphia's 6% and 4% subordinated notes (collectively, the "Subordinated Notes"), together with the Bank of New York, the indenture trustee for the Subordinated Notes (collectively, the "X Clause Plaintiffs"), commenced an adversary proceeding against Adelphia in the Bankruptcy Court. The X Clause Plaintiffs' complaint sought a judgment declaring that the Subordinated Notes are entitled to share pari passu in the distribution of

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any common stock issued by Adelphia under the Stand-Alone Plan and are not subordinated to Adelphia's senior classes of indebtedness with respect to such common stock distributions.

        The basis for the X Clause Plaintiffs' claim is a provision in the applicable indentures, commonly known as the "X Clause," which provides that any distributions under a plan of reorganization comprised solely of "Permitted Junior Securities" are not subject to the subordination provision of the Subordinated Notes indenture. The X Clause Plaintiffs asserted that, under their interpretation of the applicable indentures, a distribution of a single class of new Adelphia common stock would meet the definition of "Permitted Junior Securities" set forth in the indentures, and therefore be exempt from subordination.

        On February 6, 2004, Adelphia filed its answer to the complaint, denying all of its substantive allegations. Thereafter, both the X Clause Plaintiffs and Adelphia cross-moved for summary judgment with both parties arguing that their interpretation of the X Clause was correct as a matter of law. The indenture trustee for the Adelphia senior notes also intervened in the action and, like Adelphia, moved for summary judgment arguing that the X Clause Plaintiffs were subordinated to holders of senior notes with respect to any distributions of common stock under a plan. In addition, the Creditors' Committee also moved to intervene and, thereafter, moved to dismiss the X Clause Plaintiffs' complaint on the ground, among others, that it did not present a justiciable case or controversy and therefore was not ripe for adjudication. In a written decision, dated April 12, 2004, the Bankruptcy Court granted the Creditors' Committee's motion to dismiss without ruling on the merits of the various cross-motions for summary judgment. The Bankruptcy Court's dismissal of the action was without prejudice to the X Clause Plaintiffs' right to bring the action at a later date, if appropriate.

        The Company cannot predict the outcome of these legal proceedings or estimate the possible effects on the financial condition or results of operations of the Company.

NFHLP CLAIM

        On January 13, 2003, the NFHLP Debtors filed voluntary petitions to reorganize under Chapter 11 in the NFHLP Bankruptcy Court seeking protection under the U.S. bankruptcy laws. Certain of the NFHLP Debtors entered into an agreement dated March 13, 2003 for the sale of certain assets, including the Buffalo Sabres National Hockey League team, and the assumption of certain liabilities. In August 2003, the NFHLP Bankruptcy Court approved the NFHLP Debtors' draft disclosure statement. On October 3, 2003, the NFHLP Bankruptcy Court approved the NFHLP joint plan of liquidation. The NFHLP Debtors filed a complaint, dated November 4, 2003, against, among others, Adelphia and the Creditors' Committee seeking to enforce certain prior stipulations and orders of the NFHLP Bankruptcy Court against Adelphia and the Creditors' Committee related to the waiver of Adelphia's right to participate in certain sale proceeds resulting from the sale of assets. Certain of the NFHLP Debtors' pre-petition lenders, which are also defendants in the adversary proceeding, have filed cross-complaints against Adelphia and the Creditors' Committee asking the NFHLP Bankruptcy Court to enjoin Adelphia and the Creditors' Committee from prosecuting their claims against those pre-petition lenders. Proceedings as to the complaint itself have been suspended. With respect to the cross-complaints, motion practice and discovery are proceeding concurrently; no hearing on dispositive motions has been scheduled.

        The Company cannot predict the outcome of these legal proceedings or estimate the possible effects on the financial condition or results of operations of the Company.

LITIGATION RELATING TO RIGAS FAMILY DEFENSE COSTS

        In July 2003 and again in January 2004, the Rigas Family sought approval from the Bankruptcy Court to use cash from the Managed Cable Entities to fund the Rigas Family members' civil and criminal defense costs. The Rigas Family claimed they were entitled to this funding based on certain purported indemnity and other rights they said they had as officers, directors, and controlling

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shareholders of the Managed Cable Entities. In an order dated August 7, 2003, the Bankruptcy Court granted the Rigas Family members' request to the extent of $15 million. In a decision rendered from the bench on February 18, 2004 and entered as an order on March 9, 2004, the Bankruptcy Court amended that order to allow an additional $12.8 million to be spent on criminal defense costs and denied the Rigas Family members' request for additional funding for civil defense costs.

        Adelphia and the Creditors' Committee appealed the February 18, 2004 ruling and moved for a stay pending the appeal of the Bankruptcy Court's March 9, 2004 order. A hearing on the motion for a stay pending appeal was held on March 17, 2004 in the District Court. On March 22, 2004, the District Court denied Adelphia's motion for a stay pending appeal of the Bankruptcy Court's March 9, 2004 order. On September 14, 2004, the Rigas Family members again moved to amend the August 7, 2003 and March 9, 2004 orders, seeking approximately $11 million more in cash from the Managed Cable Entities to fund civil and criminal defense costs. While that motion was pending, the District Court issued a decision on September 27, 2004, vacating the Bankruptcy Court's March 9, 2004 Order and remanding the matter back to the Bankruptcy Court for further consideration.

        On November 8, 2004, a hearing occurred regarding evidentiary issues relating to the Rigas Family members' latest motion at which time the court granted Adelphia's motion to exclude certain evidence. Another evidentiary hearing was held on November 22, 2004, concerning the ability of the Rigases to obtain additional funding of attorneys fees both pursuant to the request which was granted but vacated by the District Court and the latest request for an additional $11 million. The Bankruptcy Court has not yet ruled on the Rigas Family members' motions.

        The Company cannot predict the outcome of these legal proceedings or estimate the possible effects on the financial condition or results of operations of the Company.

RIGAS CRIMINAL ACTION

        In connection with an investigation conducted by the DoJ, on July 24, 2002, certain members of the Rigas Family and certain co-conspirators were arrested and, on September 23, 2002, were indicted by a grand jury on charges including fraud, securities fraud, bank fraud and conspiracy to commit fraud. On November 14, 2002, one of the Rigas Family's alleged co-conspirators, James Brown, pleaded guilty to one count each of conspiracy, 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 commit securities fraud, wire fraud and bank fraud. The trial in the Rigas Criminal Action began on February 23, 2004 in the District Court. On July 8, 2004, the jury returned a partial verdict in the Rigas Criminal Action. John J. and Timothy J. Rigas were each found guilty of conspiracy (one count), bank fraud (two counts), and securities fraud (15 counts) and not guilty of wire fraud (five counts). Michael J. Mulcahey was acquitted of all 23 counts against him. The jury found Michael J. Rigas not guilty of conspiracy and wire fraud but remained undecided on the securities fraud and bank fraud charges against him. On July 9, 2004, the court declared a mistrial on the remaining charges to those charges. The bank fraud charges against Michael J. Rigas have since been dismissed with prejudice, but the DoJ has requested that a new trial date be set to retry Michael J. Rigas on the securities fraud charges. On November 1, 2004, Michael J. Rigas' post-trial motion for dismissal of all charges was denied. The post-trial motions of John J. and Timothy J. Rigas in which they sought to overturn the guilty verdicts were denied on November 15, 2004. Both have stated that they intend to appeal the guilty verdicts. A hearing is scheduled for January 5, 2005, at which time the District Court is expected to consider the DoJ's request to set a retrial date for Michael J. Rigas. The sentencing of John J. Rigas and Timothy J. Rigas is currently scheduled for February 23, 2005.

        The indictment against the Rigases includes a request for entry of a money judgment in an amount exceeding $2.5 billion and for entry of an order of forfeiture. The Company believes that the DoJ may seek through such criminal forfeiture all interests of the convicted Rigas defendants in the Rigas Family

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Entities, or through civil forfeiture all of the assets of the Rigas Family Entities. The Government may also seek such assets through indictment of such entities. On December 10, 2004, the DoJ filed an application for a preliminary order of forfeiture finding John J. Rigas and Timothy J. Rigas jointly and severally liable for personal money judgments in the amount of $2,533 million. The Company has asserted claims against members of the Rigas Family and the Rigas Family Entities for amounts due, including their share of the borrowings under the Co-Borrowing Facilities. If the DoJ achieves the forfeiture of such assets, it will be significantly more difficult for the Company to recover on its claims with respect to the Rigas Family Entities. In addition, such forfeiture would make it significantly more difficult, if not impossible, for the Company to acquire ownership of, and maintain operational control over, the Managed Cable Entities which are highly integrated into the Company's operations.

        The Company is not a defendant in the Rigas Criminal Action but remains under investigation by the DoJ regarding matters related to alleged wrongdoing by certain members of the Rigas Family. See Item 3, "Legal Proceedings—SEC Civil Action and DoJ Investigation." The Company cannot predict the outcome of this investigation or estimate the possible effects on the financial condition or results of operations of the Company.

PREFERRED SHAREHOLDER LITIGATION

        On August 11, 2003, Adelphia initiated an adversary proceeding in the Bankruptcy Court against the holders of Adelphia's preferred stock (the "Preferred Stockholders"), seeking, among other things, to enjoin the Preferred Stockholders from exercising certain purported rights to elect directors to the Board due to Adelphia's failure to pay dividends and alleged breaches of debt-like covenants contained in the Certificates of Designations relating to Adelphia's Preferred Stock. On August 13, 2003, certain of the Preferred Stockholders filed an action against Adelphia in the Delaware Chancery Court seeking a declaratory judgment of their purported right to appoint two directors to the Board (the "Delaware Action"). On August 13, 2003, the Bankruptcy Court granted Adelphia a temporary restraining order, which, among other things, stayed the Delaware Action and temporarily enjoined the Preferred Stockholders from exercising their purported rights to elect directors to the Board. Thereafter, the Delaware Action was withdrawn.

        The Company cannot predict the outcome of these legal proceedings or estimate the possible effects on the financial condition or results of operations of the Company.

VERIZON MEDIA VENTURES

        On March 27, 2002, a federal action filed by the Company on March 20, 2002 in the United States District Court for the Central District of California, against the City of Thousand Oaks, was related to an action involving the Company, Verizon Media Ventures, Inc. d/b/a Verizon Americast ("Verizon Media Ventures") and City of Thousand Oaks, California and Ventura County that was initially filed in California state court on March 25, 2002. These actions involve claims by the City of Thousand Oaks and Ventura County that Verizon Media Ventures' entry into an asset purchase agreement dated December 17, 2001 between the Company and Verizon Media Ventures, pursuant to which the Company acquired certain Verizon Media Ventures cable equipment and network system assets (the "Verizon Cable Assets") located in the City of Thousand Oaks for use in the operation of the Company's cable business in the city, constituted a breach of the anti-assignment provisions in Verizon Media Ventures' cable franchises. The city and the county further allege that the Company's participation in the transaction amounted to actionable tortious inducement of Verizon Media Ventures' breaches of those franchises. The City of Thousand Oaks and Ventura County sought injunctive relief to halt the sale and transfer of the Verizon Cable Assets pursuant to the December 17, 2001 asset purchase agreement and to compel the Company to treat the Verizon Cable Assets as a separate cable system. The Company sought, among other things, declaratory and injunctive relief precluding the city from denying permits on the grounds that Adelphia failed to seek the city's prior approval of the asset purchase agreement.

55

        On May 14, 2002, the district court entered a final preliminary injunction order and findings of fact and conclusions of law in support thereof (the "May 14, 2002 Order"). The May 14, 2002 Order, among other things: (i) enjoined the Company from integrating the Company's and Verizon Media Ventures' system assets serving subscribers in the City of Thousand Oaks and Ventura County; (ii) required the Company to return "ownership" of the Verizon Cable Assets to Verizon Media Ventures except that the Company was permitted to continue to "manage" the assets as Verizon Media Ventures' agent to the extent necessary to avoid disruption in services until Verizon Media Ventures chose to reenter the market or sell the assets; (iii) prohibited the Company from eliminating any programming options that had previously been selected by Verizon Media Ventures or from raising the rates charged by Verizon Media Ventures; and (iv) required the Company and Verizon Media Ventures to grant the city and/or the county access to system records, contracts, personnel and facilities for the purpose of conducting an inspection of the then-current "state of the Verizon Media Ventures and Adelphia systems" in the city and the county. The Company appealed the May 14, 2002 Order and on April 1, 2003 the U.S. Court of Appeals for the Ninth Circuit reversed the May 14, 2002 Order, thus removing any restrictions that had been imposed by the district court against the Company's integration of the Verizon Cable Assets, and remanded the actions back to the district court for further proceedings.

        In September 2003, the City began refusing to grant the Company's construction permit requests, claiming that the Company could not integrate the acquired Verizon Cable Assets with the Company's existing cable system assets because the City had not approved the Adelphia-Verizon transaction, as allegedly required under the City's Cable Ordinance.

        Accordingly, on October 2, 2003, the Company filed a motion for a preliminary injunction in the district court seeking to enjoin the City from refusing to grant the Company's construction permit requests. On November 3, 2003, the district court granted the Company's motion for a preliminary injunction, finding that the Company had demonstrated "a strong likelihood of success on the merits." Thereafter, the parties agreed to informally stay the litigation pending negotiations between the Company and the City for the Company's renewal of its cable franchise, with the intent that such negotiations would also lead to a settlement of the pending litigation. However, on September 16, 2004, at the City's request, the district court set a trial date of July 12, 2005, which has effectively re-opened the case to active litigation. The court scheduled discovery and motion cut-off dates for March 18, 2005 and May 9, 2005, respectively, an expert witness disclosure date of April 8, 2005 and a pre-trial conference date of June 27, 2005.

        The Company cannot predict the outcome of these actions or estimate the possible effects on the financial condition or results of operations of the Company.

DIBBERN ADVERSARY PROCEEDING

        On or about August 30, 2002, Gerald Dibbern, individually and purportedly on behalf of a class of similarly situated subscribers nationwide, commenced an adversary proceeding in the District Court against Adelphia asserting claims for violation of the Pennsylvania Consumer Protection Law, breach of contract, fraud, unjust enrichment, constructive trust, and an accounting. This complaint alleges that Adelphia charged, and continues to charge, subscribers for cable set-top box equipment, including set-top boxes and remote controls, that is unnecessary for subscribers that receive only basic cable service and have cable-ready televisions. The complaint further alleges that Adelphia failed to adequately notify affected subscribers that they no longer needed to rent this equipment. The complaint seeks a number of remedies including treble money damages under the Pennsylvania Consumer Protection Law, declaratory and injunctive relief, imposition of a constructive trust on Adelphia's assets, and punitive damages, together with costs and attorneys' fees.

        On or about December 13, 2002, Adelphia moved to dismiss the adversary proceeding on several bases, including that the complaint fails to state a claim for which relief can be granted and that the

56

matters alleged therein should be resolved in the claims process. Adelphia's motion has been fully briefed and argued and is presently under consideration by the court.

        The Company cannot predict the outcome of these legal proceedings or estimate the possible effects on the financial condition or results of operations of the Company.

TELE-MEDIA EXAMINER MOTION

        By motion filed in the Bankruptcy Court on August 5, 2004, TMCD and certain of its affiliates are seeking the appointment of an examiner for the following Debtors: Tele-Media Company of Tri-States, L.P., CMA Cablevision Associates VII, L.P., CMA Cablevision Associates XI, L.P., TMC Holdings Corporation, Adelphia Company of Western Connecticut, TMC Holdings, LLC, Tele-Media Investment Limited Partnership, L. P., Eastern Virginia Cablevision, L.P., Tele-Media Company of Hopewell Prince George, and Eastern Virginia Cablevision Holdings, LLC. Among other things, TMCD alleges that management and the Board breached their fiduciary obligations to the creditors and equity holders of those entities. Consequently, TMCD seeks the appointment of an examiner to investigate and make recommendations to the Bankruptcy Court regarding various issues related to such entities. The hearing on this motion has been consensually adjourned to January 28, 2005.

        The Company cannot predict the outcome of these legal proceedings or estimate the possible effects on the financial condition or results of operations of the Company.

CREDITORS' COMMITTEE LAWSUIT AGAINST PRE-PETITION BANKS

        Pursuant to the Bankruptcy Court order approving the DIP Facility (the "Final DIP Order"), the Company made certain acknowledgments (the "Acknowledgments") with respect to the extent of its indebtedness under the credit facilities, as well as the validity and extent of the liens and claims of the lenders under such facilities. However, given the circumstances surrounding the filing of these Chapter 11 Cases, the Final DIP Order preserved the Company's right to prosecute, among other things, avoidance actions and claims against the pre-petition lenders and to bring litigation against the pre-petition lenders based on any wrongful conduct. The Final DIP Order also provided that any official committee appointed in the Chapter 11 Cases would have the right to request that it be granted standing by the Bankruptcy Court to challenge the Acknowledgments and to bring claims belonging to the Company and its estates against the pre-petition lenders.

        Pursuant to a stipulation among the Company, the Creditors' Committee and the Equity Committee, which is being challenged by certain pre-petition lenders, the Bankruptcy Court granted the Creditors' Committee leave and standing to file and prosecute claims against the pre-petition lenders, on behalf of the Company, and granted the Equity Committee leave to seek to intervene in any such action. This stipulation also preserves the Company's ability to compromise and settle the claims against the pre-petition lenders. By motion dated July 6, 2003, the Creditors' Committee moved for Bankruptcy Court approval of this stipulation and simultaneously filed a complaint (the "Bank Complaint") against the agents and lenders under certain credit facilities, and related entities, asserting, among other things, that these entities knew of, and participated in, the alleged abuse of the Co-Borrowing Facilities by certain members of the Rigas Family and the Rigas Family Entities (the "Pre-petition Lender Litigation"). The Company is a nominal plaintiff in this action.

        The Bank Complaint contains 52 claims for relief to redress the claimed wrongs and abuse committed by the agents, lenders and other entities. The Bank Complaint seeks to, among other things, (i) recover as fraudulent transfers the principal and interest paid by the Company to the defendants, (ii) avoid as fraudulent obligations the Company's obligations, if any, to repay the defendants, (iii) recover damages for breaches of fiduciary duties to the Company and for aiding and abetting fraud and breaches of fiduciary duties by the Rigas Family, (iv) equitably disallow, subordinate or recharacterize each of the defendants' claims in the Chapter 11 Cases, (v) avoid and recover certain allegedly preferential transfers made to certain defendants, and (vi) recover damages for violations of

57

the Bank Holding Company Act. Numerous motions seeking to defeat the Pre-petition Lender Litigation have been filed by the defendants, but have not yet been decided by the Bankruptcy Court.

        The Equity Committee has filed a motion seeking authority to bring additional claims against the pre-petition lenders pursuant to the Racketeering Influenced and Corrupt Organizations ("RICO") Act. The Bankruptcy Court has not yet ruled on the motion.

        The Company cannot predict the outcome of these legal proceedings or estimate the possible effects on the financial condition or results of operations of the Company.

DEVON MOBILE

        Pursuant to the Agreement of Limited Partnership of Devon Mobile Communications, L.P., a Delaware limited partnership ("Devon Mobile"), dated as of November 3, 1995 (the "Devon Mobile Limited Partnership Agreement"), the Company owned a 49.9% limited partnership interest in Devon Mobile, which, through its subsidiaries, held licenses to operate regional wireless telephone businesses in several states. Devon Mobile had certain business and contractual relationships with the Company and with former subsidiaries or divisions of the Company which were spun-off as TelCove in January 2002.

        In late May 2002, the Company notified Devon G.P., Inc. ("Devon G.P."), the general partner of Devon Mobile, that it would likely terminate certain discretionary operational funding to Devon Mobile. In July 2002, the Company learned that its former subsidiary, TelCove, had elected to terminate certain services it provided to Devon Mobile. On August 19, 2002, Devon Mobile and certain of its subsidiaries filed voluntary petitions under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the District of Delaware (the "Devon Mobile Bankruptcy Court").

        On January 17, 2003, the Company filed proofs of claim and interest against Devon Mobile and its subsidiaries for approximately $129 million in debt and equity claims, as well as an additional claim of approximately $35 million relating to the Company's guarantee of certain Devon Mobile obligations (collectively, the "Company Claims"). By order dated October 1, 2003, the Devon Mobile Bankruptcy Court confirmed Devon Mobile's First Amended Joint Plan of Liquidation (the "Devon Plan"). The Devon Plan went effective on October 17, 2003, at which time the Company's limited partnership interest in Devon Mobile was extinguished.

        On or about January 8, 2004, Devon Mobile filed proofs of claim in the amount of $267 million in the Chapter 11 Cases in respect of, among other things, certain transfers alleged to be made by Devon Mobile to the Company prior to the commencement of the Chapter 11 Cases (the "Devon Claims"). On May 20, 2004, the Company and Devon Mobile filed a stipulation in the Chapter 11 Cases granting Devon Mobile limited relief from the automatic stay to (i) file a complaint against the Company based on the Devon Claims and (ii) file objections to the Company Claims in the Devon Mobile Bankruptcy Court (the "Devon Stay Stipulation"). The Devon Stay Stipulation was approved by the Bankruptcy Court on June 10, 2004. On June 21, 2004, Devon Mobile filed a complaint (the "Devon Complaint") in the Chapter 11 Cases in respect of the Devon Claims. On August 20, 2004, the Company filed an answer and counterclaim in response to the Devon Complaint denying the allegations made in the Devon Complaint and asserting various counterclaims against Devon Mobile, which encompassed the Company Claims (the "Company Answer"). On September 21, 2004, the Bankruptcy Court entered an order approving an amendment to the Devon Stay Stipulation which provides that the Company Claims will be prosecuted to final order in the Bankruptcy Court and will be given full force and effect by the Devon Mobile Bankruptcy Court taking into account the rights of set-off and/or recoupment of the parties with respect thereto. On September 30, 2004, Devon Mobile filed an answer with respect to the counterclaims asserted by the Company in the Company Answer and denying liability for the Company Claims. On October 13, 2004, the Company filed a motion for judgment on the pleadings dismissing Devon Mobile's demand for punitive damages and, by stipulation, Devon Mobile withdrew its punitive damages claims without prejudice. On November 22, 2004, the Company filed a motion for leave (the

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"Motion for Leave") to file a third-party complaint against Devon G.P. and Lisa-Gaye Shearing Mead, the sole owner and President of Devon G.P. As of the date hereof, the Motion for Leave remains pending before the Bankruptcy Court. Any recovery of the Company Claims is uncertain at this time.

        The Company cannot predict the outcome of these legal proceedings or estimate the possible effects on the financial condition or results of operations of the Company.

EPA SELF DISCLOSURE AND AUDIT

        On June 2, 2004, the Company orally self-disclosed potential violations of environmental laws to the United States Environmental Protection Agency ("EPA") pursuant to EPA's Audit Policy, and notified EPA that it intended to conduct an audit of its operations to identify and correct any such violations. The potential violations concern reporting and recordkeeping requirements arising from the Company's storage and use of petroleum and batteries to provide backup power for its cable operations and the Company's management of certain electronic equipment. Under the Audit Policy, companies that self-disclose violations of environmental law discovered during environmental audits may be eligible for substantial reductions in civil penalties, including reductions of 75% or even 100% of the typical penalty. This matter is at an early stage, but based on current facts, the Company does not anticipate that this matter will have a material adverse effect on the Company's results of operations or financial condition.

ADELPHIA'S LAWSUIT AGAINST THE RIGAS FAMILY

        On July 24, 2002, Adelphia filed a complaint in the Bankruptcy Court (the "Rigas Civil Action") 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. This action generally alleges that defendants conspired to misappropriated billions of dollars from the Company in breach of their fiduciary duties to Adelphia. On November 15, 2002, Adelphia filed an amended complaint against the defendants that expanded upon the facts alleged in the original complaint and alleged violations of the RICO Act (Counts I-IV), breach of fiduciary duty (Count V), securities fraud (Count VI), fraudulent concealment (Count VII), fraudulent misrepresentation (Count VIII), conversion (Count IX), waste of corporate assets (Count X), breach of contract (Count XI), unjust enrichment (Count XII), fraudulent conveyance (Count XIII), constructive trust (Count XIV), inducing breach of fiduciary duty (Count XV), and a request for an accounting (Count XVI) (the "Amended Complaint"). The Amended Complaint seeks relief in the form of, among other things, treble and punitive damages, disgorgement of monies and securities obtained as a consequence of the Rigases' improper conduct and attorneys' fees.

        On June 7, 2003, U.S. District Court Judge George Daniels denied the defendants' motion to remove the case from the Bankruptcy Court to the District Court.

        On January 16, 2003, John J., Michael J., Timothy J. and James P. Rigas, Doris Rigas and the Rigas Family Entities (collectively referred to as "Rigas Defendants"), Peter L. Venetis and Ellen Rigas Venetis each filed motions to dismiss the Amended Complaint. These motions were argued in April 2004. On June 28, 2004, the Bankruptcy Court denied the Rigas Defendants' motion to dismiss the Amended Complaint only as to the state law claims (Counts V, VII-XVI) and expressly reserved its ruling on the remaining federal law claims (RICO and securities fraud counts (Counts I-IV, VI)). The Bankruptcy Court further ruled that the Rigas Defendants will have no obligation to answer all or part of the Amended Complaint until either: (i) the Bankruptcy Court rules upon the Rigas Defendants' motion to dismiss the federal law claims asserted in the Amended Complaint; or (ii) by further Order of the Bankruptcy Court.

        On August 20, 2004, Adelphia moved for partial summary judgment against John J., Timothy J., Michael J., and James P. Rigas, and the Rigas Family Entities on counts XII (unjust enrichment) and XIV (constructive trust) of the Amended Complaint. Adelphia seeks judgment in the amount of

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$3,232 million plus pre-judgment interest from April 30, 2002, and asks the court to impose a constructive trust on the Rigases' monies and property acquired, directly or indirectly, through the use of the Company's funds and credit, and to order the re-conveyance of all such monies and property to the Company. On October 20, 2004, the Rigas Defendants filed their response to Adelphia's motion pursuant to Rule 56(f) of the Federal Rules of Civil Procedure, claiming that the court should delay consideration of the motion until the Rigas Defendants have had the opportunity to conduct additional discovery. In a December 2, 2004 decision, the Bankruptcy Court agreed to delay consideration of the motion until the Rigas Defendants could conduct certain, but not all, of the additional discovery they had requested. On October 22, 2004, the co-borrowing facility banks moved to intervene in the Rigas Adversary Proceedings as to Counts XII (unjust enrichment) and XIV (constructive trust) of the Amended Complaint. A hearing was held on December 15, 2004, at which time the Bankruptcy Court granted the banks' motion to intervene but specified that prior to propounding any discovery the banks were to seek agreement from the parties or, in the event the parties cannot reach agreement, leave of court.

        The Company cannot predict the outcome of these legal proceedings or estimate the possible effects on the financial condition or results of operations of the Company.

ADELPHIA'S LAWSUIT AGAINST DELOITTE

        Adelphia sued Deloitte, Adelphia's former independent auditors, on November 6, 2002, in the Court of Common Pleas for Philadelphia County seeking damages for Deloitte's role in the Rigas Family's alleged misappropriation of funds from the Company. The complaint brings causes of action for professional negligence, breach of contract, aiding and abetting breach of fiduciary duty, fraud, negligent misrepresentation and contribution. The complaint alleges, among other things, that Deloitte knew of at least aspects of the alleged misappropriation and misconduct of the Rigas Family, and other alleged acts of self-dealing and misappropriation by the Rigas Family were readily apparent to Deloitte from the books and records that Deloitte reviewed and to which it had access. The complaint alleges that, in either case, Deloitte had a duty to report the Rigas Family's alleged misconduct to those who could have acted to stop the Rigas Family, but Deloitte did not do so. The complaint seeks damages of an unspecified amount.

        Deloitte filed preliminary objections to the complaint, which were overruled by the court by order dated June 11, 2003.

        On September 15, 2003, Deloitte filed an Answer, New Matter, and Counterclaims in response to the complaint. In its counterclaims, Deloitte asserted causes of action against Adelphia for breach of contract, fraud, negligent misrepresentation and contribution. Also on September 15, 2003, Deloitte filed a related complaint naming as additional defendants John J., Timothy J., Michael J. and James P. Rigas. In this complaint, Deloitte alleged causes of action for fraud, negligent misrepresentation and contribution. On January 9, 2004, Adelphia answered Deloitte's counterclaims. Deloitte moved to stay discovery in this action until completion of the Rigas Criminal Action, which Adelphia opposed. Following this motion, discovery was effectively stayed for 60 days but has now commenced. Deloitte and Adelphia have exchanged documents and have begun deposition discovery. The court has indicated its desire to try the case by the end of 2005.

        The Company cannot predict the outcome of these legal proceedings or estimate the possible effects on the financial condition or results of operations of the Company.

SERIES E PREFERRED STOCK MOTION

        On October 29, 2004, Adelphia filed a motion to postpone the conversion of Adelphia's Series E Preferred Stock into shares of Class A Common Stock from November 15, 2004 to February 1, 2005, to the extent such conversion was not already stayed by the Debtors' bankruptcy filing, in order to protect the Debtors' NOL carryovers. The motion was heard on November 10, 2004, and on November 18,

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2004, the Bankruptcy Court entered an order approving the postponement effective November 14, 2004.

OTHER

        Certain litigation relating to TelCove was settled on February 21, 2004 pursuant to the Global Settlement as discussed in Item 1, "Business."

        The Company is subject to various other legal proceedings and claims which arise in the ordinary course of business. Management believes, based on information currently available, that the amount of ultimate liability with respect to any of these actions will not materially affect the Company's financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matter was submitted to a vote of security holders during the year 2003 due to the events surrounding the discovery of the alleged Rigas Family misconduct and the pendency of the Chapter 11 Cases.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        The Class A Common Stock was previously publicly traded on the Nasdaq Stock Market under the symbol ADLAC. The Nasdaq Stock Market changed Adelphia's symbol from ADLAC to ADLAE in April, 2002 in conjunction with Adelphia's failure to file its 2001 Annual Report in a timely manner. On June 3, 2002, the Class A Common Stock was delisted from the Nasdaq Stock Market and became eligible for trading in the over-the-counter market under the symbol ADELA. Subsequently, on June 27, 2002, the Class A Common Stock began trading under the symbol ADELQ in conjunction with the filing of the Chapter 11 Cases.

        The Class B Common Stock is identical in all material respects to the Class A Common Stock except that: (i) the Class B Common Stock has ten votes per share; (ii) the Class A Common Stock, voting separately by class, has the right to elect one director; (iii) in the event a cash dividend is paid, each share of Class A Common Stock will be entitled to receive 105% of the amount payable per share for each share of Class B Common Stock; and (iv) upon the liquidation, dissolution or winding up of Adelphia, (a) first, the holders of Class A Common Stock are entitled to a preference of $1.00 per share and the amount of all unpaid declared dividends thereon from any funds available after satisfying the liquidation preferences of preferred securities, debt instruments and other senior claims on Adelphia's assets, (b) then the holders of Class B Common Stock are entitled to receive $1.00 per share and the amount of all unpaid declared dividends thereon, and (c) any remaining amount would be shared ratably by both classes. Each share of the Class B Common Stock is convertible into a share of Class A Common Stock at the option of the holder. The Class B Common Stock has no established public trading market.

        As of September 30, 2004, there were 228,692,414 shares of Class A Common Stock outstanding and 25,055,365 shares of the Class B Common Stock outstanding. As of April 15, 2004, the members of the Rigas Family beneficially owned (as calculated pursuant to Rule 13d-3 under the Exchange Act): (i) 51,610,806 shares of Class A Common Stock (representing 21% of the outstanding shares of Class A Common Stock); and (ii) all of the outstanding shares of Class B Common Stock. See Item 12, "Beneficial Ownership of Securities."

        The following table sets forth the high and low sale prices for the Class A Common Stock, for the periods indicated, as reported on the Nasdaq Stock Market and the Pink Sheets Electronic Quotation Service maintained by the National Quotation Bureau, Inc. The stock price information is based on published financial sources. Over-the-counter market quotations reflect inter-dealer quotations and do

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not include retail markups, markdowns, or commissions and may not necessarily represent actual transactions.

        As of September 30, 2004, there were approximately 1,203 record holders of the Class A Common Stock. There were seven record holders of the Class B Common Stock as of September 30, 2004, all of whom were members of the Rigas Family or Rigas Family Entities.

        The Company has never paid or declared any cash dividends on the Class A Common Stock or the Class B Common Stock, nor does it anticipate paying any such dividends in the foreseeable future. Under the Stand-Alone Plan, no cash or other dividends would be paid to holders of Class A Common Stock or Class B Common Stock. The ability of Adelphia to pay cash dividends on the Class A Common Stock or Class B Common Stock is limited by the provisions of the Extended DIP Facility. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" and Note 14, "Debt" to the accompanying consolidated financial statements.

        The data regarding securities authorized for issuance under equity compensation plans of the Company are set forth in the discussion under the heading Item 12, "Beneficial Ownership of Securities—Securities Authorized for Issuance Under Equity Compensation Plans."

        See Note 15, "Redeemable Preferred Stock," and Note 16, "Stockholders' Equity," to the accompanying consolidated financial statements.

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ITEM 6. SELECTED FINANCIAL DATA

        We derived the selected financial data set forth below for each of the three years in the period ended December 31, 2003 from our audited consolidated financial statements and other financial information presented herein. You should refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report on Form 10-K and the notes to the accompanying consolidated financial statements for additional information regarding the financial data presented below, including matters that could cause this data not to be indicative of our future results of operations or financial condition. In addition, readers should note the following information regarding the selected financial data presented below.

•

The financial statements have been prepared assuming we will continue as a going concern which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Except as required by Statement of Position ("SOP") 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7") the consolidated financial statements do not include any adjustments that might be required should we be unable to continue to operate as a going concern.



•

On June 25, 2002, we and substantially all of our domestic subsidiaries filed voluntary petitions to reorganize under Chapter 11 of the Bankruptcy Code, and as such, are operating our business as debtors-in-possession. For periods subsequent to the Chapter 11 filing, we have applied the provisions of SOP 90-7. Although SOP 90-7 does not significantly change the application of generally accepted accounting principles in the United States ("GAAP"), it does require that pre-petition liabilities that are subject to compromise or other treatment under a plan of reorganization be segregated in the consolidated balance sheets as liabilities subject to compromise and that revenue, expenses, realized gains and losses, and provisions for losses resulting directly from the reorganization due to the bankruptcy be reported separately as reorganization expenses in the consolidated statements of operations. We have reported liabilities subject to compromise at the amounts expected to 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 will be paid during Chapter 11 proceedings or will be an allowed priority, secured or unsecured claim. In addition, no preferred stock dividends have been accrued subsequent to the Petition Date. Upon our emergence from bankruptcy, we anticipate that material adjustments will be recorded to our consolidated balance sheet to reflect the restructuring of assets and liabilities as a result of a plan of reorganization and the application of fresh-start reporting as provided by SOP 90-7. Under fresh-start reporting, the reorganization value will be allocated to our assets and liabilities on a basis substantially consistent with purchase accounting in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" ("SFAS No. 141"). As such, we do not expect our financial statements for periods subsequent to the fresh-start reporting date to be comparable with those of prior periods. No assurance can be given that the Debtors will emerge from bankruptcy. For additional information, see Note 2, "Bankruptcy," to the accompanying consolidated financial statements.



•

The financial data below includes the accounts of Adelphia and all of its subsidiaries that were directly or indirectly controlled by Adelphia prior to the bankruptcy petition. Following the petition for bankruptcy, we can no longer control the activities and operations of our subsidiaries. However, because the bankruptcy proceedings for us and our previously consolidated subsidiaries are consolidated for administrative purposes in the same Bankruptcy Court and will be overseen by the same judge, the financial statements of the Company and our subsidiaries have been presented on a combined basis, which is consistent with consolidated financial statements.

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•

Beginning in March 2002 and continuing over the next several months, improper actions that allegedly had been taken by members of the Rigas Family and certain other members of the Company's then existing management were disclosed. As a result of actions taken in response to such disclosures, we have identified a number of accounting and bookkeeping errors that required the restatement of our opening consolidated balance sheet as of January 1, 2001. We had previously announced and disclosed in our filings with the SEC that we intended to prepare restated consolidated financial statements for the years ended December 31, 2000 and 1999 and to have these restated financial statements audited by PricewaterhouseCoopers LLP ("PwC"), our independent registered public accounting firm. However, we cannot locate appropriate supporting documentation with respect to certain amounts or account balances reflected in our consolidated balance sheets for the years ended December 31, 2000 and 1999. Therefore, we have written-off these unsupported amounts or balances to the consolidated statements of operations for the years ended December 31, 2000 and 1999. We have determined that we are unable to include restated consolidated financial statements with respect to the years ended December 31, 2000 and 1999 in this report because we cannot conclude that the restated consolidated financial statements would present, in all material respects, our financial position as of December 31, 1999 and our results of operations and cash flows for the years ended December 31, 2000 and 1999, in each case in accordance with GAAP, consistently applied. Therefore, the selected financial data included below does not contain data with respect to the years ended December 31, 2000 and 1999. For additional information, see Note 4, "Restatement of Consolidated Financial Statements," to the accompanying consolidated financials statements.



•

On January 11, 2002, we completed the TelCove Spin-off. The information below does not include TelCove's results of operations or financial position subsequent to December 31, 2001. For additional information, see Note 9, "TelCove," to the accompanying consolidated financial statements.



•

We completed a number of acquisitions during 2001. We issued Class A Common Stock and entered into significant new financing arrangements in connection with these acquisitions. The effects of these acquisitions have been included in our accompanying consolidated financial statements effective with the purchase date. For additional information concerning acquisitions, please refer to Item 1, "Certain Significant Business Developments Occurring Since 1999—Acquisitions and Financings" and Note 8, "Acquisitions," to the accompanying consolidated financial statements.

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(a)

Represents investigation and re-audit related fees that, although not directly related to the Chapter 11 filing, relate to the investigation of the alleged actions of Rigas Management and related efforts to comply with applicable laws and regulations.

(b)

In 2001, the Other Rigas Entities entered into certain agreements whereby the Other Rigas Entities agreed to purchase Class B Common Stock and Series E Preferred Stock from us at a future date. As the equity securities were issued to entities controlled by the Rigas Family, the majority of whom were employees of the

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Company, we recognized compensation expense (benefit) for these equity securities under APB Opinion No. 25. Accordingly, the difference between the purchase price of the securities and their market price has been reflected as adjustments to compensation expense (benefit). See Note 6, "Transactions with the Rigas Family and Rigas Family Entities," to the accompanying consolidated financial statements.

(c)

Based upon our evaluation of the recoverability of the long-lived assets associated with our cable business, TelCove's CLEC business and the CLEC markets retained by us, we recorded impairment charges during 2003, 2002 and 2001. For additional information, see Note 12, "Impairment of Long-Lived Assets," to the accompanying consolidated financial statements.

(d)

During 2002, we fully reserved for the amounts due to us from TelCove. In addition, we reserved for the costs of a Global Settlement with TelCove during 2003. For additional information, see Note 9, "TelCove," to the accompanying consolidated financial statements.

(e)

These amounts represent our provision for uncollectible amounts due from the Rigas Family and Rigas Family Entities. For additional information, see Note 6, "Transactions with the Rigas Family and Rigas Family Entities," to the accompanying consolidated financial statements.

(f)

In 2002, we recorded a loss on disposition related to the sale of land and timber rights. In 2001, we exchanged certain cable systems for cable systems held by other cable operators and we recognized a gain equal to the difference between the historical cost of the systems given up and the fair value of the systems acquired. For additional information, see Note 6, "Transactions with the Rigas Family and Rigas Family Entities," and Note 8, "Acquisitions," to the accompanying consolidated financial statements.

(g)

Represents interest paid or accrued on debt. For periods subsequent to the petition date, interest expense has been reported only to the extent that it will be paid during Chapter 11 proceedings or will be an allowed priority, secured or unsecured claim. For additional information, see Note 2, "Bankruptcy," and Note 14, "Debt," to the accompanying consolidated financial statements.

(h)

For periods subsequent to the Petition Date, we have applied the provisions of SOP 90-7. SOP 90-7 requires that revenue, expenses, realized gains and losses, and provisions for losses resulting directly from the reorganization due to bankruptcy be reported separately as reorganization expenses in the consolidated statements of operations.

(i)

Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"), and as a result, were required to test all intangible assets acquired for impairment. The resulting transitional impairment loss was measured as of January 1, 2002 and has been recognized as a cumulative effect of accounting change. SFAS No. 142 also required that goodwill and indefinite lived intangible assets no longer be amortized effective January 1, 2002. For additional information, see Note 5, "Recent Accounting Pronouncements," to the accompanying consolidated financial statements. On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133," by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," ("SFAS No. 138") and by SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). As a result of our adoption of SFAS No. 133, we began carrying certain warrants at fair value. For additional information, see Note 5, "Recent Accounting Pronouncements," and Note 11, "Cost and Other Investments," to the accompanying consolidated financial statements.

(j)

In accordance with SOP 90-7, all pre-petition liabilities subject to compromise have been segregated in the consolidated balance sheet and classified as liabilities subject to compromise at the estimated amount of allowed claims.

(k)

As a result of the adoption of SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150"), we have classified our redeemable preferred stock as a liability subject to compromise in the accompanying December 31, 2003 consolidated balance sheet.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion should be read in conjunction with the accompanying consolidated financial statements of the Company. Reference is also made to "Cautionary Statements" in Part I of this report for a description of important factors that could cause actual results to differ from expected results. See also Item 1, "Business—Risk Factors."

OVERVIEW

General

        We are the fifth largest operator of cable television systems in the United States. Our operations primarily consist of providing analog and digital cable services, HSI services and other advanced services over our cable systems. These services are generally provided to residential subscribers. As of December 31, 2003, our consolidated cable operations served approximately 5,085,000 basic cable subscribers, of which approximately 1,802,000 also received digital cable service. Our consolidated cable systems also provided HSI services to approximately 954,000 subscribers as of December 31, 2003. With the exception of approximately 47,000 basic cable subscribers that were located in Brazil, all of our consolidated basic cable subscribers at December 31, 2003 were located in the United States. Our domestic consolidated cable operations are located in 31 states, with large clusters in Los Angeles, Western Pennsylvania, Cleveland, Western New York, New England, West Palm Beach, Northern Virginia and Colorado Springs.

        Our only reportable operating segment is our "cable" segment. The cable segment includes our cable system operations (including consolidated subsidiaries and equity method investments) that provide video services, HSI services and media services. Operating segments that are not included in the cable segment are aggregated together in the "corporate and other" segment. For additional information, see Note 20, "Segments" to the accompanying consolidated financial statements.

Alleged Actions of Rigas Management

        Beginning in March 2002 and continuing over the next several months, certain improper actions that allegedly had been taken by members of the Rigas Family and certain other members of the Company's then existing management were disclosed. Among other things, the improprieties allegedly committed by members of the Rigas Family included:

•

failing to apply the proper accounting or provide required disclosures with respect to a variety of related party and other issues and transactions, including (i) co-borrowing agreements pursuant to which certain subsidiaries of Adelphia and the Rigas Co-Borrowing Entities were jointly and severally liable, and (ii) purchases of Adelphia securities by the Rigas Family Entities;



•

engaging in sham transactions and record keeping and other financial manipulations in order to (i) overstate revenue and other measures of operating results, (ii) artificially reduce reported debt and increase reported equity, and (iii) meet financial covenants of debt facilities;



•

otherwise misappropriating and improperly using corporate assets; and



•

covering up such misappropriations.

        The March 2002 disclosure of more than $2 billion in off-balance sheet liabilities led to the disclosure of numerous alleged improprieties of the Rigas Family. As the alleged improprieties of the Rigas Family continued to come to light, we (i) authorized a Special Committee to conduct an investigation into certain transactions involving the Company and the Rigas Family Entities and certain related matters, and (ii) announced that we expected to restate certain of our consolidated financial statements. Deloitte, our former independent auditor, subsequently suspended its audit work on our

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consolidated financial statements for the year ended December 31, 2001 and withdrew the audit report it had issued with respect to the Company's previously issued financial statements. On June 9, 2002, we dismissed Deloitte. On June 13, 2002, we retained PwC as our independent registered public accounting firm.

        Also in May 2002, the Special Committee obtained the agreement of John J. Rigas and certain other members of the Rigas Family to resign from their positions as officers and directors of the Company. Subsequently, certain other Adelphia officers and employees who were alleged to have been complicit in the alleged wrongdoings were dismissed. Our Board has been reconstituted, and we have since retained new senior management, including a new CEO, President and COO, CFO, General Counsel and CAO, and implemented improved corporate governance policies and procedures, with one objective being the improvement of our control environment. Our current Board is comprised of seven members, including six that are independent of the Company. All of our directors have joined the Board subsequent to the time that the Rigas Family members resigned from their positions as executive officers and directors of the Company. For additional information, see Item 1, Business—Certain Significant Business Developments Occurring Since 1999" and Note 4, "Restatement of Consolidated Financial Statements," to the accompanying consolidated financial statements.

Current Business Strategy

        Since the current management team was hired in early 2003, we have implemented a strategy designed to increase revenue, profitability and competitiveness, reduce costs and improve the overall efficiency of our business. Our objective is to maintain and leverage our position as a leading provider of analog and digital cable and HSI services. Key elements of our strategy are to own and operate an upgraded high-bandwidth two-way network, offer bundled services and deliver a quality customer experience. For additional information see Item 1, "Business—Business Strategy."

Bankruptcy Proceedings

        In June 2002, the Debtors filed voluntary petitions to reorganize under Chapter 11 of the Bankruptcy Code. The Debtors are operating their business as debtors-in-possession under Chapter 11. The rights and claims of the Debtors' various creditors and security holders will be determined by a plan of reorganization that must be approved by the Bankruptcy Court. On February 25, 2004, the Debtors filed a Stand-Alone Plan and related draft disclosure statement with the Bankruptcy Court.

        The Debtors believe that there is substantial opposition to the terms of the Stand-Alone Plan as filed on February 25, 2004 from many of their constituents. The Debtors are in the process of amending the Stand-Alone Plan to address the opposition of certain constituents. If the Stand-Alone Plan is rejected by certain classes of claims or equity interests, the Bankruptcy Court may decide not to confirm it.

        On April 22, 2004, Adelphia announced that it intended to pursue a sale of the Company while simultaneously continuing to prepare to emerge as a stand-alone company pursuant to the proposed Stand-Alone Plan. We are pursuing the dual track process to determine which alternative is in the best interest of the Debtors' constituents in the Chapter 11 Cases.

        In order to provide liquidity, we entered into the DIP Facility with a group of lenders on August 26, 2002. On May 10, 2004, we entered into the Extended DIP Facility. For additional information, see Note 14, "Debt," to the accompanying consolidated financial statements.

        We have received commitments from a syndicate of financial institutions for up to $8,800 million in exit financing that will be used to finance cash payments to be made under our proposed Stand-Alone Plan, to pay transaction costs associated with the reorganization of the Debtors and to fund working capital requirements. The proposed Exit Financing Facility is comprised of (i) $5,500 million of

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senior secured credit facilities, which includes $4,750 million of term loans and a $750 million revolving credit line that would be available following our emergence from bankruptcy, and (ii) a $3,300 million bridge facility. The commitments were approved by the Bankruptcy Court on June 30, 2004. Funding under the commitments is subject to certain other conditions.

        For additional information, see Item 1, "Business—Certain Significant Business Developments Occurring Since 1999—Events Occurring During the Pendency of the Chapter 11 Cases under Interim Management and Current Management" and Note 2, "Bankruptcy," to the accompanying consolidated financial statements.

Restatement of Consolidated Financial Statements

        Beginning in the first quarter of 2003 and under the direction of the new senior management team, the Company's accounting personnel initiated an analysis, review, and in certain cases, reconstruction of our historical books and records. These efforts identified a number of accounting and bookkeeping errors that required adjustment. In general, the accounting errors arose in connection with prior management's misinterpretation or misapplication of GAAP and its failure to maintain adequate internal controls and appropriate books and records.

        For additional information, see Note 4, "Restatement of Consolidated Financial Statements," to the accompanying consolidated financial statements.

Acquisitions and Dispositions

        Commencing in 1999, the Company, under the direction of Rigas Management, undertook a series of acquisition and financing transactions that dramatically increased the size of the Company and its indebtedness. Adelphia issued Class A Common Stock and entered into significant new financing arrangements in connection with these acquisitions. The effects of these acquisitions have been included in our accompanying consolidated financial statements effective with the purchase dates. For additional information concerning acquisitions, see Item 1, "Business—Certain Significant Business Developments Occurring Since 1999—Acquisitions and Financings" and Note 8, "Acquisitions," to the accompanying consolidated financial statements.

        On January 11, 2002, we completed the TelCove Spin-off whereby all of the shares of common stock of TelCove owned by Adelphia were distributed in the form of a dividend to holders of Class A Common Stock and Class B Common Stock. For additional information, see Note 9, "TelCove," to the accompanying consolidated financial statements.

        Due to our acquisition activity during 2001 and the TelCove Spin-off in January 2002, direct comparisons of our results of operations during such periods are not meaningful without taking into account the effects of the acquisitions. Accordingly, the impacts of acquisitions and the TelCove Spin-off are identified where material in the "Results of Operations" discussion appearing below. In this context, our comparisons of our results of operations exclusive of the effects of acquisitions will include all cable systems which were owned by us at both the beginning and end of the periods compared.

Trends

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

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        The following table summarizes ARPU for selected revenue components.

        ARPU for cable video revenue increased $3.96, or 8%, in 2003 and $2.81, or 6%, in 2002 when compared to the respective prior year. Historically, cable video ARPU has been increasing and we expect this trend to continue. ARPU for HSI revenue increased $4.41, or 13%, in 2003 and decreased $8.99, or 20%, in 2002 when compared to the prior year. ARPU for HSI revenue decreased in 2002 primarily due to sales promotions for a free introductory period or discounted service. ARPU for total revenue increased $6.48 in 2003, or 12%, when compared to 2002 and decreased $2.08, or 4%, in 2002 when compared to 2001. The $2.08 decrease in 2002 was primarily due to the TelCove Spin-off.

        We face increasing competition for our video services primarily from DBS operators and for our HSI services from local telephone companies. Competition has put downward pressure on the number of basic subscribers and pricing for certain services. Basic cable subscribers decreased 2% in 2003 when compared to 2002 and have continued to decrease in 2004. In an effort to reverse the video subscriber trend, we are increasing our subscriber retention efforts and our emphasis on enhancing and differentiating our video products and services with VOD, HDTV and DVRs.

        Digital cable subscribers increased 6% in 2003 when compared to 2002. We expect our digital cable business to continue to grow but at a lesser rate than was experienced in 2003.

        HSI subscribers increased 54% in 2003 when compared to 2002. Historically, HSI subscribers have been increasing. We expect our HSI business to continue to grow and anticipate continued demand for our HSI service.

        Programming costs increased 10% in 2003 and 15% in 2002 when compared to the respective prior year. Programming costs are expected to continue to rise during the next several years, primarily due to the expansion of service offerings and industry-wide programming cost increases (particularly with respect to sports programming), reflecting both inflation indexed and negotiated license fee increases. To offset these increased rates, we expect to continue to review and adjust as necessary the pricing for our services and create efficiencies in our operations. By way of example, these efficiencies include a reduction in the number of customer care call center operations and the introduction of IVR technology, both of which are designed to improve operating efficiencies, provide a higher level of service to subscribers and reduce the overall cost of serving subscribers.

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RESULTS OF OPERATIONS

2003 Compared to 2002

        Revenue.    Revenue increased $338 million, or 10%, during 2003, as compared to 2002. The following table summarizes revenue for the indicated periods (dollars in thousands, except ARPU amounts):

        Cable revenue increased $356 million, or 11%, during 2003, as compared to 2002. The increase in cable revenue is primarily attributable to increased revenue from HSI, higher rates for basic and expanded basic service tiers, increased revenue from digital cable and higher media services revenue. The positive impact of higher rates for basic and expanded basic service tiers was partially offset by a decrease in our basic subscriber base. Significant increases in the subscriber bases for HSI service and digital cable tiers accounted for most of the increase in revenue from these services. The $18 million increase in media services revenue is attributable to our ability to increase both the average rate received and the volume of advertising sold as a result of an industry wide trend of viewers switching from broadcast to cable, thereby increasing viewership and the advertising population. Subscribers increased 54% for HSI services and 6% for digital cable and decreased by 2% for basic cable when comparing 2003 to 2002.

        Through April 2004, when we transferred substantially all of our CLEC assets to TelCove in connection with the Global Settlement, we operated CLEC businesses in certain geographical markets. CLEC revenue decreased $17 million primarily as a result of the closure of certain CLEC markets in 2003. For additional information, see Note 9, "TelCove," to the accompanying consolidated financial statements.

        Other revenue during 2003 and 2002 includes revenue from our security monitoring business, our sports programming network (Empire Sports Network) and our long-distance telephone resale business. Other revenue declined primarily as a result of our decision to no longer actively promote the long-distance telephone resale line of business.

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        Direct operating and programming costs.    Direct operating and programming costs increased $101 million, or 4%, during 2003, as compared to 2002. The following table summarizes direct operating and programming costs for the periods indicated (dollars in thousands):

        Programming costs consist primarily of costs paid to programmers for the provision of analog, premium and digital channels and pay-per-view programs. Programming costs increased $98 million, or 10%, primarily due to an increase in the rates paid to programming providers, partially offset by a decrease in basic subscribers. An increase in the number of programming services offered also contributed to the increase.

        Programming costs are expected to continue to rise during the next several years, primarily due to the expansion of service offerings and industry-wide programming cost increases (particularly with respect to sports programming), reflecting both inflation-indexed and negotiated license fee increases. Any cost increases that we are not able to pass on to our subscribers through service rate increases would reduce our operating margins unless offset by improved operational efficiencies.

        Other cable operating costs consist of labor and other costs associated with the provision of cable services to subscribers and the operation and maintenance of the cable systems. The increase in other cable operating costs of $43 million is attributable to increases in employee benefit costs due to rising medical benefit costs and increases in customer call center costs primarily related to the increased focus by new management on quality customer care. These increases were partially offset by a decrease in contract labor costs.

        CLEC direct operating costs decreased $33 million primarily as a result of the closure of certain CLEC markets in 2003.

        Our other operating costs for 2003 and 2002 include costs associated with our sports programming network, our security monitoring business and long-distance telephone resale business. Other costs declined $8 million primarily as a result of our decision to no longer actively promote the long-distance telephone resale line of business.

        Total direct operating and programming costs, expressed as a percentage of revenue, decreased to 67% in 2003 from 71% in 2002. This decrease reflects increased cable revenue from higher rates, as explained above, and improving operating efficiencies. In addition, the closure of certain CLEC markets in 2003 and the decision to no longer actively promote the long-distance telephone resale business, contributed to the percentage decrease in total direct operating and programming costs when expressed as a percentage of revenue.

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Selling, general and administrative expenses ("SG&A")

        Third party and Rigas Family Entities.    Third party and Rigas Family Entities SG&A expenses increased $10 million, or 4%, during 2003, as compared to 2002. The following table summarizes certain components of third party and Rigas Family Entities SG&A expenses for the indicated periods (dollars in thousands):

        Third party and Rigas Family Entities SG&A expenses for the cable business increased $15 million, or 18%, primarily due to higher marketing expenses. The higher marketing expenses are associated with costs to develop and launch new packaging and pricing plans for digital cable and HSI during 2003.

        Corporate and other third party and Rigas Family Entities SG&A expenses include those expenses associated with our CLEC operations, as well as corporate functions, our sports programming network, our security monitoring business and our long-distance telephone resale business. Other third party and Rigas Family Entities SG&A expenses decreased $5 million primarily due to a decrease in contracted professional fees, state capital-based tax expense and administrative overhead expenses partially offset by an increase in employee expenses when compared to the 2002 period.

        Investigation and re-audit related fees.    We are incurring certain investigation and re-audit related fees that, although not directly related to the Chapter 11 filing, relate to the investigation of the alleged actions of Rigas Management and related efforts to comply with applicable laws and regulations. These expenses include the re-audit, legal, special investigation and forensic consultant fees of the Company and the Special Committee and have been included in investigation and re-audit related fees in the accompanying consolidated statements of operations. Such expenses were $52 million and $57 million during 2003 and 2002, respectively.

        Compensation expense (benefit) on equity security transactions with the Rigas Family and Rigas Family Entities.    In 2001, the Other Rigas Entities entered into certain agreements whereby the Other Rigas Entities agreed to purchase Class B Common Stock and Series E Preferred Stock from the Company at a future date. As the equity securities were issued to entities controlled by the Rigas Family, the majority of whom were employees of the Company, the Company recognized compensation expense (benefit) for these equity securities under APB Opinion No. 25. Accordingly, the difference between the purchase price of the securities and their market price has been reflected as adjustments to compensation expense (benefit). Compensation expense (benefit) of ($101 million) was recorded during 2002. See Note 6, "Transactions with the Rigas Family and Rigas Family Entities," to the accompanying consolidated financial statements.

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        Depreciation.    Depreciation expense decreased by $128 million, or 13%, during 2003, as compared to 2002. The following table summarizes certain components of depreciation expense for the indicated periods (dollars in thousands):