A year ago, it looked as if Adelphia Communications’ impending bankruptcy might take the whole cable industry down with it. The company’s disclosure that it was liable for billions in off-balance-sheet loans to its founding family, the Rigases, started an intense debate over the entire industry’s accounting methods. Cable was vilified. Investors ran for cover. These days, cable is back. Stocks are recovering nicely; in fact, the Kagan Cable MSO Index is up nearly 20% this year. Now, Bill Schleyer hopes that it’s Adelphia’s turn to show some upward momentum. Make no mistake, though, it won’t be easy. Schleyer, Adelphia’s CEO since March, heads a bankrupt company that narrowly escaped being liquidated last year in order to pay off its lenders and creditors. “There are a number of issues,” Schleyer said in a telephone interview last week from his new office in Denver, which overlooks a portion of T-REX, the city’s major highway upgrade and light rail project. “You can’t believe how many there are. This is not an easy task.” Schleyer believes that the new senior management team he and president and COO Ron Cooper have assembled since coming on board can make right what the Rigases did so wrong in recent years. And we’re not talking ethics here either. Under the Rigas regime, operations were extremely centralized, with little autonomy at the divisional level, Schleyer explained. Not only did the Rigases make all the decisions, they had little written down in the way of strategy that could be shared with the systems. So when John Rigas, Adelphia’s founder, and his sons Timothy, Michael and James, all former senior executives at the company, were indicted on various counts of fraud, the organization in essence “was cut off at the head,” Schleyer said. Between late March and mid-April, Adelphia made some crucial hires, including former 360Networks CFO Vanessa Wittman as CFO, a chief administrative officer, a chief technology officer, an SVP of programming and an SVP of customer care. More recently, two new board members were brought on board. And just last week the four board members that were appointed by the Rigases, Erland Kailbourne, Pete Metros, Dennis Coyle and Leslie Gelber, resigned their seats, making way for a transition to a new, independent board. Schleyer, who credits the four for the decisive actions they took that led to the Rigases’ resignations, expects to name new board members in coming months. Adelphia hired executive search firm Spencer Stuart to lead recruitment efforts. Getting a senior team on board was one of Schleyer’s first moves, but even that was complicated by the bankruptcy proceedings. The court’s approval was needed for senior management employment agreements. The last two and half months have indeed been a whirlwind of activity for Schleyer and Cooper. Since their appointments, they have relocated Adelphia’s headquarters to Denver, negotiated covenants with lenders so the company could access the entire $1.5 billion in debtor-in-possession financing, formulated a new retention program for approximately 125 senior managers, started negotiating affiliate deals and claims reconciliation with certain programmers, and sold Niagara Frontier Hockey, which owns the Buffalo Sabres, among other actions. Also on the bankruptcy front, Schleyer & Co. continue to work on the unwieldy schedules of assets and liabilities, as well as an extensive audit of three years’ worth of financials and operating results. They are also laboring to keep the peace among the numerous fractious constituents involved in the bankruptcy proceeding. “So far Schleyer and Cooper have done a relatively good job in rebuilding the fundamentals, but have a long way to go on the bankruptcy time line,” says Aryeh Bourkoff, an analyst at UBS Warburg who follows the company. Schleyer said the number of issues the company is dealing with falls into four areas: structural, management, operating and bankruptcy. He is spending most of his time dealing with the bankruptcy, but is also involved in resetting the structure of the company and dealing with management issues. Cooper’s expertise lies in righting the operations. On a structural level, the foremost task was to develop a new mission and strategy, but to get there the organizational structure had to be changed. To develop a full picture of the company, the new executives undertook an extensive survey of the company by suppliers, creditors, lenders and buy-side and sell-side financial analysts, but primarily by employees, Schleyer said. From there, they could set out to develop a new strategy. In early April, Adelphia announced a new operating structure of four primary regions, down from eight. The company is currently expanding management teams, beefing up areas such as legal and marketing on the regional level to further decentralize operations. “You can’t make decisions from corporate,” Schleyer insisted. “We’re certainly willing to delegate given that the controls are in place.” Wittman, the new CFO, has been “instrumental” in helping to implement new controls and the proper checks and balances so that “what happened before in the company will never happen again,” the CEO added. Schleyer’s reserved and composed voice intensifies as he warms to the subject of ethics at Adelphia, and the new policies and procedures he has introduced at the company. “There is zero tolerance for things such as harassment, things such as deceptive practices, for things such as discrimination. Those things happen subtly in companies — I have no tolerance — zero,” he said. “We have made it clear, and passionately so, that if someone sees harassment or discrimination and does not report it then you are just as guilty as the person who committed the crime.” An 800 number has been set up for employees to report misbehavior anonymously. More frequent and in-depth audits — both internally and at the field level — are among the steps the company is taking. At the board level “we will be much more aggressive and active in reviewing information, especially at the audit committee level,” Schleyer noted. Operationally, the challenge is to bring Adelphia back on par with the rest of the industry on metrics such as high-speed data penetration, cash flow and revenue per subscriber. To get there, completing the bulk of a big network upgrade is crucial. Adelphia’s network is currently about 70% upgraded, Schleyer said. By mid-2004, which is Schleyer’s stated target date for emerging from bankruptcy, he expects well over 90% of the cable plant to be upgraded. That will allow for deeper marketing and a wider rollout of new products and services, especially high-speed data, the industry’s most profitable product. The company is rushing to change priorities that were set in the Rigas era, when there was more of a focus on unit growth than product profitability. “We have a whole new way of looking at things,” Schleyer explained. “There is a sense of urgency in this company that we are trying to instill.” There is also accountability. Schleyer said that managers in the field have got to deliver on aggressive targets. That’s where Ron Cooper comes in. He’s traveled to 30 field locations drumming home that message. “After you spend a few hours with Ron in the field, you will feel that urgency too,” Schleyer said. Schleyer’s goal of emerging from bankruptcy in about a year may prove a tad aggressive. The company last week asked the court for a third extension to put together a plan of reorganization. It now expects to have this plan to the court by late October, and will seek approval from creditors and lenders by late December. “The debtors can now, at last, turn their attention to the formulation of a long-term plan,” Adelphia said in a court filing. Schleyer does concede the situation’s complexity, adding that he won’t rush into anything before the company is ready. “If you look at the constituents — the pre-petition lenders, creditors, all the advisors — at some point in time you’re going to have an unaligned interest,” he said. “Somebody may not like what we’re doing, [but] at least we’re talking to each constituency group in the same fashion.” Bourkoff at UBS says it’s more likely Adelphia may be closer to emerging from bankruptcy by the end of next year, rather than midyear. “Their time frame assumes everyone acts rationally and agrees to disagree,” he said. “Which is not an assumption I would be willing to make right now.”

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