FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 33-96804
LENFEST COMMUNICATIONS, INC.
----------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2094942
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1105 North Market St., Suite 1300,
P. O. Box 8985,
Wilmington, Delaware 19899
--------------------------
(Address of Principal executive offices) (Zip Code)
(302) 427-8602
---------------
(Registrant's telephone number, including area code)
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 _X_ No __
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of May 14, 1999: 158,896 shares of common stock,
$0.01 par value per share. All shares of the registrant's common stock are
privately held, and there is no market price or bid and asked price for said
common stock.
LENFEST COMMUNICATIONS, INC.
Index
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Part I. Financial Information Page
----
Item 1. Financial Statements
Report on Review by Independent Certified Public Accountants 3
Condensed Consolidated Balance Sheets as of March 31, 1999
(unaudited) and as of December 31, 1998 4
Consolidated Statements of Operations and Comprehensive Income
(Loss) for the three months ended March 31, 1999 (unaudited)
and March 31, 1998 (unaudited) 6
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 (unaudited) and March 31, 1998
(unaudited) 7
Notes to Condensed Consolidated Financial Statements (unaudited) 9
Statement by Management Concerning Review of Interim Financial
Information by Independent Certified Public Accountants 16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 22
2
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Lenfest Communications, Inc. and Subsidiaries:
We have reviewed the accompanying condensed consolidated balance sheet of
Lenfest Communications, Inc. and subsidiaries as of March 31, 1999, and the
related consolidated statements of operations and comprehensive income (loss),
and the consolidated statements of cash flows for the three months ended March
31, 1999 and 1998, included in the accompanying Securities and Exchange
Commission Form 10-Q for the period ended March 31, 1999. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the condensed consolidated financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1998, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the year then ended (not presented herein). In our report
dated March 5, 1999, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1998, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
/s/ Pressman Ciocca Smith LLP
Hatboro, Pennsylvania
May 5, 1999
3
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
1999 1998
----------- ------------
(Unaudited) (*)
ASSETS
Cash and cash equivalents $ 16,895 $ 9,802
Marketable securities 17,191 18,854
Accounts receivable, trade and other, less allowance for
doubtful accounts of $5,783 in 1999 and $3,603 in 1998 32,421 24,482
Inventories 1,178 1,071
Prepaid expenses 4,551 2,878
Property and equipment, net of accumulated depreciation
of $459,706 in 1999 and $436,273 in 1998 476,140 431,455
Investments, principally in affiliates, and related receivables 49,085 47,645
Goodwill, net of amortization of $33,222 in 1999 and
$32,364 in 1998 67,779 68,637
Deferred franchise costs, net of amortization of $238,088 in
1999 and $227,797 in 1998 455,130 465,420
Other intangible assets, net of amortization of $14,975 in 1999
and $14,611 in 1998 18,604 19,399
Deferred Federal tax asset, net 80,339 80,371
Other assets 4,567 5,113
---------- ----------
$1,223,880 $1,175,127
========== ==========
(*) Condensed from audited financial statements.
See independent certified public accountants' review report and accompanying
notes.
4
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, (continued)
(Dollars in thousands)
March 31, December 31,
1999 1998
----------- ------------
(Unaudited) (*)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Notes payable and obligations under capital leases $1,333,329 $1,296,553
Accounts payable and accrued expenses - unrelated parties 96,392 73,051
Accounts payable - affiliate 16,671 22,968
Customer service prepayments and deposits 16,124 6,041
Deferred gain on terminated interest swaps 6,370 6,518
Deferred state tax liability (net) 9,406 9,406
Investment in Garden State Cablevision, L.P. 73,369 73,414
----------- -----------
TOTAL LIABILITIES 1,551,661 1,487,951
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST in equity of consolidated subsidiary - -
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value, 158,896 shares authorized,
issued and outstanding 2 2
Additional paid-in capital 50,747 50,747
Accumulated deficit (372,473) (359,149)
Accumulated other comprehensive income (loss), net of
deferred taxes of $87 in 1999 and $55 in 1998 (6,057) (4,424)
---------- ----------
(327,781) (312,824)
---------- ----------
$1,223,880 $1,175,127
========== ==========
(*) Condensed from audited financial statements.
See independent certified public accountants' review report and accompanying
notes.
5
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
-------------------------
1999 1998
-------- --------
REVENUES $131,546 $110,665
OPERATING EXPENSES
Service 12,849 10,779
Programming - from affiliate 19,253 17,335
Programming - other cable 12,278 7,584
Selling, general and administrative 30,543 22,719
Direct costs - non-cable 5,036 3,559
Depreciation 24,312 22,133
Amortization 11,991 14,523
-------- --------
116,262 98,632
-------- --------
OPERATING INCOME 15,284 12,033
OTHER INCOME (EXPENSE)
Interest expense (29,761) (31,499)
Equity in net income (losses) of unconsolidated
affiliates 2,270 (814)
Other income and expense (net) (1,117) 15,611
-------- --------
(28,608) (16,702)
-------- --------
LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS (13,324) (4,669)
INCOME TAX BENEFIT (NET) - 855
-------- --------
LOSS BEFORE EXTRAORDINARY LOSS (13,324) (3,814)
EXTRAORDINARY LOSS
Early extinguishment of debt, net of applicable
income taxes of $1,645 - (3,061)
-------- --------
NET LOSS (13,324) (6,875)
OTHER COMPREHENSIVE INCOME (LOSS), net of tax
Foreign currency translation adjustment 63 -
Unrealized gains on securities:
Unrealized holding gains (losses) arising during the period (1,705) 3,680
Less: reclassification adjustment for (gains) losses included
in net loss 9 (3,664)
-------- --------
(1,633) 16
-------- --------
COMPREHENSIVE LOSS $(14,957) $ (6,859)
======== ========
See independent certified public accountants' review report and accompanying
notes.
6
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
-------------------------
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(13,324) $(6,875)
Extraordinary loss - 3,061
-------- -------
(13,324) (3,814)
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation and amortization 36,303 36,656
Accretion of debt discount 525 438
Accretion of deferred gain on terminated interest swaps (148) (132)
Net (gains) losses on sales of marketable securities 9 (3,664)
Deferred income tax (benefit) - (1,855)
(Gain) loss on disposition of property and equipment 1,059 (33)
Gain on exchange of partnership interest - (11,489)
Loss on write-off of organization costs 148 -
Equity in net (income) losses of unconsolidated affiliates (2,270) 814
Changes in operating assets and liabilities, net of effects
from acquisitions
Accounts receivable 4,798 5,696
Inventories (107) (89)
Prepaid expenses (768) (318)
Other assets 252 (1,108)
Accounts payable and accrued expenses:
Unrelated parties 2,613 10,334
Affiliate (6,297) (4,651)
Customer service prepayments and deposits 1,182 (156)
-------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 23,975 26,629
-------- -------
See independent certified public accountants' review report and accompanying
notes.
7
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (continued)
(Unaudited)
(Dollars in thousands)
Three Months Ended
March 31,
-------------------------
1999 1998
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment $(33,038) $ (18,023)
Purchases of marketable securities (209) (1,078)
Proceeds from sales of property and equipment 175 33
Proceeds from sales of marketable securities 200 7,878
Investments in unconsolidated affiliates (850) -
Distributions from unconsolidated affiliates - 475
(Increase) in other intangible assets - investing (196) (165)
Loans and advances to unconsolidated affiliates (330) (890)
Loans and advances from unconsolidated affiliates 2,338 570
-------- ---------
NET CASH (USED IN)
INVESTING ACTIVITIES (31,910) (11,200)
CASH FLOWS FROM FINANCING ACTIVITIES
Increases in debt 15,479 296,386
Early extinguishment of debt - (67,375)
Other debt reduction:
Notes (80) (240,000)
Obligations under capital leases (435) (331)
-------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 14,964 (11,320)
-------- ---------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 7,029 4,109
EFFECT OF EXCHANGE RATES ON CASH AND
CASH EQUIVALENTS 64 -
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 9,802 15,623
-------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 16,895 $ 19,732
======== =========
See independent certified public accountants' review report and accompanying
notes.
8
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Condensed Financial Information and Results of Operations
In the opinion of the management of Lenfest Communications, Inc. and
subsidiaries (the "Company"), the accompanying condensed unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles and with the regulations of the Securities and Exchange
Commission and contain all adjustments (consisting of only normal recurring
adjustments) necessary to make the condensed consolidated financial statements
not misleading and to present fairly the consolidated financial condition as of
March 31, 1999, the consolidated results of operations and consolidated cash
flows for the three months ended March 31, 1999 and 1998.
Certain information and note disclosures normally included in the Company's
annual consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Form 10-K dated March 30, 1999. The results of operations for the periods ended
March 31, 1999 and 1998, are not necessarily indicative of operating results for
the full year.
Basis of Consolidation
The consolidated financial statements include the accounts of Lenfest
Communications, Inc. and those of all wholly-owned and majority owned
subsidiaries. Effective January 20, 1999, the Company acquired an additional 71%
of Videopole (See Note 4). As a result of this acquisition, the Company has
majority ownership and control of Videopole and, therefore, consolidates
Videopole's financial position, results of operations and cash flows as of the
beginning of 1999. In accordance with generally accepted principles the Company
accounted for its Videopole investment under the equity method prior to 1999.
NOTE 2 - ACCOUNTING CHANGE
In 1999, the Company changed its method of accounting for the costs of start-up
activities to conform to the requirements of Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-Up Activities". SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred. The
effect of the change was not material to the Company's financial position or
results of operations.
NOTE 3 - SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
----------------------
1999 1998
-------- ------
(Dollars in thousands)
Cash paid during the period for
Interest $13,096 $8,703
======= ======
Income taxes $ 205 $ -
======= ======
9
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 3 - SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH
FLOWS, (continued)
Noncash Investing and Financing Activities
In connection with the acquisition of Videopole (See Note 4), the Company
assumed debt of $21.4 million.
On February 12, 1998, the Company's wholly owned subsidiary, Lenfest Telephony,
Inc., exchanged its 50% general partnership interest in Hyperion
Telecommunications of Harrisburg ("HTH") for a warrant to acquire 731,624 shares
(the effective number of shares after a stock split) or approximately 2% of
Class A common stock of Hyperion Telecommunications, Inc. ("Hyperion"), the
other 50% general partner in HTH. The value of the warrant was estimated to be
$11.7 million, based on the initial public offering of the Class A common stock
of Hyperion in May 1998. The Company believes that this value approximated fair
market value of the warrant on February 12, 1998. A gain of $11.5 million, which
represents the excess of the market value of the partnership interest over its
book value, has been included in the accompanying consolidated statement of
operations and comprehensive income (loss). The warrant was exercised in May
1998.
NOTE 4 - NEW BUSINESS AND ACQUISITIONS
On January 20, 1999, the Company through its subsidiary, Lenfest International,
Inc. ("International") purchased 71% of the outstanding common stock of
Videopole, a French cable television holding and management company that
franchises, builds and operates cable television systems in medium to small
communities in France. International also has an 80% partnership interest in
L-TCI Associates, a partnership that owns the remaining 29% of common stock of
Videopole. As a result of the purchase, the Company's direct and indirect
interest in Videopole is 94.2%.
NOTE 5 - MARKETABLE SECURITIES
The aggregate cost basis and market values of marketable securities at March 31,
1999 and December 31, 1998 are as follows:
March 31, December 31,
1999 1998
---------- ------------
(Dollars in thousands)
Aggregate cost basis $23,223 $23,223
Unrealized (loss) (6,032) (4,369)
------- -------
Fair value $17,191 $18,854
======= =======
All of the Company's securities are considered to be available for sale. Net
realized gains (losses) from the sale of marketable securities, in the amount of
$(9,000) and $3.7 million are included in the accompanying consolidated
statements of operations for 1999 and 1998, respectively. The specific
identification method is used to determine the cost of each security at the time
of sale.
10
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 6 - INVESTMENTS, PRINCIPALLY IN AFFILIATES
The Company, through several subsidiaries, owns non-controlling interests in
several general partnerships and corporations. Under the equity method, the
initial investments are recorded at cost. Subsequently, the carrying amount of
the investments are adjusted to reflect the Company's share of net income or
loss of the affiliates as they occur. Losses in excess of amounts recorded as
investments on the Company's books have been offset against loans and advances
to these unconsolidated affiliates to the extent they exist.
The Company, through its subsidiary, Lenfest Jersey, Inc., owns a 10.005%
general partnership interest and a 39.995% limited partnership interest in
Garden State Cablevision L.P. ("Garden State"), a cable company serving
approximately 213,000 customers in southern New Jersey at March 31, 1999. The
Company accounts for its investment in Garden State under the equity method. The
Company is allocated a total of 50% of Garden State's losses. In addition, the
Company is required to make up its partner capital deficits upon termination or
liquidation of the Garden State partnership. Because of the requirement to make
up capital deficits, the accompanying financial statements reflect equity in
accumulated losses, net of related receivables, in excess of the investments in
Garden State in the amount of $73.4 million at March 31, 1999 and December 31,
1998, respectively.
Summarized statements of operations of Garden State, accounted for under the
equity method for the three months ended March 31, 1999 and 1998, is as follows:
1999 1998
--------- ---------
(Dollars in thousands)
Results of Operations
Revenues $ 30,038 $ 27,730
Operating expenses (12,569) (11,391)
Management and consulting fees (1,803) (1,663)
Depreciation and amortization (7,054) (8,725)
-------- --------
OPERATING INCOME 8,612 5,951
Interest income 139 -
Interest expense (5,104) (5,605)
-------- --------
NET INCOME $ 3,647 $ 346
======== ========
NOTE 7 - LONG-TERM DEBT
Notes payable and obligations under capital leases consisted of the following at
March 31, 1999 and December 31, 1998:
March 31, December 31,
1999 1998
---------- ----------
(Dollars in thousands)
8-3/8% senior notes due November 1, 2005 $ 688,611 $ 688,284
10-1/2% senior subordinated notes due June 15, 2006 294,390 294,259
7-5/8% senior notes due February 15, 2008 148,409 148,377
8-1/4% senior subordinated notes due February 15, 2008 148,256 148,221
Bank credit facility 30,000 15,000
Bank debt of Videopole 3,176 -
Obligations under capital leases 2,143 2,412
Obligations under capital leases of Videopole 18,344 -
---------- ----------
$1,333,329 $1,296,553
========== ==========
11
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 7 - LONG-TERM DEBT, (continued)
On March 9, 1999, the Company entered into an interest rate swap agreement with
a large commercial bank. The agreement has a notional principal amount of $150
million. The agreement effectively changes the Company's interest rate on $150
million of its fixed rate debt to a floating rate based on LIBOR. The interest
rate swap agreement terminates on February 15, 2008. The Company is exposed to
credit loss in the event of nonperformance by the other party to the interest
rate swap agreement. However, the Company does not anticipate nonperformance by
the counterparty.
NOTE 8 - CORPORATE INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes
in accordance with Financial Accounting Standards Board Statement (SFAS) No.
109, "Accounting for Income Taxes". SFAS 109 requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the financial statement or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
differences between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Differences between financial reporting
and tax bases arise most frequently from differences in timing of income and
expense recognition. Deferred income tax expense is measured by the change in
the net deferred income tax asset or liability during the period.
The net income tax benefit differs from amounts expected by applying the U.S.
Federal income tax rate of 35% to loss before income taxes primarily from
nondeductible amortization on goodwill and certain other intangibles and
provision for state income taxes.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Mr. Lenfest, for the behalf of the Company, and TCI have jointly and severally
guaranteed an aggregate of $67 million obligation of Australis Media Limited
("Australis") incurred in connection with the purchase of program licenses in
April 1995. The terms of the guarantees provide that the amount of the
guarantees will be reduced on a dollar-for-dollar basis with payments made by
Australis under the licenses. The Company has agreed to indemnify Mr. Lenfest
against loss from such guaranty to the fullest extent permitted under the
Company's debt obligations. Under the terms of its bank credit facility,
however, Mr. Lenfest's claims for indemnification are limited to the lesser of
the actual claim or $33.5 million. At March 31, 1999, the amount subject to
guarantee under the license agreements was approximately $20.7 million.
On January 20, 1995, an individual (the "Plaintiff") filed suit in the Federal
Court of Australia, New South Wales District Registry against the Company and
several other entities and individuals (the "Defendants") including Mr. Lenfest,
involved in the acquisition of a company of which the Plaintiff was the
controlling shareholder, the assets of which included the right to acquire
Satellite License B from the Australian government. The Plaintiff alleged that
the Defendants defrauded him by making certain representations to him in
connection with the acquisition of his company and claims total damages of A$718
million (approximately U.S. $452 million as of March 31, 1999). The Plaintiff
also alleged that Australis and Mr. Lenfest owed to him a fiduciary duty and
that both parties breached this duty. The Defendants have denied all claims made
against them by the Plaintiff and stated their belief that the Plaintiff's
allegations are without merit. They are defending this action vigorously. The
trial in this action began on February 2, 1998, and ended on September 30, 1998.
The Company expects a decision by mid-year 1999. Neither it nor its counsel can
predict the outcome of the trial.
The Company has also been named as a defendant in various legal proceedings
arising in the ordinary course of business. In the opinion of management, the
ultimate amount of liability with respect to the above actions will not
materially affect the financial position, the results of operations or the cash
flows of the Company.
12
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 10 - SEGMENT INFORMATION
The Company operates primarily in the cable television industry in the United
States. This segment develops and operates cable television systems and holds
investments in other cable television operating companies in the United States.
Other segments provide cable advertising, promotional, traffic and billing,
telemarketing, paging, internet, digital video services and cable television
operations in France. These segments do not meet the quantitative guidelines for
reportable segments.
The segments' accounting policies are the same as those described in the summary
of significant accounting policies. Management of the Company evaluates
performance based on operating income before depreciation and amortization.
Operating income before depreciation and amortization is commonly referred to in
the cable television industry as "operating cash flow". Operating cash flow is a
measure of a company's ability to generate cash to service its obligations,
including debt service obligations, and to finance capital and other
expenditures. Operating cash flow does not purport to represent net income or
net cash provided by operating activities, as those terms are defined under
generally accepted accounting principles, and should not be considered as an
alternative to such measurements as an indicator of the Company's performance.
Information by reportable segment for each of the three month periods ended
March 31, was as follows:
1999 1998
-------- --------
(Dollars in thousands)
Revenues
Core cable television $115,687 $103,457
All others 18,178 9,255
Intersegment revenues (2,319) (2,047)
-------- --------
$131,546 $110,665
======== ========
Operating income (loss) before depreciation and amortization
Core cable television $ 51,843 $ 50,519
All others (256) (1,830)
-------- --------
$ 51,587 $ 48,689
======== ========
Depreciation and amortization
Core cable television $ 33,464 $ 35,675
All others 2,839 981
-------- --------
$ 36,303 $ 36,656
======== ========
Operating income (loss)
Core cable television $ 18,378 $ 14,844
All others (3,094) (2,811)
-------- --------
$ 15,284 $ 12,033
======== ========
Interest expense
Core cable television $ 29,482 $ 31,499
All others 279 -
-------- --------
$ 29,761 $ 31,499
======== ========
13
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 10 - SEGMENT INFORMATION, (continued)
Information by reportable segment as of March 31, 1999 and December 31, 1998 and
for each of the three month periods ended March 31, was as follows:
1999 1998
---------- ----------
(Dollars in thousands)
Equity in net income (losses) of unconsolidated affiliates
Core cable television $ 2,346 $ 660
All others (76) (1,474)
---------- ----------
$ 2,270 $ (814)
========== ==========
Identifiable assets
Core cable television $1,095,737 $1,097,698
All others 131,847 82,226
Intersegment receivables (3,704) (4,797)
---------- ----------
$1,223,880 $1,175,127
========== ==========
Long-term debt
Core cable television $1,311,809 $1,296,553
All others 21,520 -
---------- ----------
$1,333,329 $1,296,553
========== ==========
Expenditures for long-lived assets
Core cable television $ 25,057 $ 17,655
All others 8,177 533
---------- ----------
$ 33,234 $ 18,188
========== ==========
Operating income (loss) $ 15,284 $ 12,033
Interest expense (29,761) (31,499)
Equity in net income (losses) of unconsolidated affiliates 2,270 (814)
Other income and expense (net) (1,117) 15,611
---------- ----------
LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS $ (13,324) $ (4,669)
========== ==========
14
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 11 - REGULATORY MATTERS
The Federal Communications Commission ("FCC") has adopted regulations under The
Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act") governing rates charged to customers for basic and tier service and
for equipment and installation charges (the "Regulated Services"). The 1992
Cable Act placed the Company's basic service equipment and installation rates
under the jurisdiction of local franchising authorities and its tier service
rates under the jurisdiction of the FCC. The rate regulations do not apply to
services offered on an individual service basis, such as per-channel or
pay-per-view services. The rate regulations adopt a benchmark price cap system
for measuring the reasonableness of existing basic and tier service rates.
Alternatively, cable operators have the opportunity to make cost-of-service
showings which, in some cases, may justify rates above the applicable
benchmarks. The rules also require that charges for cable-related equipment
(e.g., converter boxes and remote control devices) and installation services be
unbundled from the provision of cable service and based upon actual costs plus a
reasonable profit. The regulations also provide that future rate increases may
not exceed an inflation-indexed amount, plus increases in certain costs beyond
the cable operator's control, such as taxes, franchise fees and increased
programming costs. Cost-based adjustments to these capped rates can also be made
in the event a cable operator adds or deletes channels. There is also a
streamlined cost-of-service methodology available to justify a rate increase on
basic and regulated nonbasic tiers for "significant" system rebuilds or
upgrades.
Effective March 31, 1999, fee regulation of rates for tier service expired. Rate
regulation continues for basic service rates, charges for cable-related
equipment (e.g. converter boxes and remote control devices) and installation
services.
The Company believes that it has complied in all material respects with the
provision of the 1992 Cable Act, including its rate setting provisions. However,
the Company's rates for regulated services are subject to review by the FCC, if
a complaint has been filed, or the appropriate franchise authority, if such
authority has been certified. If, as a result of the review process, a cable
system cannot substantiate its rates, it could be required to retroactively
reduce its rates to the appropriate benchmark and refund the excess portion of
rates received. Any refunds of the excess portion of tier service rates would be
retroactive to the date of complaint. Any refunds of the excess portion of all
other Regulated Service rates would be retroactive to one year prior to the
Refund Order issued by the applicable franchise authority. The amount of
refunds, if any, which could be payable by the Company in the event that systems
rates are successfully challenged by franchising authorities is not considered
to be material.
NOTE 12 - SUBSEQUENT EVENT
On May 4, 1999, H.F. (Gerry) Lenfest and his three children agreed to exchange
all of their 50% ownership in the shares of the Company's common stock for
shares of AT&T Corp. common stock. AT&T Corp. is the parent of LMC Lenfest,
Inc., which owns the remaining 50% of the Company's common stock. Closing is
expected to occur by the end of 1999.
15
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
STATEMENT BY MANAGEMENT CONCERNING REVIEW OF
INTERIM FINANCIAL INFORMATION BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The March 31, 1999 and 1998 condensed consolidated financial statements included
in this filing on Form 10-Q have been reviewed by Pressman Ciocca Smith LLP,
Independent Certified Public Accountants, in accordance with established
professional standards and procedures for such a review.
The review report of Pressman Ciocca Smith LLP is included in Part I, Item 1.
16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Substantially all of the Company's revenues are earned from customer
fees for cable television programming services, the sale of advertising,
commissions for products sold through home shopping networks and ancillary
services (such as rental of converters and remote control devices and
installations). Federal law and regulations, including the regulation of certain
aspects of the cable television industry, have affected adversely the Company's
ability to increase or restructure its rates for certain services. These
regulations are intended to limit future rate increases.
The Company has generated increases in revenues and Adjusted EBITDA for
the three months ended March 31, 1999 primarily through internal customer
growth, increases in monthly revenue per customer, and growth in advertising and
home shopping revenues. As used herein, "Adjusted EBITDA" represents
consolidated net income from continuing operations plus the provision for income
taxes, interest expense, depreciation, amortization, any other non-cash items
reducing consolidated net income and cash actually distributed by an
unconsolidated affiliate, minus all non-cash items increasing consolidated net
income. EBITDA is presented because it is a widely accepted financial indicator
of a company's ability to incur and service debt. Adjusted EBITDA represents
EBITDA (earnings before interest expense, income taxes, depreciation and
amortization) adjusted to include cash distributions received from
unconsolidated and unrestricted affiliates. Adjusted EBITDA corresponds to the
definition of "EBITDA" contained in the Company's publicly held debt securities
and is presented for the convenience of the holders of the Company's public debt
securities. Adjusted EBITDA should not be considered as an alternative to net
income, as an indicator of the operating performance of the Company or as an
alternative to cash flows as a measure of liquidity. Neither EBITDA nor Adjusted
EBITDA is a measure under generally accepted accounting principles.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
CONSOLIDATED RESULTS
Revenues for the Company increased 18.9% to $131.5 million for the
quarter ended March 31, 1999 as compared to the corresponding 1998 period. This
increase was primarily as a result of the Company's Core Cable Television
Operations and the Company's acquisition of Videopole in January 1999.
Service and Programming Expenses increased 25.9% to $49.4 million for
the quarter ended March 31, 1999 compared to the corresponding 1998 period.
These expenses are related to technical salaries, general operating, and network
programming costs. The service and programming expense increase was primarily
due to costs associated with the Core Cable Television Operations.
Selling, General, and Administrative Expense increased 34.4% to $30.5
million for the quarter ended March 31, 1999 compared to the corresponding 1998
period. These expenses are associated with office salaries, facility, and
marketing costs. This increase was primarily due to administrative expenses
associated with the Core Cable Television Operations.
Depreciation and Amortization Expense decreased 1.0% to $36.3 million
for the quarter ended March 31, 1999 compared to the corresponding 1998 period.
This decrease was primarily associated with the Core Cable Television
Operations.
Adjusted EBITDA increased 5.3% to $52.5 million for the three-month
period ended March 31, 1999 compared to the corresponding period in the prior
year. The increase was primarily due to the Core Cable Television Operations.
17
The Adjusted EBITDA margin decreased to 39.9% in 1999 compared to 45.0% for
1998. This decrease was primarily caused by costs associated with the Core Cable
Television Operations and the Company's acquisition of Videopole.
Interest Expense decreased 5.5% to $29.8 million for the quarter ended
March 31, 1999 compared to the corresponding 1998 period. The decrease was
primarily due to refinancing of existing indebtedness with debt carrying a lower
interest rate.
Loss before income tax increased 185.4% to $13.3 million. The increase
was attributable to a one time gain of $11.5 million realized in 1998 on the
exchange of a partnership interest. Excluding the 1998 gain, the loss before
income tax decreased by 17.6%, or $2.8 million.
Core Cable Television Operations
Beginning with the quarter ended December 31, 1998, the Company has
included the consolidated financial results of Radius with the results of its
domestic cable television operations (collectively, the "Core Cable Television
Operations"). The financial results for the Company's Core Cable Television
Operations have been restated to include the results of Radius since its
inception in 1996.
Revenues increased 15.7% to $124.8 million for the quarter ended March
31, 1999 compared to the corresponding 1998 period. This increase was due
primarily to the revenue associated with the basic and CPS tiers and customer
equipment and installation, ("regulated services")and increased revenue from the
Company's advertising subsidiary, Radius. The regulated services revenue
increased 10.7% or $8.7 million compared to the corresponding 1998 period. This
increase was primarily attributable to internal customer growth of approximately
2.1%, and rate increases occurring predominately in the second and fourth
quarters of 1998. Non-regulated service revenue increased 4.8% or $0.7 million
for the quarter ended March 31, 1999 compared to the corresponding 1998 period.
This increase was primarily as a result of internal customer growth. Revenues
for Radius increased 72.8%, or $4.7 million, to $11.1 million, representing
27.7% of the increase in revenue for the Core Cable Television Operations for
the quarter ended March 31, 1999 compared to the corresponding 1998 period.
Service and Programming Expenses increased 24.3% to $46.0 million for
the quarter ended March 31, 1999 compared to the corresponding 1998 period.
These expenses are related to technical salaries, general operating costs, and
programming costs. The increase was primarily related to programming expense
related to costs associated with the basic and CPS tier services. Service and
programming expenses for Radius increased 87.4%, or $2.9 million, to $6.2
million, representing 32.1% of the increase in expenses of the Core Cable
Television Operations for the quarter ended March 31, 1999.
Selling, General and Administrative Expense increased 31.3% to $25.8
million for the quarter ended March 31, 1999 compared to the corresponding 1998
period. These expenses are associated with office salaries, facility, and
marketing costs. This increase was primarily due to the consolidation efforts of
the Company's call center operation. Selling, general and administrative
expenses for Radius increased 56.8%, or $1.4 million, to $3.8 million
representing 22.4% of the increase in the expenses of the Core Cable Television
Operations for the quarter ended March 31, 1999 compared to the corresponding
1998 period. This increase was primarily due to increased selling expenses.
Depreciation and Amortization Expense decreased 4.7%, or $1.7 million,
to $34.5 million for the quarter ended March 31, 1999 compared to the
corresponding 1998 period. The decrease was primarily a result of a decrease in
amortization expense related to the write off of loan costs. The depreciation
and amortization expenses for Radius increased 93.2%, or $0.5 million, to $1.0
million for the quarter ended March 31, 1999 compared to the corresponding 1998
period.
Adjusted EBITDA increased 2.9% to $53.8 million for the quarter ended
March 31, 1999 compared to the corresponding 1998 period. The increase was
primarily associated with increased regulated service revenue. The Adjusted
EBITDA margin decreased to 43.2% for the quarter ended March 31, 1999 compared
to 48.5% for the corresponding 1998 period. This decrease was primarily caused
by an increase in programming and selling, general and administrative expenses.
Excluding the consolidation of the Radius financial results, the Adjusted EBITDA
18
margin for Core Cable Television Operations decreased to 45.6% for the quarter
ended March 31, 1999 compared to 49.9% for the corresponding 1998 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's businesses require cash for operations, debt service,
capital expenditures and acquisitions. To date, cash requirements have been
funded by cash flow from operations and borrowings.
Financing Activities. At March 31, 1999, the Company had aggregate
total indebtedness of approximately $1,333.3 million. The Company's senior
indebtedness of $890.6 million consisted of: (i) $837.0 million of 7-5/8% and
8-3/8% Senior Notes; (ii) obligations under its August 4, 1999 Bank Credit
Facility ("Bank Credit Facility") of $30.0 million; (iii) $3.2 million of bank
debt obligations of Videopole (see below), and (iv) obligations under capital
leases of approximately $20.4 million. At March 31, 1999, the Company had
approximately $442.7 million of 8-1/4% and 10-1/2% Senior Subordinated Notes
outstanding. The Senior Subordinated Notes are general unsecured obligations of
the Company subordinate in right of payment to all present and future senior
indebtedness of the Company.
Loans outstanding under the Bank Credit Facility bear interest at
floating rates. The Bank Credit Facility contains customary covenants, including
restrictive covenants, which impose certain limitations on the Company and its
wholly owned cable operating subsidiaries and Radius, including, among other
things, incurring additional indebtedness, the payment of dividends, the
repurchase of stock, the making of certain payments and purchases, the making of
acquisitions and investments, the creation of certain liens, disposing or
acquiring assets, sale-leaseback transactions, and transactions with affiliates.
The Bank Credit Facility also includes financial covenants requiring the Company
to maintain certain financial ratios at specified levels. The Bank Credit
Facility also contains customary default provisions, including nonpayment of
principal, interest, fees and other amounts when due, violation of covenants,
failure of representations and warranties to be true and correct in all material
respects when made, cross defaults and cross acceleration to other debt
obligations, bankruptcy events, unsatisfied judgments in excess of specified
amounts and change of control.
Operations. Cash flow generated from continuing operations, excluding
changes in operating assets and liabilities that result from timing issues and
considering only adjustments for non-cash charges, was approximately $22.3
million for the three-month period ended March 31, 1999 compared to
approximately $16.9 million for the three-month period ended March 31, 1998.
During the three-month period ended March 31, 1999 the Company was required to
make interest payments of approximately $13.1 million on outstanding debt
obligations, whereas in the same period in the prior year, the Company was
required under its then existing debt obligations to make interest payments of
$8.7 million.
Future minimum lease payments under all capital leases and
non-cancelable operating leases for each of the years 1999 through 2002 are $7.5
million, $6.3 million, $4.9 million and $3.3 million, respectively.
The Company has recorded a net deferred tax asset of $80.3 million, net
of a valuation allowance of $51.2 million, reflecting the estimated benefit of
approximately $435 million in loss carryforwards, which expire in varying
amounts between the years 2000 - 2018. Realization depends on generating
sufficient taxable income before expiration of the loss carryforwards. Although
realization is not assured, the Company believes that commencing in 2000, it
will begin to generate taxable income as a result of increasing revenues, the
elections of slower tax depreciation methods and anticipated declines in
amortization deductions. The amount of the net deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced. See Note 17 of the
Company's Consolidated Financial Statements included in the Company's Form 10-K
filed on March 30, 1999 for the minimum amounts of taxable income required each
year for the Company to fully utilize its net operating losses for such year
until such losses expire.
19
In November 1994, H.F. Lenfest and TCI International, Inc. jointly and
severally guaranteed $67.0 million in program license obligations of the
distributor of movie programming for Australis. As of March 31, 1999, the
Company believes the amount subject to the guarantee under the license
agreements was approximately $20.7 million. The Company has agreed to indemnify
Mr. Lenfest against loss from such guaranty to the fullest extent permitted
under the Company's debt obligations. Under the terms of the Bank Credit
Facility, however, Mr. Lenfest's claims for indemnification are limited to the
lesser of the actual claim or $33.5 million. The Company does not believe that
Mr. Lenfest's guarantee will be called, and, as of the date hereof, there has
been no demand for payment under the guarantee of the program license
obligations.
Capital Expenditures. For the period ending March 31, 1999, the Company
made approximately $33.0 million of capital expenditures. During 1999, the
Company expects to make approximately $180 million of capital expenditures, of
which approximately $160 million is expected to be spent for the upgrading of
certain of its cable television systems, including wide deployment of fiber
optics, maintenance including plant extensions, installations, and other fixed
assets as well as other capital projects associated with implementing the
Company's clustering strategy. The amount of such capital expenditures for years
subsequent to 1999 will depend on numerous factors, many of which are beyond the
Company's control, including responding to competition and increasing capacity
to handle new product offerings in affected cable television systems. The
Company anticipates that capital expenditures for years subsequent to 1999 will
continue to be significant.
Resources. Management believes, based on its current business plans,
that the Company has sufficient funds available from operating cash flow and
from borrowing capacity under the Bank Credit Facility to fund its operations,
capital expenditure plans and debt service. To the extent the Company seeks
additional acquisitions, it may need to obtain additional financing. However,
the Company's ability to borrow funds under the Bank Credit Facility requires
that the Company be in compliance with certain financial ratios at specified
levels or obtain the consent of the lenders thereunder to a waiver or amendment
of the applicable financial ratios. As of March 31, 1999, Management believes
that the Company was in compliance with such financial ratios.
On January 20, 1999, the Company through its subsidiary, Lenfest
International, Inc. ("International") purchased 71% of the outstanding common
stock of Videopole, a French cable television holding and management company
that franchises, builds and operates cable television systems in medium to small
communities in France. International also has an 80% partnership interest in
L-TCI Associates, a partnership that owns the remaining 29% of common stock of
Videopole. As a result of the purchase, the Company's direct and indirect
interest in Videopole is 94.2%.
On May 4, 1999, the Company entered into an Agreement and Plan of
Merger ("Merger Agreement") with AT&T Corp. and its subsidiary, AT&T LCI Inc.
The Merger Agreement provides that the Company will merge with and into AT&T LCI
Inc. ("Surviving Corporation"). The Surviving Corporation will be a wholly-owned
subsidiary of AT&T Corp. and will succeed to all of the rights and obligations
of the Company. The completion of the merger is subject to the receipt of
necessary governmental approvals, the consent of the Company's lenders under its
Bank Credit Facility and the receipt by AT&T and the Company of opinions
concerning the tax treatment of the merger. The transaction is expected to close
before the end of 1999 and must close before March 31, 2000 (which date may be
extended to June 30, 2000 under certain conditions). If the merger is terminated
by the Company under specified conditions, the Company may require AT&T to
contribute all cable television systems it owns which are located within 35
miles of the Company's cable television systems, subject to certain conditions.
Year 2000 Readiness Disclosure
The Year 2000 issue exists because many computer systems and
applications currently use two-digit date fields to designate a year. As a
result, on or near the change of the century, date-sensitive systems may
recognize the Year 2000 as 1900, or not at all, which may cause systems to fail
or process financial and operational information incorrectly.
The Company has developed plans to address its Year 2000 issues. The
plans are designed to encompass all businesses of the Company including both
internal and external interfaces to vendors. The plans address three broad
areas: (1) internal information technology systems - including financial and
operational application systems, computer hardware and systems software and
communication systems; (2) non-information technology systems - such as building
systems, headend devices and other devices with embedded computer chips; and (3)
third party compliance - which addresses Year 2000 compliance efforts of key
vendors and suppliers. The project plans consist of the following phases:
20
1) Organizational awareness - general awareness of the Year 2000
issues, which has been completed, and ongoing communication of Year
2000 project status.
2) Inventory of current applications - which has been completed.
3) Risk assessment of inventoried systems, with identification of
mission-critical systems.
4) Replacement/remediation of systems.
5) Year 2000 testing and conversion of systems.
6) Contingency planning.
Program management offices, staffed with business unit personnel have
been established to address Year 2000 issues. These offices report to an
Executive Steering Committee, which is responsible for the Company's Year 2000
program. This Committee was formed in the spring of 1998 to review and monitor
the Company's Year 2000 program. It is made up of members of Senior Management
responsible for various areas of the Company's business. The Committee meets
regularly to review corporate-wide Year 2000 issues and progress.
Internal information technology systems. As of October 1998 the
inventory for mission-critical systems had been substantially completed. The
risk assessment phase is in process in parallel with systems
replacement/remediation, with target completion dates ranging from March 1999
through June 1999. Testing and conversion plans have been, or are currently
being, developed and implemented. The Company expects that mission-critical
internal systems will be Year 2000 compliant by September 1999. The Company also
expects to complete testing of mission critical external interfaces by September
1999. Based on the current status of project plans, the Company believes that
Year 2000 events caused by the Company's internal financial and operational
systems would not have a material adverse impact on the Company's operations or
financial condition.
Non-information technology systems. The risk assessment phase is
currently in process. Based on the results of these phases,
replacement/remediation plans will be developed for mission-critical equipment
and facilities. These plans are expected to be implemented by September 1999.
Given the nature of this Company's business units, the Company believes that any
events caused by Year 2000 failures of non-information technology systems would
be short-term in nature and would not have a material adverse impact on the
Company's operations or financial condition.
Third party compliance. The Company has identified, and initiated
communications with, key third party suppliers and customers to determine
potential exposure to these third parties' failure to remediate their own Year
2000 issues. The Company expects to complete its third party reviews by July
1999 and will develop contingency plans to address potential third party Year
2000 failures. However, an extended outage by utilities (electric, water,
telephone, etc.), key third-party suppliers or financial institutions, could
have material adverse impacts on the Company's operations and financial
condition.
Contingency Plans
Company resources to date have been focused primarily on Year 2000
remediation. The Company maintains contingency plans for computer failures,
power outages, natural disasters, etc. Year 2000 contingency plans for
mission-critical systems, in the areas discussed above, will be developed and
integrated with the existing contingency plans where appropriate by September
1999.
Costs
The Company currently estimates spending approximately $2.0 million,
including internal costs, to complete its Year 2000 compliance program,
including approximately $1.2 million that has been expended through March 31,
1999. Year 2000 costs related to systems or equipment replacement are
capitalized in accordance with the Company's accounting policies. Year 2000
remediation costs are expensed as incurred.
21
The Company's ability to achieve Year 2000 compliance, the level of
costs associated therewith and the resultant impact on operations and financial
condition could be adversely impacted by, among other things, the availability
and cost of applicable resources, vendors' ability to modify proprietary
software, and unanticipated problems identified in the ongoing compliance
program.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has recently
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for fiscal quarters of fiscal years beginning after June 15, 1999. The
Company has not yet adopted SFAS No. 133. The adoption of SFAS No. 133 is not
expected to have a significant impact on the Company's financial statement
disclosures.
The American Institute of Certified Public Accountants ("AICPA")
recently issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
defines which costs of computer software developed or obtained for internal use
are capital and which costs are expenses. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998. Effective January 1, 1999, the Company
adopted SOP 98-1. The adoption of SOP 98-1 did not have a significant impact on
the Company's consolidated financial statements and related footnotes.
The AICPA recently issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires that entities
expense start-up costs and organization costs as they are incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. Effective January
1, 1999, the Company adopted SOP 98-5. The adoption of SOP 98-5 did not have a
significant impact on the Company's consolidated financial statements and the
related footnotes.
Inflation
The net impact of inflation on operations has not been material in the
last three years due to the relatively low rates of inflation during this
period. If the rate of inflation increases the Company may increase customer
rates to keep pace with the increase in inflation, although there may be timing
delays.
Part II. Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits.
Exhibit
Number Title or Description
- ------ --------------------
The following Exhibits are furnished as part of this Report:
Exhibit
Number Title or Description
2.1 Stock Purchase Agreement, dated as of January 25, 1999, by and
between each of the stockholders of Raystay Co. and Lenfest
Raystay Holdings, Inc.
2.2 Agreement and Plan of Merger, dated as of May 4, 1999 among
AT&T Corp., AT&T LCI Inc., Lenfest Communications, Inc. and H.
F. Lenfest, H. Chase Lenfest, Diane Lenfest Myer and Brook J.
Lenfest.
22
***3.1 Restated Certificate of Incorporation of the Company.
***3.2 Amended and Restated Bylaws of the Company.
*4.1 Form of $700,000,000 8 3/8% Senior Note due 2005.
**4.2 Indenture between the Company and The Bank of New York, dated
as of November 1, 1995.
***4.3 Indenture, dated as of June 15, 1996, between the Company and
The Bank of New York.
***4.4 Form of 10 1/2% Senior Subordinated Note, dated June 27, 1996,
in the principal sum of $296,700,000.
++4.5 Indenture, dated as of February 5, 1998, between the Company
and The Bank of New York relating to the $150,000,000 7 5/8%
Senior Notes due 2008.
++4.6 Form of $150,000,000 7 5/8% Senior Notes due 2008. (In
accordance with Item 601 of Regulation S-K similar notes
between the same parties, which reference CUSIP No. 526055 AF
5 and CUSIP No. U52547 AA 1 have not been filed because they
are identical in all material respects to the filed exhibit.)
++4.7 Indenture, dated as of February 5, 1998, between the Company
and The Bank of New York relating to the $150,000,000 8 1/4%
Senior Subordinated Notes due 2008.
++4.8 Form of $150,000,000 8 1/4% Senior Subordinated Notes due
2008. (In accordance with Item 601 of Regulation S-K similar
notes between the same parties which reference CUSIP No.
U52547 AB 9 and CUSIP No. 526055 AH 1 have not been filed
because they are identical in all material respects to the
filed exhibit.)
*!10.1 Programming Supply Agreement, effective as of September 30,
1986, between Satellite Services, Inc. and the Company.
*10.2 Supplemental Agreement, dated December 15, 1981, by and
between TCI Growth, Inc., H.F. Lenfest, Marguerite Lenfest and
the Company and Joinder Agreement executed by LMC Lenfest,
Inc.
*10.3 Amendment to Supplemental Agreement, dated May 4, 1984 between
the Company and TCI Growth, Inc.
*10.4 Agreement, dated July 1, 1990, between H.F. Lenfest,
Marguerite B. Lenfest, Diane A. Lenfest, H. Chase Lenfest,
Brook J. Lenfest and the Lenfest Foundation,
Tele-Communications, Inc. and Liberty Media Corporation.
*10.5 Agreement and Consent, dated as of November 1, 1990, by and
among TCI Development Corporation, TCI Holdings, Inc., TCI
Liberty, Inc., Liberty Cable, Inc., H.F. Lenfest, Marguerite
B. Lenfest, H. Chase Lenfest, Brook J. Lenfest, Diane A.
Lenfest and the Company.
*10.6 Letter Agreement, dated as of December 18, 1991, among Liberty
Media Corporation, the Company, Marguerite B. Lenfest, Diane
A. Lenfest, H. Chase Lenfest, Brook J. Lenfest and the Lenfest
Foundation.
*10.7 Irrevocable Proxies of H. Chase Lenfest, Diane A. Lenfest and
Brook J. Lenfest, each dated March 30, 1990.
23
*10.8 Partnership Agreement of L-TCI Associates, dated April 1993,
between Lenfest International, Inc. and UA-France, Inc.
*10.9 Pledge Agreement, dated July 29, 1994, between Lenfest Raystay
Holdings, Inc. and Farmers Trust Company as Collateral Agent.
*!10.10 Agreement, dated September 30, 1986, between the Company and
Tele-Communications, Inc.
*10.11 Agreement for the Sale of Advertising on Cable Television
Stations, dated as of November 25, 1991 between Suburban Cable
TV Co. Inc. and Cable AdNet Partners.
+10.12 Agreement, dated as of February 29, 1996, in favor of the
Company by H.F. Lenfest.
+10.13 Sublease Agreement, dated March 21, 1996, between Suburban
Cable TV Co. Inc. and Surgical Laser Technologies, Inc.
****10.14 Letter, dated March 6, 1997, from H. F. Lenfest to the
Company.
+10.15 Agreements, dated as of June 5, 1997, between H. F. Lenfest
and Lenfest Jersey, Inc., Lenfest York, Inc., Lenfest Raystay,
Inc. and Lenfest MCN, Inc. (formerly, MicroNet, Inc.).
++10.16 Letter, dated March 26, 1998 (effective September 30, 1997),
from H. F. Lenfest to the Company.
+++10.17 Amended and Restated Loan Agreement, dated as August 4, 1998,
among Lenfest Communications, Inc., a certain Lead Arranger,
certain Arranging Agents, a certain Documentation Agent, a
certain Syndication Agent, the Lenders, and a certain
Administrative Agent.
10.18 Stock Pledge Agreement, dated May 12, 1999, between Lenfest
York, Inc. and First Union National Bank, N.A., as Agent.
27. Financial Data Schedule.
- ----------
* Incorporated by reference to the Company's Registration
Statement on Form S-1, No. 33-96804, declared effective by the
Securities and Exchange Commission on November 8, 1995.
** Incorporated by reference to the Company's Report on Form
10-Q, dated December 22, 1995, for the quarter ended September
30, 1995.
*** Incorporated by reference to the Company's Registration
Statement on Form S-4, No. 333-09631, dated August 6, 1996.
**** Incorporated by reference to the Company's Report on Form
10-K, dated March 22, 1997, for the year ended December 31,
1996.
+ Incorporated by reference to the Company's Report on Form
10-Q, dated August 14, 1997, for the quarter ended June 30,
1997.
++ Incorporated by reference to the Company's Report on Form
10-K, dated March 27, 1998, as subsequently amended, for the
year ended December 31, 1997.
+++ Incorporated by reference to the Company's Registration
Statement on Form S-4, as amended, No. 333-51589, dated May 1,
1998.
24
! Confidential portions have been omitted pursuant to Rule 406
and filed separately with the Commission.
(a) Reports on Form 8-K.
None.
(b) Reports on Form 8-K.
Report filed as of May 10, 1999.
25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LENFEST COMMUNICATIONS, INC.
DATE: May 14, 1999 By: /s/ Maryann V. Bryla
--------------------
Maryann V. Bryla
Senior Vice President - Chief Financial Officer and
Treasurer (Authorized Officer and Principal Financial Officer)
26