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FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ____________
Commission file number 33-96804
COMCAST LCI HOLDINGS, INC.
(SUCCESSOR TO LENFEST COMMUNICATIONS, INC.)
(Exact name of registrant as specified in its charter)
DELAWARE 51-0394453
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1201 Market Street, Suite 2201
Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (302) 594-8700
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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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 ____
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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 this Form 10-K or any amendments to
this Form 10-K.
[Not applicable]
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As of February 29, 2000, there were 100 shares of Common Stock outstanding.
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The Registrant meets the conditions set forth in General Instructions I(1)(a)
and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format.
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DOCUMENTS INCORPORATED BY REFERENCE
NONE
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COMCAST LCI HOLDINGS, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business..............................................................1
Item 2 Properties...........................................................11
Item 3 Legal Proceedings....................................................11
Item 4 Submission of Matters to a Vote of Security Holders..................11
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters....................................12
Item 6 Selected Financial Data..............................................12
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................13
Item 8 Financial Statements and Supplementary Data..........................16
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................35
PART III
Item 10 Directors and Executive Officers of the Registrant...................35
Item 11 Executive Compensation...............................................35
Item 12 Security Ownership of Certain Beneficial Owners and Management.......35
Item 13 Certain Relationships and Related Transactions.......................35
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K......36
SIGNATURES....................................................................40
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This Annual Report on Form 10-K is for the year ending December 31, 1999.
This Annual Report modifies and supersedes documents filed prior to this Annual
Report. The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you directly to those documents. Information incorporated by reference
is considered to be part of this Annual Report. In addition, information that we
file with the SEC in the future will automatically update and supersede
information contained in this Annual Report. In this Annual Report, "Comcast LCI
Holdings," "we," "us" and "our" refer to Comcast LCI Holdings, Inc. and its
subsidiaries. We are the successor to Lenfest Communications, Inc., which was
merged with and into us on January 18, 2000.
You should carefully review the information contained in this Annual
Report, but should particularly consider any risk factors that we set forth in
this Annual Report and in other reports or documents that we file from time to
time with the SEC. In this Annual Report, we state our beliefs of future events
and of our future financial performance. In some cases, you can identify those
so-called "forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
We have in the past acquired and we may be acquiring cable communications
systems in new communities in which we do not have established relationships
with the franchising authority, community leaders and cable subscribers.
Further, a substantial number of new employees must be integrated into our
business practices and operations. Our results of operations may be
significantly affected by our ability to efficiently and effectively manage
these changes.
The cable communications industry may be affected by, among other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o franchise related matters,
o market conditions that may adversely affect the availability of debt
and equity financing for working capital, capital expenditures or
other purposes,
o demand for the programming content we distribute, and
o general economic conditions.
PART I
ITEM 1 BUSINESS
In January 2000, Comcast Corporation acquired the stock of Lenfest
Communications, Inc., a cable communications company serving 1.1 million
subscribers primarily in the Philadelphia area from AT&T Corp. and the Lenfest
stockholders for 121.4 million shares of Comcast's Class A Special Common Stock
with a value of $6.077 billion. Immediately upon closing of the acquisition,
Lenfest Communications was merged with and into us. As a result, we are the
successor to Lenfest Communications.
The consolidated financial statements included in Item 8 of this Annual
Report are those of Lenfest Communications. Our consolidated financial
statements will not be significantly different from those of Lenfest
Communications as Comcast does not intend to apply, to our consolidated
financial statements, the accounting relating to its acquisition of Lenfest
Communications.
We are principally involved in the cable communications business through
the development, management and operation of broadband communications networks.
We are in the process of deploying digital video applications and high-speed
Internet access service to expand the products available on our cable
communications networks. Our consolidated cable operations served approximately
1.1 million subscribers and passed approximately 1.5 million homes as of
December 31, 1999.
We are a wholly owned subsidiary of Comcast Corporation. We are a Delaware
corporation that was organized in November 1999 solely for the purpose of
merging with Lenfest Communications. We have our principal executive offices at
1201 Market Street, Suite 2201, Wilmington, Delaware 19801. Our telephone number
is (302) 594-8700.
GENERAL DEVELOPMENTS OF OUR BUSINESS
Purchase and Sale of Videopole
In January 1999, Lenfest Communications purchased an additional 71% 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. Lenfest Communications also had an 80% partnership
interest in a partnership that owned the remaining 29% of Videopole. As a result
of the purchase, Lenfest Communications' direct and indirect interest in
Videopole was 94.2%.
In August 1999, Lenfest Communications sold its entire interest in
Videopole for $121.0 million and recognized a pre-tax gain of $108.7 million.
The proceeds received consisted of $64.9 million in cash and 955,376 shares of
United Pan-European Communications, N. V. with a value of $56.1 million.
Raystay Acquisition
In July 1999, Lenfest Communications acquired the 55% of Lenfest Raystay
Holdings, Inc. which it did not already own for $46.2 million in cash and the
assumption of $53.2 million of debt. Lenfest Communications immediately repaid
the Raystay debt assumed. The acquisition and debt repayment were funded
primarily with borrowings under a bank credit facility.
DESCRIPTION OF OUR BUSINESS
Technology and Capital Improvements
Our cable communications networks receive signals by means of:
o special antennae,
o microwave relay systems,
o earth stations, and
o coaxial and fiber optic cables.
These networks distribute a variety of video, telecommunications and data
services to residential and commercial subscribers.
As of December 31, 1999, 35% of our cable subscribers were served by a
system with a capacity of at least 550-MHz and 17% of our cable subscribers were
served by a system with a capacity of at least 750-MHz. We are deploying fiber
optic cable and upgrading the technical quality of our cable communications
networks. As a result, the reliability and capacity of our systems have
increased, aiding in the delivery of additional video programming and other
services such as enhanced digital video, high-speed Internet access service and,
potentially, telephony.
We will incur significant capital expenditures in the future for the
upgrading and rebuilding of our existing cable communications systems.
Franchises
Cable communications systems are constructed and operated under
non-exclusive franchises granted by state or local governmental authorities and
are subject to federal, state and local legislation and regulation. Franchises
typically contain many conditions which may include:
o rate and service conditions,
o construction schedules,
o types of programming and provision of services to schools and other
public institutions, and
o insurance and indemnity bond requirements.
Our franchises typically provide for periodic payment of fees to
franchising authorities of up to 5% of "revenues" (as defined by each franchise
agreement). We normally pass those fees on to subscribers. In many cases, we
need the consent of the franchising authority to transfer our franchises. The
franchises are granted for varying lengths of time.
Although franchises historically have been renewed, renewals may include
less favorable terms and conditions. Under existing law, franchises should
continue to be renewed for companies that have provided adequate service and
have complied generally with franchise terms. The franchising authority may
choose to award additional franchises to competing companies at any time.
Revenue Sources
We receive the majority of our revenues from subscription services.
Subscribers typically pay us on a monthly basis and generally may discontinue
services at any time. Monthly subscription rates and related charges vary
according to the type of service selected and the type of equipment used by
subscribers. Packages of programming services offered to subscribers may consist
of:
o national television networks,
o local and distant independent, specialty and
educational television stations,
o satellite-delivered programming,
o locally originated programs,
o audio programming, and
o electronic retailing programs.
We also offer, for an additional monthly fee, premium services, such as:
o Home Box Office(R),
o Cinemax(R),
o Showtime(R), and
o The Movie Channel(TM)
These premium services generally offer, without commercial interruption,
feature motion pictures, live and taped sporting events, concerts and other
special features. The charge for premium services depends upon the type and
level of service selected by the subscriber.
We also generate revenues from advertising sales, pay-per-view services,
installation services, commissions from electronic retailing and other services.
We generate revenues from the sale of advertising time to local and regional
advertisers on non-broadcast channels. Pay-per- view services permit a
subscriber to order, for a separate fee, individual feature motion pictures and
special event programs, such as professional boxing, professional wrestling and
concerts.
Our sales efforts are primarily directed toward increasing the number of
subscribers we serve and generating incremental revenues in our franchise areas.
We sell our cable communications services through:
o telemarketing,
o direct mail advertising,
o door-to-door selling, and
o local media advertising.
Programming
We generally pay either a monthly fee per subscriber per channel or a
percentage of certain revenues for programming. Our programming costs are
increased by:
o increases in the number of subscribers,
o expansion of the number of channels provided to customers, and
o increases in contract rates from programming suppliers.
We attempt to secure long-term programming contracts with volume discounts
and/or marketing support and incentives from programming suppliers. Our
programming contracts are generally for a fixed period of time and are subject
to negotiated renewal. We anticipate that future contract renewals will result
in programming costs that are higher than our costs today, particularly for
sports programming.
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Customer Service
We manage our cable communications systems in one contiguous geographic
cluster. Clustering improves our ability to sell advertising, enhances our
ability to efficiently introduce and market new products, and allows us to more
efficiently and effectively provide customer service and support. As part of our
clustering strategy, we have consolidated our local customer service operations
into one large regional call center. This call center has technologically
advanced telephone systems that provide 24-hour per day, 7-day per week call
answering capability, telemarketing and other services.
Our Cable Communications Systems
The table below summarizes certain subscriber information for our cable
communications systems as of December 31 (homes and subscribers in thousands):
1999 1998 1997 1996 1995
--------- --------- ---------- ---------- ---------
Basic Cable
Homes Passed (1)(4)............................. 1,482 1,383 1,356 1,279 905
Cable Subscribers (2)(4)........................ 1,089 1,014 992 927 596
Cable Penetration (3)(4)........................ 73.5% 73.3% 73.2% 72.5% 65.9%
<FN>
- ---------------
(1) A home is "passed" if we can connect it to our distribution system without
further extending the transmission lines.
(2) A dwelling with one or more television sets connected to a system counts as
one basic cable subscriber.
(3) Basic cable penetration means the number of basic cable subscribers as a
percentage of basic cable homes passed.
(4) The information consists of cable communications systems whose financial
results we consolidate. The information as of December 31, 1999 does not
include 305,000 Homes Passed and 216,000 Cable Subscribers in Garden State
Cablevision, L.P., a non-consolidated cable communications system in which
we have a 50% ownership interest.
</FN>
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Competition
Our cable communications systems compete with a number of different sources
which provide news, information and entertainment programming to consumers,
including:
o local television broadcast stations that provide off-air programming
which can be received using a roof-top antenna and television set,
o program distributors that transmit satellite signals containing video
programming, data and other information to receiving dishes of varying
sizes located on the subscriber's premises,
o satellite master antenna television systems, commonly known as SMATV,
which generally serve condominiums, apartment and office complexes and
residential developments,
o multichannel, multipoint distribution service operators, commonly
known as MMDS or wireless cable operators, which use low-power
microwave frequencies to transmit video programming and other
information over-the-air to subscribers,
o other cable operators who build and operate cable systems in the same
communities that we serve, commonly known as overbuilders,
o interactive online computer services,
o newspapers, magazines and book stores,
o movie theaters,
o live concerts and sporting events, and
o home video products.
In order to compete effectively, we strive to provide, at a reasonable
price to subscribers:
o superior technical performance,
o superior customer service,
o a greater variety of video programming, and
o new products such as digital cable and cable modem Internet access and
potential products such as telephony.
Federal law allows local telephone companies to provide, directly to
subscribers, a wide variety of services that are competitive with our cable
communications services. Some local telephone companies:
o provide video services within and outside their telephone service areas
through a variety of methods, including cable networks, satellite
program distribution and wireless transmission facilities, and/or
o have announced plans to construct and operate cable communications
systems in various states.
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New facilities-based competitors such as RCN Corporation are planning to
offer cable and related communications services in various areas where we hold
franchises. We anticipate that facilities-based competitors will develop in
other franchise areas we serve.
Local telephone companies and other businesses construct and operate
communications facilities that provide access to the Internet and distribute
interactive computer-based services, data and other non-video services to homes
and businesses. These competitors are not required, in certain circumstances, to
comply with some of the material obligations imposed upon our cable
communications systems under our franchises. We are unable to predict the
likelihood of success of competing video or cable service ventures by local
telephone companies or other businesses. Nor can we predict the impact these
competitive ventures might have on our business and operations.
We operate each of our cable communications systems pursuant to a
non-exclusive franchise that is issued by the community's governing body such as
a city council, a county board of supervisors or a state regulatory agency.
Federal law prohibits franchising authorities from unreasonably denying requests
for additional franchises, and it permits franchising authorities to operate
cable systems. Companies that traditionally have not provided cable services and
that have substantial financial resources (such as public utilities that own
certain of the poles to which our cables are attached) may also obtain cable
franchises and may provide competing communications services.
In the past few years, Congress has enacted legislation and the Federal
Communications Commission, commonly known as the FCC, has adopted regulatory
policies intended to provide a more favorable operating environment for existing
and new technologies that provide, or have the potential to provide, substantial
competition to our cable communications systems. These technologies include
direct broadcast satellite service, commonly known as DBS, among others.
According to recent government and industry reports, conventional, medium and
high-power satellites currently provide video programming to over 13.1 million
individual households, condominiums, apartment and office complexes in the
United States. DBS providers with high-power satellites typically offer to their
subscribers more than 300 channels of programming, including program services
similar to those provided by cable communications systems.
DBS service can be received virtually anywhere in the continental United
States through the installation of a small roof top or side-mounted antenna. DBS
systems use video compression technology to increase channel capacity and
digital technology to improve the quality of the signals transmitted to their
subscribers. Our digital cable service is competitive with the programming,
channel capacity and the digital quality of signals delivered to subscribers by
DBS systems. We are and will continue to deploy digital cable service in the
communities that we serve.
Two major companies, DirecTV and Echostar, are currently offering
nationwide high-power DBS services. Recently enacted federal legislation
establishes, among other things, a permanent compulsory copyright license that
permits satellite carriers to retransmit local broadcast television signals to
subscribers who reside inside the local television station's market. These
companies have already begun transmitting local broadcast signals in certain
major televison markets and have announced their intention to expand this local
television broadcast retransmission service to other domestic markets. With this
legislation, satellite carriers become more competitive to cable communications
system operators like us because they are now able to offer programming which
more closely resembles what we offer. We are unable to predict the effects this
legislation and these competitive developments might have on our business and
operations.
Our cable communications systems also compete for subscribers with SMATV
systems. SMATV system operators typically are not subject to regulation like
local franchised cable communications system operators. SMATV systems offer
subscribers both improved reception of local television stations and many of the
same satellite-delivered programming services offered by franchised cable
communications systems. In addition, some SMATV operators are developing and/or
offering packages of telephony, data and video services to private residential
and commercial developments. SMATV system operators often enter into exclusive
service agreements with building owners or homeowners' associations, although
some states have enacted laws to provide cable communications systems access to
these complexes. Courts have reviewed challenges to these laws and have reached
varying results. Our ability to compete for subscribers in residential and
commercial developments served by SMATV system operators is uncertain. However,
we are developing competitive packages of services (video, data and telephony)
to offer to these residential and commercial developments.
Cable communications systems also compete with MMDS or wireless cable
systems, which are authorized to operate in areas served by our cable
communications systems. The FCC recently amended its regulations to provide
flexibility to wireless system operators to employ digital technology in
delivering two-way communications services, including high-speed Internet
access. Federal law significantly limits certain local restrictions on the
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use of roof-top, satellite and microwave antennae to receive satellite
programming and over-the-air broadcasting services.
Many of our cable communications systems are currently offering, or plan to
offer, interactive online computer services to subscribers. These systems will
compete with a number of other companies, many of whom have substantial
resources, such as:
o existing Internet service providers, commonly known as ISPs,
o local telephone companies, and
o long distance telephone companies.
Recently, a number of companies, including telephone companies and ISP's,
have asked local, state and federal governments to mandate that cable
communications systems operators provide capacity on their cable infrastructure
so that these companies and others may deliver Internet services directly to
customers over cable facilities. In response, several local jurisdictions
attempted to impose these capacity obligations on several cable communications
operators. Various cable communications companies, including Comcast, have
initiated litigation challenging these municipal requirements. In addition, two
antitrust lawsuits have been filed in federal courts alleging that Comcast and
other cable communications companies have improperly refused to allow their
cable facilities to be used by certain ISPs to serve their customers. Franchise
renewals and transfers could become more difficult depending upon the outcome of
this issue. In a 1999 report to Congress, the FCC declined to institute an
administrative proceeding to examine this issue. It is expected that the FCC,
Congress, and state and local regulatory authorities will continue to consider
actions in this area.
The deployment of Digital Subscriber Line technology, known as DSL, allows
Internet access to subscribers at data transmission speeds equal to or greater
than that of modems over conventional telephone lines. Numerous companies,
including telephone companies, have introduced DSL service and certain telephone
companies are seeking to provide high-speed broadband services, including
interactive online services, without regard to present service boundaries and
other regulatory restrictions. We are unable to predict the likelihood of
success of competing online services offered by our competitors or what impact
these competitive ventures may have on our business and operations.
We expect advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment to occur in the
future. We refer you to page 6 of this Annual Report for a detailed discussion
of legislative and regulatory factors. Other new technologies and services may
develop and may compete with services that our cable communications systems
offer. Consequently, we are unable to predict the effect that ongoing or future
developments might have on our business and operations.
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LEGISLATION AND REGULATION
The Communications Act of 1934, as amended, establishes a national policy
to regulate the development and operation of cable communications systems. The
Communications Act allocates responsibility for enforcing federal policies among
the FCC, and state and local governmental authorities. The courts, and
especially the federal courts, play an important oversight role as these
statutory and regulatory provisions are interpreted and enforced by the various
federal, state and local governmental units.
We expect that court actions and regulatory proceedings will refine the
rights and obligations of various parties, including the government, under the
Communications Act. The results of these judicial and administrative proceedings
may materially affect our business operations. In the following paragraphs, we
summarize the principal federal laws and regulations materially affecting the
growth and operation of the cable communications industry. We also provide a
brief description of certain state and local laws applicable to our businesses.
The Communications Act and FCC Regulations
The Communications Act and the regulations and policies of the FCC affect
significant aspects of our cable system operations, including:
o subscriber rates,
o the content of programming we offer our subscribers, as well as the
way we sell our program packages to subscribers and other video
program distributors,
o the use of our cable systems by local franchising authorities, the
public and other unrelated third parties,
o our franchise agreements with governmental authorities,
o cable system ownership limitations and prohibitions, and
o our use of utility poles and conduit.
Subscriber Rates
The Communications Act and the FCC's regulations and policies limit the
ability of cable systems to raise rates for basic services and equipment in
communities that are not subject to effective competition, as defined by federal
law. Where there is no effective competition, federal law gives franchising
authorities the power to regulate the monthly rates charged by the operator for:
o the lowest level of programming service, typically called basic
service, which generally includes local broadcast channels and public
access or governmental channels required by the operator's franchise,
and
o the installation, sale and lease of equipment used by subscribers to
receive basic service, such as converter boxes and remote control
units.
The FCC has adopted detailed rate regulations, guidelines and rate forms
that we and the franchising authority must use in connection with the regulation
of our basic service and equipment rates. If the franchising authority concludes
that our rates are not in accordance with the FCC's rate regulations, it may
require us to reduce our rates and to refund overcharges to subscribers, with
interest. We may appeal adverse rate decisions to the FCC. Rate regulation of
non-basic cable programming service tiers ended after March 31, 1999.
The Communications Act and the FCC's regulations also:
o prohibit regulation of rates charged by cable operators for
programming offered on a per channel or per program basis, and for
multi-channel groups of non-basic programming,
o require operators to charge uniform rates throughout each franchise
area that is not subject to effective competition,
o prohibit regulation of non-predatory bulk discount rates offered by
operators to subscribers in commercial and residential developments,
and
o permit regulated equipment rates to be computed by aggregating costs
of broad categories of equipment at the franchise, system, regional or
company level.
We have reached a tentative agreement with a state regulatory agency to
resolve certain outstanding rate disputes. We have established reserves during
the fourth quarter of 1999 to satisfy potential liabilities arising from this
proposed settlement.
Content Requirements
The Communications Act and the FCC's regulations contain broadcast signal
carriage requirements that allow local commercial television broadcast stations:
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o to elect once every three years to require a cable communications
system to carry the station, subject to certain exceptions, or
o to negotiate with us on the terms by which we carry the station on our
cable communications system, commonly called retransmission consent.
The Communications Act requires a cable operator to devote up to one-third
of its activated channel capacity for the mandatory carriage of local commercial
television stations. The Communications Act also gives local non-commercial
television stations mandatory carriage rights; however, such stations are not
given the option to negotiate retransmission consent for the carriage of their
signals by cable systems. Additionally, cable systems must obtain retransmission
consent for:
o all "distant" commercial television stations (except for commercial
satellite-delivered independent "superstations" such as WGN),
o commercial radio stations, and
o certain low-power television stations.
The FCC has also initiated an administrative proceeding to consider the
requirements, if any, for the mandatory carriage of digital television signals
offered by local broadcasters. We are unable to predict the outcome of this
proceeding or the impact any new carriage requirements might have on the
operations of our cable systems.
The Communications Act requires our cable systems to permit subscribers to
purchase video programming on a per channel or a per program basis without the
necessity of subscribing to any tier of service, other than the basic cable
service tier. However, we are not required to comply with this requirement until
2002 for any of our cable systems that do not have addressable converter boxes
or that have other substantial technological limitations. A limited number of
our systems do not have the technological capability to offer programming in the
manner required by the statute and thus currently are exempt from complying with
this requirement.
To increase competition between cable operators and other video program
distributors, the Communications Act:
o precludes any satellite video programmer affiliated with a cable
company, or with a common carrier providing video programming directly
to its subscribers, from favoring an affiliated company over
competitors,
o requires such programmers to sell their satellite-delivered
programming to other video program distributors, and
o limits the ability of such programmers to offer exclusive programming
arrangements to their affiliates.
In two administrative decisions, the FCC's Cable Services Bureau concluded
that the program access rules did not apply to terrestrially-delivered
programming, such as Comcast SportsNet, Comcast's 24-hour regional sports
programming network which is available to approximately one million of our
subscribers in the Philadelphia region. The FCC is currently reviewing the Cable
Services Bureau's decisions.
The Communications Act contains restrictions on the transmission by cable
operators of obscene or indecent programming. It requires cable operators to
block fully both the video and audio portion of sexually explicit or indecent
programming on channels that are primarily dedicated to sexually oriented
programming or alternatively to carry such programming only at "safe harbor"
time periods. A three-judge federal district court determined that this
provision was unconstitutional. The United States Supreme Court is currently
reviewing the lower court's ruling.
The FCC actively regulates other aspects of our programming, involving such
areas as:
o our use of syndicated and network programs and
local sports broadcast programming,
o advertising in children's programming,
o political advertising,
o origination cablecasting,
o sponsorship identification, and
o closed captioning of video programming.
Use of Our Cable Systems by The Government and Unrelated Third Parties
The Communications Act allows franchising authorities and unrelated third
parties to have access to our cable systems' channel capacity. For example, it:
o permits franchising authorities to require cable operators to set
aside channels for public, educational and governmental access
programming; and
o requires a cable system with 36 or more activated channels to
designate a significant portion of its channel capacity for commercial
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leased access by third parties to provide programming that may compete
with services offered by the cable operator.
The FCC regulates various aspects of third party commercial use of channel
capacity on our cable systems, including the rates and certain terms and
conditions of the commercial use.
Franchise Matters
Although franchising matters are normally regulated at the local level
through a franchise agreement and/or a local ordinance, the Communications Act
provides oversight and guidelines to govern our relationship with local
franchising authorities. For example, the Communications Act:
o affirms the right of franchising authorities (state or local,
depending on the practice in individual states) to award one or more
franchises within their jurisdictions,
o generally prohibits us from operating in communities without a
franchise,
o encourages competition with our existing cable systems by:
o allowing municipalities to operate cable
systems without franchises, and
o preventing franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area,
o permits local authorities, when granting or renewing our franchises,
to establish requirements for certain cable-related facilities and
equipment, but prohibits franchising authorities from establishing
requirements for specific video programming or information services
other than in broad categories,
o permits us to obtain modification of our franchise requirements from
the franchise authority or by judicial action if warranted by changed
circumstances,
o generally prohibits franchising authorities from:
o imposing requirements during the initial cable franchising
process or during franchise renewal that require, prohibit or
restrict us from providing telecommunications services,
o imposing franchise fees on revenues we derive from providing
telecommunications services over our cable systems, or
o restricting our use of any type of subscriber equipment or
transmission technology, and
o limits our payment of franchise fees to the local franchising
authority to 5% of our gross revenues derived from providing cable
services over our cable system.
The Communications Act contains procedures designed to protect us against
arbitrary denials of the renewal of our franchises, although a franchising
authority under various conditions could deny us a franchise renewal. Moreover,
even if our franchise is renewed, the franchising authority may seek to impose
upon us new and more onerous requirements such as significant upgrades in
facilities and services or increased franchise fees as a condition of renewal.
Similarly, if a franchising authority's consent is required for the purchase or
sale of our cable system or franchise, the franchising authority may attempt to
impose more burdensome or onerous franchise requirements on us in connection
with a request for such consent. Historically, cable operators providing
satisfactory services to their subscribers and complying with the terms of their
franchises have typically obtained franchise renewals. We believe that we have
generally met the terms of our franchises and have provided quality levels of
service. We anticipate that our future franchise renewal prospects generally
will be favorable.
Various courts have considered whether franchising authorities have the
legal right to limit the number of franchises awarded within a community and to
impose certain substantive franchise requirements (e.g. access channels,
universal service and other technical requirements). These decisions have been
inconsistent and, until the United States Supreme Court rules definitively on
the scope of cable operators' First Amendment protections, the legality of the
franchising process generally and of various specific franchise requirements is
likely to be in a state of flux.
Ownership Limitations
The Communications Act generally prohibits us from owning or operating a
SMATV or wireless cable system in any area where we provide franchised cable
service. We may, however, acquire and operate SMATV systems in our franchised
service areas if the programming and other services provided to SMATV
subscribers are offered according to the terms and conditions of our franchise
agreement.
The Communications Act also authorizes the FCC to impose nationwide limits
on the number of subscribers under the control of a cable operator. While a
federal
- 8 -
district court has declared this limitation to be unconstitutional and delayed
its enforcement, the FCC has reconsidered its cable ownership regulations and:
o reaffirmed its 30% nationwide subscriber ownership limit, but
maintained its voluntary stay on enforcement of that regulation
pending further court action,
o reaffirmed its subscriber ownership information reporting
requirements, and
o modified its attribution rules that identify when the ownership or
management by us or third parties of other communications businesses,
including cable systems, television broadcast stations and local
telephone companies, may be imputed to us for purposes of determining
our compliance with the FCC's ownership restrictions.
Also pending on appeal is a challenge to the statutory and FCC regulatory
limitations on the number of channels that can be occupied on a cable system by
a video programmer in which a cable operator has an attributable ownership
interest. We are unable to predict the outcome of these judicial and regulatory
proceedings or the impact any ownership restrictions might have on our business
and operations.
The Communications Act eliminated the statutory prohibition on the common
ownership, operation or control of a cable system and a television broadcast
station in the same market. While the FCC has eliminated its regulations which
precluded the cross-ownership of a national broadcasting network and a cable
system, it has not yet completed its review of other regulations which prohibit
the common ownership of other broadcasting interests and cable systems in the
same geographical areas.
The 1996 amendments to the Communications Act made far-reaching changes in
the relationship between local telephone companies and cable service providers.
These amendments:
o eliminated federal legal barriers to competition in the local
telephone and cable communications businesses, including allowing
local telephone companies to offer video services in their local
telephone service areas,
o preempted state and local laws and regulations which impose barriers
to telecommunications competitions,
o set basic standards for relationships between telecommunications
providers, and
o generally limited acquisitions and prohibited certain joint ventures
between local telephone companies and cable operators in the same
market.
Local telephone companies may provide service as traditional cable
operators with local franchises or they may opt to provide their programming
over unfranchised "open video systems," subject to certain conditions,
including, but not limited to, setting aside a portion of their channel capacity
for use by unaffiliated program distributors on a non-discriminatory basis. A
federal appellate court overturned various parts of the FCC's open video rules,
including the FCC's preemption of local franchising requirements for open video
operators. The FCC has modified its open video rules to comply with the federal
court's decision, but we are unable to predict the impact these rule
modifications may have on our business and operations.
Pole Attachment Regulation
The Communications Act requires the FCC to regulate the rates, terms and
conditions imposed by public utilities for cable systems' use of utility pole
and conduit space unless state authorities demonstrate to the FCC that they
adequately regulate pole attachment rates, as is the case in certain states in
which we operate. In the absence of state regulation, the FCC administers pole
attachment rates on a formula basis. The FCC's current rate formula, which is
being reevaluated by the FCC, governs the maximum rate certain utilities may
charge for attachments to their poles and conduit by cable operators providing
only cable services and, until 2001, by certain companies providing
telecommunications services. The FCC also adopted a second rate formula that
will be effective in 2001 and will govern the maximum rate certain utilities may
charge for attachments to their poles and conduit by companies providing
telecommunications services, including cable operators.
Any resulting increase in attachment rates due to the FCC's new rate
formula will be phased in over a five-year period in equal annual increments,
beginning in February 2001. Several parties have requested the FCC to reconsider
its new regulations and several parties have challenged the new rules in court.
A federal appellate court recently upheld the constitutionality of the new
statutory provision which requires that utilities provide cable systems and
telecommunications carriers with nondiscriminatory access to any pole, conduit
or right-of-way controlled by the utility. We are unable to predict the outcome
of the legal challenge to the FCC's new regulations or the ultimate impact any
revised FCC rate formula or any new pole attachment rate regulations might have
on our business and operations.
- 9 -
Other Regulatory Requirements of the Communications Act and the FCC
The Communications Act also includes provisions, among others, regulating:
o customer service,
o subscriber privacy,
o marketing practices,
o equal employment opportunity, and
o technical standards and equipment compatibility.
The FCC actively regulates other parts of our cable operations and has
adopted regulations implementing its authority under the Communications Act.
The FCC may enforce its regulations through the imposition of substantial
fines, the issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations. The FCC has ongoing rulemaking proceedings that may change its
existing rules or lead to new regulations. We are unable to predict the impact
that any further FCC rule changes may have on our business and operations.
Other bills and administrative proposals pertaining to cable communications
have previously been introduced in Congress or have been considered by other
governmental bodies over the past several years. It is probable that further
attempts will be made by Congress and other governmental bodies relating to the
regulation of cable communications services.
Copyright
Our cable communications systems provide our subscribers with local and
distant television and radio broadcast signals which are protected by the
copyright laws. We generally do not obtain a license to use this programming
directly from the owners of the programming; instead we comply with an
alternative federal copyright licensing process. In exchange for filing certain
reports and contributing a percentage of our revenues to a federal copyright
royalty pool, we obtain blanket permission to retransmit copyrighted material.
In a report to Congress, the U.S. Copyright Office recommended that
Congress make major revisions to both the cable television and satellite
compulsory licenses. Congress recently modified the satellite compulsory license
in a manner that permits DBS providers to become more competitive with cable
operators like us. The possible simplification, modification or elimination of
the cable communications compulsory copyright license is the subject of
continuing legislative review. The elimination or substantial modification of
the cable compulsory license could adversely affect our ability to obtain
suitable programming and could substantially increase the cost of programming
that remains available for distribution to our subscribers. We are unable to
predict the outcome of this legislative activity.
Our cable communications systems often utilize music in the programs we
provide to subscribers including local advertising, local origination
programming and pay-per-view events. The right to use this music is controlled
by music performance rights societies who negotiate on behalf of their copyright
owners for license fees covering each performance. The cable industry and one of
these societies have agreed upon a standard licensing agreement covering the
performance of music contained in programs originated by cable operators and in
pay-per-view events. Negotiations on a similar licensing agreement are in
process with another music performance rights organization. Rate courts
established by a federal court exist to determine appropriate copyright coverage
and payments in the event the parties fail to reach a negotiated settlement. We
are unable to predict the outcome of these proceedings or the amount of any
license fees we may be required to pay for the use of music. We do not believe
that the amount of such fees will be significant to our financial position,
results of operations or liquidity.
State and Local Regulation
Our cable systems use local streets and rights-of-way. Consequently, we
must comply with state and local regulation which is typically imposed through
the franchising process. The terms and conditions of our franchises vary
materially from jurisdiction to jurisdiction. Each franchise generally contains
provisions governing:
o cable service rates,
o franchise fees,
o franchise term,
o system construction and maintenance obligations,
o system channel capacity,
o design and technical performance,
o customer service standards,
o franchise renewal,
o sale or transfer of the franchise,
o service territory of the franchisee,
- 10 -
o indemnification of the franchising authority,
o use and occupancy of public streets, and
o types of cable services provided.
A number of states subject cable systems to the jurisdiction of state
governmental agencies. Those states in which we operate that have enacted such
state level regulation are New Jersey and Delaware. State and local franchising
jurisdiction is not unlimited, however; it must be exercised consistently with
federal law. The Communications Act immunizes franchising authorities from
monetary damage awards arising from the regulation of cable systems or decisions
made on franchise grants, renewals, transfers and amendments.
The summary of certain federal and state regulatory requirements in the
preceding pages does not describe all present and proposed federal, state and
local regulations and legislation affecting the cable industry. Other existing
federal regulations, copyright licensing, and, in many jurisdictions, state and
local franchise requirements, are currently the subject of judicial proceedings,
legislative hearings and administrative proposals which could change, in varying
degrees, the manner in which cable systems operate. We are unable to predict the
outcome of these proceedings or their impact upon our cable operations at this
time.
EMPLOYEES
As of December 31, 1999, we had approximately 2,700 employees. We believe
that our relationships with our employees are good.
ITEM 2 PROPERTIES
A central receiving apparatus, distribution cables, converters, customer
service call centers and local business offices are the principal physical
assets of a cable communications system. We own or lease the receiving and
distribution equipment of each system and own or lease parcels of real property
for the receiving sites, customer service call center and local business
offices. In order to keep pace with technological advances, we are maintaining,
periodically upgrading and rebuilding the physical components of our cable
communications systems.
We believe that substantially all of our physical assets are in good
operating condition.
ITEM 3 LEGAL PROCEEDINGS
We are subject to legal proceedings and claims which arise in the ordinary
course of our business. In the opinion of our management, the amount of ultimate
liability with respect to these actions will not materially affect our financial
position, results of operations or liquidity.
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
H.F. Lenfest, who, together with the members of his family, is the owner of 50%
of the common stock of Lenfest Communications, Inc., as of December 31, 1999,
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. $440 million as of December 31, 1998). The Plaintiff
also alleged that Australis and H.F. 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. The trial in this action began on February 2,
1998 and ended on September 30, 1998. In December 1999, the Plaintiff's case was
dismissed by order of the court.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Information for this Item is omitted pursuant to SEC General Instruction I
to Form 10-K.
- 11 -
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common Stock
Absence of Trading Market
Our common stock is not publicly traded. Therefore, there is no established
public trading market for the common stock, and none is expected to develop in
the foreseeable future.
Holder
All of our shares of common stock, $0.01 par value, are owned by Comcast
Corporation.
Dividends
None.
ITEM 6 SELECTED FINANCIAL DATA
Information for this item is omitted pursuant to SEC General Instruction I to
Form 10-K.
- 12 -
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information for this Item is omitted pursuant to SEC General Instruction I
to Form 10-K, except as noted below.
Financing
See Note 5 to our consolidated financial statements included in Item 8.
Interest Rate Risk Management
We are exposed to market risk including changes in interest rates. To
manage the volatility relating to these exposures, we enter into various
derivative transactions pursuant to our policies in areas such as counterparty
exposure and hedging practices. Positions are monitored using techniques
including market value and sensitivity analyses. We do not hold or issue any
derivative financial instruments for trading purposes and are not a party to
leveraged instruments. The credit risks associated with our derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties. Although we may be exposed to losses in
the event of nonperformance by the counterparties, we do not expect such losses,
if any, to be significant.
Our policy is to manage interest costs using a mix of fixed and variable
rate debt. Using interest rate exchange agreements, ("Swaps"), we agree to
exchange, at specified intervals, the difference between fixed and variable
interest amounts calculated by reference to an agreed-upon notional principle
amount.
The table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk maintained by us as of
December 31, 1999 (dollars in millions):
Expected Maturity Date Fair
------------------------------------------------ Value at
2000 2001 2002 2003 2004 Thereafter Total 12/31/99
------- ------- ------ ------ ------- ----------- -------- ----------
Debt
Fixed Rate.................... $1.2 $0.8 $0.3 $0.3 $0.3 $1,283.7 $1,286.6 $1,355.0
Average Interest Rate...... 9.3% 8.9% 6.9% 7.0% 7.1% 8.8% 8.8%
Variable Rate (1)............. $61.0 $144.0 $205.0 $205.0
Average Interest Rate...... 8.3% 8.4% 8.4%
Interest Rate Instruments
Fixed to Variable Swaps....... $150.0 $150.0 ($6.4)
Average Pay Rate........... 9.7%
Average Receive Rate....... 8.3%
<FN>
(1) During the three months ended March 31, 2000, the Company repaid the
remaining outstanding balance and terminated its bank credit facility.
</FN>
The notional amounts of interest rate instruments, as presented in the
table above are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts. Interest
rates on variable debt are estimated by us using the average implied forward
London Interbank Offer Rate ("LIBOR") rates for the year of maturity based on
the yield curve in effect at December 31, 1999, plus the borrowing margin in
effect for each facility at December 31, 1999. Average pay rates on the Fixed to
Variable Swaps are estimated by us using the average implied forward LIBOR rates
for the year of maturity based on the yield curve in effect at December 31,
1999. While Swaps represent an integral part of our interest rate risk
management program, their incremental effect on interest expense for the years
ended December 31, 1999 and 1998 was not significant.
- 13 -
Year 2000 Readiness Disclosure
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000 (the "Year 2000 Issue"). If this situation
occurs, the potential exists for computer system failure or miscalculations by
computer programs, which could cause disruption of operations. We evaluated and
addressed the impact of the Year 2000 Issue on our operations to ensure that our
information technology and business systems recognize calendar Year 2000. We
utilized both internal and external resources in implementing our Year 2000
program.
We identified computer systems that required modification or replacement so
that they would properly utilize dates beyond December 31, 1999. In addition, we
have communicated with our significant software suppliers and service bureaus to
determine their plans for remediating the Year 2000 Issue in their software
which we use or rely upon.
As of December 31, 1999, we have completed our Year 2000 remediation
program. We believe that all key systems are Year 2000 compliant and as of March
29, 2000 we have incurred no significant disruption in operations. Further,
contingency plans have been created for our key systems and operations.
Additionally, we have implemented, business continuity preparations to create
post-Year 2000 response teams to further mitigate Year 2000 risk. There can be
no guarantee that the systems of other companies on which we rely are Year 2000
compliant, or that a failure to be Year 2000 compliant by another company would
not have a material adverse effect on us.
Through December 31, 1999, we have incurred approximately $1.8 million in
connection with our Year 2000 remediation program.
Our management will continue to periodically report the results of our Year
2000 remediation program to the Audit Committee of Comcast's Board of Directors.
---------------
Results of Operations
In January 2000, Comcast Corporation ("Comcast") acquired the stock of Lenfect
Communications, Inc. (the "Company") from AT&T Corp. ("AT&T") and the Company's
stockholders for approximately 121.4 million shares of Comcast's Class A Special
Common Stock with a value of $6.077 billion. Immediately upon closing of the
acquisition, the Company was merged with and into us. As a result, we are the
successor to the Company.
Our consolidated financial statements will not be significantly different
from those of the Company as Comcast does not intend to apply, to our
consolidated financial statements, the accounting relating to its acquisition of
the Company.
The Company's summarized consolidated financial information for the years
ended December 31, 1999 and 1998 is as follows (dollars in millions, "NM"
denotes percentage is not meaningful):
Year Ended Increase / (Decrease)
December 31,
1999 1998 $ %
--------- --------- --------- --------
Revenues.................................................. $542.8 $470.4 $72.4 15.4%
Service, programming, selling, general and administrative.
and direct non-cable expenses.......................... 339.7 274.9 64.8 23.6
--------- --------- ---------
Operating income before depreciation and
amortization (1)....................................... 203.1 195.5 7.6 3.9
Depreciation and amortization............................. 153.3 135.4 17.9 13.2
--------- --------- ---------
Operating income.......................................... 49.8 60.1 (10.3) (17.1)
--------- --------- ---------
Interest expense.......................................... 125.5 120.1 5.4 4.5
Equity in (income) losses of affiliates................... (7.5) 3.8 11.3 NM
Other income.............................................. (17.4) (14.4) 3.0 20.8
Income tax benefit........................................ (16.5) (3.1) 13.4 NM
--------- --------- ---------
Loss from continuing operations before
extraordinary items..................................... ($34.3) ($46.3) ($12.0) (25.9%)
========= ========= =========
14
<FN>
- ------------
(1) Operating income before depreciation and amortization is commonly referred
to in the cable communications business 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. In part due to the capital intensive nature of the
cable communications business and the resulting significant level of
non-cash depreciation and amortization expense, operating cash flow is
frequently used as one of the bases for comparing businesses in the cable
communications industry, although our measure of operating cash flow may
not be comparable to similarly titled measures of other companies.
Operating cash flow is the primary basis used by our management to measure
the operating performance of our business. 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 our performance.
</FN>
Revenues
Of the $72.4 million increase from 1998 to 1999, $25.0 million is
attributable to the effects of the acquisitions of cable communications systems,
$7.1 million is attributable to subscriber growth, $18.1 million relates to the
changes in rates, $15.8 million is attributable to growth in cable advertising
sales and $6.4 million relates to other product offerings including the increase
in digital cable and modem services.
Service, Programming, Selling, General & Administrative and Direct Non-Cable
Expenses
Of the $64.8 million increase from 1998 to 1999, $13.8 million is
attributable to the effects of the acquisitions of cable communications systems,
$12.3 million is attributable to an increase in the costs of cable programming
as a result of subscriber growth, additional channel offerings and changes in
rates, $5.2 million is attributable to an increase in costs associated with
customer service, $11.3 million is attributable to growth in cable advertising
sales and $22.2 million results from an increase in the costs of labor, other
volume related expenses and costs associated with new product offerings. It is
anticipated that our cost of cable programming will increase in the future as
cable programming rates increase and additional sources of cable programming
become available.
Depreciation and Amortization Expense
The $17.9 million increase from 1998 to 1999 is primarily attributable to
the effects of our acquisitions of cable communications systems and of our
capital expenditures.
Interest Expense
The $5.4 million increase from 1998 to 1999 is primarily attributable to
the effects of higher average debt balances in 1999 as compared to 1998 as a
result of borrowings to fund acquisitions.
Equity in Net (Income) Losses of Affiliates
The $11.3 million change is primarily attributable to an equity in net loss
of $11.1 million in 1998 related to the Company's investment in Videopole which
was not accounted for under the equity method in 1999 (see Notes 3 and 4 to the
consolidated financial statements included in Item 8.).
Income Tax Benefit
The $13.4 million increase from 1998 to 1999 is primarily attributable to
the utilization of the loss from continuing operations in 1999 to reduce the
income tax expense associated with the 1999 gain on discontinued operations.
We believe that our losses will not significantly affect the performance of
our normal business activities because of our existing cash, cash equivalents
and marketable securities, our ability to generate operating income before
depreciation and amortization and our ability to obtain external financing.
We believe that our operations are not materially affected by inflation.
- 15 -
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Lenfest Communications, Inc.
We have audited the accompanying consolidated balance sheet of Lenfest
Communications, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in stockholders'
deficiency and of cash flows for each of the years in the three-year period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lenfest
Communications, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ Pressman Ciocca Smith LLP
Hatboro, Pennsylvania
March 27, 2000
- 16 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
December 31,
1999 1998
------------ ------------
ASSETS
Cash and cash equivalents....................................................... $144,985 $9,802
Marketable securities........................................................... 159,003 18,854
Accounts receivable, less allowance for doubtful
accounts of $5,091 and $3,603................................................ 30,902 25,292
Inventories and prepaid expenses................................................ 2,992 3,949
Property and equipment, net of accumulated depreciation of $530,587 in 1999
and $436,273 in 1998........................................................ 565,671 431,455
Investments, principally in affiliates, and related receivables................. 36,371 47,645
Goodwill, net of accumulated amortization of $36,946 in 1999
and $32,364 in 1998.......................................................... 97,458 68,637
Deferred franchise costs, net of accumulated amortization of $271,113 in 1999
and $227,797 in 1998......................................................... 487,927 465,420
Other intangible assets, net of accumulated amortization of $14,768 in 1999
and $14,611 in 1998.......................................................... 18,863 19,399
Deferred Federal tax asset, net................................................. 80,371
Other assets.................................................................... 514 5,113
------------ ------------
$1,544,686 $1,175,937
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Notes payable and obligations under capital leases.............................. $1,491,552 $1,296,553
Accounts payable and accrued expenses - unrelated parties....................... 112,714 73,051
Accounts payable - affiliate.................................................... 26,127 22,968
Customer prepayments and deposits............................................... 7,460 6,851
Deferred gain on terminated interest swaps...................................... 5,911 6,518
Deferred tax liability, net..................................................... 23,300 9,406
Investment in Garden State Cablevision, L.P..................................... 67,334 73,414
------------ ------------
1,734,398 1,488,761
------------ ------------
STOCKHOLDERS' DEFICIENCY
Common stock, $.01 par value - authorized and issued, 158,896 shares......... 2 2
Additional capital........................................................... 51,561 50,747
Accumulated deficit.......................................................... (323,077) (359,149)
Accumulated other comprehensive income (loss)................................ 81,802 (4,424)
------------ ------------
Total stockholders' deficiency........................................... (189,712) (312,824)
------------ ------------
$1,544,686 $1,175,937
============ ============
See notes to consolidated financial statements.
- 17 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands)
Year Ended December 31,
1999 1998 1997
--------- --------- --------
REVENUES............................................................. $542,800 $470,409 $447,390
--------- --------- --------
OPERATING EXPENSES
Service........................................................... 54,510 46,958 33,772
Programming - from affiliate...................................... 82,128 70,502 62,892
Programming - other cable......................................... 40,645 34,033 30,196
Selling, general and administrative............................... 131,111 105,058 105,470
Direct costs - non-cable.......................................... 31,292 18,377 22,337
Depreciation...................................................... 101,292 86,754 78,801
Amortization...................................................... 52,075 48,604 51,138
--------- --------- --------
493,053 410,286 384,606
--------- --------- --------
OPERATING INCOME..................................................... 49,747 60,123 62,784
OTHER (INCOME) EXPENSE
Interest expense.................................................. 125,507 120,119 120,788
Equity in net (income) losses of affiliates....................... (7,483) 3,864 7,334
Loss on Australis Media Ltd. securities........................... 44,572
Other income...................................................... (17,436) (14,443) (9,154)
--------- --------- --------
100,588 109,540 163,540
--------- --------- --------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAX BENEFIT AND EXTRAORDINARY ITEMS............................... (50,841) (49,417) (100,756)
INCOME TAX BENEFIT................................................... 16,500 3,140 36,179
--------- --------- --------
LOSS FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEMS............................................... (34,341) (46,277) (64,577)
DISCONTINUED OPERATIONS, net of income tax expense of
$38,000 and $17,700 in 1999 and 1997.............................. 70,413 33,738
--------- --------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS............................. 36,072 (46,277) (30,839)
EXTRAORDINARY ITEMS, net of income tax benefit of $1,645 in 1998..... (7,360)
--------- --------- --------
NET INCOME (LOSS).................................................... $36,072 ($53,637) ($30,839)
========= ========= ========
See notes to consolidated financial statements.
- 18 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
1999 1998 1997
--------- --------- ---------
OPERATING ACTIVITIES
Net income (loss) ................................................................ $36,072 ($53,637) ($30,839)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities from continuing operations:
Depreciation and amortization .................................................. 153,367 135,358 129,939
Accretion of debt discount ..................................................... 2,129 1,891 1,788
Accretion of discount on marketable securities ................................. (477)
Net gains on sales of marketable securities .................................... (11,843) (3,766) (468)
Loss on Australis Media Ltd. securities ........................................ 44,572
Gains on dispositions of equity investments .................................... (12,221) (7,318)
Deferred income tax benefit .................................................... (3,457) (4,455) (21,431)
Loss on sales of property and equipment ........................................ 1,389 2,469 694
Equity in net (income) losses of affiliates .................................... (7,483) 3,864 7,334
Minority interest expense (income) ............................................. 311 (945)
Discontinued operations ........................................................ (70,413) (33,738)
Extraordinary items ............................................................ 7,360
Changes in working capital ..................................................... 42,770 18,545 28,960
--------- --------- ---------
Net cash provided by operating activities from continuing operations ......... 142,842 95,408 118,071
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings ......................................................... 190,000 311,386 105,000
Early extinguishment of debt ..................................................... (67,375)
Capital contribution ............................................................. 814
Repayments of notes payable and obligations under capital leases ................. (1,392) (246,344) (123,490)
Increases in other intangible assets ............................................. (1,193) (347)
--------- --------- ---------
Net cash provided by (used in) financing activities from continuing operations 189,422 (3,526) (18,837)
--------- --------- ---------
INVESTING ACTIVITIES
Acquisitions of cable systems, net of cash acquired .............................. (97,772) (84,500)
Acquisition of minority interest ................................................. (7,000)
Purchases of property and equipment .............................................. (197,942) (107,994) (94,519)
Purchases of marketable securities ............................................... (452) (2,333) (3,091)
Proceeds from sales of property and equipment .................................... 345 177 1,091
Proceeds from sales of marketable securities ..................................... 68,595 9,480 45,223
Sale of subsidiaries, net of cash sold ........................................... 45,575 1,497 51,692
Investments in affiliates ........................................................ (1,142) (287) (9,346)
Distributions from affiliates .................................................... 135 2,285 775
Increases in other intangible assets ............................................. (4,933) (369) (8,876)
Loans and advances to affiliates ................................................. (7,626) (2,337) (4,849)
Loans and advances from affiliates ............................................... 5,136 2,178 3,627
--------- --------- ---------
Net cash used in investing activities from continuing operations ............ (197,081) (97,703) (102,773)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -
CONTINUING OPERATIONS ............................................................ 135,183 (5,821) (3,539)
CASH AND CASH EQUIVALENTS, beginning of year ........................................ 9,802 15,623 19,162
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year .............................................. $144,985 $9,802 $15,623
========= ========= =========
See notes to consolidated financial statements.
- 19 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
(Dollars in thousands)
Accumulated
Other
Comprehensive
Common Additional Accumulated Income
Stock Capital Deficit (Loss) Total
---------- ---------- ----------- ------------- -----------
BALANCE, JANUARY 1, 1997....................... $2 $50,747 ($274,673) ($9,866) ($233,790)
Comprehensive loss:
Net loss.................................. (30,839)
Change in unrealized gain on
marketable securities, net of deferred
taxes of $48............................ 10,365
Total comprehensive loss.................... (20,474)
---------- ---------- ----------- ------------- -----------
BALANCE, DECEMBER 31, 1997..................... 2 50,747 (305,512) 499 (254,264)
Comprehensive loss:
Net loss.................................. (53,637)
Unrealized loss on marketable
securities, net of deferred taxes of $214 (4,923)
Total comprehensive loss.................... (58,560)
---------- ---------- ----------- ------------- -----------
BALANCE, DECEMBER 31, 1998..................... 2 50,747 (359,149) (4,424) (312,824)
Capital contribution........................ 814 814
Comprehensive income:
Net income................................ 36,072
Unrealized gain on marketable securities,
net of deferred taxes of $43,992........ 86,226
Total comprehensive income.................. 122,298
---------- ---------- ----------- ------------- -----------
BALANCE, DECEMBER 31, 1999..................... $2 $51,561 ($323,077) $81,802 ($189,712)
========== ========== =========== ============= ===========
See notes to consolidated financial statements.
- 20 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. BUSINESS
Lenfest Communications, Inc., a Delaware corporation, and subsidiaries (the
"Company") was engaged in the development, management and operation of
broadband cable networks. The Company's cable communications systems are
located in one geographic cluster in the suburbs of Philadelphia,
Pennsylvania from Harrisburg, Pennsylvania through Wilmington, Delaware and
south through Atlantic City, New Jersey. The Company's systems served
approximately 1.1 million subscribers and passed approximately 1.5 million
homes as of December 31, 1999. In addition, the Company, through its
non-cable subsidiaries, provides cable advertising, promotional, traffic
and billing, telemarketing, paging, internet and digital video services.
The Company's ability to collect the amounts due from subscribers is
primarily affected by economic conditions in these geographic areas.
In January 2000, Comcast Corporation ("Comcast") acquired the stock of the
Company from AT&T Corp. ("AT&T") and the Company's stockholders for
approximately 121.4 million shares of Comcast's Class A Special Common
Stock with a value of $6.077 billion. Immediately upon closing of the
acquisition, the Company was merged with and into Comcast's wholly owned
subsidiary, Comcast LCI Holdings, Inc. ("LCI Holdings"). As a result, LCI
Holdings is the successor to the Company.
The consolidated financial statements of LCI Holdings will not be
significantly different from those of the Company as Comcast does not
intend to apply, to LCI Holdings' consolidated financial statements, the
accounting relating to its acquisition of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER ITEMS
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned or controlled subsidiaries. All significant
intercompany accounts and transactions among consolidated entities have
been eliminated.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Values
The estimated fair value amounts presented in these notes to consolidated
financial statements have been determined by the Company using available
market information and appropriate methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates
of fair value. The estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts. Such fair value estimates are based on pertinent information
available to management as of December 31, 1999 and 1998, and have not been
comprehensively revalued for purposes of these consolidated financial
statements since such dates.
A reasonable estimate of fair value of the amounts due to/from affiliates
in the Company's consolidated balance sheet is not practicable to obtain
because of the related party nature of these items and the lack of quoted
market prices.
Cash and Cash Equivalents
The Company maintains cash balances at several financial institutions
located primarily in the Philadelphia area. Accounts at each institution
are insured by either the Federal Deposit Insurance Corporation or another
institutional
- 21 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
insurance fund up to $100,000 and $500,000, respectively. The Company
maintains cash balances in excess of the insured amounts.
Cash equivalents principally consist of repurchase agreements with
maturities of three months or less when purchased. The carrying amounts of
the Company's cash equivalents approximate their fair values.
Marketable Securities
Marketable securities consist of unrestricted publicly traded investments
which are classified as available for sale and recorded at their fair
value, with unrealized gains or losses resulting from changes in fair value
between measurement dates recorded as a component of other comprehensive
income (loss).
Inventories
Inventories, which include materials and supplies, are stated at the lower
of cost or market on a first-in, first out basis. Inventories consist of
equipment assembled and sold by some of the Company's non-cable wholly
owned subsidiaries.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on an
accelerated and on a straight-line basis over estimated useful lives as
follows:
Buildings and improvements ....................... 10-39 years
Operating facilities.............................. 5-15 years
Other equipment................................... 3-7 years
Improvements that extend asset lives are capitalized; other repairs and
maintenance charges are expensed as incurred. The cost and related
accumulated depreciation applicable to assets sold or retired are removed
from the accounts and the gain or loss on disposition is recognized as a
component of other expense.
In connection with the rebuild and upgrade of cable systems, the Company
depreciates the remaining net book value of the assets over the estimated
rebuild or upgrade period. During the years ended December 31, 1999, 1998
and 1997, the Company disposed of $0.4 million, $6.0 million and $1.6
million, respectively of fully depreciated plant in connection with the
rebuild of certain of its systems.
Property and Equipment Under Capital Leases
Property and equipment capitalized under capital leases are amortized on
the straight-line method over the term of the leases or the estimated
useful lives of the assets. Amortization of leased assets is included in
depreciation expense in the Company's consolidated statement of operations.
During the years ended December 31, 1999, 1998 and 1997, the Company
incurred additional capital lease obligations of $0.4 million , $0.4
million and $4.6 million, respectively.
Capitalization of Self Constructed Assets
All costs attributable to cable television plant, including materials,
direct labor and construction overhead are capitalized. Initial customer
installation costs including material, labor and overhead are capitalized
and depreciated over eight years. The costs of subsequently disconnecting
and reconnecting subscribers are charged to expense.
Investments, Principally in Affiliates
Investments in entities in which the Company has the ability to exercise
significant influence over the operating and financial policies of the
investee are accounted for under the equity method. Equity method
investments are recorded at original cost and adjusted periodically to
recognize the Company's proportionate share of the investees' net income or
losses after the date of investment, additional contributions made and
dividends received.
- 22 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Investments in privately held companies are stated at cost, adjusted for
any known diminution in value.
Deferred Franchise Costs, Goodwill and Other Intangible Assets
Franchise acquisition costs are amortized on a straight-line basis over
their legal or estimated useful lives of 10 to 20 years. The excess of cost
over the fair value of net assets acquired (goodwill) is being amortized on
a straight-line basis over estimated useful lives of 20 to 40 years. Other
intangible assets are being amortized on a straight-line basis over their
legal or estimated useful lives.
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and deferred charges, using
objective methodologies whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. Such
methodologies include evaluations based on the cash flows generated by the
underlying assets, profitability information, including estimated future
operating results, trends or other determinants of fair value. If the total
of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the
fair value and the carrying value of the asset.
Revenue Recognition
Service income is recognized as service is provided. Credit risk is managed
by disconnecting services to subscribers who are delinquent.
Advertising
The Company charges the costs of advertising to expense as incurred.
Income Taxes
The Company recognizes deferred tax assets and liabilities for temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred taxes of changes in
tax rates and laws, if any, applied to the years during which temporary
differences are expected to be settled, are reflected in the consolidated
financial statements in the period of enactment.
Derivative Financial Instruments
The Company uses derivative financial instruments, including interest rate
exchange agreements ("Swaps") to manage its exposure to fluctuations in
interest rates. Swaps are matched with either fixed or variable rate debt
and periodic cash payments are accrued on a settlement basis as an
adjustment to interest expense. Any premiums associated with these
instruments are amortized over their term and realized gains or losses as a
result of the termination of the instruments are deferred and amortized
over the remaining term of the underlying debt. Unrealized gains and losses
as a result of these instruments are recognized when the underlying hedged
item is extinguished or otherwise terminated.
Those instruments that have been entered into by the Company to hedge
exposure to interest rate risk are periodically examined by the Company to
ensure that the instruments are matched with underlying liabilities, reduce
the Company's risks relating to interest rates, and, through market value
and sensitivity analysis, maintain a high correlation to the interest
expense of the hedged item. For those instruments that do not meet the
above criteria, variations in their fair value are marked-to-market on a
current basis in the Company's consolidated statement of operations.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments (see Note 5).
The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and monitoring of the
creditworthiness of the counterparties.
- 23 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Although the Company may be exposed to losses in the event of
nonperformance by the counterparties, the Company does not expect such
losses, if any, to be significant.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivatives and hedging
activities. Upon the adoption of SFAS No. 133, all derivatives are required
to be recognized in the statement of financial position as either assets or
liabilities and measured at fair value. In July 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133 - an amendment of
FASB Statement No. 133" deferring the effective date for implementation of
SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company is
currently evaluating the impact the adoption of SFAS No. 133 will have on
its financial position and results of operations.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 1999.
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Purchase and Sale of Videopole
In January 1999, the Company through its subsidiary, Lenfest International,
Inc. ("International") purchased an additional 71% 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 had an 80% partnership interest in L-TCI Associates, a
partnership that owned 29% of the common stock of Videopole. As a result of
the purchase, the Company's direct and indirect interest in Videopole was
94.2%. In August 1999, International sold all of the stock of Videopole for
$121.0 million and recognized a pre-tax gain of $108.7 million. The
proceeds received consisted of $64.9 million in cash and 955,376 shares of
United Pan-European Communications, N. V. with a value of $56.1 million.
The results of operations of Videopole have been presented as a
discontinued operation in accordance with Accounting Principles Board
Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions" ("APB 30").
Raystay Acquisition
In July 1999, the Company's subsidiary, Lenfest Raystay Holdings, Inc.
("Raystay") acquired the 55% of the stock of Raystay which it did not
already own for $46.2 million in cash and the assumption of $53.2 million
of debt. The Company immediately repaid the Raystay debt assumed. The
acquisition and debt repayment were funded primarily with borrowings under
a bank credit facility.
- 24 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
The Company's consolidated statement of operations for the year-ended
December 31, 1999 include the revenues and expenses of Raystay since
January 1, 1999. The sellers' preacquisition share of income is included in
other income. The following summarized pro forma financial information
assumes the Raystay acquisition occurred on January 1, 1998:
Year Ended December 31,
1999 1998
----------- ----------
Revenues............................................. $542,800 $493,518
======== ========
Loss from continuing operations...................... ($41,647) ($58,718)
======== ========
Net income (loss).................................... $28,766 ($66,078)
======== ========
Turnersville System Acquisition
In January 1997, the Company acquired a cable communications system in
Turnersville, New Jersey which served approximately 37,000 subscribers from
Cable TV Fund 14-A, Ltd., an affiliate of Jones Intercable, Inc., for
approximately $84.5 million. The Company accounted for the acquisition
under the purchase method. As such, the operating results of the system
have been included in the Company's consolidated statement of operations
since the acquisition date. The acquisition was funded primarily with
borrowings under a bank credit facility.
Asset Disposition
In October 1997, Lenfest MCN, Inc. and Lenfest MCN Delmarva Associates LP
(together, "MCN"), each a wholly owned subsidiary of the Company, sold
substantially all of their assets, and Suburban Cable TV Co. Inc.
("Suburban"), Lenfest Atlantic, Inc. and Lenfest New Castle County sold
certain of their towers for $70.3 million. The Company recognized a gain on
the sale of $32.3 million, net of income tax expense. The sale represented
the disposition of the major segment of the Company's tower rental,
microwave service, video, voice and data service businesses. The results of
operations of these businesses have been presented as a discontinued
operation in accordance with APB 30. During the year-ended December 31,
1997, the Company recognized income from discontinued operations of $1.5
million.
4. MARKETABLE SECURITIES AND INVESTMENTS, PRINCIPALLY IN AFFILIATES
1999 1998
-------- -------
Equity method.......................................... $25,961 $37,235
Fair value method...................................... 159,006 18,854
Cost method............................................ 10,410 10,410
-------- -------
Total............................................. $195,377 $66,499
======== =======
Equity Method
The Company, through several subsidiaries, owns non-controlling interests
in several general partnerships and corporations. Any subsidiary of the
Company that is a general partner is liable, as a matter of partnership
law, for all debts of such partnership. Losses in excess of amounts
recorded as investments on the Company's consolidated balance sheet have
been offset against loans and advances to these affiliates to the extent
they exist.
- 25 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Garden State Cablevision, L.P.
The Company, through its subsidiary, Lenfest Jersey, Inc., owns a 10%
general partnership interest and a 40% limited partnership in Garden State
Cablevision L.P. ("Garden State"), a cable company serving approximately
216,000 subscribers in southern New Jersey as of December 31, 1999. The
Company is allocated a total of 50% of Garden State's income or losses. In
addition, the Company is required to make up its partner capital deficits
upon the termination or liquidation of the Garden State partnership.
Because of the requirement to make up capital deficits, the Company's
consolidated balance sheet reflects equity in accumulated losses, net of
related receivable, in excess of the investments in Garden State in the
amount of $67.3 million and $73.4 million as of December 31, 1999 and 1998,
respectively.
Videopole
Videopole's financial statements are prepared in accordance with accounting
principles generally accepted in France ("French GAAP"). U.S. generally
accepted accounting principles ("U.S. GAAP") differ in certain significant
respects from French GAAP applied by Videopole. During the years ended
December 31, 1998 and 1997, the Company recorded its equity share of
Videopole's operating results calculated in accordance with U.S. GAAP. In
1999, the Company no longer accounted for its investment in Videopole under
the equity method (see Note 3).
Radius
In January 1997, the Company, through its subsidiary, Lenfest Philadelphia
Interconnect, Inc., entered into a partnership with a subsidiary of Comcast
for the purpose of representing regional and national cable advertising
sales in the Greater Philadelphia market. Under the agreement, the
percentage interests of the partners is determined on the basis of the
number of cable customers of the Company and Comcast in the designated
market area at the beginning of the year. For 1999, 1998 and 1997, the
Company's partnership interest was 70%, 71% and 72%, respectively. The
partners have equal representation on the Executive Committee. Lenfest
Advertising, Inc. d/b/a Radius Communications ("Radius"), a wholly owned
subsidiary of the Company, has been the managing partner of the partnership
since inception. In addition to its management activities, Radius continues
to provide local cable advertising sales and insertion for the Company and
sixteen other cable television system operators.
- 26 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Summarized financial information for the Company's equity method investees
for the years ended December 31, 1999, 1998 and 1997, is as follows
(dollars in thousands).
Garden
State Other Combined
----- ----- --------
Year Ended December 31, 1999:
Combined Results of Operations
Revenues, net................................. $122,174 $105,124 $227,298
Operating, selling, general and
administrative expenses..................... 54,944 71,267 126,211
Depreciation and amortization................. 29,703 20,650 50,353
Operating income.............................. 37,527 13,207 50,734
Net income (loss) (a)......................... 18,870 (338) 18,532
Company's Equity in Net Income (Loss)
Equity in current period net income (loss).... $13,463 ($2,044) $11,419
Amortization expense.......................... (1,178) (2,758) (3,936)
----------- ----------- -----------
Total equity in net income (loss)........... $12,285 ($4,802) $7,483
=========== =========== ===========
Year Ended December 31, 1998:
Combined Results of Operations
Revenues, net................................. $114,129 $154,861 $268,990
Operating, selling, general and
administrative expenses..................... 53,482 107,436 160,918
Depreciation and amortization................. 30,042 35,091 65,133
Operating income.............................. 30,605 12,334 42,939
Net income (loss) (a)......................... 8,814 (10,512) (1,698)
Company's Equity in Net Income (Loss)
Equity in current period net income (loss).... $7,830 ($6,741) $1,089
Amortization expense.......................... (1,178) (3,775) (4,953)
----------- ----------- -----------
Total equity in net income (loss)........... $6,652 ($10,516) ($3,864)
=========== =========== ===========
Garden
State Other Combined
----- ----- --------
Year Ended December 31, 1997:
Combined Results of Operations
Revenues, net................................. $109,126 $156,405 $265,531
Operating, selling, general and
administrative expenses..................... 52,450 120,782 173,232
Depreciation and amortization................. 44,698 32,357 77,055
Operating income.............................. 11,978 3,266 15,244
Net loss (a).................................. (10,809) (5,453) (16,262)
Company's Equity in Net Income (Loss)
Equity in current period net loss............. ($2,162) ($219) ($2,381)
Amortization expense.......................... (1,178) (3,775) (4,953)
----------- ----------- -----------
Total equity in net loss.................... ($3,340) ($3,994) ($7,334)
=========== =========== ===========
- 27 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Garden
Combined Financial Position State Other Total
- --------------------------- ----- ----- -----
As of December 31, 1999:
Current assets.................................. $14,278 $21,545 $35,823
Noncurrent assets............................... 163,161 179,021 342,182
Current liabilities............................. 28,424 27,666 56,090
Noncurrent liabilities.......................... 328,911 156,655 485,566
As of December 31, 1998:
Current assets.................................. $15,064 $36,547 $51,611
Noncurrent assets............................... 136,528 296,054 432,582
Current liabilities............................. 16,151 43,961 60,112
Noncurrent liabilities.......................... 319,703 337,995 657,698
<FN>
- ---------
(a) Net loss also represents loss from continuing operations before
extraordinary items and cumulative effect of changes in accounting
principles.
</FN>
The Company's recorded investments exceed its proportionate interests in
the book value of the investees' net assets by $31.1 million as of December
31, 1999. Such excess is being amortized to equity in net income or loss,
primarily over a period of 15 years, which is consistent with the estimated
lives of the underlying assets.
Fair Value Method
All of the Company's marketable securities are considered to be available
for sale. Net realized gains from the sales of marketable securities of
$11.8 million, $3.8 million and $0.5 million for the years ended December
31, 1999, 1998 and 1997, respectively, are included in other income in the
Company's consolidated statement of operations. The specific identification
method is used to determine the cost of each security at the time of sale.
Liberty Digital, Inc.
The Company, through its subsidiaries, StarNet, Inc. ("StarNet"), StarNet
Interactive Entertainment, Inc. and Suburban owned a total of 7.1 million
shares of The Box Worldwide, Inc. ("The Box"). The Company previously
accounted for its investment in The Box under the equity method. In
December 1997, The Box merged with a subsidiary of TCI Music, Inc. ("TCI
Music") and the Company's shares of The Box were converted into rights to
receive 501,290 shares of TCI Music preferred stock. In September 1999, TCI
Music changed its name to Liberty Digital, Inc. ("Liberty Digital"). The
Company's investment in Liberty Digital is accounted for as an available
for sale security and is included in marketable securities in the Company's
consolidated balance sheet. The Company's cost basis in Liberty Digital is
approximately $11.3 million. The fair value of the Company's investment in
Liberty Digital as of December 31, 1999 and 1998 was approximately $111.7
million and $7.4 million, respectively.
Adelphia Business Solutions, Inc.
In February 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 the 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 warrant was exercised in May 1998 and the Company recognized a
gain of $11.5 million, representing the excess of the fair value of the
partnership interest over its book value, to other income in its
consolidated statement of operations. In October 1999, Hyperion changed its
name to Adelphia Business Solutions, Inc. ("Adelphia"). The fair value of
the Company's investment in Adelphia as of December 31, 1999 and 1998 was
approximately $35.1 million and $11.1 million, respectively.
- 28 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Cost Method
It is not practicable to estimate the fair value of the Company's
investments in privately held companies, accounted for under the cost
method, due to a lack of quoted market prices and excessive costs involved
in determining such fair value.
5. NOTES PAYABLE
1999 1998
----------- -----------
(Dollars in thousands)
Bank credit facility....................................................... $205,000 $15,000
8-3/8% Senior notes, due 2005.............................................. 689,611 688,284
7-5/8% Senior notes, due 2008.............................................. 148,506 148,377
10-1/2% Senior subordinated notes, due 2006................................ 294,794 294,259
8-1/4% Senior subordinated notes, due 2008................................. 148,359 148,221
Obligations under capital leases and other................................. 5,282 2,412
---------- ----------
$1,491,552 $1,296,553
========== ==========
Scheduled maturities of notes payable and obligations under capital leases
as of December 31, 1999 for the five years after 1999 are as follows
(dollars in thousands):
2000............................................. $1,188
2001 ............................................ 834
2002 ............................................ 298
2003 ............................................ 319
2004............................................. 61,342
Bank Credit Facility
During the three months ended March 31, 2000, the Company repaid the
remaining outstanding balance using proceeds from an advance from Comcast
and terminated the bank credit facility. In connection with the repayment
and termination of the bank credit facility, the Company expensed
unamortized debt issues costs of $1.5 million, which resulted in an
extraordinary loss, net of tax, of $0.9 million.
Senior Notes and Senior Subordinated Notes
Interest on the 8-3/8% Senior Notes, due 2005 and the 7-5/8% Senior Notes,
due 2008 (together, the "Senior Notes") is payable semiannually. The 8-3/8%
Senior Notes are redeemable only upon maturity on November 1, 2005. The
7-5/8% Senior Notes are redeemable only upon maturity on February 15, 2008.
The Senior Notes are unsecured and unsubordinated obligations of the
Company and rank pari passu with all other unsecured and unsubordinated
indebtedness and other obligations of the Company. The Senior Notes are
effectively subordinated to all liabilities of the Company's subsidiaries,
including trade payables.
Interest on the 8-1/4% Senior Subordinated Notes, due 2008 and the 10-1/2%
Senior Subordinated Notes, due 2006 (together, the "Senior Subordinated
Notes") is payable semiannually. The 8-1/4% Senior Subordinated Notes are
redeemable, in whole or in part, at the option of the Company beginning
February 15, 2003. The 10-1/2% Senior Subordinated Notes are redeemable
only upon maturity on June 15, 2006. The Senior Subordinated Notes are
general unsecured obligations of the Company subordinated in right of
payment to all present and future senior indebtedness of the Company.
- 29 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
The indentures for the Senior Notes and Senior Subordinated Notes, among
other things, contains restrictions (with certain exceptions) on the
ability of the Company and its Restricted Subsidiaries (as defined) to: (i)
make dividend payments or other restricted payments; (ii) create liens or
enter into sale and leaseback transactions; and (iii) enter into mergers,
consolidations, or sales of all or substantially all of their assets.
Redemption of Debt
In connection with the refinancing, redemption and optional repayment of
certain indebtedness, the Company expensed unamortized debt issue costs and
incurred debt extinguishment costs of $11.4 million, resulting in
extraordinary losses, net of tax, of $7.4 million during the year ended
December 31, 1998.
Interest Rates
Bank debt interest rates vary based upon one or more of the following rates
at the option of the Company:
Prime rate to prime plus 0.5%
Federal Funds rate plus 0.5% to 1.0%; and
LIBOR plus 0.625% to 1.50%
As of December 31, 1999 and 1998, the Company's effective weighted average
interest rate on its notes payable outstanding was 8.52% and 8.74%,
respectively.
Interest Rate Risk Management
The Company is exposed to market risk including changes in interest rates.
To manage the volatility relating to these exposures, the Company enters
into various derivative transactions pursuant to the Company's policies in
areas such as counterparty exposure and hedging practices. Positions are
monitored using techniques including market value and sensitivity analyses.
The Company's policy is to manage interest costs using a mix of fixed and
variable rate debt. Using Swaps, the Company agrees to exchange, at
specified intervals, the difference between fixed and variable interest
amounts calculated by reference to an agreed-upon notional principal
amount.
The following table summarizes the terms of the Company's existing Swaps as
of December 31, 1999 (dollars in millions):
Notional Average Estimated
Amount Maturities Interest Rate Fair Value
------ ---------- ------------- ----------
Fixed to Variable Swaps......................... $150.0 2008 7.9% ($6.4)
The notional amounts of interest rate instruments, as presented in the
above table, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts.
While Swaps represent an integral part of the Company's interest rate risk
management program, their incremental effect on interest expense for the
years ended December 31, 1999, 1998 and 1997 was not significant.
On October 31, 1997, the Company terminated four interest rate swap
agreements and received $8.8 million in consideration of early termination.
The Company has recorded the gain as deferred gain on terminated interest
swaps on its consolidated balance sheet and is amortizing the gain as a
reduction to interest expense through June 15, 2006, which is the maturity
date of the fixed rate debt obligation.
- 30 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
Estimated Fair Value
The Company's notes payable had estimated fair values of $1.560 billion and
$1.432 billion as of December 31, 1999 and 1998, respectively. The
estimated fair value of the Company's publicly traded debt is based on the
quoted market price for that debt. Interest rates that are currently
available to the Company for issuance of debt with similar terms and
remaining maturities are used to estimate fair value for debt issues for
which quoted market prices are not available.
Debt Covenants
The loan agreements associated with the bank credit facility contain
restrictive covenants which, among other things, limit the Company's
ability to enter into arrangements for the acquisition or disposition of
property and equipment, investments, mergers and the incurrence of
additional debt. Certain of these agreements require that certain ratios
and cash flow levels be maintained and contain certain restrictions on
dividend payments, payment of management fees and advances of funds to
affiliated entities and the Company. In addition, the stock of certain
subsidiary companies is pledged as collateral for unused irrevocable
standby letters of credit on behalf of affiliates.
Lines and Letters of Credit
As of December 31, 1999, amounts available under the Company's bank credit
facility totaled $95.0 million.
6. RELATED PARTY TRANSACTIONS
Garden State
Under a consulting agreement, the Company advises Garden State on various
operational and financial matters for a consulting fee of 3% of Garden
State's gross revenues. Garden State also obtains its cable television
programming from Satellite Services, Inc. ("SSI"), an affiliate of AT&T,
through the Company. The programming services are at a rate which is not
more than Garden State could obtain independently. For the years ended
December 31, 1999, 1998 and 1997, the total programming obtained by Garden
State through the Company was approximately $19.1 million, $17.9 million
and $14.7 million, respectively.
Satellite Services, Inc.
The Company is party to an agreement whereby SSI provides certain cable
television programming to the Company and its unconsolidated cable
television affiliates with programming services at a rate which is not more
than the Company could obtain independently. For the years ended December
31, 1999, 1998 and 1997, the Company incurred programming expenses of $82.1
million, $70.5 million and $62.9 million, respectively, under this
agreement.
StarNet
The Company, through its subsidiaries, StarNet and StarNet Development,
Inc., generates revenue from cross channel tune-in promotional services for
cable television and equipment sales to affiliates of AT&T. For the years
ended December 31, 1999, 1998 and 1997, the Company has generated revenues
of $0.5 million, $0.9 million and $1.9 million, respectively, from
affiliates of AT&T.
H.F. Lenfest
Subsidiaries of the Company had entered into three leases for office and
warehouse space from H.F. Lenfest, who, together with members of his
family, is the owner of 50% of the Company's common stock as of December
31, 1999, and his wife. The leases were classified as capital leases. The
Company made total payments to H.F. Lenfest and his wife for buildings
under capitalized leases of $0.4 million and $0.6 million in 1998 and 1997,
respectively. In September 1998, the Company purchased the three properties
from H.F. Lenfest and his wife for an aggregate price of approximately $6.0
million. The purchase price for each of the properties was determined as a
result of an independent appraisal.
- 31 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
TelVue Corporation
The Company incurred pay-per-view order placement fees to TelVue
Corporation, an affiliate of H.F. Lenfest, of $0.4 million, $0.4 million
and $0.5 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
7. INCOME TAXES
Income tax benefit consists of the following components (dollars in
thousands):
Year Ended December 31,
1999 1998 1997
--------- --------- ---------
Current
Federal $13,043 $ $15,013
State (1,315) (265)
--------- --------- ---------
13,043 (1,315) 14,748
--------- --------- ---------
Deferred
Federal 2,777 4,281 21,945
State 680 174 (514)
--------- --------- ---------
3,457 4,455 21,431
--------- --------- ---------
$16,500 $3,140 $36,179
========= ========= =========
The current tax benefit from continuing operations for 1999 and 1997
represents tax savings resulting from utilization of current losses to
eliminate the tax expense incurred related to the current income and gain
from discontinued operations.
- 32 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Continued)
The categories of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
Federal State
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- ---------- ---------
(Dollars in thousands)
Deferred Tax Assets:
Allowance for doubtful accounts.................... $1,615 $1,143 $478 $338
Net operating loss carryforward.................... 139,697 152,382
Investments in affiliates, principally
due to differences in taxable income............. 7,091 556
Investments and other tax credits.................. 510 871 249 249
Valuation allowance................................ (46,977) (46,977)
--------- --------- ---------- ---------
94,845 114,510 727 1,143
========= ========= ========== =========
Deferred Tax Liabilities:
Property and equipment, principally
due to differences in depreciation............... (24,751) (22,628) (7,606) (6,953)
Property and equipment and intangible
assets arising from purchase
accounting adjustments........................... (37,498) (11,456) (3,207) (3,596)
Investments in affiliates.......................... (1,763)
Unrealized gain on marketable securities........... (44,047) (55)
--------- --------- ---------- ---------
(108,059) (34,139) (10,813) (10,549)
--------- --------- ---------- ---------
Net deferred tax asset (liability)........ ($13,214) $80,371 ($10,086) ($9,406)
========= ========= ========== =========
The effective income tax benefit of the Company differs from the statutory
amount because of the effect of the following items:
Year Ended December 31,
1999 1998 1997
--------- --------- ---------
(Dollars in thousands)
Federal income tax benefit at statutory rates..................... $17,794 $17,296 $35,265
Nondeductible amortization of goodwill and
other intangibles............................................ (949) (949) (949)
Increase in valuation allowance................................... (15,838)
Provision for state income taxes, net of
Federal income tax benefit................................... 442 (741) (506)
Other............................................................. (787) 3,372 2,369
--------- --------- ---------
$16,500 $3,140 $36,179
========= ========= =========
The Company has a net operating loss carryforward of approximately $370
million on a tax reporting basis which expire primarily in periods through
2018.
8. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of $117.9 million, $112.7
million and $120.6 million in 1999, 1998 and 1997, respectively.
- 33 -
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Concluded)
The Company made cash payments for income taxes of $0.2 million and $1.5
million in 1999 and 1997, respectively.
9. COMMITMENTS AND CONTINGENCIES
Commitments
Minimum annual rental commitments for office space and equipment under
non-cancelable operating leases are as follows (dollars in thousands):
2000..................................... $3,680
2001..................................... 2,348
2002..................................... 873
2003..................................... 843
2004..................................... 616
Pole rentals have been excluded from the above schedule as they are
generally cancelable after an initial period by either party upon notice.
Rental expense (including pole rentals) of $9.0 million, $8.5 million and
$8.1 million has been charged to operations in 1999, 1998 and 1997,
respectively.
Contingencies
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
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 H.F. 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. $440 million
as of December 31, 1998). The Plaintiff also alleged that Australis and
H.F. 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. The trial in this action began on February 2, 1998 and ended
on September 30, 1998. In December 1999, the Plaintiff's case was dismissed
by order of the court.
LCI Holdings reached a tentative agreement with a state regulatory agency
to certain resolve outstanding rate disputes. The Company has established
reserves during the fourth quarter of 1999 to satisfy potential liabilities
arising from this proposed settlement.
- 34 -
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Item 10, Directors and Executive Officers of the
Registrant, Item 11, Executive Compensation, Item 12, Security Ownership of
Certain Beneficial Owners and Management, and Item 13, Certain Relationships and
Related Transactions, is omitted pursuant to SEC General Instruction I of Form
10-K.
- 35 -
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of Lenfest
Communications, Inc. are included in Part II, Item 8:
Report of Independent Certified Public Accountants................16
Consolidated Balance Sheet - December 31, 1999 and 1998...........17
Consolidated Statement of Operations -
Years Ended December 31, 1999, 1998 and 1997..................18
Consolidated Statement of Cash Flows -
Years Ended December 31, 1999, 1998 and 1997..................19
Consolidated Statement of Changes in Stockholders' Deficiency -
Years Ended December 31, 1999, 1998 and 1997..................20
Notes to Consolidated Financial Statements........................21
(b) (i) The following Independent Certified Public Accountants' Report on
Schedule and Financial Statement Schedule are included in Part
IV:
Report of Independent Certified Public Accountants on Schedule
Schedule II -- Valuation and Qualifying Accounts
(c) Report on Form 8-K
(i) Lenfest Communications filed a Current Report on Form 8-K under
Item 5 on December 3, 1999 relating to the definitive merger
agreement among Comcast Corporation, Lenfest Communications,
Inc., and Comcast LCI Holdings, Inc. and the Lenfest Stockholders
named therein.
(d) Exhibits required to be filed by Item 601 of Regulation S-K:
2.1 Amended and Restated Asset Exchange Agreement, dated September 8,
1995, between LenComm, Inc. and Lenfest West, Inc. and Heritage
Cablevision of Delaware, Inc. (incorporated by reference to Lenfest
Communications, Inc.'s Registration Statement on Form S-1, No.
33-96804, declared effective by the Securities and Exchange
Commission on November 8, 1995).
2.2 Asset Purchase Agreement, dated as of May 9, 1995, by and between
TCI Communications Inc. and Sammons Communications of New Jersey,
Inc., Oxford Valley Cablevision, Inc., Sammons Communications of
Pennsylvania, Inc., NTV Realty, Inc., Capital Telecommunications,
Inc. and AC Communications, Inc. (confidential portions have been
omitted pursuant to Rule 406 and filed separately with the
Commission) (incorporated by reference to Lenfest Communications,
Inc.'s Registration Statement on Form S-1, No. 33-96804, declared
effective by the Securities and Exchange Commission on November 8,
1995).
2.3 Assignment and Assumption Agreement, dated as of June 1, 1995, among
TCI Communications, Inc., TKR Cable Company and the Company
(incorporated by reference to Lenfest Communications, Inc.'s
Registration Statement on Form S-1, No. 33-96804, declared effective
by the Securities and Exchange Commission on November 8, 1995).
2.4 Asset Purchase Agreement, dated as of September 7, 1995, by and
between Lenfest Atlantic, Inc. and Tri-County Cable Television
Company (incorporated by reference to Lenfest Communications, Inc.'s
Registration Statement on Form S-1, No. 33-96804, declared effective
by the Securities and Exchange Commission on November 8, 1995).
2.5 Letter Agreement, dated July 13, 1995, between Suburban Cable TV
Co., Inc., and Service Electric Cable TV, Inc. (incorporated by
reference to Lenfest Communications, Inc.'s Registration Statement
- 36 -
on Form S-1, No. 33-96804, declared effective by the Securities
and Exchange Commission on November 8, 1995).
2.6 Letter Agreement, dated August 11, 1995, between Suburban Cable TV
Co., Inc., and Service Electric Cablevision, Inc. (incorporated by
reference to Lenfest Communications, Inc.'s Registration Statement
on Form S-1, No. 33-96804, declared effective by the Securities and
Exchange Commission on November 8, 1995).
2.7 Assignment and Assumption Agreement, dated as of February 16, 1996,
by and between Heritage Cablevision of Delaware, Inc. and Lenfest
New Castle County, a Delaware general partnership (incorporated by
reference to Lenfest Communications, Inc.'s Report on Form 8-K,
dated February 26, 1996).
2.8 Bill of Sale, Assignment and Assumption and Release, dated as of
February 16, 1996, by and among Lenfest New Castle County, Heritage
Cablevision of Delaware, Inc. and The World Company (incorporated by
reference to Lenfest Communications, Inc.'s Report on Form 8-K,
dated February 26, 1996).
2.9 Asset Purchase Agreement, dated March 28, 1996, between Cable TV
Fund 14-A, Ltd. and Lenfest Atlantic, Inc. (incorporated by
reference to Lenfest Communications, Inc.'s Report on Form 10-K, for
the year ended December 31, 1995).
2.10 Stock Purchase Agreement, dated as of January 25, 1999 by and
between each of the stockholders of Raystay Co. and Lenfest Raystay
Holdings, Inc. (incorporated by reference to Lenfest Communications,
Inc.'s Report on Form 10-Q, for the quarter ended September 30,
1999).
3.1 Certificate of Incorporation of Comcast LCI Holdings, Inc.
3.2 Bylaws of Comcast LCI Holdings, Inc.
4.1 Form of $700,000,000 8 3/8% Senior Note due 2005 (incorporated by
reference to Lenfest Communications, Inc.'s Registration Statement
on Form S-1, No. 33-96804, declared effective by the Securities and
Exchange Commission on November 8, 1995).
4.2 Indenture between Lenfest Communications, Inc. and The Bank of New
York, dated as of November 1, 1995 (incorporated by reference to
Lenfest Communications, Inc.'s Report on Form 10-Q, for the quarter
ended September 30, 1995).
4.3 Indenture, dated as of June 15, 1996, between Lenfest
Communications, Inc. and The Bank of New York (incorporated by
reference to Lenfest Communications, Inc.'s Registration Statement
on Form S-4, No. 333-09631, dated August 6, 1996).
4.4 Form of Certificated Note, dated June 27, 1996, between Lenfest
Communications, Inc. and Salomon Brothers Inc. (in accordance with
Item 601 of Regulation S-K similar notes between Lenfest
Communications, Inc. and Salomon Brothers Inc. have not been filed
because they are identical in all material respects to the filed
exhibit) (incorporated by reference to Lenfest Communications,
Inc.'s Registration Statement on Form S-4, No. 333-09631, date
August 6, 1996).
4.5 Form of 10 1/2% Senior Subordinated Note, dated June 27, 1996, in
the principal sum of $296,700,000 (incorporated by reference to
Lenfest Communications, Inc.'s Registration Statement on Form S-4,
No. 333-09631, dated August 6, 1996).
4.6 Registration Agreement, dated as of June 20, 1996, between Lenfest
Communications, Inc. and Salomon Brothers Inc., Toronto Dominion
Securities (USA) Inc., CIBC Wood Gundy Securities Corp. and
NationsBanc Capital Markets, Inc. (incorporated by reference to
Lenfest Communications, Inc.'s Registration Statement on Form S-4,
No. 333-09631, dated August 6, 1996).
4.7 Registration Agreement, dated January 30, 1998, between Lenfest
Communications, Inc., Salomon Brothers Inc. and NationsBanc
Montgomery Securities LLC (incorporated by reference to Lenfest
Communications, Inc.'s Report on Form 10-K, for the year ended
December 31, 1997).
4.8 Indenture, dated as of February 5, 1998, between Lenfest
Communications, Inc. and The Bank of New
- 37 -
York relating to the $150,000,000 7 5/8% Senior Notes due 2008
(incorporated by reference to Lenfest Communications, Inc.'s Report
on Form 10-K, for the year ended December 31, 1997).
4.9 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)(incorporated by reference to the
Company's Report on Form 10-K for the year ended December 31, 1997).
4.10 Indenture, dated as of February 5, 1998, between Lenfest
Communications, Inc. and The Bank of New York relating to the
$150,000,000 8 1/4% Senior Subordinated Notes due 2008 (incorporated
by reference to Lenfest Communications, Inc.'s Report on Form 10-K,
for the year ended December 31, 1997).
4.11 Form of $150,000,000 8 1/4% Senior Subordinated Notes due 2008
(incorporated by reference to Lenfest Communications, Inc.'s Report
on Form 10-K, dated March 27, 1998, for the year ended December 31,
1997) (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 Lenfest Communications, Inc.
(confidential portions have been omitted pursuant to Rule 406 and
filed separately with the Commission) (incorporated by reference to
Lenfest Communications, Inc.'s Registration Statement on Form S-1,
No. 33-96804, declared effective by the Securities and Exchange
Commission on November 8, 1995).
10.2 Supplemental Agreement, dated December 15, 1981, by and between TCI
Growth, Inc., H.F. Lenfest, Marguerite Lenfest and Lenfest
Communications, Inc. and Joinder Agreement executed by LMC Lenfest,
Inc. (incorporated by reference to Lenfest Communications, Inc.'s
Registration Statement on Form S-1, No. 33-96804, declared effective
by the Securities and Exchange Commission on November 8, 1995).
10.3 Amendment to Supplemental Agreement, dated May 4, 1984 between
Lenfest Communications, Inc. and TCI Growth, Inc. (incorporated by
reference to Lenfest Communications, Inc.'s Registration Statement
on Form S-1, No. 33-96804, declared effective by the Securities and
Exchange Commission on November 8, 1995).
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 (incorporated by reference to Lenfest Communications,
Inc.'s Registration Statement on Form S-1, No. 33-96804, declared
effective by the Securities and Exchange Commission on November 8,
1995).
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 Lenfest
Communications, Inc. (incorporated by reference to Lenfest
Communications, Inc.'s Registration Statement on Form S-1, No.
33-96804, declared effective by the Securities and Exchange
Commission on November 8, 1995).
10.6 Letter Agreement, dated as of December 18, 1991, among Liberty Media
Corporation, Lenfest Communications, Inc., Marguerite B. Lenfest,
Diane A. Lenfest, H. Chase Lenfest, Brook J. Lenfest and the Lenfest
Foundation (incorporated by reference to Lenfest Communications,
Inc.'s Registration Statement on Form S-1, No. 33-96804, declared
effective by the Securities and Exchange Commission on November 8,
1995).
10.7 Irrevocable Proxies of H. Chase Lenfest, Diane A. Lenfest and Brook
J. Lenfest, each dated March 30, 1990 (incorporated by reference to
Lenfest Communications, Inc.'s Registration Statement on Form S-1,
No. 33-96804, declared effective by the Securities and Exchange
Commission on November 8, 1995).
- 38 -
10.8 Partnership Agreement of L-TCI Associates, dated April 1993, between
Lenfest International, Inc. and UA-France, Inc. (incorporated by
reference to Lenfest Communications, Inc.'s Registration Statement
on Form S-1, No. 33-96804, declared effective by the Securities and
Exchange Commission on November 8, 1995).
10.9 Stock Pledge Agreement, dated May 28, 1993, between Lenfest York,
Inc. and CoreStates Bank, N.A., as Collateral Agent (incorporated by
reference to Lenfest Communications, Inc.'s Registration Statement
on Form S-1, No. 33-96804, declared effective by the Securities and
Exchange Commission on November 8, 1995).
10.11 Pledge Agreement, dated July 29, 1994, between Lenfest Raystay
Holdings, Inc. and Farmers Trust Company as Collateral Agent
(incorporated by reference to Lenfest Communications, Inc.'s
Registration Statement on Form S-1, No. 33-96804, declared effective
by the Securities and Exchange Commission on November 8, 1995).
10.12 Agreement, dated September 30, 1986, between Lenfest Communications,
Inc. and Tele- Communications, Inc. (confidential portions have been
omitted pursuant to Rule 406 and filed separately with the
Commission) (incorporated by reference to Lenfest Communications,
Inc.'s Registration Statement on Form S-1, No. 33-96804, declared
effective by the Securities and Exchange Commission on November 8,
1995).
10.13 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 (incorporated by reference to Lenfest
Communications, Inc.'s Registration Statement on Form S-1, No.
33-96804, declared effective by the Securities and Exchange
Commission on November 8, 1995).
10.14 Agreement, dated as of February 29, 1996, in favor of Lenfest
Communications, Inc. by H.F. Lenfest (incorporated by reference to
Lenfest Communications, Inc.'s Report on Form 10-K, for the year
ended December 31, 1995).
10.15 Sublease Agreement, dated March 21, 1996, between Suburban Cable TV
Co. Inc. and Surgical Laser Technologies, Inc. (incorporated by
reference to Lenfest Communications, Inc.'s Report on Form 10-K, for
the year ended December 31, 1995).
10.16 Letter, dated March 6, 1997, from H. F. Lenfest to Lenfest
Communications, Inc. (incorporated by reference to Lenfest
Communications, Inc.'s Report on Form 10-K, for the year ended
December 31, 1996).
10.17 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.) (incorporated by
reference to Lenfest Communications, Inc.'s Report on Form 10-Q, for
the quarter ended June 30, 1997).
10.18 Letter, dated March 26, 1998 (effective September 30, 1997), from H.
F. Lenfest to Lenfest Communications, Inc. (incorporated by
reference to Lenfest Communications, Inc.'s Report on Form 10-K, for
the year ended December 31, 1997).
10.19 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
(incorporated by reference to Lenfest Communications, Inc.'s
Registration Statement on Form S-4, as amended, No. 333-51589, dated
May 1, 1998).
10.20 Stock Pledge Agreement, dated May 12, 1999, between Lenfest York
Inc. and First Union National Bank, N.A. as agent (incorporated by
reference to Lenfest Communications, Inc.'s Quarterly Report on Form
10-Q, for the quarter ended September 30, 1999).
27. Financial Data Schedule.
- 39 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in Philadelphia,
Pennsylvania on March 29, 2000.
Comcast LCI Holdings, Inc.
By: /s/ Brian L. Roberts
---------------------------------
Brian L. Roberts
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Ralph J. Roberts Chairman; Director March 29, 2000
- ----------------------
Ralph J. Roberts
/s/ Brian L. Roberts President; Director (Principal March 29, 2000
- ---------------------- Executive Officer)
Brian L. Roberts
/s/ Lawrence S. Smith Executive Vice President; Director March 29, 2000
- ----------------------
Lawrence S. Smith
/s/ Stanley L. Wang Executive Vice President; Secretary; March 29, 2000
- ---------------------- Director
Stanley L. Wang
/s/ John R. Alchin Executive Vice President; Treasurer March 29, 2000
- ---------------------- (Principal Financial Officer)
John R. Alchin
/s/ Lawrence J. Salva Senior Vice President March 29, 2000
- ---------------------- (Principal Accounting Officer)
Lawrence J. Salva
- 40 -
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Stockholders
Lenfest Communications, Inc.
We have audited in accordance with generally accepted auditing standards, the
consolidated balance sheet of Lenfest Communications, Inc. and subsidiaries as
of December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in stockholders' deficiency and of cash flows for each of
the years in the three-year period ended December 31, 1999, and have issued our
report thereon dated March 27, 2000, which is included in the December 31, 1999,
annual report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement Schedule II. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statement taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Pressman Ciocca Smith LLP
Hatboro, Pennsylvania
March 27, 2000
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LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In thousands)
Additions
Balance at Charged to Deductions Balance
Beginning Costs and from at End
of Year Expenses Reserves (A) of Year
------- -------- ------------ -------
Allowance for Doubtful Accounts
1999..................................... $3,603 $11,367 $9,879 $5,091
1998..................................... 2,923 6,424 5,744 3,603
1997..................................... 1,985 9,715 8,777 2,923
<FN>
(A) Uncollectible accounts written off.
</FN>
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