<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 1996
REGISTRATION NO. 333-09631
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
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AMENDMENT NO. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LENFEST COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 4841 23-2094942
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
1105 North Market Street
Suite 1300
P.O. Box 8985
Wilmington, DE 19899
(302) 427-8602
(Address, including zip code, and
telephone number, including area code, of
Registrant's principal executive offices)
H. F. LENFEST
President and Chief Executive Officer
The Lenfest Group
200 Cresson Boulevard
Oaks, PA 19456
(610) 650-3000
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
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Copy to:
THOMAS K. PASCH, ESQ.
Saul, Ewing, Remick & Saul
3800 Centre Square West
Philadelphia, PA 19102
(215) 972-7188
Approximate date of commencement of proposed offer to the public: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
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LENFEST COMMUNICATIONS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K AND RULE 404(A)
SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS IN S-4
<TABLE>
<CAPTION>
Registration Statement Item and Heading Prospectus Caption
----------------------------------------------------- --------------------------------------------------------
<S> <C>
A. Information About the Transaction
1. Forepart of Registration Statement and Outside Forepart of the Registration Statement and Outside Front Cover
Front Cover Page of Prospectus Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages of Prospectus
Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges Prospectus Summary; Risk Factors; The Exchange Offer; Selected
and Other Information Consolidated Financial and Operating Data
4. Terms of the Transaction Prospectus Summary; The Exchange Offer;
5. Pro Forma Financial Information Pro Forma Financial Information
6. Material Contracts with the Company Being Acquired Not Applicable
7. Additional Information Required for Reoffering by Not Applicable
Persons and Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel Not Applicable
9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
B. Information About the Registrant
10. Information With Respect to S-3 Registrants Not Applicable
11. Incorporation of Certain Information by Reference Not Applicable
12. Information with Respect to S-2 or S-3 Registrants Not Applicable
13. Incorporation of Certain Information by Reference Not Applicable
14. Information with Respect to Registrants Other than Prospectus Summary; Risk Factors; Capitalization; Selected
S-2 or S-3 Registrants Consolidated Financial and Operating Data; Management's
Discussion and Analysis of Financial Condition and Results
of Operations; Business; The Exchange Offer; Description of
Notes; Description of Other Debt Obligations
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Companies Not Applicable
<PAGE>
Registration Statement Item and Heading Prospectus Caption
----------------------------------------------------- --------------------------------------------------------
17. Information with Respect to Companies Other than Not Applicable
S-2 or S-3 Companies
D. Voting and Management Information
18. Information if Proxies, Consents or Authorizations Not Applicable
are to be Solicited
19. Information if Proxies, Consents or Authorizations Not Applicable
are not to be Solicited or in an Exchange Offer
</TABLE>
<PAGE>
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
10 1/2 % SENIOR SUBORDINATED NOTES DUE 2006 LOGO
FOR
10 1/2 % SENIOR SUBORDINATED NOTES DUE 2006
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OF
LENFEST COMMUNICATIONS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON OCTOBER 9,
1996, UNLESS EXTENDED.
Lenfest Communications, Inc. (the "Company") or ("Lenfest") hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying letter of transmittal (the "Letter of Transmittal," and
together with this Prospectus, the "Exchange Offer"), to exchange its 10 1/2%
Senior Subordinated Notes Due 2006 (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement (as defined) of which this
Prospectus is a part, for the outstanding 10 1/2 % Senior Subordinated Notes
Due 2006 (the "Old Notes" and, together with the Exchange Notes, the "Notes")
of the Company.
The Company will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m. New York City time, on the date the Exchange
Offer expires, which will be October 9, 1996, unless the Exchange Offer is
extended (the "Expiration Date"). The exchange of Exchange Notes for the Old
Notes will be made as soon as practicable after the close of the Exchange Offer.
The Company will accept for exchange all Old Notes tendered and not validly
withdrawn pursuant to the Exchange Offer and will deliver to the Trustee (as
defined) for cancellation all Old Notes so accepted for exchange. The Company
shall cause the Trustee to authenticate and deliver to each holder of the Old
Notes the Exchange Notes equal in principal amount to the Old Notes of such
holder so accepted for exchange. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered for exchange. See "The
Exchange Offer." The Company has agreed to pay the expenses of the Exchange
Offer.
The Exchange Notes will be obligations of the Company issued pursuant to
the Indenture (as defined) under which the Old Notes were issued. The form
and terms of the Exchange Notes are identical in all material respects to the
form and terms of the Old Notes except that the Exchange Notes will not
contain terms with respect to transfer restrictions and the Exchange Notes
have been registered under the Securities Act. See "The Exchange Offer."
Interest on the Exchange Notes will be payable semi-annually on June 15
and December 15 of each year, commencing December 15, 1996. The Exchange
Notes will not be redeemable at the option of the Company prior to maturity.
Upon a Change of Control Triggering Event (as defined), holders of the
Exchange Notes may require the Company to purchase all or a portion of the
Exchange Notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest (if any) to the date of purchase.
See "Description of Notes--Change of Control Offer."
The Exchange Notes will be general unsecured obligations of the Company
subordinated in right of payment to all present and future Senior
Indebtedness (as defined) of the Company. As of June 30, 1996, after giving
effect to the offering of the Old Notes (the "Old Notes Offering" and,
together with the Exchange Offer, the "Offering") and the other Transactions
(as defined), the total consolidated indebtedness of the Company would have
been $1,354 million, of which approximately $1,030 million is Senior
Indebtedness of the Company. See "Description of Other Debt Obligations." In
addition, all indebtedness and liabilities of the Company's subsidiaries will
be effectively senior in right of payment to the Exchange Notes. As of June
30, 1996, after giving effect to the Transactions, the total liabilities and
indebtedness of the Company's subsidiaries (including trade payables and
accrued liabilities), on an aggregate basis, would have been approximately
$119 million. See "Capitalization" and "Description of Notes."
Contemporaneously with the closing of the Old Notes Offering, the Company
entered into the New Bank Credit Facility (as defined) with a group of
lenders with a commitment in the aggregate amount of $450 million. The New
Bank Credit Facility replaced the Company's previously existing bank credit
facility (the "Old Bank Credit Facility").
The Exchange Notes are being offered hereunder to satisfy certain
obligations of the Company contained in the Registration Agreement (as
defined). Based on existing interpretations of the Securities Act by the
staff of the Securities and Exchange Commission ("Commission") set forth in
several no-action letters to third parties, and subject to the immediately
following sentence, the Company believes that the Exchange Notes issued
pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by the holders thereof without further compliance with
the registration and prospectus delivery provisions of the Securities Act.
However, any holder of the Old Notes who is an "affiliate" of the Company or
<PAGE>
who intends to participate in the Exchange Offer for the purpose of
distributing the Exchange Notes (i) will not be able to rely on the
interpretation by the staff of the Commission set forth in the above
mentioned no-action letters, (ii) will not be able to tender its Old Notes in
the Exchange Offer and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the Old Notes unless such sale or transfer is made pursuant to an
exemption from such requirements.
Each holder of the Old Notes (other than certain specified holders) who
wishes to exchange the Old Notes for Exchange Notes in the Exchange Offer is
required to represent to the Company that (i) it is not an affiliate of the
Company, (ii) any Exchange Notes to be received by it were acquired in the
ordinary course of its business and (iii) at the time of the commencement of
the Exchange Offer, it has no arrangement with any person to participate in
the distribution (within the meaning of the Securities Act) of the Exchange
Notes. Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, ending on the close of business on
the 180th day following the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale.
See "The Exchange Offer" and "Plan of Distribution."
The Company will not receive any proceeds from this offering, and no
underwriter is being utilized in connection with the Exchange Offer. See "Use
of Proceeds."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Exchange Notes are expected to be eligible for trading in the Private
Offerings Resales and Trading through Automated Linkages ("PORTAL") market.
See "Risk Factors" beginning on page 14 hereof for discussion of certain
factors that should be considered by prospective purchasers of the Exchange
Notes.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is September 6, 1996.
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[MAP OF LENFEST SYSTEMS]
<PAGE>
[MAP OF LENFEST SYSTEMS]
<PAGE>
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B WITH THE STATE OF NEW HAMPSHIRE
NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS
LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY
OF STATE THAT ANY DOCUMENT FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND
NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR
EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE
SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS
OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION.
IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER,
CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF
THIS PARAGRAPH.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement", which term shall encompass all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act and
the rules and regulations promulgated thereunder, covering the Exchange Notes
being offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement. For further information with respect
to the Company and the Exchange Offer, reference is made to the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the document or matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. The Registration Statement, including the exhibits thereto, can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington. D.C. 20549, at
the Regional Offices of the Commission at 7 World Trade Center, 14th Floor,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates.
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
Such reports and other information may be inspected and copied at the public
reference facilities of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the following Regional
Offices: 7 World Trade Center, 14th Floor, New York, New York 10048 and 500
West Madison Street -- Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Commission by mail at prescribed rates.
Requests should be directed to the Commission's Public Reference Section,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Any such request and requests for the agreements summarized herein should be
directed to the Director of Investor Relations of the Company, care of The
Lenfest Group, 200 Cresson Boulevard, Oaks, Pennsylvania 19456 (telephone
(610) 650-3000).
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Unless otherwise indicated, all industry data set forth herein are based
upon information compiled by the National Cable Television Association
("NCTA"), Paul Kagan Associates or Warren Publishing Co.
3
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PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to,
and should be read in conjunction with, the more detailed information and
financial statements appearing elsewhere in this Prospectus. The Company's
wholly owned cable television subsidiaries (the "Restricted Subsidiaries"
and, together with the Company, the "Restricted Group") generate almost all
of the Company's operating cash flow and therefore will be the primary source
of funds to service the Notes. Accordingly, the covenants in the Indenture
only restrict the activities of the Restricted Group. As used herein,
"EBITDA" represents operating income plus depreciation and amortization, and
"EBITDA margin" measures EBITDA as a percent of revenues. EBITDA, as used
herein, is not the defined term used in the Indenture governing the Notes,
but is included as supplemental disclosure because it is a widely accepted
financial indicator of a company's ability to incur and service debt. EBITDA,
however, is not a measure determined in accordance with generally accepted
accounting principles and should not be considered by an investor as an
alternative to net income (loss), as an indicator of the operating
performance of the Company or as an alternative to cash flows as a measure of
liquidity.
THE COMPANY
Lenfest Communications, Inc. ("Lenfest" or the "Company") acquires,
develops and operates cable television systems (principally through its
Suburban subsidiary). Management believes the Company's wholly owned and
operated cable television systems (the "Core Cable Television Operations")
provide service to one of the largest contiguous blocks of customers served
by a single cable operator in the United States. As of June 30, 1996, the
Company's Core Cable Television Operations served approximately 919,000 basic
customers and passed approximately 1,266,000 homes. In addition, the Company
holds equity interests in other cable television companies serving
approximately 420,000 basic customers in areas near or contiguous to its Core
Cable Television Operations, of which the Company's attributable portion is
approximately 177,000 basic customers, giving the Company a combined domestic
base of 1,096,000 basic customers.
The Company's Core Cable Television Operations are located primarily in
the suburban areas surrounding Philadelphia (Southeastern Pennsylvania,
Southern New Jersey and Northern Delaware) in predominantly middle and
upper-middle income areas that in recent years have had favorable household
growth and income characteristics. Management believes the "clustering" of
its cable television systems and the favorable demographics of its service
area have contributed to its high operating cash flow growth and margins.
From January 1, 1991 through June 30, 1996, the Company's Core Cable
Television Operations have experienced a compound annual growth rate in
EBITDA of 19.3% (11.6% without reference to acquisitions) and an average
EBITDA margin of 50.0%.
H.F. (Gerry) Lenfest, President and Chief Executive Officer of the
Company, together with his children, and Tele-Communications, Inc. ("TCI"),
through an indirect wholly owned subsidiary, each beneficially owns 50% of
the Company's outstanding capital stock. Mr. Lenfest is a cable industry
pioneer who founded Lenfest in 1974 and has grown the Company both internally
and through acquisitions. TCI is the largest cable television operator in the
United States, with wholly owned and affiliated systems serving approximately
13.0 million customers. Lenfest believes that its affiliation with TCI
provides substantial benefits, including the ability to purchase programming
and equipment at rates approximating those available to TCI. See "Business --
Relationship with TCI" and "-- Programming and Equipment Supply."
4
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OPERATING STRATEGY
Management believes that the cable television industry has significant
growth potential in both the business of providing television programming
services and the business of providing new services such as telephony,
Internet access, near video-on-demand and interactive/transactional services.
Management believes that the Company's operating strategy will allow the
Company to take advantage of the industry's potential. The Company's
operating strategy for its Core Cable Television Operations includes the
following elements:
o Capturing the Benefits of Clustering. Management believes the
Company can derive significant economies of scale and operating
efficiencies from the operation of its cable television systems in a
single cluster. Operational advantages and cost savings associated
with clustering include centralized management, billing, marketing,
customer service, technical and administrative functions, and the
reduction of headends. Management also believes that clustering will
enable it to more effectively utilize capital by more efficiently
delivering cable and related services to a greater number of
households. Operation of its cable television systems in a single
cluster also will provide the Company with enhanced revenue
opportunities, including the ability to attract additional
advertising, and the potential to add residential and business
telephony services.
o Targeting Regions with Favorable Demographics. Management believes
that suburban households are more likely to subscribe to cable
television services and premium service packages and to take
advantage of new service offerings. Management attributes the
Company's growth and high customer penetration levels to its history
of acquiring and developing cable television systems in suburban
areas with favorable growth and income characteristics. In order to
build on the favorable demographic characteristics of the areas
contiguous to the Company's current cluster of cable television
systems, the Company will continue to opportunistically pursue
acquisitions of cable television systems near or contiguous to its
Core Cable Television Operations. This activity may include attempts
to acquire the balance of the shares of stock of Raystay Co. and
Susquehanna Cable Co. and its cable television operating
subsidiaries.
o Emphasis on Customer Service. The Company has sought to provide its
cable television customers with quality customer service and
attractive programming choices at reasonable rates. Among other
customer service initiatives, the Company has adopted the National
Cable Television Association ("NCTA") customer service standards and
implemented same-day, evening and weekend installation and repair
options. Management believes that these efforts have contributed to
its high customer penetration levels. Management believes that the
improved reliability and additional channel capacity expected to
result from the ongoing upgrade of the Company's cable television
systems will further increase customer satisfaction.
o Upgrade of Cable Television Systems. Management believes that
maintaining high technical standards is integral to increasing
programming choices, improving customer satisfaction and developing
new revenue streams. The Company recently commenced an upgrade of
the network architecture of its cable television systems by
increasing bandwidth, deploying fiber optic cable and reducing the
number of headend reception facilities. Successfully upgrading the
architecture of the Company's cable systems will result in expanded
channel capacity, two-way communication capability, enhanced network
quality and dependability, augmented addressability and the ability
to offer enhanced and new telecommunications services. These new
services could include additional channels and tiers, pay-per-view
(including near video-on-demand), high speed data services and
Internet access, digital advertisement insertion,
interactive/transactional services and telephony. In addition, the
successful upgrade should allow the Company to provide new
offerings, such as local and exclusive entertainment, news,
information and community-oriented programming services. Management
believes that these
5
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services will enable the Company to differentiate itself on a
competitive basis and increase penetration and revenue per customer
through more effective targeted marketing, greater bundling of
services and further development of the Company's brand name.
RECENT ACQUISITIONS
As part of its continuing strategy to develop and maintain a single
contiguous cluster of cable television systems, the Company recently
completed a series of acquisition transactions.
The TCI Exchange. On February 12, 1996, the Company completed an
acquisition (the "TCI Exchange") in which it received TCI's Wilmington,
Delaware area cable television systems (the "Wilmington System") in
exchange for the Company's cable television systems in the East San Francisco
Bay area, a 41.67% partnership interest in Bay Cable Advertising (an
advertising interconnect), and certain other non-contiguous cable television
properties having a net value of approximately $45 million. As of February
12, 1996, the Wilmington System passed approximately 193,000 homes and served
approximately 143,000 basic customers.
The Sammons Acquisition. On February 29, 1996, the Company acquired from
Sammons Communications, Inc. ("Sammons") its Bensalem and Harrisburg cable
television systems in Pennsylvania and its Vineland and Atlantic
City/Pleasantville systems (collectively, the "Sammons Systems") in New
Jersey (the "Sammons Acquisition"). The purchase price for the Sammons
Systems was approximately $531 million. As of February 29, 1996, the Sammons
Systems passed approximately 364,000 homes and served approximately 277,000
basic customers.
The Salem and Shore Acquisitions. On April 30, 1996, the Company acquired
from Tri-County Cable Television Company, an affiliate of Time Warner, its
Salem cable television system (the "Salem System") in New Jersey (the "Salem
Acquisition"). The purchase price for the Salem System was approximately $16
million. On the same date, the Company acquired from Shore Cable Company of
New Jersey its Shore cable television system (the "Shore System") in New
Jersey (the "Shore Acquisition"), which partially overbuilt the Company's
Atlantic City/Pleasantville system. The purchase price for the Shore System
was approximately $11 million.
Pending Acquisition. On March 28, 1996, the Company signed an agreement to
acquire from Cable TV Fund 14-A, Ltd., an affiliate of Jones Intercable,
Inc., its Turnersville cable television system (the "Turnersville System") in
New Jersey (the "Turnersville Acquisition"). The purchase price for the
Turnersville System is approximately $84.5 million, subject to certain
adjustments. At the closing, which the parties have agreed will occur in the
first quarter of 1997, the Company expects that the Turnersville System will
pass approximately 46,200 homes and serve approximately 36,300 basic
customers.
OTHER OPERATIONS AND INVESTMENTS
In addition to its Core Cable Television Operations, Lenfest has made
investments in other cable television and communications-related companies.
Lenfest holds a 50% interest in Garden State Cablevision L.P., which serves
approximately 203,000 basic customers in and around Cherry Hill, New Jersey;
a 30% interest in Susquehanna Cable Co., which serves approximately 147,000
basic customers, approximately 65,000 of whom are in York County,
Pennsylvania; and a 45% interest in Raystay Co., which serves approximately
70,000 basic customers in Pennsylvania and West Virginia. Lenfest also owns
StarNet, Inc., a provider of promotional services and equipment for the cable
television industry; MicroNet, Inc., a carrier of video, voice and data
transmission services; and Lenfest Programming Services, Inc., the provider
of a local cable news channel (NewsChannel) in Eastern Pennsylvania, Southern
New Jersey and Northern Delaware. In addition to its domestic holdings,
Lenfest also holds a 31.4% economic interest in Australis Media Limited, a
pay-television provider in Australia, and a 20.8% interest in Videopole, a
cable television operator in France serving approximately 68,000 customers.
6
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THE TRANSACTIONS
The Offering and the application of the net proceeds therefrom, the
closing of the New Bank Credit Facility and the application of the initial
borrowings thereunder, the consummation of the Turnersville Acquisition, the
TCI Exchange, the Sammons Acquisition and the Salem Acquisition, the purchase
of the Shore System, the borrowings under the New Bank Credit Facility to
finance the Turnersville Acquisition, the Sammons Acquisition, the Salem
Acquisition and the Shore Acquisition and the issuance of the 8 3/8 % Senior
Notes (as defined) in November 1995 and the application of the net proceeds
therefrom, are collectively referred to herein as the "Transactions." See
"Pro Forma Financial Information."
THE EXCHANGE OFFER
Securities Offered............. $300,000,000 aggregate principal amount of
10 1/2 % Senior Subordinated Notes Due 2006,
which have been registered under the
Securities Act (the "Exchange Notes", and,
together with the Old Notes, the "Notes").
The Exchange Offer ............ Upon the terms and subject to the conditions
set forth in this Prospectus and the
accompanying Letter of Transmittal (the "Letter
of Transmittal"), the Company hereby offers to
exchange (the "Exchange Offer") $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Old Notes that are
validly tendered and not withdrawn on or prior
to the Expiration Date (as defined). Holders of
Old Notes whose Old Notes are not tendered and
accepted in the Exchange Offer will continue to
hold such Old Notes and will be entitled to all
the rights and preferences and will be subject
to the limitations applicable thereto under the
Indenture governing the Old Notes and the
Exchange Notes.
Resale......................... Based on interpretations by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company
believes the Exchange Notes issued pursuant
to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold and
otherwise transferred by any holder thereof
(other than broker-dealers, as set forth
below, and any such holder that is an
"affiliate" of the Company within the
meaning of Rule 405 under the Securities
Act) without compliance with the
registration and prospectus delivery
requirements of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business
and that such holder has no arrangement or
understanding with any person to participate
in the distribution of such Exchange Notes.
Any holder who tenders in the Exchange Offer
with the intention to participate, or for
the purpose of participating, in a
distribution of the Exchange Notes or who is
an affiliate of the Company may not rely
upon such interpretations by the staff of
the Commission and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any secondary resale
transaction. Failure to comply with such
requirements in such instance may result in
such holder incurring liabilities under the
Securities Act for which the holder is not
indemnified by the Company. Each
broker-dealer (other than an affiliate of
the Company) that receives Exchange Notes
for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver
a prospectus in connection with any resale
of such
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<PAGE>
Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. The Company has agreed that,
for a period of 180 days after the
Expiration Date (as defined herein), it will
make this Prospectus available to any
broker-dealer for use in connection with any
such resale. See "Plan of Distribution." Any
broker-dealer who is an affiliate of the
Company may not rely on such no-action
letters and must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with a secondary resale
transaction. The Exchange Offer is not being
made to, nor will the Company accept
surrenders for exchange from, holders of Old
Notes in any jurisdiction in which this
Exchange Offer or the acceptance thereof
would not be in compliance with the
securities or blue sky laws of such
jurisdiction.
Expiration Date................ The Exchange Offer will expire at 5:00 p.m.,
New York City time, on October 9, 1996, unless
extended, in which case the term "Expiration
Date" shall mean the latest date and time to
which the Exchange Offer is extended.
Condition to the Exchange
Offer........................ The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. See "The Exchange Offer --
Conditions of the Exchange Offer." The
Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered.
Procedures for Tendering Old
Notes........................ Each holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or facsimile thereof, together
with such Old Notes and any other required
documentation to The Bank of New York, the
Exchange Agent, at the address set forth
herein and therein. By executing the Letter
of Transmittal, each holder will represent
to the Company that, among other things, the
Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such Exchange Notes, whether or
not such person is the holder, that neither
the holder nor any such other person has an
arrangement or understanding with any person
to participate in the distribution of such
Exchange Notes and that neither the holder
nor any such other person is an "affiliate"
of the Company within the meaning of Rule
405 under the Securities Act or, that if
such holder or other person is an affiliate
of the Company, such holder or other person
will comply with the registration and
prospectus delivery requirements of the
Securities Act to the extent applicable. See
"The Exchange Offer -- Terms of the Exchange
Offer -- Procedures for Tendering Old Notes"
and "The Exchange Offer -- Terms of the
Exchange Offer -- Guaranteed Delivery
Procedures."
Special Procedures for
Beneficial Owners............ Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nomi-
8
<PAGE>
nee and who wishes to tender such Old Notes
in the Exchange Offer should contact such
registered holder promptly and instruct such
registered holder to tender on such
beneficial owner's behalf. If such
beneficial owner wishes to tender on his own
behalf, such beneficial owner must, prior to
completing and executing the Letter of
Transmittal and delivering his Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in such
beneficial owner's name or obtain a properly
completed bond power from the registered
holder. The transfer of registered ownership
may take considerable time and may not be
able to be completed prior to the Expiration
Date. See "The Exchange Offer -- Terms of
the Exchange Offer -- Procedures for
Tendering Old Notes."
Guaranteed Delivery Procedures.. Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal
or any other documents required by the
Letter of Transmittal to the Exchange Agent
prior to the Expiration Date, or who cannot
complete the procedure for book-entry
transfer on a timely basis, must tender
their Old Notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer -- Terms of the Exchange
Offer -- Guaranteed Delivery Procedures."
Acceptance of Old Notes and
Delivery of Exchange Notes... Subject to certain conditions (as described
more fully in "The Exchange Offer --
Conditions of the Exchange Offer"), the
Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer and not withdrawn, prior to
5:00 p.m., New York City time, on the
Expiration Date. The Old Notes issued
pursuant to the Exchange Offer will be
delivered as promptly as practicable
following the Expiration Date.
Withdrawal Rights.............. Except as otherwise provided herein, tenders
of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on
the Expiration Date. See "The Exchange Offer
-- Terms of the Exchange Offer -- Withdrawal
of Tenders of Old Notes."
Certain Federal Income Tax
Considerations............... For a discussion of certain federal income
tax considerations relating to the exchange
of the Exchange Notes for the Old Notes, see
"Certain Federal Income Tax Considerations."
Exchange Agent................. The Bank of New York is the Exchange Agent.
The address, telephone number and facsimile
number of the Exchange Agent are set forth
in "The Exchange Offer -- Exchange Agent."
Consequences of Failure to
Exchange Old Notes........... Holders of Old Notes who do not exchange
their Old Notes for Exchange Notes pursuant
to the Exchange Offer will continue to be
subject to the restrictions on transfer of
such Old Notes as set forth in the legend
thereon as a consequence of the issuance of
the Old Notes pursuant to exemptions from,
or in transactions not subject to, the
registration requirements of the Securities
Act and applicable state securities laws. In
general, the Old Notes may not be offered or
sold, unless registered under the Securities
Act, except pursuant
9
<PAGE>
to an exemption from, or in a transaction
not subject to, the Securities Act and
applicable state securities laws. The
Company does not currently anticipate that
it will register the Old Notes under the
Securities Act.
THE NOTES
The Notes ..................... $300,000,000 principal amount of 10 1/2 %
Senior Subordinated Notes Due 2006. The form
and terms of the Exchange Notes are
identical in all material respects to the
form and terms of the Old Notes (except that
the Exchange Notes will be registered under
the Securities Act) and, therefore, will be
treated as a single class under the
Indenture with any Old Notes that remain
outstanding. The Exchange Notes and the Old
Notes are herein collectively referred to as
the "Notes".
Maturity ...................... The Notes will mature on June 15, 2006.
Interest Payment Dates ........ Interest on the Notes is payable
semiannually on each June 15 and December
15, commencing December 15, 1996.
Optional Redemption ........... The Notes will not be redeemable at the
option of the Company prior to maturity.
Sinking Fund .................. None.
Change of Control.............. Upon a Change of Control Triggering Event,
the Company will be required to make an
offer to purchase the Notes at a purchase
price equal to 101% of the principal amount
thereof plus accrued and unpaid interest (if
any) to the date of purchase. See
"Description of Notes -- Change of Control
Offer."
Ranking ....................... The Notes will be general unsecured
obligations of the Company, subordinated in
right of payment to all existing and future
Senior Indebtedness of the Company. In
addition, the operations of the Company are
conducted through the Company's
subsidiaries. Because the assets of the
Company's subsidiaries constitute
substantially all of the assets of the
Company, and because those subsidiaries will
not guarantee the payment of principal of or
interest on the Notes, all indebtedness and
liabilities of such subsidiaries will be
effectively senior in right of payment to
the Notes. As of June 30, 1996, after giving
effect to the Transactions, the total
consolidated indebtedness of the Company
would have been $1,354 million, the total
amount of Senior Indebtedness of the Company
would have been $1,030 million and the total
liabilities and indebtedness of the
Company's subsidiaries (including trade
payables and accrued liabilities), on an
aggregate basis, would have been
approximately $119 million. See "Risk
Factors -- Substantial Leverage," "--
Subordination; Holding Company Structure"
and "Description of Notes."
Certain Covenants.............. The Indenture (as defined) for the Notes
contains limitations on, among other things,
(a) the incurrence of additional
indebtedness, (b) the incurrence of
indebtedness that is subordinate to Senior
Indebtedness but senior to the Notes, (c)
the incurrence of secured indebtedness that
is not Senior Indebtedness, (d) the payment
of dividends and other distributions with
respect to the Capital Stock of the Company
and the purchase, redemption or retirement
of Capi-
10
<PAGE>
tal Stock of the Company, (e) transactions
with Affiliates, (f) the designation of
Restricted and Unrestricted Subsidiaries and
(g) certain consolidations, mergers and
transfers of assets. During any period of
time the ratings assigned to the Notes are
Investment Grade Ratings, the covenants that
contain restrictions on the activities
described in clauses (a), (d) and (e) above
will cease to be in effect. All of these
limitations are subject to a number of
important qualifications. See "Description
of Notes -- Certain Covenants."
Use of Proceeds ............... The Company will not receive any proceeds
from this offering, and no underwriter is
being utilized in connection with the
Exchange Offer. See "Use of Proceeds."
Risk Factors .................. See "Risk Factors" for a discussion of
certain factors that should be considered by
prospective purchasers of the Exchange
Notes.
11
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS EXCEPT PER CUSTOMER DATA)
The summary consolidated financial data for and as of the end of each of
the years in the five-year period ended December 31, 1995 set forth below
have been derived from the audited consolidated financial statements of
Lenfest. The summary consolidated financial data set forth below for and as
of the end of the six-month period ended June 30, 1996 have been derived from
the unaudited consolidated financial statements of Lenfest. The pro forma
summary financial data set forth below have been derived from the pro forma
financial information included elsewhere in this Prospectus. See "Pro Forma
Financial Information." The pro forma statement of operations data give
effect to the Transactions as if they had occurred as of January 1, 1995 and
the pro forma balance sheet data and pro forma summary customer data give
effect to the Transactions as if they occured on June 30, 1996. The pro forma
summary financial data do not purport to represent what Lenfest's results of
operations or financial condition would actually have been had the
Transactions occurred on such dates or to project Lenfest's results of
operations or financial condition for any future period or date.
<TABLE>
<CAPTION>
Year Ended December 31, Pro Forma
------------------------------------------------------------------- Year Ended
Statement of Operations Data 1991 1992 1993 1994 1995 December 31, 1995
---------- ----------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenues ........................ $161,365 $179,940 $213,240 $236,195 $266,249 $ 394,413
Programming expenses ............ 35,495 43,388 51,783 59,352 65,423 92,964
Selling, general & administrative 39,681 41,455 49,743 53,767 59,310 78,442
Technical and other ............. 16,321 15,075 16,533 21,420 29,174 42,013
Depreciation and amortization ... 51,596 56,192 65,195 75,518 77,700 120,304
------ ------- ------- ------- ------- --------------
Operating income ............... 18,272 23,830 29,986 26,138 34,642 60,690
Interest expense ................ (35,138) (32,563) (35,090) (47,749) (61,538) (126,476)
Other income (expense) .......... (11,915) (13,645) (9,797) (7,017) 4,306 3,873
------ ------- ------- ------- ------- --------------
Loss from continuing operations (28,781) (22,378) (14,901) (28,628) (22,590) (61,913)
Discontinued operations ......... 20,565 -- -- -- -- --
Income tax benefit (expense) .... (1,616) 5,408 3,034 9,729 11,095 24,348
Extraordinary loss, net of taxes -- -- -- -- (6,739) --
------ ------- ------- ------- ------- --------------
Net loss ....................... $ (9,832) $(16,970) $(11,867) $(18,899) $(18,234) $ (37,565)
====== ======= ======= ======= ======= ==============
Balance Sheet Data
(end of period)
Total assets .................... $377,183 $424,733 $635,761 $665,346 $851,748
Total debt ...................... 356,086 406,038 612,392 626,121 817,725
Stockholders' equity (deficit) .. (27,189) (44,162) (56,029) (49,609) (45,192)
Core Cable Television Operations (Restricted Group)
Financial Ratios and Other
Data (a)
Revenues ........................ $148,985 $166,081 $197,630 $212,800 $232,155 $ 360,319
EBITDA (b) ...................... 73,805 83,449 100,476 105,711 115,261 183,913
EBITDA margin (c) ............... 49.5% 50.2% 50.8% 49.7% 49.6% 51.0%
Interest expense ................ $ 34,882 $ 32,749 $ 34,699 $ 47,016 $ 59,966 $ 124,904
Capital expenditures (d) ........ 29,176 43,463 41,658 42,162 40,168 48,754
Total debt ...................... 366,848 403,760 609,156 616,657 807,535 --
Ratio of total debt to EBITDA ... 4.97x 4.84x 6.06x 5.83x 7.01x --
Monthly revenue per average basic
customer ....................... $28.79 $30.18 $32.05 $31.44 $32.97 $32.63
Annual EBITDA per average basic
customer ....................... 171.14 181.97 195.51 187.42 196.40 199.89
Annual capital expenditures per
average basic customer (d) ..... 67.65 94.78 81.06 74.75 68.44 52.99
Summary Customer Data
(end of period) (a)
Homes passed .................... 705,985 759,635 870,718 892,549 904,753 1,280,577
Basic customers ................. 440,045 477,130 550,703 577,377 596,366 937,724
Basic penetration ............... 62.3% 62.8% 63.2% 64.7% 65.9% 73.2%
Premium units ................... 393,310 393,689 420,630 426,092 426,345 610,385
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Pro Forma
June 30, Six Months
-------------------------- Ended
Statement of Operations Data 1995 1996 June 30, 1996
---------- ------------ --------------
<S> <C> <C> <C>
Revenues .......................... $131,263 $ 184,665 $ 212,674
Programming expenses .............. 32,406 43,045 49,334
Selling, general & administrative . 28,504 40,034 45,004
Technical and other ............... 13,444 18,809 21,756
Depreciation and amortization ..... 36,418 51,437 63,757
------- --------- -----------
Operating income ................. 20,491 31,340 32,823
Interest expense .................. (28,261) (47,971) (62,736)
Other income (expense) ............ 8,188 (85,177) (93,263)
------- --------- -----------
Income (loss) from continuing
operations ....................... 418 (101,808) (123,176)
Income tax benefit (expense) ...... (367) 3,484 11,082
Extraordinary loss, net of taxes .. -- (2,484) --
------- --------- -----------
Net income (loss) ................ $ 51 $ (100,808) $ (112,094)
======= ========= ===========
Balance Sheet Data
(end of period)
Total assets ...................... 1,167,902 $1,252,402
Total debt ........................ 1,269,698 1,354,198
Stockholders' equity (deficit) .... (193,177) (193,177)
Core Cable Television Operations (Restricted Group)
Financial Ratios and Other
Data (a)
Revenues .......................... $113,052 $ 161,544 $ 189,553
EBITDA (b) ........................ 56,728 82,350 96,153
EBITDA margin (c) ................. 50.2% 51.0% 50.7%
Adjusted EBITDA (e) ............... $ 56,728 $ 92,366 $ 96,153
Interest expense .................. 27,188 47,008 61,773
Capital expenditures (d) .......... 21,851 17,902 19,217
Total debt ........................ 643,744 1,240,809 1,325,309
Total senior debt ................. 643,744 947,313 1,031,813
Ratio of total debt to annualized
adjusted EBITDA (f) .............. 5.67x 6.72x 6.89x
Ratio of total senior debt to
annualized adjusted EBITDA (f) ... 5.67x 5.13x 5.37x
Monthly revenue per average basic
customer ......................... $ 32.42 $ 33.33(g) $ 33.38
Annualized adjusted EBITDA per
average basic customer (f) ....... 195.36 202.86 203.18
Annualized capital expenditures per
average basic customer (d)(f) .... 75.19 44.33(g) 40.61
Summary Customer Data
(end of period) (a)
Homes passed ...................... 1,265,744 1,312,140
Basic customers ................... 919,057 955,204
Basic penetration ................. 72.6% 72.8%
Premium units ..................... 557,032 595,832
</TABLE>
- ------
(a) The Core Cable Television Operations (Restricted Group) following the
consummation of the Transactions will consist of the Company and all of
the Company's wholly owned cable television subsidiaries. Financial
ratios and other information are presented for the Restricted Group to
enable prospective investors to evaluate the results of operations of
those operating entities on which the Company will rely to service its
obligations under the Notes.
(b) EBITDA represents operating income plus depreciation and amortization.
EBITDA is presented because it is a widely accepted financial indicator
of a company's ability to incur and service debt. EBITDA should not be
considered by an investor as an alternative to net income (loss), as an
indicator of the operating performance of the Company or as an
alternative to cash flows as a measure of liquidity. EBITDA is not a
measure under generally accepted accounting principles.
(c) EBITDA margin measures EBITDA as a percentage of revenues.
(d) Excludes the purchase price of acquisitions consummated during the
period.
(e) Adjusted EBITDA for the six months ended June 30, 1996 was calculated by
adding to EBITDA of the Company the EBITDA of the Wilmington System and
the Sammons Systems for the preacquisition portion of the period, and by
giving effect to the pro forma adjustments set forth in notes (f), (g),
(h), (i) and (r) of the notes to Pro Forma Financial Information.
Adjusted EBITDA is presented in order to provide a more meaningful
comparison to total debt and senior debt at the period end, and does not
necessarily reflect what the Company's EBITDA would have been for such
period had such acquisitions actually occurred at the beginning of such
period. Adjusted EBITDA for the six months ended June 30, 1995 reflects
no changes to EBITDA, since none of the Transactions occurred during such
period.
(f) For comparative purposes, EBITDA and capital expenditures have been
annualized.
(g) Per customer data for the six months ended June 30, 1996 was computed
based on a weighted average number of basic customers during the period.
13
<PAGE>
RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider, along with other matters referred to in this Prospectus,
the following:
SUBSTANTIAL LEVERAGE
The Company has a significant amount of leverage. As of June 30, 1996,
after giving effect to the Transactions, the Company's total consolidated
indebtedness would have been approximately $1,354 million, with a
stockholders' deficit of $193.2 million. The degree to which the Company is
leveraged could have important consequences to holders of the Notes,
including (i) the ability of the Company to obtain any necessary financing in
the future for working capital, capital expenditures, debt service
requirements or other purposes may be limited; (ii) a substantial portion of
the Company's cash flow from operations must be dedicated to the payment of
the principal of and interest on its indebtedness and will not be available
for other purposes; (iii) the Company's level of indebtedness could limit its
flexibility in planning for, or reacting to changes in, its business; (iv)
the Company is more highly leveraged than some of its competitors, which may
place it at a competitive disadvantage; and (v) the Company's high degree of
indebtedness will make it more vulnerable in the event of a downturn in its
business.
NET LOSSES/DEFICIENCY OF EARNINGS AVAILABLE TO COVER FIXED CHARGES
The Company has experienced net losses for each of the five years in the
five-year period ended December 31, 1995. For the year ended December 31,
1995 and for the six months ended June 30, 1996, the Company's earnings were
insufficient to cover its fixed charges by approximately $34.2 million and
$33.1 million, respectively, and, in addition, after giving pro forma effect
to the Transactions as if they had occurred on January 1, 1995, the Company's
earnings would have been insufficient to cover its fixed charges by
approximately $73.5 million and $57.9 million for the year ended December 31,
1995, and the six months ended June 30, 1996, respectively. Historically, the
Company's cash generated from operating activities and borrowings has been
sufficient to meet its debt service, working capital and capital expenditure
requirements. If the Company were unable to meet its debt service obligations
or working capital requirements, the Company would attempt to refinance its
indebtedness or obtain new financing. There can be no assurance that the
Company would be able to do so in the future or that, if the Company were
able to do so, the terms available would be favorable to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SUBORDINATION; HOLDING COMPANY STRUCTURE
The indebtedness evidenced by the Notes will constitute general unsecured
obligations of the Company, but the payment of the principal of and premium
(if any) and interest on the Notes will be subordinate in right of payment,
as set forth in the Indenture, to the prior payment in full of all Senior
Indebtedness of the Company. As of June 30, 1996, after giving pro forma
effect to the Transactions, the Company's Senior Indebtedness would have been
approximately $1,030 million. Although the Indenture contains limitations on
the amount of additional indebtedness that the Company may incur, the amount
of such indebtedness could be substantial under certain circumstances and, in
certain cases, such indebtedness may be Senior Indebtedness. See "Description
of Notes -- Certain Covenants -- Limitation on Indebtedness." As of June 30,
1996, after giving pro forma effect to the Transactions, the Company would
have had approximately $195.5 million of borrowing availability under the New
Bank Credit Facility.
The operations of the Company are conducted through its subsidiaries. As a
holding company, the Company has no operations and, therefore, is dependent
on the cash flow of its subsidiaries and other entities to meet its own
obligations, including the payment of interest and principal obligations on
the Notes when due. Because the Company's subsidiaries do not guarantee the
payment of principal of or interest on the Notes, the claims of creditors of
the Company's subsidiaries, including trade creditors, secured creditors and
creditors holding indebtedness and guarantees issued by such subsidiaries,
and claims of preferred stockholders (if any) of such subsidiaries generally
will have priority with respect to the assets and earnings of such
subsidiaries over the claims of creditors of the Company, including holders
of the Notes, even though such claims will not constitute Senior
Indebtedness. The Notes, therefore, will be effectively subordinated to
creditors (including trade creditors) and
14
<PAGE>
preferred stockholders (if any) of subsidiaries of the Company. At June 30,
1996, and after giving effect to the Transactions, the total liabilities of
the Company's subsidiaries would have been approximately $119 million,
including trade payables and accrued liabilities. Although the Indenture
limits the incurrence of indebtedness and the issuance of preferred stock of
certain subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the Indenture does not impose any limitation on the
incurrence by subsidiaries of liabilities that are not considered
indebtedness under the Indenture. See "Description of Notes -- Certain
Covenants -- Limitation on Indebtedness."
In the event of the bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be available to pay the Notes only
after all Senior Indebtedness has been paid in full. Sufficient funds may not
exist to pay amounts due on the Notes in such event. In addition, the
subordination provisions of the Indenture provide that no payment may be made
with respect to the Notes during the continuance of a payment default under
any Senior Indebtedness. Furthermore, if certain nonpayment defaults exist
with respect to certain Senior Indebtedness, the holders of such Senior
Indebtedness will be able to prevent payments on the Notes for certain
periods of time. See "Capitalization," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Description of Notes."
REGULATION OF THE CABLE TELEVISION INDUSTRY
The cable television industry is subject to extensive regulation at the
federal, state and local levels, and many aspects of such regulation are
currently the subject of judicial proceedings and administrative or
legislative proposals. The Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") significantly expanded the
scope of cable television regulation. In particular, pursuant to the 1992
Cable Act, the Federal Communications Commission (the "FCC") adopted
regulations that limit the Company's ability to set and increase rates for
the Company's basic and cable programming service ("CPS") packages and for
the provision of cable television-related equipment. The 1992 Cable Act
permits certified local franchising authorities to order refunds of rates
paid in the previous twelve-month period determined to be in excess of the
permitted reasonable rates. It is possible that future rate reductions or
refunds of previously collected fees may be required in the future. See
"Legislation and Regulation."
The Telecommunications Act of 1996 (the "1996 Act"), which became law on
February 8, 1996, materially alters federal, state and local laws and
regulations pertaining to cable television, telecommunications and other
related services and, in particular, substantially amends the Communications
Act of 1934 (the "Communications Act"). Certain provisions of the 1996 Act
could materially affect the growth and operation of the cable television
industry and the cable services provided by the Company. Although the new
legislation may substantially lessen regulatory burdens, the cable television
industry may be subject to additional competition as a result thereof. See
"Business -- Competition." There are numerous rulemakings to be undertaken by
the FCC which will interpret and implement the provisions of the 1996 Act. In
addition, certain provisions of the new legislation (such as the deregulation
of rates for CPS packages) will not immediately be effective. Furthermore,
certain provisions of the 1996 Act have been, and likely will be, subject to
judicial challenge. The Company is unable at this time to predict the outcome
of such rulemakings or litigation or the short and long-term effect
(financial or otherwise) of the 1996 Act and FCC rulemakings on the Company.
See "Legislation and Regulation."
COMPETITION
The cable television systems owned by the Company compete with Direct
Broadcast Satellite Systems ("DBS") and Multichannel Multipoint Distribution
Systems ("MMDS"). Three companies recently have launched, and three companies
have announced their intention to launch, DBS services that compete with the
Company for multichannel video entertainment customers, and additional
entrants into the DBS market are expected. In addition, the former Regional
Bell Telephone Companies (the "RBOCs") and other local telephone companies
are in the process of entering the cable television business. The RBOCs have
significant access to capital, and several have expressed their intention to
enter the video-to-home business as an adjunct to their existing voice and
data transmission businesses. In addition, the RBOCs and local telephone
companies have in place facilities which are capable of delivering cable
television service.
15
<PAGE>
The 1996 Act repealed the prohibition on RBOCs and other local exchange
companies ("LECs") from providing cable service directly to customers in
their local telephone service areas. Thus, LECs may now acquire, construct
and operate cable systems both inside and outside their service areas. The
1996 Act also authorizes LECs to operate quasi-common carrier "open video
systems" without obtaining a local cable franchise.
Most of the Company's cable television assets are located in the Bell
Atlantic Corporation ("Bell Atlantic") operating area. Bell Atlantic recently
announced its intention to merge with NYNEX Corporation ("NYNEX"). Both Bell
Atlantic and NYNEX have previously made investments in CAI Wireless Systems,
Inc. ("CAI") in order to finance CAI's development of digital wireless
television. It is not clear at this time how the pending Bell Atlantic/NYNEX
merger will impact competition or whether Bell Atlantic (or the new Bell
Atlantic/NYNEX entity) intends to compete with the Company indirectly through
its investment in CAI, directly by constructing hardwired broadband systems
within the Company's service area or through a combination of both.
The Company also faces competition from other communications and
entertainment media, including conventional off-air television broadcasting
services, newspapers, movie theaters, live sporting events and home video
products. The Company cannot predict the extent to which such competition may
effect the Company. See "Business -- Competition" and "Legislation and
Regulation."
FUTURE CAPITAL REQUIREMENTS
As a result of existing and potential competition, cable television
operators are experiencing increased pressure to expand and upgrade their
cable television plant to increase channel capacity and to provide the
capacity for the delivery of local telephone service over the cable
television system. The Company expects to upgrade its systems with a high
capacity, broadband hybrid coaxial/fiber optic cable to accomplish these
purposes. The Company currently estimates such an upgrading will take
approximately five years and the Company expects to spend approximately $300
million over that period. Although the Company has taken steps to begin the
upgrading process and anticipates that it will continue to upgrade portions
of its systems over the next several years, there can be no assurance that
the Company will be able to upgrade its cable television systems at a rate
which will allow it to remain competitive with other competitors which either
do not rely on cable into the home (e.g., MMDS and DBS) or have access to
significantly greater amounts of capital and an existing communications
network. In addition, the Company currently estimates that it will make other
capital expenditures over the next five years of approximately $150 million,
principally for maintenance of its cable television plant and other fixed
assets. Such capital expenditures are in addition to those expected to be
incurred in connection with the upgrading of the Company's cable television
systems described above. Furthermore, new services could require additional
incremental capital. There can be no assurance that the Company will be able
to fund its planned capital expenditures. The Company's inability to upgrade
its cable television systems or make its other planned capital expenditures
could adversely affect the Company's operations and competitive position.
RESTRICTIONS IMPOSED BY THE TERMS OF THE COMPANY'S DEBT INSTRUMENTS
The terms of the Company's debt instruments, including the terms of the
New Bank Credit Facility which was entered into contemporaneously with the
closing of the Old Notes Offering, the agreements governing the Private
Placement Notes (as defined), the indenture governing the 8 3/8 % Senior
Notes and the Indenture, contain a number of significant covenants that,
among other things, restrict the ability of the Company and its Restricted
Subsidiaries to dispose of assets or merge, incur debt, pay dividends,
repurchase or redeem capital stock and indebtedness, create liens, make
capital expenditures and make certain investments or acquisitions and
otherwise restrict corporate activities. In addition, the terms of such debt
instruments contain, among other covenants, requirements that the Company
maintain specified financial ratios, including, under the terms of the New
Bank Credit Agreement, maximum leverage and minimum interest coverage, and
minimum working capital. The ability of the Company to comply with such
provisions may be affected by events beyond the Company's control. The breach
of any of these covenants could result in a default under the Company's
Senior Indebtedness (including the New Bank Credit Facility). In the event of
any such default, holders of such Senior Indebtedness could elect to declare
all amounts outstanding thereunder, together with accrued interest and other
fees, to be due and payable.
16
<PAGE>
If the indebtedness under the New Bank Credit Facility, the Private
Placement Notes, the 8 3/8 % Senior Notes or the Notes were to be
accelerated, there can be no assurance that the assets of the Company would
be sufficient to repay such other indebtedness and the Notes in full. See "--
Subordination; Holding Company Structure," "Description of Other Debt
Obligations" and "Description of Notes."
INVESTMENT IN AUSTRALIS MEDIA LIMITED
The Company currently holds a 31.4% aggregate economic interest in
Australis Media Limited, a pay-television provider in Australia
("Australis"), for an aggregate investment of approximately $91 million, and
the Company has loaned Australis (through the Company's Lenfest Australia,
Inc. subsidiary) approximately $18.5 million on an unsecured basis. In
addition, the Company has guaranteed up to $75 million of a new $125 million
Australis bank facility as part of recapitalization plans currently being
pursued by Australis. Australis has announced that it plans to repay the
Australis bank facility with the proceeds of long-term debt and equity
financing in conjunction with its proposed recapitalization. In connection
with such long-term financing, the Company has agreed to make an additional
$40 million equity investment in Australis and to convert the discounted
present value (approximately U.S.$ 25.0 million) of its existing ten-year
technical services agreement with Australis to equity, subject to the
approval of the issuance of additional securities by Australis' shareholders.
The additional equity investment and the conversion of the technical services
agreement into equity are subject to a number of conditions, including the
successful completion of the recapitalization and the equity contributions of
certain other investors. If the Australis long-term financing is completed,
Australis will repay the $18.5 million loan, with interest, and the $75
million guaranty will expire. There can be no assurance that the Australis
long-term financing will be completed or completed on a timely basis. The
board of directors of Australis has publicly stated that if Australis is
unable to obtain the long-term financing prior to the expiration of the
Australis bank facility (scheduled to expire on October 31, 1996), there is
substantial doubt as to Australis' ability to continue as a going concern. As
a result of uncertainties associated with the successful completion by
Australis of its proposed recapitalization, the Company's financial
statements included herein recognize a decline in the market value of its
equity ownership interest in securities of Australis in the amount of
approximately $66.9 million and the provision for potential reduction in
value of note receivable and accrued interest in the amount of $19.7 million
in connection with the note receivable and accrued interest due from
Australis. If the Australis long-term financing is not completed, the $18.5
million loan will not be repaid, the $75 million guaranty may be drawn in
whole or in part and the Company's existing equity investment in Australis
may lose all or a substantial portion of its value. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Business -- Lenfest Australia, Inc."
and "-- Legal Proceedings."
Additionally, in November 1994, Mr. Lenfest and TCI International, Inc.
jointly and severally guaranteed up to $67 million in program license payment
obligations of the distributor of Australis' movie programming. The Company
has agreed to indemnify Mr. Lenfest against loss from such guaranty to the
fullest extent permitted under the Company's debt obligations. The Company
has neither sought nor obtained any consents which may be required in
connection with this indemnification obligation. The terms of the guarantees
provide that the amount of the guarantees will be reduced on a
dollar-for-dollar basis with the provision of one or more letters of credit,
which may not exceed $33.5 million. Under the terms of the New Bank Credit
Facility, however, Mr. Lenfest's claims for indemnification are limited to
$33.5 million, which amount will be further reduced by the aggregate face
amount of any letters of credit, if any, requested by the Company to be
issued under the New Bank Credit Facility with respect to the program license
payment obligations guarantees. If the Company obtains such letter of credit
facility, the Company would be directly obligated for the face amount of such
letter of credit and may remain indirectly obligated for the balance of the
program license payment obligations. The Company has deferred any decision
concerning the obtaining of any letter of credit facility (including the
amount thereof) until after the Australis long-term financing has been
successfully completed.
CONCENTRATION OF CONTROL IN SINGLE STOCKHOLDER
As a result of the stock ownership of the Company by H.F. Lenfest, proxies
(irrevocable until March 30, 2000) granted to him by certain stockholders, an
agreement between Mr. Lenfest and LMC Lenfest, Inc., the owner of 50% of the
outstanding common stock of the Company, and the amended and restated
Articles of
17
<PAGE>
Incorporation of the Company, Mr. Lenfest has the right to designate a
majority of the Board of Directors of the Company until January 1, 2002.
During such period, vacancies in respect of directors designated by Mr.
Lenfest shall be filled by designees of Mr. Lenfest or, in the event of Mr.
Lenfest's death, of The Lenfest Foundation. Thereafter, certain members of
the Lenfest family and The Lenfest Foundation (collectively, the "Lenfest
Family") and LMC Lenfest, Inc. will have the right to appoint an equal number
of members of the Company's Board of Directors. This right will continue for
so long as any member of the Lenfest Family owns any stock in the Company. By
virtue of this agreement, Mr. Lenfest effectively is able to direct and
control certain fundamental policy and management decisions of the Company
and its subsidiaries. See "Principal Stockholders."
LOSS OF FAVORABLE PROGRAMMING SUPPLY
Through an agreement with Satellite Services, Inc. (a wholly owned
subsidiary of TCI), the Company is able to purchase almost all of its
programming services at rates closely approximating those paid by TCI. The
three cable television operators in which the Company has a 50% or less
ownership interest (Garden State Cablevision L.P., Susquehanna Cable Co. and
Raystay Co.) also obtain their programming pursuant to this agreement. In
addition, pursuant to an agreement between the Company and TCI, TCI must
provide the programming services available to TCI to the Company at rates
closely approximating those paid by TCI. As management believes that the
rates at which it purchases programming from Satellite Services, Inc. (and
the rates at which the Company could purchase programming from TCI) are
significantly less than the Company could obtain independently, loss of
access to programming at such favorable rates could materially adversely
affect the financial position or results of operations of the Company.
ABSENCE OF ACTIVE TRADING MARKET
The Exchange Notes are a new issue of securities for which there is
currently no active trading market. If the Exchange Notes are traded after
their initial issuance, they may trade at a discount from their initial
offering price, depending upon prevailing interest rates, the market for
similar securities and other factors, including general economic conditions
and the financial condition of the Company. The Company does not intend to
apply for a listing or quotation of the Exchange Notes, on any securities
exchange or stock market. No assurance can be given as to the liquidity of
the trading market for the Exchange Notes.
USE OF PROCEEDS
The Company will not receive any proceeds from this offering, and no
underwriter is being utilized in connection with the Exchange Offer.
18
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization and cash
and cash equivalents of the Company as of June 30, 1996, (i) on a historic
basis and (ii) on a pro forma basis after giving effect to the Transactions.
See "Pro Forma Financial Information."
<TABLE>
<CAPTION>
June 30, 1996
----------------------------
Actual Pro Forma
------------ -----------
( dollars in thousands )
<S> <C> <C>
Cash and Cash Equivalents $ 3,242 $ 3,242
============ ===========
Total Debt
Notes payable to banks ...................... $ 25,720 $ 25,720
New Bank Credit Facility .................... 150,000 234,500
11.84% Senior Notes ......................... 21,000 21,000
11.30% Senior Notes(a) ...................... 75,000 75,000
9.93% Senior Notes .......................... 14,250 14,250
8 3/8 % Senior Notes, net of discount ....... 684,984 684,984
Obligations under capital leases ............ 5,248 5,248
The Notes, net of discount .................. 293,496 293,496
------------ -----------
Total debt ................................ 1,269,698 1,354,198
------------ -----------
Minority Interest ........................... 3,472 3,472
Stockholders' Equity (Deficit)
Common stock ................................ 2 2
Additional paid-in capital .................. 50,747 50,747
Unrealized gain on marketable securities, net 793 793
Accumulated deficit ......................... (244,719) (244,719)
------------ -----------
Total stockholders' equity (deficit) ... (193,177) (193,177)
------------ -----------
Total capitalization ................. $1,079,993 $1,164,493
============ ===========
</TABLE>
- ------
(a) Does not reflect mandatory principal repayments made on August 30, 1996
of $15 million on the 11.30% Senior Notes. See "Description of Other Debt
Obligations."
19
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information is based on the historical
financial statements of Lenfest and the historical financial statements of
the cable television systems acquired or to be acquired by the Company,
adjusted to give effect to (i) the issuance of the 10 1/2 % Senior
Subordinated Notes and the application of the net proceeds therefrom, (ii)
the New Bank Credit Facility and the application of the initial borrowings
thereunder, (iii) the Turnersville Acquisition, (iv) the TCI Exchange, (v)
the Sammons Acquisition, (vi) the Salem Acquisition, (vii) the borrowings
under the New Bank Credit Facility to finance the Turnersville Acquisition,
the Sammons Acquisition, the Salem Acquisition and the Shore Acquisition and
(viii) the issuance of the 8 3/8 % Senior Notes and the application of the
net proceeds therefrom (all of the foregoing are collectively, the
"Transactions"). A complete set of historical financial statements of the
Shore System is not available and, therefore, such historical statements of
operations are not included in the pro forma presentation. The omission of
the Shore System historical statements of operations and the related
adjustments to the Pro Forma Condensed Consolidated Statements of Operations
does not materially affect the Company's pro forma results of operations.
The Pro Forma Condensed Consolidated Statements of Operations give effect
to the Transactions as if they had occurred as of January 1, 1995, and the
Pro Forma Condensed Consolidated Balance Sheet gives effect to the
Transactions as if they had occurred as of June 30, 1996. The pro forma
adjustments are described in the accompanying notes and are based upon
available information and certain assumptions that management believes are
reasonable. The Pro Forma Condensed Consolidated Financial Statements do not
purport to represent what Lenfest's results of operations or financial
condition would actually have been had the Transactions in fact occurred on
such dates or to project Lenfest's results of operations or financial
condition for any future date or period. The Pro Forma Condensed Consolidated
Financial Statements should be read in conjunction with the historical
financial statements of Lenfest, the Wilmington System and the Sammons
Systems included elsewhere in this Prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." There can be
no assurance that the Turnersville Acquisition will be consummated.
The TCI Exchange involved a transaction between related parties, Lenfest
and a subsidiary of TCI. TCI is an indirect 50% stockholder of Lenfest.
Lenfest and TCI are not entities under common control. Lenfest is accounting
for the exchange of the cable systems' assets as a nonmonetary exchange of
productive assets in accordance with Accounting Principles Board Opinion
Number 29. For financial statement purposes, Lenfest is not recording a gain
or loss on the cable television assets exchanged, but is recognizing a gain
of approximately $7 million on the exchange of its approximately 42% general
partnership interest in Bay Cable Advertising that is included in the TCI
Exchange. Lenfest has allocated the net book values of the assets exchanged
to the identifiable tangible and intangible assets acquired. For tax
purposes, the TCI Exchange has been structured in such a way that, to the
greatest extent possible, the transfer qualifies as a tax-free exchange of
like-kind assets under Section 1031 of the Internal Revenue Code. The taxable
gain recognized on this transaction is presently estimated to be $1 million
to $2 million on the cable television assets and $7 million on the
partnership interest.
The Sammons, Salem, Shore and Turnersville Acquisitions are or will be
accounted for under the purchase method of accounting. The total purchase
prices for the acquisitions have been allocated to the identifiable tangible
and intangible assets and liabilities of the acquired business based upon
Lenfest's preliminary estimate of their fair values with the remainder
allocated to goodwill. The allocations of the purchase prices are subject to
revision when additional information concerning asset and liability
valuations is obtained. In the opinion of Lenfest's management, the final
asset and liability valuations for the Acquisitions will not result in any
material change to the pro forma financial data presented.
The Pro Forma Condensed Consolidated Financial Statements give effect only
to the adjustments set forth in the accompanying notes and do not reflect any
other benefits anticipated by Lenfest's management as a result of the TCI
Exchange or the Sammons, Salem, Shore or Turnersville Acquisitions.
20
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
------------------------------------------- ---------------------
Lenfest (a) (b)
------------------------------ Turners- Turnersville
Restricted Unrestricted ville (b) Acquisition Pro Forma
------------ -------------- ---------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ......... $ 1,511 $ 1,731 $ 189 $ (189)(c) $ 3,242
Receivables, inventory and prepaids 13,344 15,792 640 (53)(c) 29,723
Marketable securities ............. 3,779 25,249 -- 29,028
Property and equipment, net of
accumulated depreciation ......... 355,051 28,814 17,840 7,510 (d) 409,215
Other investments ................. 425 50,124 -- 50,549
Goodwill, net ..................... 69,686 6,130 2,348 (2,348)(c) 75,816
Deferred franchise costs, net ..... 521,133 -- -- 58,563 (d) 579,696
Other intangible assets, net ...... 19,795 2,695 -- 22,490
Deferred tax asset ................ 24,480 20,733 -- 45,213
Other assets ...................... 7,311 119 7 (7)(c) 7,430
------------ -------------- ---------- ------------- ------------
$1,016,515 $ 151,387 $21,024 $ 63,476 $1,252,402
============ ============== ========== ============= ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
(DEFICIT)
Debt .............................. $1,240,809 $ 28,889 $ -- $ 84,500 (e) $1,354,198
Intercompany payable (receivable) . (319,480) 319,480 -- --
Payables and accruals ............. 44,916 5,689 344 (344)(c) 50,605
Deferred tax liability ............ 8,006 734 -- 8,740
Other liabilities ................. 8,371 20,193 30 (30)(c) 28,564
------------ -------------- ---------- ------------- ------------
Total liabilities ............ 982,622 374,985 374 84,126 1,442,107
Minority interest ................. -- 3,472 -- 3,472
Stockholders' equity (deficit)
Common stock .................... 2 -- -- 2
Additional paid-in capital ...... 50,747 -- -- 50,747
Unrealized gain (loss) on
marketable securities ........ 638 155 -- 793
Accumulated net assets of
systems acquired or to be
acquired ..................... -- -- 20,650 (20,650)(c) --
Accumulated deficit ............. (17,494) (227,225) -- (244,719)
------------ -------------- ---------- ------------- ------------
33,893 (227,070) 20,650 (20,650) (193,177)
------------ -------------- ---------- ------------- ------------
$1,016,515 $ 151,387 $21,024 $ 63,476 $1,252,402
============ ============== ========== ============= ============
</TABLE>
See notes to pro forma financial information.
21
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments
-------------------------------------------------------------- ------------
Lenfest (a)
-------------------------- Turners- TCI Exchange
Wilmington & Salem ville & Sammons
Restricted Unrestricted Sammons (b) (b) (b) Acquisition
---------- ------------ ------------ ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues ......................... $232,155 $ 34,094 $158,649 $3,017 $15,680 $ (49,182)(f)
Programming expenses ............. 55,322 10,101 39,944 683 4,517 (12,965)(f)
111 (g)
(4,749)(g)
Selling, general & administrative.. 45,902 13,408 32,848 415 4,521 (11,681)(f)
(5,037)(h)
(1,114)(i)
Technical and other .............. 15,670 13,504 15,407 483 1,012 (3,477)(f)
(586)(i)
Depreciation and amortization .... 71,054 6,646 26,032 413 3,632 (9,013)(f)
19,529 (j)
562 (k)
(4,340)(k)
---------- ------------ ------------ ------- -------- ------------
Total operating expenses ....... 187,948 43,659 114,231 1,994 13,682 (32,760)
---------- ------------ ------------ ------- -------- ------------
Operating income (loss) ........ 44,207 (9,565) 44,418 1,023 1,998 (16,422)
Interest expense ................. (59,966) (1,572) (21,563) (395) (13) 17 (f)
(1,064)(k)
(44,830)(k)
21,563 (l)
Other income (expense) ........... 15,555 (11,249) 615 -- -- 33 (f)
(1,081)(m)
---------- ------------ ------------ ------- -------- ------------
Income (loss) before taxes and
extraordinary loss .......... (204) (22,386) 23,470 628 1,985 (41,784)
Income tax benefit (expense) ..... -- 11,095 (9,639) -- -- 14,624(n)
---------- ------------ ------------ ------- -------- ------------
Income (loss) before
extraordinary loss .......... $ (204) $(11,291) $ 13,831 $ 628 $ 1,985 $(27,160)
========== ============ ============ ======= ======== ============
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Pro Forma Adjustments
--------------------------------------------
Offering & New
Salem Bank Credit Turnersville
Acquisition Facility (p) Acquisition Pro Forma
----------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues ......................... $ 394,413
Programming expenses ............. 92,964
Selling, general & administrative $ (820)(h) 78,442
Technical and other .............. 42,013
Depreciation and amortization .... $ 933(j) $ 13 4,843(j) 120,304
----------- -------------- ------------ -----------
Total operating expenses ....... 933 13 4,023 333,723
----------- -------------- ------------ -----------
Operating income (loss) ........ (933) (13) (4,023) 60,690
Interest expense ................. (1,296)(o) (10,907) (6,845)(e) (126,476)
395(i)
Other income (expense) ........... 3,873
----------- -------------- ------------ -----------
Income (loss) before taxes and
extraordinary loss .......... (1,834) (10,920) (10,868) (61,913)
Income tax benefit (expense) ..... 642(n) 3,822(n) 3,804(n) 24,348
----------- -------------- ------------ -----------
Income (loss) before
extraordinary loss .......... $ (1,192) $ (7,098) $ (7,064) $ (37,565)(q)
=========== ============== ============ ===========
</TABLE>
See notes to pro forma financial information.
22
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Historical
--------------------------------------------------------------
Lenfest (a) (b)
-------------------------- Turners-
Wilmington & Salem ville
Restricted Unrestricted Sammons (b) (b) (b)
---------- ------------ ------------ ------- --------
<S> <C> <C> <C> <C> <C>
Revenues ......................... $161,544 $ 23,121 $23,460 $1,084 $8,430
Programming expenses ............. 36,507 6,538 5,981 297 2,487
Selling, general & administrative 29,933 10,101 5,420 135 2,608
Technical and other .............. 12,754 6,055 3,111 121 504
Depreciation and amortization .... 47,612 3,825 3,826 150 1,793
---------- ------------ ------------ ------- --------
Total operating expenses ....... 126,806 26,519 18,338 703 7,392
---------- ------------ ------------ ------- --------
Operating income (loss) ........ 34,738 (3,398) 5,122 381 1,038
Interest expense ................. (47,008) (963) (957) (170) (193)
Other income (expense) ........... 8,558 (93,735) 110 -- --
---------- ------------ ------------ ------- --------
Income (loss) before taxes and
extraordinary loss .......... (3,712) (98,096) 4,275 211 845
Income tax benefit (expense) ..... -- 3,484 (1,747) -- --
---------- ------------ ------------ ------- --------
Income (loss) before
extraordinary loss .......... $ (3,712) $(94,612) $ 2,528 $ 211 $ 845
========== ============ ============ ======= ========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------------------------------------------
TCI Exchange Offering & New
& Sammons Salem Bank Credit Turnersville
Acquisition Acquisition Facility (p) Acquisition Pro Forma
------------ ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ......................... $ (4,965)(f) $ 212,674
Programming expenses ............. (1,676)(f) 49,334
(800)(g)
Selling, general & administrative (1,583)(f) $ (425)(h) 45,004
(827)(h)
(186)(i)
(172)(r)
Technical and other .............. (510)(f) 21,756
(98)(i)
(181)(r)
Depreciation and amortization .... (1,070)(f) $ 311 (j) $ 7 2,421(j) 63,757
4,882 (j)
------------ ----------- -------------- ------------ ------------
Total operating expenses ....... (2,221) 311 7 1,996 179,851
------------ ----------- -------------- ------------ ------------
Operating income (loss) ........ (2,744) (311) (7) (1,996) 32,823
Interest expense ................. (5,250)(k) (432)(o) (5,468) (3,422)(e) (62,736)
957 (l) 170(l)
Other income (expense) ........... (7,024)(f) (93,263)
(1,172)(m)
------------ ----------- -------------- ------------ ------------
Income (loss) before taxes and
extraordinary loss .......... (15,233) (573) (5,475) (5,418) (123,176)
Income tax benefit (expense) ..... 5,332 (n) 201(n) 1,916(n) 1,896(n) 11,082
------------ ----------- -------------- ------------ ------------
Income (loss) before
extraordinary loss .......... $ (9,901) $ (372) $(3,559) $ (3,522) $(112,094)(q)
============ =========== ============== ============ ============
</TABLE>
See notes to pro forma financial information.
23
<PAGE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
(a) The historical financial statements of Lenfest have been segregated
between the Restricted Group and Unrestricted Subsidiaries. The
Restricted Group consists of all wholly owned cable television
subsidiaries of the Company as of June 30, 1996. The Unrestricted
Subsidiaries consist of all other consolidated subsidiaries of the
Company. Substantially all of Lenfest's investments in unconsolidated
subsidiaries, including Garden State Cablevision L.P., are held by
Unrestricted Subsidiaries.
(b) As of June 30, 1996, the assets and liabilities of the Wilmington,
Sammons, Salem and Shore Systems are included in the Lenfest Restricted
Group historical balance sheet. The assets and liabilities of the
California systems (the "California Systems") transferred to TCI in the
TCI Exchange are not included.
Included in the Restricted Group's historical statement of operations for
the six months ended June 30, 1996, are the revenues and expenses of the
Wilmington, Sammons, Salem and Shore Systems from their respective dates
of acquisition of February 12, February 29 and April 30, 1996. Also
included are the revenues and expenses of the California systems up to
February 12, 1996, the date of the TCI Exchange.
The pro forma presentation includes the historical statements of
financial position and operations of the Turnersville System. The pro
forma presentation also includes the preacquisition historical statements
of operations of the Wilmington, Sammons, and Salem Systems.
(c) Represents the elimination of historical assets not being purchased and
historical liabilities not being assumed and the elimination of historical
net assets related to the Turnersville Acquisition.
(d) Represents the increase from historical amounts to the estimated fair
market value of all tangible and intangible assets acquired and
liabilities assumed upon consummation of the Turnersville Acquisition
comprised of the following:
<TABLE>
<CAPTION>
<S> <C>
Purchase price ....................................................................... $84,500
Net book value of acquired tangible and intangible assets included in historical
information ......................................................................... 18,427
----------
Excess of purchase price over book value of assets acquired .......................... $66,073
==========
Allocation of excess purchase price to estimated fair market value:
Property and equipment .............................................................. $ 7,510
Intangible assets ................................................................... 58,563
----------
$66,073
==========
</TABLE>
The asset acquisition is subject to post-closing working capital and
other adjustments, as defined in the related asset purchase agreement.
(e) The Company anticipates that it will borrow up to $84.5 million under the
New Bank Credit Facility to finance the Turnersville Acquisition. Interest
is based on LIBOR plus an applicable margin ranging from 3/4 % to 2 3/8 %.
Interest is calculated on $84.5 million at an estimated average rate of
8.1%.
(f) These pro forma adjustments remove the revenues and expenses of the
California Systems that are included in the historical statements of
operations of Lenfest.
(g) The Company obtains most of its cable television programming from
Satellite Services, Inc. a subsidiary of TCI, pursuant to an agreement.
The Company's costs for programming that it obtains from Satellite
Services, Inc. are based upon TCI's costs plus an administrative fee. For
the year ended December 31, 1995, the pro forma statement of operations
reflects the Company's estimate of these administrative fees as an
increase in programming expenses for the Wilmington System. For the
preacquisition period ended February 12, 1996, no estimate is provided
because these fees would not have been material.
The benefits of the Satellite Services, Inc. agreement are also available
with respect to the Sammons Systems. The pro forma adjustments to
programming expenses in the pro forma statements of operations reflect
24
<PAGE>
the Company's estimates of programming expense savings using the rates at
which the Company obtained its programming. For the year ended December
31, 1995 and the preacquisition period ended February 29, 1996, these
savings on the Sammons Systems are estimated to be $4.7 million and $0.8
million, respectively.
(h) The management fees paid by the Sammons and Turnersville Systems to their
affiliates in the amounts of $5.0 and $0.8 million, respectively, for the
year ended December 31, 1995 are eliminated. Management fees paid by the
Sammons and Turnersville Systems to their affiliates in the amount of $0.8
and $0.4 million, respectively, in 1996 are also eliminated.
(i) Reflects the savings of salary and benefits resulting from the elimination
of 46 positions at the Sammons Systems by the Company immediately upon the
closing of the Sammons Acquisition.
(j) Adjustments to depreciation and amortization represent the incremental
depreciation and amortization charges resulting from the net increase in
historical amounts to fair market value related to the TCI Exchange and
the Sammons, Salem and Turnersville Acquisitions.
(k) The Company drew $420 million under the Old Bank Credit Facility to
complete the Sammons Acquisition. Interest is calculated on such $420
million at an estimated average rate of 7.5% for 1995. On June 27, 1996,
the Company entered into the New Bank Credit Facility with a commitment in
the aggregate amount of $450 million, consisting of a $150 million term
loan facility and a $300 million revolving credit facility. Interest is
based on LIBOR plus an applicable margin ranging from 3/4 % to 2 3/8 %.
For purposes of the pro forma adjustments, the incremental interest
attributable to the Notes and the New Bank Credit Facility has been
reflected above. (See Note (p).)
In November 1995, the Company issued $700 million principal amount of 8
3/8 % Senior Notes. The net proceeds of the 8 3/8 % Senior Notes,
approximately $685.7 million, was used to prepay certain debt, including a
prepayment penalty of approximately $10 million, and provided funding for
the TCI Exchange and provided partial funding for the Sammons Acquisition.
Discount and debt issuance costs of $15.6 million are being amortized
using the interest method. In addition, debt issuance costs of $4.1
million in connection with the Old Bank Credit Facility are being
amortized over 7.25 years. The 1995 amortization of these deferred debt
costs in excess of amortization included in the historical information are
approximately $1.6 million and are presented as pro forma adjustments.
Interest on the above debt in excess of interest included in the
historical information on debt repaid amounts to $44.8 million for the
year ended December 31, 1995 and $5.2 million for the six months ended
June 30, 1996 and is presented as a pro forma adjustment. Amortization of
debt issuance costs, relating to the debt repaid, included in the
historical statement of operations totaled $4.3 million and has been
eliminated as a pro forma adjustment.
(l) Represents the elimination of the historical interest on intercompany debt
and advances to the Wilmington, Sammons and Salem Systems. The Company did
not assume any intercompany debt in the Transactions.
(m) Represents the elimination of excess interest income included in the
historical financial statements of the Company. This interest income
resulted from investing a portion of the net proceeds from the issuance of
the 8 3/8 % Senior Notes in November 1995 in marketable securities pending
the application of such proceeds in connection with the Sammons
Acquisition on February 29, 1996.
(n) The pro forma tax benefits relate to pro forma adjustments and have been
calculated at the federal tax rate of 35%.
(o) The Company drew $27 million under the Old Bank Credit Facility to finance
the Salem and Shore Acquisitions. For pro forma purposes, these borrowings
are reflected as a draw under the New Bank Credit Facility. Interest is
based on LIBOR plus an applicable margin ranging from 3/4 % to 2 3/8 %.
Interest on the Salem Acquisition is calculated at an estimated average
rate of 8.1%. Interest on the Shore Acquisition is not included, due to
the omission of the Shore System historical statements. However, such pro
forma interest would have amounted to approximately $0.9 million and $0.3
million for the year ended December 31, 1995, and the six months ended
June 30, 1996, respectively.
25
<PAGE>
(p) The pro forma adjustments to the Pro Forma Condensed Consolidated
Statements of Operations for the Offering and the New Bank Credit Facility
are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1995
--------------------------------------
New Bank
Credit
Offering Facility Total
---------- ---------- -----------
<S> <C> <C> <C>
Depreciation and amortization:
Amortization of debt issuance costs ............... $ -- $ 511 $ 511
Elimination of amortization of debt issuance costs
of the Old Bank Credit Facility ................. -- (498) (498)
---------- ---------- -----------
Total ........................................ $ -- $ 13 $ 13
========== ========== ===========
Interest expense:
Increase in interest expense ......................... $(9,480) $(1,041) $(10,521)
Accretion of debt discount ........................... (386) -- (386)
---------- ---------- -----------
$(9,866) $(1,041) $(10,907)
========== ========== ===========
Income tax benefit (expense):
Increase in deferred tax asset ....................... $ 3,453 $ 369 $ 3,822
Six Months Ended June 30, 1996
-------------------------------------
New Bank
Credit
Offering Facility Total
---------- ---------- ----------
Depreciation and amortization:
Amortization of debt issuance costs ............... $ -- $ 256 $ 256
Elimination of amortization of debt issuance costs
of the Old Bank Credit Facility ................. -- (249) (249)
---------- ---------- ----------
Total ........................................ $ -- $ 7 $ 7
========== ========== ===========
Interest expense:
Increase in interest expense ......................... $(4,740) $(520) $(5,260)
Accretion of debt discount ........................... (208) -- (208)
---------- ---------- ----------
$(4,948) $(520) $(5,468)
========== ========== ==========
Income tax benefit (expense):
Increase in deferred tax asset ....................... $ 1,732 $ 184 $ 1,916
</TABLE>
Debt issuance costs of the New Bank Credit Facility are capitalized and will
be amortized over 7.25 years. Debt issuance costs of the Notes are treated as
a discount and will be amortized using the interest method. The amortization
of the debt issuance costs of the Old Bank Credit Facility included in the
historical statement of operations are eliminated.
Interest on the Notes (10.5%) and the New Bank Credit Facility (at the
estimated rate of 8.1%) in excess of the interest included in the historical
statement of operations on the debt under the Old Bank Credit Facility
(average rate of 7.5%) and interest on the additional debt incurred in
connection with the gross proceeds and initial borrowings under the Notes and
the New Bank Credit Facility are presented as pro forma adjustments.
The pro forma adjustments to income tax benefit (expense) reflect the tax
effect of the Offering and the closing of the New Bank Credit Facility.
26
<PAGE>
(q) After giving pro forma effect to the Transactions as if they had occurred
on January 1, 1995, the Company's earnings would have been insufficient to
cover its fixed charges by $73.5 million and $57.9 million for the year
ended December 31, 1995, and the six months ended June 30, 1996,
respectively.
(r) Represents the elimination of vacation compensation not previously accrued
but paid by the prior owners of the Wilmington System upon the closing of
the TCI Exchange.
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS EXCEPT PER CUSTOMER DATA)
The selected consolidated financial data as of and for each of the five
years in the period ended December 31, 1995 have been derived from the
audited Consolidated Financial Statements of the Company. These data should
be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements for each of the three years in the period ended December 31, 1995
included elsewhere in this Prospectus, which includes a discussion of events
that affect the comparability of the information presented below. The
statement of operations data with respect to the fiscal year ending December
31, 1991 and 1992 have been derived from audited consolidated financial
statements of the Company not included herein. The balance sheet data as of
June 30, 1996 and the statement of operations data with respect to the six
months ended June 30, 1995 and 1996 are unaudited; however, in the opinion of
management, such data reflect all adjustments (consisting only of normal
recurring adjustments) necessary to fairly present the data for such interim
periods. Operating results for interim periods are not necessarily indicative
of the results that may be expected for a full year.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
Statement of Operations Data 1991 1992 1993 1994 1995
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues ......................................... $161,365 $179,940 $213,240 $236,195 $266,249
Programming expenses ............................. 35,495 43,388 51,783 59,352 65,423
Selling, general & administrative ................ 39,681 41,455 49,743 53,767 59,310
Technical and other .............................. 16,321 15,075 16,533 21,420 29,174
Depreciation and amortization .................... 51,596 56,192 65,195 75,518 77,700
-------- --------- -------- -------- --------
Operating income ................................ 18,272 23,830 29,986 26,138 34,642
Interest expense ................................. (35,138) (32,563) (35,090) (47,749) (61,538)
Other income (expense) ........................... (11,915) (13,645) (9,797) (7,017) 4,306
-------- --------- -------- -------- --------
Loss from continuing operations ................. (28,781) (22,378) (14,901) (28,628) (22,590)
Discontinued operations .......................... 20,565 -- -- -- --
Income tax benefit (expense) ..................... (1,616) 5,408 3,034 9,729 11,095
Extraordinary loss, net of taxes ................. -- -- -- -- (6,739)
-------- --------- -------- -------- --------
Net loss ........................................ $ (9,832) $ (16,970) $(11,867) $(18,899) $(18,234)
======== ========= ======== ======== ========
Deficiency of earnings available to cover fixed
charges (a) ..................................... $ 8,440 $ 9,615 $ 5,079 $ 18,444 $ 34,197
Balance Sheet Data (end of period)
Total assets ..................................... $377,183 $424,733 $635,761 $665,346 $851,748
Total debt ....................................... 356,086 406,038 612,392 626,121 817,725
Stockholders' equity (deficit) ................... (27,189) (44,162) (56,029) (49,609) (45,192)
Core Cable Television Operations (Restricted Group)
Financial Ratios and Other
Data (b)
Revenues ......................................... $148,985 $166,081 $197,630 $212,800 $232,155
EBITDA (c) ....................................... 73,805 83,449 100,476 105,711 115,261
EBITDA margin (d) ................................ 49.5% 50.2% 50.8% 49.7% 49.6%
Interest expense ................................. $ 34,882 $ 32,749 $ 34,699 $ 47,016 $ 59,966
Capital expenditures (e) ......................... 29,176 43,463 41,658 42,162 40,168
Total debt ....................................... 366,848 403,760 609,156 616,657 807,535
Ratio of total debt to EBITDA .................... 4.97x 4.84x 6.06x 5.83x 7.01x
Monthly revenue per average basic customer ....... $ 28.79 $ 30.18 $ 32.05 $ 31.44 $ 32.97
Annual EBITDA per average basic customer ......... 171.14 181.97 195.51 187.42 196.40
Annual capital expenditures per average basic
customer (e) .................................... 67.65 94.78 81.06 74.75 68.44
Summary Customer Data (end of period) (b)
Homes passed ..................................... 705,985 759,635 870,718 892,549 904,753
Basic customers .................................. 440,045 477,130 550,703 577,377 596,366
Basic penetration ................................ 62.3% 62.8% 63.2% 64.7% 65.9%
Premium units .................................... 393,310 393,689 420,630 426,092 426,345
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
Statement of Operations Data 1995 1996
---------- ------------
<S> <C> <C>
Revenues ................................................ $131,263 $ 184,665
Programming expenses .................................... 32,406 43,045
Selling, general & administrative ....................... 28,504 40,034
Technical and other ..................................... 13,444 18,809
Depreciation and amortization ........................... 36,418 51,437
------- ---------
110,772 153,325
------- ---------
Operating income ....................................... 20,491 31,340
Interest expense ........................................ (28,261) (47,971)
Other income (expense) .................................. 8,188 (85,177)
------- ---------
Income (loss) from continuing operations ............... 418 (101,808)
Income tax benefit (expense) ............................ (367) 3,484
Extraordinary loss, net of taxes ........................ -- (2,484)
------- ---------
Net income (loss) ...................................... $ 51 $ (100,808)
======= =========
Deficiency of earnings available to cover fixed
charges (a) ............................................ $ 11,782 $ 33,054
Balance Sheet Data (end of period)
Total assets ............................................ $1,167,902
Total debt .............................................. 1,269,698
Stockholders' equity (deficit) .......................... (193,177)
Core Cable Television Operations (Restricted Group)
Financial Ratios and Other
Data (b)
Revenues ................................................ $113,052 $ 161,544
EBITDA (c) .............................................. 56,728 82,350
EBITDA margin (d) ....................................... 50.2% 51.0%
Adjusted EBITDA (f) ..................................... 56,728 92,366
Interest expense ........................................ 27,188 47,008
Capital expenditures (e) ................................ 21,851 17,902
Total debt .............................................. 643,744 1,240,809
Ratio of total debt to annualized adjusted EBITDA (g) ... 5.67x 6.72x
Monthly revenue per average basic customer .............. $ 32.42 $ 33.33(h)
Annualized adjusted EBITDA per average basic customer (g) 195.36 202.86
Annualized capital expenditures per average basic
customer (e)(g) ........................................ 75.19 44.33(h)
Summary Customer Data (end of period) (b)
Homes passed ............................................ 1,265,744
Basic customers ......................................... 919,057
Basic penetration ....................................... 72.6%
Premium units ........................................... 557,032
</TABLE>
- ------
(a) For purposes of computing the deficiency of earnings available to cover
fixed charges, earnings represents the sum of income from continuing
operations before income taxes for the Company and its subsidiaries plus
fixed charges, minority interest in the loss of consolidated
subsidiaries, undistributed losses of equity method investments and
distributed income of equity method investments; less undistributed
income of equity method investments. Fixed charges represent interest
paid or accrued on indebtedness of the Company and its subsidiaries,
amortization of debt discount and deferred loan charges and one-third
(the portion deemed representative of the interest factor) of rents. In
1995, the Company increased its ownership in Garden State Cablevision
L.P. to 50%. For 1995 and the six months ended June 30, 1995 and 1996,
the equity loss from Garden State Cablevision L.P. has not been added
back for purposes of this calculation. Also, in 1995, the Company sold
marketable securities and recognized a $13.1 million gain, and in 1996,
the Company recognized a gain of $7 million on the exchange of a
partnership interest in connection with the TCI Exchange and a loss of
$66.9 million on the decline in market value of securities. These items
have been excluded from earnings for purposes of this calculation.
(b) The Core Cable Television Operations (Restricted Group) following the
consummation of the Transactions will consist of the Company and all of
the Company's wholly owned cable television subsidiaries. Financial
ratios and other information are presented for the Restricted Group to
enable prospective investors to evaluate the results of operations of
those operating entities on which the Company will rely to service its
obligations under the Notes.
(c) EBITDA represents operating income plus depreciation and amortization.
EBITDA is presented because it is a widely accepted financial indicator
of a company's ability to incur and service debt. EBITDA should not be
considered by an investor as an alternative to net income (loss), as an
indicator of the operating performance of the Company or as an
alternative to cash flows as a measure of liquidity. EBITDA is not a
measure under generally accepted accounting principles.
(d) EBITDA margin measures EBITDA as a percentage of revenues.
(e) Excludes the purchase price of acquisitions consummated during the
period.
(f) Adjusted EBITDA for the six months ended June 30, 1996 was calculated by
adding to EBITDA of the Company the EBITDA of the Wilmington System and
the Sammons Systems for the preacquisition portion of the period, and by
giving effect to the pro forma adjustments set forth in notes (f), (g),
(h), (i) and (r) of the notes to Pro Forma Financial Information.
Adjusted EBITDA is presented in order to provide a more meaningful
comparison to total debt at the period end, and does not necessarily
reflect what the Company's EBITDA would have been for such period had
such acquisitions actually occurred at the beginning of such period.
Adjusted EBITDA for the six months ended June 30, 1995 reflects no
changes to EBITDA, since none of the Transactions occurred during such
period.
(g) For comparative purposes, EBITDA and capital expenditures have been
annualized.
(h) Per customer data for the six months ended June 30, 1996 was computed
based on a weighted average number of basic customers during the period.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Substantially all of the Company's revenues are earned from customer fees
for cable television programming services, the sale of advertising,
commissions for products sold through home shopping networks and ancillary
services (such as rental of converters and remote control devices and
installations). Federal law and regulations, including the decision to
re-regulate certain aspects of the cable television industry, have affected
the Company's ability to increase or restructure its rates for certain
services. These re-regulation activities are intended to reduce customer
rates for basic cable television service and limit future rate increases. See
"Legislation and Regulation."
The Company has generated increases in revenues and EBITDA for the six
months ended June 30, 1996 and in each of the past three fiscal years,
primarily through internal customer growth, acquisitions, increases in
monthly revenue per basic customer and, to a lesser extent, through growth in
advertising and pay-per-view revenues. EBITDA represents earnings before
interest, income taxes, depreciation, amortization and equity in net losses
of unconsolidated affiliates. EBITDA also excludes non-operating revenue and
expenses, such as interest income, capital gains and gains on sale of
equipment. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to incur and service debt. EBITDA should not
be considered by an investor as an alternative to net income, as an indicator
of the operating performance of the Company or as an alternative to cash
flows as a measure of liquidity. EBITDA is not a measure under generally
accepted accounting principles. From January 1, 1991 through June 30, 1996,
the Company's Core Cable Television Operations have experienced a compound
annual growth rate in EBITDA of 19.3% (11.6% without reference to
acquisitions) and an average EBITDA margin of 50.0%. The high level of
depreciation and amortization associated with the Company's acquisitions and
capital expenditures, and interest costs related to its financing activities
have caused the Company to report net losses. Management believes that such
net losses are common for cable television companies and that the Company may
continue to incur net losses in the near future. Management does not expect
the Company to generate net income prior to 1998.
RESULTS OF OPERATIONS
The following tables, which are derived from, and should be read in
conjunction with, the Company's Consolidated Financial Statements included
elsewhere in this Propectus, set forth the historical percentage relationship
of the components of operating income for the periods indicated. The tables
provide information on the Company's predominant business unit, its Core
Cable Television Operations, and for the Company as a whole. The Core Cable
Television Operations historically have achieved better results than have the
Company's non-cable, communications-related business subsidiaries.
30
<PAGE>
CONSOLIDATED RESULTS
--------------------
<TABLE>
<CAPTION>
Percentage of Revenues
-----------------------------------------------------
Six
Year Ended Months Ended
December 31, June 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues ......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Programming expenses ............. 24.3 25.1 24.6 24.7 23.3
Selling, general & administrative 23.3 22.8 22.3 21.8 21.7
Technical and other .............. 7.7 9.1 10.9 10.2 10.2
Depreciation and amortization .... 30.6 32.0 29.2 27.7 27.8
-------- -------- -------- -------- --------
85.9 89.0 87.0 84.4 83.0
-------- -------- -------- -------- --------
Operating income ................. 14.1% 11.0% 13.0% 15.6% 17.0%
======== ======== ======== ======== ========
EBITDA ........................... 44.7% 43.0% 42.2% 43.3% 44.8%
</TABLE>
CORE CABLE TELEVISION OPERATIONS (RESTRICTED GROUP)
---------------------------------------------------
<TABLE>
<CAPTION>
Percentage of Revenues
-----------------------------------------------------
Six
Year Ended Months Ended
December 31, June 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues ......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Programming expenses ............. 22.3 23.2 23.8 24.0 22.6
Selling, general & administrative 20.8 20.5 19.7 19.4 18.5
Technical and other .............. 6.1 6.6 6.8 6.4 7.9
Depreciation and amortization .... 30.6 33.3 30.6 29.4 29.5
-------- -------- -------- -------- --------
79.8 83.6 80.9 79.2 78.5
-------- -------- -------- -------- --------
Operating income ................. 20.2% 16.4% 19.1% 20.8% 21.5%
======== ======== ======== ======== ========
EBITDA ........................... 50.8% 49.7% 49.7% 50.2% 51.0%
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
CONSOLIDATED RESULTS
Assets for the Company increased 37.1% to $1,168 million over the December
31, 1995 year-end. There were large increases in deferred franchise costs of
290.3% to $521.1 million and in property, plant and equipment of 81.3% to
$383.9 million. In both cases, the increases were primarily attributable to
the TCI Exchange and the Sammons Acquisition. Likewise, the total liabilities
of the Company increased 51.9% to $1,358 million over the December 31, 1995
year end due largely to the TCI Exchange and the Sammons Acquisition. The
largest increases were in accounts payable of 23.0% to $50.6 million, and an
increase of 55.3% to $1,270 million for notes payable, in each case as a
result of the foregoing transactions.
Revenues for the Company increased 40.7% to $184.7 million in the 1996
six-month period as compared to the 1995 six-month period, primarily as a
result of a 42.9% increase in revenues from the Company's Core Cable
Television Operations. The increase was primarily attributable to the TCI
Exchange and the Sammons Acquisition.
Operating expenses increased 38.4% to $153.3 million (83.0% of total
revenues) in the 1996 six-month period. Depreciation and amortization
increased 41.2% to $51.4 million (27.8% of total revenues) in the 1996
six-month period. All increases were due largely to the TCI Exchange and the
Sammons Acquisition.
Interest expense increased 69.7% to $48.0 million in the 1996 six-month
period. The increase was primarily the result of additional indebtedness
associated with the 8 3/8 % Senior Notes issued in November 1995 and
borrowings under the Old Bank Credit Facility for the purpose of funding
acquisitions.
31
<PAGE>
Other expense increased by $93.4 million to $85.2 million in the 1996
six-month period due largely to recognition of a $66.9 million decline in the
market value of its equity ownership interest in securities of Australis and
the provision for potential reduction in value of note receivable and accrued
interest in the amount of $19.7 million in connection with the note
receivable and accrued interest due from Australis. In the comparable 1995
six-month period other income included a $13.1 million gain on the sale of
marketable securities.
Loss before income taxes and extraordinary loss increased to $101.8
million in the 1996 six-month period from an income of $.4 million in the
1995 six-month period primarily due to recognition of losses associated with
Australis and the increase in interest expense.
EBITDA increased $25.9 million to $82.8 million in the 1996 six-month
period as compared to the 1995 six-month period. The increase was primarily
attributable to the TCI Exchange and the Sammons Acquisition.
CORE CABLE TELEVISION OPERATIONS
Revenues increased 42.9% to $161.5 million in the 1996 six-month period as
compared to the 1995 six-month period. Premium service revenues grew by
44.3% to $35.5 million. Pay-per-view revenues increased 58.7% to $3.8
million. Equipment rental revenue increased by 83.3% to $5.5 million. All the
increases are primarily attributable to the TCI Exchange and the Sammons
Acquisition.
In the 1996 six-month period, programming expense increased 34.4% to $36.5
million (22.6% of revenues of Core Cable Television Operations) as a result
of the TCI Exchange and the Sammons Acquisition. Selling, general and
administrative expense increased 36.3% to $29.9 million (18.5% of total
revenues of Core Cable Television Operations) as a result of increased number
of employees attributable to the acquisitions. Technical and other expenses
increased 77.4% to $12.8 million (7.9% of total revenues of Core Cable
Television Operations) in the 1996 six-month period as compared to the 1995
six-month period. Depreciation and amortization increased 43.4% to $47.6
million as a result of acquisitions.
Operating income increased 47.6% to $34.7 million (21.5% of total revenues
of Core Cable Television Operations), as the increase in revenues more than
offset the increases in other operating expenses due largely to the TCI
Exchange and the Sammons Acquisition.
UNRESTRICTED SUBSIDIARIES
The largest of the Company's unrestricted subsidiaries are MicroNet, Inc.
("MicroNet"), StarNet, Inc. ("StarNet") and StarNet Development, Inc.
("StarNet Development"). Revenues increased 27.0% to $23.1 million in the
1996 six-month period as compared to the 1995 six-month period, primarily as
a result of increased activity in the satellite transmission, promotional
services, and increased equipment sales of the Company's MicroNet and StarNet
subsidiaries.
Programming expense increased 24.9% to $6.5 million; selling, general and
administrative expense increased 54.2% to $10.1 million; service expense
increased 16.1% to $2.9 million; and cost of equipment sold decreased 16.1%
to $3.1 million. Depreciation and amortization increased 19.0% to $3.8
million in the 1996 six-month period as compared to the 1995 six-month
period.
Operating loss was $3.4 million as compared to a $3.0 million loss in the
same period in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
CONSOLIDATED RESULTS
Revenues for the Company increased 12.7% to $266.2 million in 1995 as
compared to 1994, primarily as a result of an 9.1% increase in revenues from
the company's Core Cable Television Operations.
Operating expenses increased to $231.6 million (87.0% of total revenues)
in 1995. Depreciation and amortization increased 2.9% to $77.7 million (29.2%
of total revenues) in 1995.
32
<PAGE>
Interest expense increased 28.9% to $61.5 million in 1995. The increase
was primarily the result of additional indebtedness associated with the
Company's acquisition of an additional 10.0% interest in Garden State
Cablevision L.P.; the acquisition of the minority interest in South Jersey
Cablevision; borrowings to provide interim financing to Australis, an
affiliate of the Company; and because of higher effective interest rates.
Equity in net losses of unconsolidated affiliates increased by $2.7
million. The Company's unconsolidated affiliates include several cable TV
operators which incur high levels of depreciation, amortization and interest
expenses. The Company's equity in net losses of the Company's largest
unconsolidated affiliate, Garden State Cablevision, L.P., in which the
Company holds partnership interests totaling 50.0%, increased to $8.5 million
in 1995 from $7.5 million in 1994.
On November 14, 1995, the Company issued $700.0 million in principal
amount of the 8 3/8 % Senior Notes. Net proceeds to the Company, after debt
issuance costs and discount, were approximately $685.7 million. Proceeds were
used to repay the outstanding balance of approximately $440.4 million under
its then-existing bank credit facility which carried a lower floating
interest rate of 7.375%. Proceeds from the offering were also used to repay
approximately $80.8 million of the Company's 9.93% Senior Notes due 2001. The
Company incurred a prepayment premium of $10.4 million and, consequently, has
reported an extraordinary loss of $6.7 million, net of deferred tax benefit,
in its consolidated statement of operations. The issuance of the 8 3/8 %
Senior Notes increased the Company's total debt level by approximately $150.0
million, resulting in increased interest expenses over the last forty-five
days of the year of $1.6 million. The Company invested the excess proceeds in
short-term treasury bills and commercial paper. These investments yielded
over $1.0 million of investment income over the last forty-five days of the
year.
Other income increased to nearly $15.0 million for 1995, up from $1.0
million in 1994. This increase was attributable to the tendering of the
Company's holding of QVC, Inc. stock in connection with the takeover of QVC
by Comcast Corporation. The Company recognized a gain of approximately $13.1
million from the sale of the QVC stock. As mentioned above, the Company
realized additional investment income from the investment of excess proceeds
of the 8 3/8 % Senior Notes.
As a result of the factors discussed above and below, and especially as a
result of the gain from the sale of QVC, Inc. stock, the Company's loss
before extraordinary loss decreased to $11.5 million for 1995 from $18.9
million in 1994.
Loss before income taxes decreased $6.0 million to $22.6 million for the
year ended December 31, 1995.
EBITDA increased 10.5% to $112.3 million for the year ended December 31,
1995 as compared to 1994. The increase was primarily attributable to
increases in revenues due to customer rate increases and increases in the
number of basic cable television customers.
CORE CABLE TELEVISION OPERATIONS
Revenues increased 9.1% to $232.1 million in 1995 as compared to 1994. The
increase is primarily attributable to a 3.3% increase in the number of basic
cable television customers served by the Company and a weighted average CPS
rate increase of $1.95 per subscriber per month that became effective on
February 15, 1995. Premium service revenues grew by 11.8% due to a premium
rate increase of $1.00 per month per premium channel for substantially all
premium channels that went into effect June 1, 1995. Pay-per-view revenues
increased 12.4% to $5.4 million for the year as a result of increased
customer buy rates. Advertising and home shopping revenues increased 14.7% to
$7.4 million due to an increase in customer buy rates and the launching of a
new home shopping channel. Equipment rental revenue increased by 9.6% to $6.2
million due to an increase in the number of addressable converters deployed.
Addressable converters allow customers to access pay-per- view services.
In 1995, programming expense increased 12.3% to $55.3 million (23.8% of
revenues of Core Cable Television Operations) as a result of an increase in
rates charged to the Company by the programmers and to the increase in the
number of basic cable television customers served by the Company. Selling,
general and administrative expense increased 5.0% to $45.9 million (19.7% of
total revenues of Core Cable Television Operations) as a result of cost of
living increases related to employee salaries and increased regulatory
compliance costs;
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and technical and other expense increased 11.0% to $15.7 million (6.8% of
revenues of Core Cable Television Operations), in each case, as compared to
1994. Depreciation and amortization increased 0.3% to $71.1 million as a
result of a one-time write-off in 1994 of deferred loan acquisition costs in
the amount of approximately $2.7 million.
Operating income increased 26.9% to $44.2 million (19.1% of revenues of
Core Cable Television Operations), as the increase in revenues offset the
increases in depreciation and amortization as well as other operating
expenses.
EBITDA increased 9.0% to $115.3 million for the year ended December 31,
1995 as compared to 1994. The increase was primarily attributable to
increases in revenues due to customer rate increases.
UNRESTRICTED SUBSIDIARIES
MicroNet revenues increased 30.0% to $13.0 million in 1995. The growth
rate was primarily due to increased activity in satellite transmission
services and increased tower rental revenue resulting from the acquisition of
a partnership with a tower rental business in the eastern shore areas of
Delaware, Maryland and Virginia. Selling, general and administrative expenses
increased 15.4% to $3.9 million due to added staff. Depreciation and
amortization increased 42.1% to $3.8 million as a result of increased capital
expenditure and the acquisition of the tower rental business. Operating
income was $292,000 for 1995 as compared to an operating loss of $320,000 for
1994. Interest expense increased by $0.6 million to $1.8 million due to the
incurrence of $7.0 million of bank debt used to finance the acquisition of
the tower rental business. MicroNet's loss before income taxes was $1.5
million for 1995, down from $1.6 million for 1994.
StarNet revenues decreased 5.7% to $10.5 million in 1995 as compared to
1994 primarily due to decreased transponder sub-lease revenue. StarNet
operating expenses were $14.0 million, resulting in an operation loss of $3.4
million in 1995 compared to $0.9 million in 1994. Depreciation expense
increased to $1.4 million from $1.1 million.
Due to the transition from research and development to production, StarNet
Development, Inc. revenues increased to $9.5 million in 1995 from $3.8
million in 1994. Gross profit on sales increased to 26.0% in 1995 from 12.0%
in 1994. Cost of sales included a $1.5 million write off of obsolete
inventory in 1995. The operating loss for 1995 was $3.0 million compared to
$3.7 million in 1994. Depreciation and amortization increased to $0.9 million
from $0.5 million.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993
CONSOLIDATED RESULTS
Revenues for the Company increased 10.8% to $236.2 million for the year
ended December 31, 1994 as compared to 1993, primarily as a result of a 7.7%
increase in revenues from the Company's Core Cable Television Operations and,
to a lesser extent, an increase in revenues from the Company's Unrestricted
Subsidiaries.
Operating expenses increased 14.6% to $210.0 million (89.0% of total
revenues) for the year ended December 31, 1994 as compared to 1993, primarily
due to a 12.8% increase in operating expenses in the Company's Core Cable
Television Operations and a 26.0% increase in the operating expenses of the
Company's Unrestricted Subsidiaries. Depreciation and amortization increased
15.8% to $75.5 million (32.0% of total revenues) for the year ended December
31, 1994 as compared to 1993, primarily as a result of increased capital
expenditures and acquisitions, and the recognition of deferred loan costs as
a result of refinancing certain debt of the Company's Core Cable Television
Operations.
Interest expense increased 36.1% to $47.7 million for the year ended
December 31, 1994 as compared to 1993. The increase was primarily the result
of a 35.5% increase in interest expense related to acquisitions of cable
television assets, investments in international holdings and higher effective
interest rates.
Other expense was $7.0 million as a result of losses on equity investments
in unconsolidated affiliates held by the Company's Unrestricted Subsidiaries.
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Loss before income taxes increased by $13.7 million to a loss of $28.6
million in 1994. Income tax benefit was $9.7 million. Net loss for the year
ended December 31, 1994 increased $7.0 million to a net loss of $18.9
million.
EBITDA increased 6.8% to $101.7 million for the year ended December 31,
1994 as compared to 1993. The increase was primarily attributable to internal
customer growth and acquisitions.
CORE CABLE TELEVISION OPERATIONS
Revenues increased 7.7% to $212.8 million for the year ended December 31,
1994 as compared to 1993. The increase is primarily attributable to a 4.8%
increase in the number of basic cable television customers served by the
Company and a full year of revenues from cable systems acquired in 1993. The
increase in revenues from customer growth was offset, in part, by a full
year's impact of FCC regulations implemented on September 1, 1993 and a
partial year's impact of additional FCC regulations implemented on July 14,
1994. The effect of these regulations was to reduce the rates that the
Company is allowed to charge its basic customers. As a result of FCC
regulations, revenues, other than those arising as a result of acquisitions,
increased less than 0.5%. All of this increase was the result of additional
equipment rental. See "Legislation and Regulation." Premium service revenues
grew by 4.6% to $47.8 million due to an increase in premium units.
Pay-per-view revenues increased 7.8% to $4.8 million as a result of increased
customer buy rates. Advertising and home shopping revenues grew by a rate of
32.8% to $6.4 million due to an increase in customer buy rates and the
launching of a new home shopping channel. Equipment rental revenue increased
by 28.7% to $5.6 million. Approximately 70.0% of this increase was the result
of FCC regulation and the balance of the increase was the result of
additional converters deployed.
In 1994, programming expense increased 11.9% to $49.3 million (23.2% of
total revenues of Core Cable Television Operations), selling, general and
administrative expense increased 6.6% to $43.7 million (20.5% of total
revenues of Core Cable Television Operations), and technical and other
expense increased 16.3% to $14.1 million (6.6% of total revenues of Core
Cable Television Operations), in each case, as compared to 1993. All variable
expenses increased in proportion to the increase in revenues as a result of
the increase in the number of basic cable television customers served by the
Company. Other expenses have increased as a result of inflation or cost of
living adjustments. Depreciation and amortization increased 16.9% to $70.9
million for the year ended December 31, 1994 as compared to 1993 as a result
of increased capital expenditures and acquisitions and the recognition of
deferred loan costs as a result of refinancing certain debt.
Operating income was $34.8 million (16.4% of total revenues of Core Cable
Television Operations), as the increase in revenues more than offset the
increase in operating expenses.
EBITDA increased 5.2% to $105.7 million for the year ended December 31,
1994 as compared to 1993, as a result of increased revenues due to increases
in the number of basic cable television customers. EBITDA as a percentage of
revenues declined by 1.1% as a result of the Company's inability to increase
rates due to rate re-regulation.
UNRESTRICTED SUBSIDIARIES
Revenue increased 49.9% to $23.4 million for the year ended December 31,
1994 as compared to 1993, primarily as a result of increased activity in the
satellite transmission, tower rental and promotional services businesses of
the Company's MicroNet and StarNet subsidiaries. Programming expense
increased 30.1% to $10.1 million, selling, general and administrative expense
increased 14.8% to $10.1 million and technical and other expense increased
66.1% to $7.3 million. Programming expense increases are primarily
attributable to additional expenses related to cost of sales of manufactured
equipment in the Company's StarNet and StarNet Development subsidiaries. All
other expenses increased as a result of the Company expanding its operations
of the Unrestricted Subsidiaries. Depreciation and amortization increased
1.9% to $4.6 million for the year ended December 31, 1994 as compared to
1993.
Operating loss was $8.7 million as compared to a $9.9 million loss in the
prior year.
Interest expense increased by $0.3 million to $0.7 million.
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RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued its Statement 123 on
accounting for stock-based compensation, which encourages employers to
account for stock compensation awards based on their fair value at the date
the awards are granted. Statement 123 is effective for calendar year 1996;
however, it will not apply since the Company does not have stock options or
stock compensation.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's businesses require cash for operations and for capital
expenditures. In addition, the Company has followed a strategy of expansion
through selective acquisitions of cable television systems and
communications-related businesses for cash. As of June 30, 1996, the Company
had a commitment to purchase a cable television system for an aggregate cash
purchase price of approximately $84.5 million. On April 30, 1996, the Company
completed two acquisitions for an aggregate purchase price of approximately
$27.0 million.
To date, cash requirements have been funded by cash flow from operations
and borrowings. At June 30, 1996, the Company had aggregate Senior
Indebtedness of approximately $945.2 million and bank debt at the subsidiary
level of approximately $25.7 million. The Company's Senior Indebtedness
consisted of (i) three debt obligations in the amount of approximately $75.0
million, $21.0 million and $14.2 million (collectively, the "Private
Placement Notes"), (ii) $700.0 million in principal amount of 8 3/8 % Senior
Notes and (iii) the $450.0 million New Bank Credit Facility, consisting of a
$150.0 million term loan facility and a $300.0 million revolving credit
facility. The Company issued the Private Placement Notes from 1988 to 1991 in
connection with refinancing of revolving bank debt, initially incurred to
make acquisitions. The Company issued the 8 3/8 % Senior Notes on November
14, 1995 pursuant to a registration statement on Form S-1 and used a portion
of the approximately $685.7 million in net proceeds (a) to retire
then-existing bank debt and a portion of the Private Placement Notes, (b) to
fund the Company's obligation to deliver cable television system assets at a
net cost to the Company of approximately $45.0 million in order to complete
the TCI Exchange and (c) to fund approximately $106.6 million of the
approximately $531.0 million (including the reimbursement of approximately
$2.0 million in capital expenditures) purchase price for the Sammons
Acquisition. On February 29, 1996, the Company borrowed $400.0 million under
the term loan portion of the Old Bank Credit Facility and $20.0 million under
the revolving credit portion of the Old Bank Credit Facility to fund a
portion of purchase price for the Sammons Acquisition.
On June 27, 1996, the Company issued $300,000,000 in principal amount of
10 1/2 % Senior Subordinated Notes Due 2006. The net proceeds from the Old
Notes Offering (approximately $293.5 million) were used, together with $150
million of proceeds from initial borrowings under the New Bank Credit
Facility and cash on hand in the amount of $1 million, to prepay all amounts
outstanding under the Old Bank Credit Facility. Simultaneously with the
closing of the Old Notes Offering, the Company entered into the New Bank
Credit Facility. The New Bank Credit Facility provides a commitment in the
aggregate amount of $450 million, consisting of a $150 million term loan
facility and a $300 million revolving credit facility. As of June 30, 1996,
after giving pro forma effect to the Transactions, the Company would have had
approximately $195.5 million of borrowing availability under the New Bank
Credit Facility.
The Company's operations are conducted through its direct and indirect
subsidiaries. As a holding company, the Company has no independent operations
and, therefore, is dependent on the cash flow of its subsidiaries to meet its
own obligations, including the payment of interest and principal obligations
on the Notes, the Private Placement Notes, the 8 3/8 % Senior Notes and the
New Bank Credit Facility when due. See "Risk Factors -- Subordination;
Holding Company Structure." There are no restrictions relating to the payment
to the Company of dividends, advances or other payments by the Restricted
Subsidiaries.
Cash flow generated from continuing operations was approximately $71.4
million for the year ended December 31, 1995 compared to the approximately
$54.1 million of cash generated during the year ended December 31, 1994 and
$52.9 million of cash generated during the year ended December 31, 1993.
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Cash flow generated from continuing operations, excluding changes in
operating assets and liabilities that result from timing issues and
considering only adjustments for noncash charges was approximately $36.0
million for the six months ended June 30, 1996 compared to approximately
$29.7 million for the six months ended June 30, 1995. The increase in cash
flow was a result of the completion of the TCI Exchange and the Sammons
Acquisition and the realization of the full effect of rate increases which
were implemented in 1995. During the 1996 six-month period the Company was
required to make interest payments of approximately $46.1 million on its
outstanding debt, whereas during the 1995 six-month period, due to the timing
of its interest payments and the existence of borrowings outstanding under
its then existing bank credit facility, the Company was required under its
then existing debt obligations to make interest payments of approximately
$28.3 million.
For the period 1996 through 2000, the Company's Core Cable Television
Operations expect to incur approximately $300.0 million in capital
expenditures related to its upgrade program and approximately $150.0 million
for routine maintenance capital expenditures. As of June 30, 1996, the
Company has expended approximately $17.9 million for capital expenditures in
1996 for Core Cable Television Operations.
The Company is obligated to make additional investments of FF49.8 million
in 1996 and 1997 (approximately $9.9 million in the aggregate, subject to
currency exchange rate fluctuations) related to its indirect investment in
Videopole. The foregoing amounts assume that the Company will continue to be
required to make the investments required to be provided by the Company's
joint venture partner, TCI. Any funds provided by the Company as a result of
the failure by TCI to make its required investments will result in an
adjustment to the partnership interests.
Future minimum lease payments under all capital leases and noncancellable
operating leases for each of the years 1996 through 1999 are $6.6 million (of
which $845,000 is payable to a principal stockholder), $5.1 million (of which
$891,000 is payable to a principal stockholder), $4.4 million (of which
$938,000 is payable to a principal stockholder) and $2.3 million (of which
$988,000 is payable to a principal stockholder), respectively.
The Company has net operating loss carryforwards which it expects to
utilize notwithstanding recent and expected near term losses. The net
operating losses begin to expire in the year 2001 and will fully expire in
2009. Management bases its expectation on its belief that depreciation and
amortization expense will level off and that interest expense will decline as
debt is repaid, resulting in higher levels of pretax income.
The Company is a party to interest rate cap agreements to reduce the
impact of changes in interest rates on its floating rate indebtedness. The
Company does not ordinarily enter into interest rate or currency hedge
agreements except as described above.
The Turnersville Acquisition is expected to be completed in the first
quarter of 1997 for approximately $84.5 million. Under the terms of the New
Bank Credit Facility, the Company is required to obtain the consent of the
lenders thereunder to acquire cable television assets in an aggregate amount
in excess of $100 million.
LENFEST AUSTRALIA, INC.
The Company, through its Lenfest Australia, Inc. subsidiary, holds an
approximately 31.4% aggregate equity investment in Australis Media Limited,
an Australian public company which provides pay television programming and
services to substantially all of Australia's major population centers. The
Company acquired its interest in Australis for an aggregate investment of
approximately U.S.$91.0 million. On three occasions since March 1996 (two of
which were at the request of Australis) trading in Australis' securities has
been suspended pending announcements by Australis regarding its
recapitalization plans. In each instance trading was resumed after the
issuance by Australis of a press release describing the then current status
of its operations and recapitalization plans. As of August 30, 1996, the
investment had a market value of approximately U.S.$26.2 million. As a result
of uncertainties associated with the successful completion by Australis of
its proposed recapitalization, the Company's financial statements included
herein recognize a decline in the market value of its equity ownership
interest in securities of Australis in the amount of approximately $66.9
million and the provision for potential reduction in value of note receivable
and accrued interest in the amount of $19.7 million in connection with the
note receivable described below.
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On January 19, 1996, Lenfest Australia, Inc. loaned Australis
approximately $18.5 million on an unsecured basis. Such loan had an original
due date of February 26, 1996, but has been extended to the earlier of
September 30, 1996 or the refinancing by Australis of the Australis Credit
Facility (as defined). The Company loaned the funds to Lenfest Australia,
Inc., a subsidiary of the Company (but not part of the Restricted Group), on
an intercompany basis. On February 29, 1996, Lenfest Australia, Inc. entered
into a credit facility (as subsequently amended, the "Lenfest Australia
Credit Facility") with two of the banks which are parties to the New Bank
Credit Facility. The amount borrowed, approximately $18.7 million, was used
to repay the intercompany advance from the Company and transaction costs
associated with the loan to Lenfest Australia, Inc. The Lenfest Australia
Credit Facility is an unsecured facility which must be repaid on the earlier
of repayment of the loans by Australis and September 30, 1996. The full
payment and performance of the Lenfest Australia Credit Facility was
guaranteed by Mr. Lenfest. As a condition to granting their consent to the
entering into of the Lenfest Australia Credit Facility, the lenders under the
New Bank Credit Facility required the Company to agree to reduce the
aggregate principal amount available for advances under the revolving credit
portion of the New Bank Credit Facility by $20.0 million so long as any
portion of the Lenfest Australia Credit Facility remains outstanding. In
March and April 1996, the Company loaned an additional $15.5 million to
Australis from cash on hand. These loans were repaid, with interest, on May
11, 1996.
The Company and certain other investors in Australis (collectively, the
"Australis Guarantors") have agreed to assist in a recapitalization of
Australis. On May 10, 1996, Australis, Toronto Dominion Australia Limited
("TDAL") and the Australis Guarantors entered into agreements which provided
for TDAL to lend Australis up to $125.0 million (the "Australis Bank
Facility") and for the Australis Guarantors to severally guarantee borrowings
under the Australis Bank Facility. The terms of the agreements provide that
the Company's several portion (the "Australis Guaranty") of the guaranty is
up to $75.0 million of the Australis Bank Facility. The Australis Bank
Facility requires that it be repaid on or before October 31, 1996. In
connection with the closing on the Australis Bank Facility, Australis repaid
the $15.5 million of loans made by the Company in March and April 1996.
Australis has announced that it plans to repay the Australis Credit Facility
with the proceeds of long-term debt and equity financing in conjunction with
a proposed recapitalization. If the long-term financing is completed, the
$18.5 million loan to Australis by Lenfest Australia, Inc. will be repaid
from the proceeds of such financing. In connection with such long-term
financing, the Company has agreed to make an additional $40.0 million equity
investment in Australis and to convert the discounted present value
(approximately U.S.$ 25.0 million) of its existing ten-year technical
services agreement with Australis to equity, subject to the approval of the
issuance of additional securities by Australis' shareholders. The additional
equity investment and the conversion of the technical services agreement into
equity are subject to a number of conditions, including the successful
completion of the recapitalization and the equity contributions of certain
other investors.
In connection with the Australis Guaranty, the Company entered into a
stand-by $75.0 million senior subordinated credit facility (the "Stand-by
Facility") on May 2, 1996 with The Toronto-Dominion Bank (the Administrative
Agent under the Existing Bank Credit Facility and an affiliate of TDAL) in
order to provide any required funding under the Australis Guaranty. The terms
of the Stand-by Facility provide that any loan will be subordinated to the
senior lenders to the Company, be unsecured and be due on the first to occur
of November 18, 1996, the issuance of public debt by Australis in an amount
sufficient to repay the Australis Bank Facility or the issuance of additional
public securities by the Company. In addition, any such loan will not require
principal amortization prior to maturity.
There can be no assurances that the Australis long-term financing will be
completed or completed on a timely basis. The board of directors of Australis
has publicly stated that if Australis is unable to obtain the long-term
financing prior to the expiration of the Australis Bank Facility (scheduled
to expire on October 31, 1996), there is substantial doubt as to Australis'
ability to continue as a going concern. See "Risk Factors -- Investment in
Australis Media Limited."
Additionally, in November 1994, Mr. Lenfest and TCI International, Inc.
jointly and severally guaranteed $67.0 million in program license payment
obligations of the distributor of Australis' movie programming. The Company
has agreed to indemnify Mr. Lenfest against loss from such guaranty to the
fullest extent permitted under the Company's debt obligations. The Company
has neither sought nor obtained any consents which may
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be required in connection with this indemnification obligation. The terms of
the guarantees provide that the amount of the guarantees will be reduced on a
dollar-for-dollar basis with the provision of one or more letters of credit,
which may not exceed $33.5 million. Under the terms of the New Bank Credit
Facility, however, Mr. Lenfest's claims for indemnification are limited to
$33.5 million, which amount will be further reduced by the aggregate face
amount of any letters of credit, if any, requested by the Company to be
issued under the New Bank Credit Facility with respect to the program license
payment obligations guarantees. If the Company obtains such letter of credit
facility, the Company would be directly obligated for the face amount of such
letter of credit and may remain indirectly obligated for the balance of the
program license payment obligations. The Company has deferred any decision
concerning the obtaining of any letter of credit facility (including the
amount thereof) until after the Australis long-term financing has been
successfully completed.
FUTURE CAPITAL REQUIREMENTS
Management believes that cash flow generated from the operating activities
of the Core Cable Television Operations will be sufficient to enable the
Company for the foreseeable future to make capital expenditures, to meet
operating expenses and pay the taxes of the Company and to service its
indebtedness. The Company's ability to borrow funds to make additional
investments in or acquisitions of cable television systems, and to borrow
funds under the New Bank Credit Facility if required to repay the Lenfest
Australia Credit Facility, will require that the Company be in compliance
with the Senior and Total Debt Leverage Ratios or obtain the consent of the
holders of the Company's indebtedness to a waiver or amendment of the
applicable Senior or Total Debt Leverage Ratio. Management believes that the
Company will either be in compliance with such Debt Leverage Ratios or obtain
the required consents. See "--Liquidity and Capital Resources -- New Bank
Credit Facility."
INFLATION
The net impact of inflation on operations has not been material in the
last three years due to the relatively low rates of inflation during this
period. If the rate of inflation increases the Company may increase customer
rates to keep pace with the increase in inflation, although there may be
timing delays.
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BUSINESS
GENERAL
The Company acquires, develops and operates cable television systems
(principally through its wholly owned subsidiary, Suburban Cable TV Co. Inc.
("Suburban"). Management believes the Company's Core Cable Television
Operations provide service to one of the largest contiguous blocks of
customers served by a single cable operator in the United States. As of June
30, 1996, the Company's Core Cable Television Operations served approximately
919,000 basic customers and passed approximately 1,266,000 homes. In
addition, the Company holds equity interests in other cable television
companies serving approximately 420,000 basic customers in areas near or
contiguous to its Core Cable Television Operations, of which the Company's
attributable portion is approximately 177,000 basic customers, giving the
Company a combined domestic base of 1,096,000 basic customers.
The Company's Core Cable Television Operations are located primarily in
the suburban areas surrounding Phildelphia (Southeastern Pennsylvania,
Southern New Jersey and Northern Delaware), in predominantly middle and
upper-middle income areas that in recent years have had favorable household
growth and income characteristics. Management believes the "clustering" of
its cable television systems and the favorable demographics of its service
area have contributed to its high operating cash flow growth and margins.
From January 1, 1991 through June 30, 1996, the Company's Core Cable
Television Operations have experienced a compound annual growth rate in
EBITDA of 19.3% (11.6% without reference to acquisitions) and an average
EBITDA margin of 50.0%.
H.F. (Gerry) Lenfest, President and Chief Executive Officer of the
Company, together with his children, and TCI, through an indirect wholly
owned subsidiary, each beneficially owns 50% of the Company's outstanding
capital stock. Mr. Lenfest is a cable industry pioneer who founded Lenfest in
1974 and has grown the Company both internally and through acquisitions. TCI
is the largest cable television operator in the United States, with wholly
owned and affiliated systems serving approximately 13.0 million customers.
Lenfest believes that its affiliation with TCI provides substantial benefits,
including the ability to purchase programming and equipment at rates
approximating those available to TCI. See "-- Relationship with TCI" and "--
Programming and Equipment Supply."
OPERATING STRATEGY
Management believes that the cable television industry has significant
growth potential in both the business of providing television programming
services and the business of providing new services such as telephony,
Internet access, near video-on-demand and interactive/transactional services.
Management believes that the Company's operating strategy will allow the
Company to take advantage of the industry's potential. The Company's
operating strategy for its Core Cable Television Operations includes the
following elements:
o Capturing the Benefits of Clustering. Management believes the
Company can derive significant economies of scale and operating
efficiencies from the operation of its cable television systems in a
single cluster. Operational advantages and cost savings associated
with clustering include centralized management, billing, marketing,
customer service, technical and administrative functions, and the
reduction of headends. Management also believes that clustering will
enable it to more effectively utilize capital by more efficiently
delivering cable and related services to a greater number of
households. Operation of its cable television systems in a single
cluster also will provide the Company with enhanced revenue
oportunities, including the ability to attract additional
advertising, and the potential to add residential and business
telephony services.
o Targeting Regions with Favorable Demographics. Management believes
that suburban households are more likely to subscribe to cable
television services and premium service packages and to take
advantage of new service offerings. Management attributes the
Company's growth and high customer penetration levels to its history
of acquiring and developing cable television systems in suburban
areas with favorable growth and income characteristics. In order to
build on the favorable demographic characteristics of the areas
contiguous to the Company's current cluster of cable television
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systems, the Company will continue to pursue opportunistic
acquisitions of cable television systems near or contiguous to its
Core Cable Television Operations. This activity may include attempts
to acquire the balance of the shares of stock of Raystay Co. and
Susquehanna Cable Co. and its cable television operating
subsidiaries.
o Emphasis on Customer Service. The Company has sought to provide its
cable television customers with quality customer service and
attractive programming choices at reasonable rates. Among other
customer service initiatives, the Company has adopted the NCTA
customer service standards and implemented same-day, evening and
weekend installation and repair options. Management believes that
these efforts have contributed to its high customer penetration
levels. Management believes that the improved reliability and
additional channel capacity expected to result from the ongoing
upgrade of the Company's cable television systems will further
increase customer satisfaction.
o Upgrade of Cable Television Systems. Management believes that
maintaining high technical standards is integral to increasing
programming choices, improving customer satisfaction and developing
new revenue streams. The Company recently commenced an upgrade of
the network architecture of its cable television systems by
increasing bandwidth, deploying fiber optic cable and reducing the
number of headend reception facilities. Successfully upgrading the
architecture of the Company's cable systems will result in expanded
channel capacity, two-way communication capability, enhanced network
quality and dependability, augmented addressability and the ability
to offer enhanced and new telecommunications services. These new
services could include additional channels and tiers, pay-per-view
(including near video-on-demand), high speed data services and
Internet access, digital advertisement insertion,
interactive/transactional services and telephony. In addition, the
successful upgrade should allow the Company to provide new
offerings, such as local and exclusive entertainment, news,
information and community-oriented programming services. Management
believes that these services will enable the Company to
differentiate itself on a competitive basis and increase penetration
and revenue per customer through more effective targeted marketing,
greater bundling of services and further development of the
Company's brand name.
RECENT ACQUISITIONS
As part of its continuing strategy to develop and maintain a single
contiguous cluster of cable television systems, the Company recently
completed a series of acquisition transactions.
THE TCI EXCHANGE
On February 12, 1996, the Company completed an acquisition in which it
received TCI's Wilmington System in exchange for the Company's cable
television systems in the East San Francisco Bay area, a 41.67% partnership
interest in Bay Cable Advertising (an advertising interconnect) and cable
television properties located in Ft. Collins, Colorado having a net value of
approximately $45 million (which were acquired from The World Company for the
purpose of completing the exchange). As of February 12, 1996, the Wilmington
System passed approximately 193,000 homes and served approximately 143,000
basic customers.
THE SAMMONS ACQUISITION
On February 29, 1996, the Company acquired from Sammons its Bensalem and
Harrisburg cable television systems in Pennsylvania and its Vineland and
Atlantic City/Pleasantville systems in New Jersey. The purchase price for the
Sammons Systems was approximately $531 million. The Company also acquired the
right to take ownership of Sammons' Gettysburg, Pennsylvania cable television
system. Under the terms of the purchase agreement, the Company, through its
Suburban subsidiary, is managing the Gettysburg System until it is
transferred to the Company, or at its direction to a third party. The Company
has signed an agreement to transfer the Gettysburg System to GS
Communications, Inc. for $4.5 million and certain other assets. As of
February 29, 1996, the Sammons Systems (excluding the Gettysburg System)
passed approximately 364,000 homes and served approximately 277,000 basic
customers.
41
<PAGE>
THE SALEM AND SHORE ACQUISITIONS
On April 30, 1996, the Company acquired from Tri-County Cable Television
Company, an affiliate of Time Warner, the Salem System. The purchase price
for the Salem System was approximately $16 million. On the same date, the
Company acquired from Shore Cable Company of New Jersey the Shore System,
which partially overbuilt the Company's Atlantic City/Pleasantville system.
The purchase price for the Shore System was approximately $11 million.
PENDING ACQUISITION
On March 28, 1996, the Company signed an agreement to acquire the
Turnersville System from Cable TV Fund 14-A, Ltd., an affiliate of Jones
Intercable, Inc. The purchase price for the Turnersville System is
approximately $84.5 million, subject to certain adjustments. At the closing,
which the parties have agreed will occur in the first quarter of 1997, the
Company expects that the Turnersville System will pass approximately 46,200
homes and have approximately 36,300 basic customers.
OTHER OPERATIONS AND INVESTMENTS
In addition to its Core Cable Television Operations, Lenfest has made
investments in other cable television and communications-related companies.
Lenfest holds a 50% interest in Garden State Cablevision L.P., which serves
approximately 203,000 basic customers in and around Cherry Hill, New Jersey;
a 30% interest in Susquehanna Cable Co., which serves approximately 147,000
basic customers, approximately 65,000 of whom are in York County,
Pennsylvania; and a 45% interest in Raystay Co., which serves approximately
70,000 basic customers in Pennsylvania and West Virginia. Lenfest also owns
StarNet, Inc., a provider of promotional services and equipment for the cable
television industry; MicroNet, Inc., a carrier of video, voice and data
transmission services; and Lenfest Programming Services, Inc., the provider
of a local cable news channel (NewsChannel) in Eastern Pennsylvania, Southern
New Jersey and Northern Delaware. In addition to its domestic holdings,
Lenfest also holds a 31.4% economic interest in Australis Media Limited, a
pay-television provider in Australia, and a 20.8% interest in Videopole, a
cable television operator in France serving approximately 68,000 customers.
RELATIONSHIP WITH TCI
LMC Lenfest, Inc., an indirect wholly owned subsidiary of TCI, owns 50% of
the outstanding common stock of the Company. The Company's relationship with
TCI dates to 1982 when a subsidiary of TCI acquired a 15.1% interest in the
Company. That sale of shares by the Company, as well as the subsequent sale
in 1986 of an additional 28.6% interest to a TCI subsidiary, was made to
provide the Company with funds for the acquisition of additional cable
television systems. In addition, in 1986 (in a secondary transaction), Mr.
Lenfest sold an 8.3% interest from his holdings to an indirect wholly owned
subsidiary of TCI, one-half of which interest was subsequently repurchased by
the Company and held as treasury shares. In 1992, Mr. Lenfest and his family
sold an additional 2.1% interest in the Company to the TCI subsidiary. LMC
Lenfest Inc. holds all of TCI's interest in the Company.
Throughout the period that TCI has had an equity interest in the Company,
the Company has operated independently. Although each of John Malone, the
Chief Executive Officer and President of TCI, and Brendan Clouston, Executive
Vice President and Chief Operating Officer of TCI, is a member of the
Company's Board of Directors, no other representative of TCI or its
subsidiaries participates in the management, operation or planning of the
Company. Mr. Lenfest and LMC Lenfest, Inc., as successor in interest to the
earlier TCI subsidiaries through a series of TCI internal reorganizations,
have an agreement that provides, together with the amended and restated
Articles of Incorporation of the Company, that Mr. Lenfest has the right to
designate a majority of the Board of Directors of the Company until January
1, 2002. During such period, vacancies in respect of the directors designated
by Mr. Lenfest shall be filled by designees of Mr. Lenfest or, in the event
of Mr. Lenfest's death, of The Lenfest Foundation.
Pursuant to other contractual arrangements with TCI and its affiliates,
the Company has the right to purchase cable programming at a fixed rate
calculated as a percentage in excess of the rate available to TCI. In
addition, TCI has granted the Company a right of first refusal to purchase
any cable television system which
42
<PAGE>
TCI or its subsidiaries has a right to acquire if such cable television
system is located within 25 miles of any existing Company-owned cable
television system. The Company also has the right to receive the same
discounts on equipment purchases as are received by TCI. See "Principal
Stockholders."
OVERVIEW OF CABLE TELEVISION SYSTEMS
DEVELOPMENT OF THE SYSTEMS
The Company has grown since its founding in 1974 both through the internal
growth of its owned and operated cable television systems and through
acquisitions. Lenfest has acquired numerous cable television systems since
1983. Through its selection of cable systems to acquire, the Company has
successfully developed a substantial cluster of contiguous cable operating
systems, which comprise the Company's Core Cable Television Operation. This
single cluster is located in the suburban areas surrounding Philadelphia.
The following table provides customer data at year-end for each of the
years in the five-year period ended December 31, 1995 and at June 30, 1996,
for the Company's owned and operated and affiliated cable television systems
and for the Company after giving effect to the Transactions.
<TABLE>
<CAPTION>
Year Ended December 31, Period Period
---------------------------------------------------------- Ended Ended
1991 1992 1993 1994 1995 June 30, 1996 June 30, 1996
--------- --------- --------- --------- --------- -------------- --------------
Actual Pro Forma
-------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Owned and Operated
- -------------------
Homes passed
Beginning of period ...... 686,927 705,985 759,635 870,718 892,549 904,753 1,280,577
Internal growth .......... 15,058 18,850 48,283 21,831 12,204 25,991 31,563
% Internal growth ........ 2.19% 2.67% 6.36% 2.51% 1.37% 2.87% 2.47%
Acquired ................. 4,000 34,800 62,800 -- -- 335,000 --
End of period ............ 705,985 759,635 870,718 892,549 904,753 1,265,744 1,312,140
Basic customers
Beginning of period ...... 422,452 440,045 477,130 550,703 577,377 596,366 937,724
Internal growth .......... 14,893 13,085 31,573 26,674 18,989 16,691 17,480
% Internal growth ........ 3.53% 2.97% 6.62% 4.84% 3.29% 2.80% 1.86%
Acquired ................. 2,700 24,000 42,000 -- -- 306,000 --
End of period ............ 440,045 477,130 550,703 577,377 596,366 919,057 955,204
Affiliated Systems
- -------------------
Homes passed
Beginning of period ...... 479,426 487,114 491,003 505,521 518,425 538,082
Internal growth .......... 7,688 3,889 14,518 12,904 19,657 41,936
% Internal growth ........ 1.60% 0.80% 2.96% 2.55% 3.79% 7.79%
End of period ............ 487,114 491,003 505,521 518,425 538,082 580,018
Attributable homes passed
at end of period (a) .. 111,989 112,858 163,258 185,457 229,390 246,796
Basic customers
Beginning of period ...... 319,252 327,502 336,388 353,935 366,041 384,480
Internal growth .......... 8,250 8,886 17,547 12,106 18,439 35,631
% Internal growth ........ 2.58% 2.71% 5.22% 3.42% 5.04% 9.27%
End of period ............ 327,502 336,388 353,935 366,041 384,480 420,111
Attributable customers at
end of period (a) ..... 73,030 74,998 113,294 130,247 162,338 177,155
</TABLE>
- ------
(a) For each affiliated cable television system, the number of attributable
homes passed and attributable basic customers is determined by
multiplying the Company's percentage equity interest in such cable
television system by the actual homes passed and actual basic customers
of such system. As of June 30, 1996, the Company held a 50% equity
interest in Garden State Cablevision L.P., a 30% equity interest in
Susquehanna Cable Co. and a 45% equity interest in Raystay Co. See " --
Non-Consolidated Cable Television Systems."
43
<PAGE>
TECHNICAL OVERVIEW
Lenfest has attempted to achieve high technical standards in the
development of its cable television systems. Approximately 92% of the
Company's cable television systems have a minimum of 52 or greater channel
capacity and approximately 20% of the Company's cable television systems have
a minimum of 78 channel capacity. In addition, the Company is able to offer
addressable converters to all of its customers. Addressable converters allow
for remote authorization of premium services and pay-per-view events and
movies.
UPGRADE STRATEGY AND CAPITAL EXPENDITURES
Lenfest recently has begun the process of upgrading the architecture of
its cable television systems to a broadband hybrid coaxial/fiber optic cable
network. This upgrade is expected to increase channel capacity, reduce the
number of amplification devices subject to failure and allow for two-way
communications. A broadband hybrid coaxial/fiber optic cable network
architecture utilizes fiber optic cable to carry video and data signals from
a headend to nodes. Nodes are mini-headends which distribute the video and
data signals from the fiber optic cable to groups of 500-600 homes over
coaxial cable. The Company expects that the network architecture it will
utilize to carry video and data transmissions from the node to the customer's
home will have 750 MHz of bandwidth, which permits the transmission of 110
uncompressed channels. Management plans to utilize 550 MHz of this capacity
(or 78 channels) until sufficient consumer demand for increased channels
and/or new services develops. Approximately 20% of the Company's cable
television systems have 78 channel capacity (550 MHz or greater), including
4% that have been upgraded to 750 MHz of bandwidth. The Company's capital
expenditure program contemplates spending $300 million through the end of the
year 2000 on upgrade activities. See "Risk Factors -- Future Capital
Requirements," "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
With the adoption of digital compression technology, channel capacity
could be further expanded by 300% to 500%. Management believes one of the
first uses of such expanded channel capacity will be to offer video-
on-demand, Internet access and near video-on-demand services. Near
video-on-demand utilizes multiple channels in order to reduce the intervals
between start times for feature presentations.
The added capacity resulting from the upgrading of the Company's cable
television systems (which can be supplemented by digital compression) should
provide the technological base from which the Company can offer new services
such as telephony and interactive/transactional services. Changes in existing
law permit cable television operators to provide telephony services, and
Lenfest's cable television systems, when upgraded, are expected to have the
capacity to provide wireline telephone service in the local loop and be able
to interconnect with PCS and cellular telephone networks to deliver calls
from wireless telephone users to telephony customers.
RATES AND ANCILLARY REVENUE SOURCES
Lenfest's cable television systems typically offer five levels of
programming services: basic; CPS; expanded tier; premium services; and
pay-per-view. As of June 30, 1996, the basic service package consisted of
local off-air broadcast channels, regional superstations such as WTBS and
public service/access channels. The monthly rate charged for the basic
service package ranged from $8.33 to $10.69. The CPS package consisted of
satellite-delivered networks such as ESPN, MTV, CNN, The Discovery Channel
and USA Network in addition to the basic package channel offerings. The
average monthly rate for the CPS package (which includes the channels offered
in the basic service package) ranged from $21.02 to $26.39.
In certain areas, Lenfest offers an expanded tier of programming services
which includes channels such as The Cartoon Network, The Sci-Fi Channel, The
Travel Channel, Court TV, Encore and Turner Classic Movies. The price for the
group of expanded tier channels ranged from an additional $2.50 to $4.95 over
the price for the standard programming package, depending on the number of
channels offered.
The Company also offers premium services, which include HBO, Cinemax, The
Movie Channel, Showtime, The Disney Channel and PRISM (a sports and movie
channel for the Philadelphia metropolitan area). As of June 30, 1996, the
monthly charge for each of these services, priced individually, ranged from
$8.95 to $12.95. Rates for premium services and pay-per-view services are
currently exempt from governmental regulation. See "Legislation and
Regulation."
44
<PAGE>
Lenfest's systems typically offer four channels of pay-per-view services
which include feature movies, special events and adult programming. As of
June 30, 1996, prices for movies ranged from $2.95 to $4.95. Prices for adult
features range from $3.95 to $5.95. Special event prices vary considerably
based on market demand. Pay-per-view buy rates have increased in the last
three years as a result of expanded channel offerings and the growth in the
number of customers having addressable cable television converters.
In addition to customer fees, ancillary sources of revenue for cable
television system operators include the sale of advertising time on locally
originated and satellite-delivered programming, as well as home shopping
sales commissions. All of the Company's systems are involved in local
advertising sales. The Company's advertising income has increased from $4.3
million for the year ended December 31, 1993, to $5.8 million for the year
ended December 31, 1994 and $7.0 million for the year ended December 31,
1995.
All of Lenfest's cable television systems offer one or both of the
shop-at-home channels, QVC and Home Shopping Network ("HSN"), as part of the
basic programming package. Lenfest receives commissions from both QVC and HSN
based on orders placed by Lenfest customers. Management believes that
advertising income and home shopping commissions have substantial growth
possibilities.
Lenfest also receives revenue from the rental of converter boxes and
remote controls and from installation fees. All such revenues are regulated
by the 1992 Cable Act.
PROGRAMMING AND EQUIPMENT SUPPLY
Many cable television companies enter into contracts to obtain basic and
premium programming from program suppliers whose compensation typically is
based on a fixed fee per customer. Some program suppliers provide volume
discount pricing structures or offer marketing support to the operator.
Through an agreement with Satellite Services, Inc. (a wholly owned
subsidiary of TCI), the Company is able to purchase almost all of its
programming services at rates closely approximating those paid by TCI,
although the Company retains the option to purchase programming from other
parties. Management believes that these rates are significantly lower than
the Company could obtain independently. Programming is the Company's largest
single expense item, accounting for 23.8% of total operating expense during
1995. See "Risk Factors -- Loss of Favorable Programming Supply." The three
cable television operators in which the Company has an equity interest
(Garden State Cablevision L.P., Susquehanna Cable Co. and Raystay Co.) also
obtain their programming pursuant to this agreement.
In addition, the Company has been placed on the "approved list" of major
equipment vendors to receive the same discounts on equipment purchases as are
received by TCI. There can be no assurance that the Company will continue to
be eligible to receive these equipment discounts in the future. The upgrade
of the Company's plant is the Company's largest capital expenditure.
FRANCHISES
As of June 30, 1996, the Company held 343 cable television franchises.
These franchises provide for the payment of fees to the issuing authority,
usually local governments. The Cable Communications Policy Act of 1984 (the
"1984 Cable Act") prohibits franchising authorities from imposing annual
franchise fees in excess of 5% of the gross revenues attributable to
customers located in the franchise area and also permits the cable television
system operator to seek renegotiation and modification of franchise
requirements if warranted by changed circumstances. For the three years ended
December 31, 1995, franchise fee payments made by the Company have averaged
approximately 4.0% of gross cable television revenues.
The 1984 Cable Act provides for an orderly franchise renewal process, and
it establishes comprehensive renewal procedures which require that an
incumbent franchisee's renewal application be assessed on its own merit and
not as part of a comparative process with competing applications. A
franchising authority may not unreasonably withhold the renewal of a
franchise. If a franchise renewal is denied and the system is acquired by the
franchise authority or a third party, then the franchise authority or other
purchaser must pay the operator the "fair market value" for the system
covered by the franchise. See "Legislation and Regulation."
45
<PAGE>
The Company has never had a franchise revoked and management believes that
its franchise relationships are satisfactory.
PENDING ACQUISITION
On March 28, 1996, the Company signed an agreement to acquire the
Turnersville System from Cable TV Fund 14-A, Ltd., an affiliate of Jones
Intercable, Inc. The purchase price for the Turnersville System is
approximately $84.5 million, subject to certain adjustments. At the closing,
which the parties have agreed will occur in the first quarter of 1997, the
Company expects that the Turnersville System will pass approximately 46,200
homes and serve approximately 36,300 basic customers.
The following table includes operating data for the Turnersville System
for each of the years in the three-year period ended December 31, 1995 and
for the six months ended June 30, 1996.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months
---------------------------------- Ended
1993 1994 1995 June 30, 1996
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
Homes passed ............................... 43,669 44,792 45,852 46,396
Basic customers ............................ 32,426 33,961 35,523 36,147
Basic penetration .......................... 74.3% 75.8% 77.5% 77.9%
Tier customers ............................. 31,681 33,195 34,636 35,178
Monthly revenue per average basic customer . $ 37.90 $ 36.73 $ 37.61
Annualized EBITDA per average basic customer . $160.59 $146.51 $162.05
</TABLE>
The Turnersville System has approximately 750 miles of 450 MHz plant. The
customers within the Turnersville System receive 62 channels of programming.
The Turnersville System offers a basic service package ($8.92 per month), a
CPS package ($13.12 additional per month), premium services ($10.95 to $12.50
per month, per service) and pay-per-view. See " -- Rates and Ancillary
Revenue Sources" for a description of the types of programming and the
services offered in these programming packages.
NON-CONSOLIDATED CABLE TELEVISION SYSTEMS
The Company holds equity investments in three cable television system
companies: Garden State Cablevision L.P., Susquehanna Cable Co. and Raystay
Co. As of June 30, 1996, these companies operated cable television systems
serving approximately 420,000 basic customers, of which approximately 343,000
are served by systems which are contiguous to the Company's cluster of cable
television systems. As a result of Lenfest's affiliation with these
companies, the companies participate in Lenfest's programming purchasing
relationship with Satellite Services, Inc. See " -- Programming and Equipment
Supply."
GARDEN STATE CABLEVISION L.P.
In 1989, the Company, along with Comcast Corporation ("Comcast") and an
investment group, acquired the former New York Times cable television system
with approximately 203,000 basic customers in the Cherry Hill, New Jersey
area. Lenfest and Comcast subsequently purchased the investment group's
interest, and each now owns 50% of Garden State Cablevision L.P. ("Garden
State").
The following table provides customer data at year end for each of the
years in the three-year period ended December 31, 1995 and for the six months
ended June 30, 1996 for Garden State's cable television systems.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months
------------------------------------ Ended
1993 1994 1995 June 30, 1996
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
Homes passed ..... 284,054 288,013 292,454 294,204
Basic customers .. 192,222 195,966 200,086 202,946
Basic penetration . 67.7% 68.0% 68.4% 69.0%
Premium units .... 152,434 151,605 154,245 153,340
</TABLE>
SUSQUEHANNA CABLE CO.
The Company, through an indirect, wholly owned subsidiary beneficially
owns a 30% equity interest in Susquehanna Cable Co.'s cable television
operating subsidiaries (the "SCC Subsidiaries"). The SCC Subsidiaries own and
operate cable television systems in York, Pennsylvania and East Providence,
Rhode Island as well as smaller systems in Mississippi, Illinois and Indiana.
46
<PAGE>
The following table provides customer data at year end for each of the
years in the three-year period ended December 31, 1995 and for the six months
ended June 30, 1996 for the SCC Subsidiaries' cable television systems.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months
------------------------------------ Ended
1993 1994 1995 June 30, 1996
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
Homes passed ..... 165,416 173,674 182,465 192,820
Basic customers .. 121,351 127,972 137,885 146,857
Basic penetration . 73.4% 73.7% 75.6% 76.2%
Premium units .... 73,361 72,740 71,135 71,550
</TABLE>
Beginning May 28, 1998, each of Lenfest and Susquehanna Media Co. (the 70%
owner of Susquehanna) may offer to purchase all of the shares of stock of
Susquehanna Cable Co. and the SCC Subsidiaries owned by the other. If the
person to whom an offer is made rejects the offer, such person is then
obligated to purchase all of the shares of stock of the person who made the
offer on the same terms and conditions as contained in the initial offer.
Lenfest has pledged its stock in Susquehanna Cable Co. and in the SCC
Subsidiaries as collateral for obligations incurred by Susquehanna Media Co.
RAYSTAY CO.
Lenfest, through an indirect, wholly owned subsidiary, owns approximately
45% of the stock of Raystay Co. ("Raystay"). Raystay owns and operates cable
television systems in Pennsylvania and West Virginia serving approximately
70,000 basic customers.
The following table provides customer data at year end for each of the
years in the three-year period ended December 31, 1995 and for the six months
ended June 30, 1996 for Raystay's cable television systems.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months
----------------------------------- Ended
1993 1994 1995 June 30, 1996
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Homes passed ..... 56,023 56,738 63,163 92,533
Basic customers .. 40,362 42,103 46,509 70,211
Basic penetration . 72.0% 74.2% 73.6% 75.9%
Premium units .... 17,529 17,847 17,755 23,693
</TABLE>
Pursuant to a shareholder agreement, beginning September 30, 2002 either
the Company or the Majority Shareholders of Raystay (as defined in the
agreement) may offer to purchase all of the shares of stock of the other. If
the offer to sell is rejected, the offeree is then obligated to purchase all
of the shares of stock of the offeror on the same terms and conditions. In
addition, on the earlier of May 1, 1999 or the date George G. Gardner ceases
to actively manage Raystay, Lenfest will have the right to designate the
majority of the board of directors of Raystay and to assume management
control. Lenfest has pledged its stock in Raystay as collateral for
obligations incurred by Raystay.
NON-CABLE INVESTMENTS
The Company owns various non-cable television investments described below.
STARNET, INC.
StarNet, Inc. offers program promotion for basic, pay and pay-per-view
cable television through its "NuStar," "The Promoter" and "The Barker(R)"
product lines. These services utilize proprietary cable headend equipment
that has been designed as an integrated PC-based system for local, regional
and national spot insertion.
NuStar delivers and inserts fully tagged promotional spots for programming
into 11 cable television networks. Each spot targets specific viewer groups
and includes time specific information, channel numbers and system logos. Up
to 65 different programs are promoted monthly through NuStar. The spots are
delivered by NuStar through its satellite transponder to cable headends.
NuStar launched its service in 1989, and cable television systems covering 23
million customers currently receive the service.
47
<PAGE>
The Promoter provides direct-response promotional spots to maximize a
cable television system's usage of available advertising inventory. The
Promoter allows a cable television operator to select the movies and events
to be promoted, the networks on which the advertisements will appear and the
time periods when the spots will be inserted. This allows a cable operator to
schedule each pay-per-view message based on local demographics and viewing
habits.
The Barker(R) is an enhanced pay-per-view promotional service that uses a
dedicated cable television system channel. The system is based on an
integrated PC multimedia presentation that combines graphics, full motion
video and audio to promote current and upcoming pay-per-view events. The
Barker(R) currently is received by 8 million cable television customers.
StarNet Development, a subsidiary of StarNet, manufactures and sells
advertising delivery and confirmation equipment to cable television system
operators. This equipment gives cable television system operators the ability
to insert geographically targeted advertising into cable television networks
such as ESPN and CNN and to provide advertisers with independent verification
that the advertisement has been aired.
MICRONET, INC.
Founded in 1989, MicroNet is a carrier of video, voice and data
transmission services for a mix of markets and customers. These services are
transmitted through earth station, terrestrial microwave and digital fiber
optic facilities.
MicroNet's Cedar Hill, Texas earth station serves Texas and its Glenwood,
New Jersey earth station serves the Northeast. The Cedar Hill facility is
directly interconnected to the Texas Video Network, a terrestrial system
serving seven major Texas cities and the Lower Rio Grande Valley. The
Glenwood earth station is integrated with MicroNet's Northeast terrestrial
network serving New York, Philadelphia, Baltimore and Washington, D.C.
MicroNet operates a network of fixed and temporary loops serving local
broadcasters, sports venues and other video traffic sources. These networks
are controlled by television operating centers. MicroNet's video customer
base includes all four major network broadcasters, numerous cable
programmers, news and sports program services and business video users.
MicroNet's other terrestrial systems include a cable television program
distribution network operating in New Jersey and Pennsylvania.
MicroNet operates over 120 communication tower sites in the Northeast,
Texas and California for site rental to qualified users. Customers include
wireline and non-wireline cellular carriers, government agencies and other
common carriers.
LENFEST PROGRAMMING SERVICES, INC. (NEWSCHANNEL)
NewsChannel, part of Lenfest Programming Services, Inc., is a local cable
television news channel which began operations in 1994. It is designed to
function as an electronic newspaper, providing news tailored to the
geographic area served by individual cable television systems. NewsChannel
receives news from local newspapers before the newspapers arrive at the
newsstands. NewsChannel also has access to traditional local, regional and
international broadcast news services. The news is presented with computer
generated headlines, copy, photos and video. The displayed copy is read by
announcers and is supplemented by audio soundbites and video inserts.
NewsChannel runs twenty four hours a day in ten minute cycles and is updated
continually. As of June 30, 1996, NewsChannel served approximately 603,000
customers in Pennsylvania, New Jersey and Delaware, 578,000 of whom were
customers of the Core Cable Television Systems.
LENFEST AUSTRALIA, INC.
In 1993, the government of Australia auctioned licenses for the right to
provide pay television services via DBS within Australia. The Company,
through its Lenfest Australia, Inc. subsidiary, agreed to purchase the
Australian company which successfully bid for and held the right to obtain
one of two private sector Australian pay
48
<PAGE>
television licenses, "License B." Subsequently, Lenfest Australia, Inc.
contributed its right to purchase such company (and the right to acquire
License B) to Australis Media Limited, an Australian public company which
provides programming via MMDS licenses to substantially all of Australia's
major population centers. Lenfest Australia, Inc. subsequently paid, on
behalf of Australis, A$116.8 million (approximately U.S.$78.9 million) for
License B. It also paid approximately A$13 million (approximately U.S.$8.8
million) to the shareholders of the Australian company which was the
successful bidder in the auction in accordance with the purchase agreement
for such company.
The Company currently holds securities representing a 4.1% voting interest
and a 31.4% aggregate economic interest in Australis. The Company acquired
its interest in Australis for an aggregate investment of approximately
U.S.$91.0 million. On three occasions since March 1996 (two of which were at
the request of Australis) trading in Australis' securities has been suspended
pending announcements by Australis regarding its recapitalization plans. In
each instance trading was resumed after the issuance by Australis of a press
release describing the then current status of its operations and
recapitalization plans. As of August 30, 1996, the investment had a market
value of approximately U.S. $26.2 million. As a result of uncertainties
associated with the successful completion by Australis of its proposed
recapitalization, the Company's financial statements included herein
recognize a decline in the market value of its equity ownership interest in
securities of Australis in the amount of approximately $66.9 and the
provision for potential reduction in value of note receivable and accrued
interest in the amount of $19.7 million in connection with the note
receivable and accrued interest due from Australis. For a discussion of the
Company's investment in Australis, as well as Australis' proposed
recapitalization, see "Risk Factors -- Investment in Australis Media Limited"
and "Managements' Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources."
Australis currently provides pay television programming services to
customers via DBS and MMDS in cooperation with the other Australian
commercial satellite licensee and has entered into a 25-year programming
distribution agreement with Foxtel (a joint venture between Telestra and The
News Corporation Limited), for cable television distribution. The agreement
with Foxtel provides for minimum guaranteed annual payments (denominated in
US dollars) to Australis and, in any year in which actual Foxtel subscribers
exceed a specified number, an additional fee based on such excess. In
addition, Australis has entered into long-term programming joint ventures and
license agreements with major international film studios and cable television
programmers to obtain rights to distribute a wide variety of movie, sports,
general entertainment and other programming to the Australian market.
LENFEST INTERNATIONAL, INC. (VIDEOPOLE)
The Company and TCI each are partners in L-TCI Associates, a partnership
which owns a 29% interest in Videopole. Videopole is a French cable
television company serving rural areas of France. As of June 30, 1996,
Videopole had nearly 424,000 homes under franchise, had built television
systems passing approximately 263,000 homes, and served approximately 68,000
customers. Videopole is controlled by Synergie Developpement et Services
which is a wholly owned subsidiary of D' Electricite De France, the French
state-owned electric company.
Pursuant to the Partnership Agreement of L-TCI Associates (the "L-TCI
Partnership Agreement"), the Company made an investment of approximately $7.2
million in 1995 related to its indirect investment in Videopole. The Company
and TCI are each obligated to make capital contributions in the amounts of
FF21.83 million (approximately U.S.$4.2 million) and FF10.01 million
(approximately U.S.$1.9 million) in 1996 and 1997, respectively. In addition,
if TCI fails to make any of its required capital contributions, the L-TCI
Partnership Agreement provides that Lenfest will make TCI's, as well as its
own, capital contributions. If the Company makes payments on behalf of TCI,
the Company's partnership interest in L-TCI Associates will increase as a
result thereof. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." In
1995 and 1996, the Company made payments in the amount of approximately $3.6
million and $1.4 million, respectively, on behalf of TCI and expects to
continue to make such payments. As a result of the Company's payments in 1995
and 1996, the Company's percentage interest in L-TCI Associates increased,
thereby increasing the Company's indirect percentage interest in Videopole to
20.8%, and decreasing TCI's indirect interest to 8.2%.
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PROPERTIES
The Company's principal physical assets consist of cable television
operating plant and equipment, including signal receiving, encoding and
decoding devices, headends and distribution systems and customer drop
equipment for each of its cable television systems. The Company's cable
distribution plant and related equipment generally are attached to utility
poles under pole rental agreements with local public utilities and telephone
companies, and in certain locations are buried in underground ducts or
trenches.
The Company owns or leases real property for signal receptions sites and
business offices in many of the communities served by its systems and for its
principal operating offices. See "Certain Transactions." On March 21, 1996,
Suburban entered into a lease for office space at 200 Cresson Boulevard,
Oaks, PA. The Company has moved administrative operations to a single
location. The new offices will have approximately 57,000 square feet, which
management believes is adequate. The Company's Pottstown, PA location will
continue to be used by Suburban. Management believes that its properties are
in good operating condition and are suitable and adequate for the Company's
business operations.
COMPETITION
Multichannel Multipoint Distribution Service ("MMDS") systems, commonly
called wireless cable television systems, and Direct Broadcast Satellite
("DBS") systems, which distribute programming to home satellite dishes,
compete with traditional cable television systems. Establishing a DBS or MMDS
network is less capital intensive than building a traditional cable
television system and, therefore, gives MMDS and DBS systems an advantage in
areas of lower population density. Providers of programming via these
technologies have the potential to compete directly with cable television
systems in urban areas as well, and in some areas of the country, DBS systems
are in direct competition with cable television systems.
Currently, there are three DBS providers in the Company's service area,
Direct TV, USSB and PrimeStar. AlphaStar, EchoStar and MCI/News Corp. have
announced, and others may announce, intentions to enter into the DBS market
and may offer DBS services within the Company's service area. The packages
offered by the DBS providers generally are more expensive than the Company's
cable programming service tier, but some DBS providers currently can provide
a greater number of channels than the Company does on its cable programming
service tier, which is the comparable offering of service. The Company
believes that its services will continue to have a competitive advantage over
DBS because: (i) the up-front equipment and installation costs are
significantly higher than the installation of cable, ranging from $300 to
$900 (depending upon the provider) per installation as opposed to $33.00 for
a cable installation; (ii) within the Company's service areas, DBS providers
cannot broadcast any local off-air signals; (iii) without a significant
investment in additional equipment, only one channel can be seen on all
television sets in the same house at the same time; and (iv) with the
Company's upgraded network architecture, the Company will be able to offer
two-way interactive services and will have three to four times the bandwidth
capacity.
In MMDS, the Company faces competition from ACS Enterprises, Inc. ("ACS"),
recently acquired by CAI. ACS's maximum potential service area is a radius of
approximately 35 miles from ACS's tower in Philadelphia which covers a
significant portion of the Company's customer base. However, management
believes that a number of households in ACS's service area cannot be reached
because of terrain and elevation obstructions. In the Company's Atlantic
City/Pleasantville System, the Company faces competition from Orion Vision, a
local MMDS operator, which has a broadcast area of approximately 12 miles
from its transmitting site in Corbin City, New Jersey.
MMDS operators currently have one package of service consisting of
approximately 33 channels with no off air broadcast channels. MMDS generally
is less expensive than cable due in large part to the lower number of
channels it offers. At this time, the Company does not view MMDS as a
significant competitive service, although it expects that this could change
if advances in digital wireless technology significantly expands MMDS channel
capacity and quality of service. CAI has received investments from Bell
Atlantic and NYNEX to finance its development of digital wireless television.
Although the channel capacity of MMDS systems is limited, it is expected that
developments in compression technology will enable MMDS operators to provide
a sufficient number of channels that, while fewer than the number of channels
that are expected to be provided by cable television systems using
fiber-optic technology, may nevertheless be attractive to subscribers.
However, a digi-
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tally compressed MMDS service will require hardware similar to that currently
used by DBS providers and will have the same limitations as compared with a
cable television system currently faced by those providers set forth above.
Recent amendments to FCC regulations enable MMDS systems to compete more
effectively with cable television systems by making additional channels
available to the MMDS industry and by refining the procedures through which
MMDS licenses are granted.
To date, the Company believes that it has not lost a significant number of
customers, nor a significant amount of revenue, to DBS or MMDS operators
competing with the Company's systems. There can be no assurance, however,
that competition from these technologies will not have a negative impact on
the Company's business in the future. See "Risk Factors -- Competition."
The 1996 Act repealed the prohibition on RBOCs and other LECs from
providing cable service directly to subscribers in their local telephone
service areas. Thus, LECs may now acquire, construct and operate cable
systems both inside and outside their service areas. The 1996 Act also
authorizes LECs to provide video programming through a variety of other
means, including the operation of "open video systems," without obtaining a
local cable franchise.
The RBOCs and other local telephone companies are in the process of
entering the cable television business. The RBOCs have significant access to
capital and several have expressed their intention to enter the video-
to-home business as an adjunct to their existing voice and data transmission
businesses. In addition, the RBOCs and local telephone companies have in
place facilities which are capable of delivering cable television service.
See "Risk Factors -- Competition."
Most of the Company's cable television assets are located in the Bell
Atlantic operating area. Bell Atlantic recently announced its intention to
merge with NYNEX. Both Bell Atlantic and NYNEX have previously made
investments in CAI in order to finance CAI's development of digital wireless
television. It is not clear at this time how the pending Bell Atlantic/NYNEX
merger will impact competition or whether Bell Atlantic (or the new Bell
Atlantic/NYNEX entity) intends to compete with the Company through its
investment in CAI directly, by constructing hardwired broadband systems
within the Company's service area or through a combination of both.
Cable television franchises are not exclusive. Under the 1992 Cable Act,
franchising authorities are prohibited from granting exclusive cable
television franchises and from unreasonably refusing to award additional
competitive franchises. Moreover, municipalities are permitted to operate
cable television systems in their communities without franchises.
Consequently, more than one cable television system may be built in the same
area (known as an "overbuild"), with potential loss of revenues to the
operator of the original cable television system. Management cannot predict
the extent to which such competition will materialize or, if such competition
materializes, the extent of its effect on Lenfest.
Constructing a cable television system is a capital intensive process for
which the Company believes there can be no assurance of realizing a return on
investment within an acceptable time period. The Company believes that, to be
successful, an overbuilder would be required to serve a distinct portion of
the cable television market on a more cost efficient basis than the existing
cable operator, have facilities capable of transmitting cable television
programming in place or have significant access to capital.
Broadcast television is another competitor to cable television. In most of
the areas served by the Company's cable systems, a variety of terrestrial
broadcast television programming can be received off-air. Typically, there
are three to ten VHF/UHF broadcast channels that provide local, network and
syndicated programming free of charge.
The Company's competitors also include master antenna television ("MATV")
and satellite master antenna television ("SMATV") systems. MATV and SMATV
systems are essentially small cable television systems that operate within
hotels, apartment complexes, condominium complexes and individual residences.
Due to the widespread availability of earth stations, such private cable
systems may offer both improved reception of local television stations and
many of the same satellite-delivered program services that are presently
offered by franchised cable systems. MATV and SMATV stations currently labor
under fewer regulatory burdens than franchised cable systems. For example,
MATV and SMATV stations need not serve low density or economically depressed
areas. By reducing cable regulation, the 1996 Act may have reduced some of
the advantages that had previously been enjoyed by MATV and SMATV providers.
However, since MATV and SMATV services are generally not "cable systems"
under the 1992 Cable Act, such services may be exempt from the remaining laws
and regulations that impact cable operators.
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The 1996 Act also authorizes registered utility holding companies and
their subsidiaries to provide video programming services.
In addition, cable television operators face indirect competition from
professional sports events, the theater, moviehouses, home video
entertainment, radio and newspapers. Other new technologies may soon compete
with the non-entertainment services that cable systems offer or will soon be
able to offer, as well as with cable television services. Advances in
communications technology as well as changes in the marketplace and the
regulatory and legislative environment are constantly occurring. The Company
cannot predict the effect that ongoing or future developments may have on the
cable television industry generally or the Company specifically.
LEGAL PROCEEDINGS
On May 3, 1996, The News Corporation Limited ("News") filed in the Supreme
Court of New South Wales, Australia an action seeking unspecified damages as
a result of the alleged violation by the Company of an alleged oral agreement
to inform News prior to the Company taking any steps to effect a
recapitalization plan for Australis. The Company believes that the suit is
without merit. In addition, on June 6, 1996, the Company filed suit in
federal court in Philadelphia seeking a declaration that no oral agreement
was made with News to notify News prior to making a separate refinancing
proposal to Australis, and that there is no agreement whatsoever with News
that would delay or prevent the Company's participation in providing
refinancing to Australis.
On January 20, 1995, Mr. Albert Hadid filed suit in the Federal Court of
Australia, New South Wales District Registry, against Australis (a company in
which the Company holds a 31.4% aggregate economic interest, see "--
Non-Cable Investments"), the Company and several other entities and
individuals including H.F. Lenfest (the "Defendants"), involved in the
acquisition of a company of which Mr. Hadid was the controlling shareholder,
the assets of which included the right to acquire License B from the
Australian government. Mr. Hadid alleged that the Company and Mr. Lenfest
breached the fiduciary duties that they owed to him and claimed damages of
A$220 million. In August 1995, Mr. Hadid amended the suit to include
allegations that the Defendants defrauded him by making certain
representations to him in connection with the acquisition of his company and
claimed additional damages of A$485 million. Mr. Hadid seeks total monetary
damages in the amount of A$705 million (approximately U.S.$557 million as of
August 30, 1996). The Defendants have denied all claims made against them by
Mr. Hadid and stated their belief that Mr. Hadid's allegations are without
merit and their intention to defend this action vigorously.
On December 6, 1995, the Securities and Exchange Commission (the "SEC")
sued H.F. Lenfest and Marguerite Lenfest in the United States District Court
for the Eastern District of Pennsylvania. The SEC alleges that, in October
1993, Mr. Lenfest, while in possession of non-public information, recommended
that his son purchase TCI stock and that Marguerite Lenfest traded in TCI
stock in October 1993 on the basis of information she misappropriated from
her husband. H.F. Lenfest and Marguerite Lenfest have categorically denied
that they engaged in any improper conduct and are defending this action
vigorously. The Company has agreed to pay the legal expenses of H.F. Lenfest
and Marguerite Lenfest related to this action. H.F. Lenfest and Marguerite
Lenfest have agreed to repay such expenses if it is subsequently determined
that the Company is not permitted to make such payments under Delaware
corporate law.
On August 15, 1996, the United States Government filed a criminal action
in the United States District Court for the Eastern District of Pennsylvania
against Harry F. Brooks alleging that he filed false Statements of Account
with the United States Copyright Office for the period from 1991 to 1993 with
respect to certain of Suburban's Pennsylvania cable television systems,
resulting in the underpayment of over $1.1 million in royalty fees by
Suburban due the United States Copyright Office over such period. Mr. Brooks
has denied the charges and has stated that he will defend the action
vigorously. The allegations against Mr. Brooks derive from the civil action
filed against Suburban in December 1993 which alleged that Suburban
misreported its subscriber rates to the Copyright Office and underpaid
copyright royalty fees. The Company settled the civil action in 1994 with a
payment of $5 million. The Company has not been named in the criminal action.
The Company has agreed to pay the legal expenses of Mr. Brooks. Mr. Brooks
has agreed to repay such expenses if it is subsequently determined that the
Company is not permitted to make such payments under Delaware corporate law.
EMPLOYEES
As of June 30, 1996, the Company had 1,445 full-time employees, of which
165 employees were covered by collective bargaining agreements at two
locations.
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As of June 30, 1996, the Company's Core Cable Television Operations had
1,045 full-time employees, of which 165 employees were covered by collective
bargaining agreements at two locations.
After the completion of the Turnersville Acquisition, the Company expects
to have approximately 1,512 full-time employees, of which 165 employees will
be covered by collective bargaining agreements at two locations.
The Company considers its relations with its current employees to be
satisfactory.
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LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
the Congress and various federal agencies may in the future materially affect
the cable television industry. The following is a summary of significant
federal laws and regulations affecting the growth and operation of the cable
television industry and a description of certain state and local laws.
FEDERAL STATUTORY LAW
EXISTING LAWS
The Cable Communications Policy Act of 1984 ("1984 Cable Act") became
effective on December 29, 1984. This federal statute, which amended the
Communications Act of 1934 (the "Communications Act"), creates uniform
national standards and guidelines for the regulation of cable television
systems. On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 ("1992 Cable Act"). This legislation
amended the 1984 Cable Act in many respects and has significantly changed the
regulatory environment in which the cable industry operates. The 1992 Cable
Act allows for a greater degree of regulation of the cable television
industry with respect to, among other things: (i) cable television system
rates for both basic and certain nonbasic services; (ii) programming access
and exclusivity arrangements; (iii) access to cable channels by unaffiliated
programming services; (iv) leased access terms and conditions; (v) horizontal
and vertical ownership of cable television systems; (vi) customer service
requirements; (vii) franchise renewals; (viii) television broadcast signal
carriage and retransmission consent; (ix) technical standards; (x) customer
privacy; (xi) consumer protection issues; (xii) cable equipment
compatibility; (xiii) obscene or indecent programming; and (xiv) requiring
subscribers to subscribe to tiers of service other than basic service as a
condition of purchasing premium services. Additionally, the 1992 Cable Act
encourages competition with existing cable television systems by: allowing
municipalities to own and operate their own cable television systems without
having to obtain a franchise; preventing franchising authorities from
granting exclusive franchises or unreasonably refusing to award additional
franchises covering an existing cable television system's service area; and
prohibiting, with certain exceptions, the common ownership of cable
television systems and co-located MMDS or SMATV (satellite master antenna
television) systems. The 1992 Cable Act also precludes cable operators
affiliated with video programmers from favoring such programmers in
determining carriage on their cable systems or unreasonably restricting the
sale of their programming to other multichannel video distributors.
The 1996 Act, which became law on February 8, 1996, significantly alters
the federal, state and local regulatory structure. As it pertains to cable
television, the 1996 Act, among other things, (i) deregulates rates for
nonbasic cable service in 1999; (ii) deregulates basic and nonbasic rates
with respect to cable operators that face video competition from LECs by
expanding the definition of "effective competition," the existence of which
displaces rate regulation; (iii) eliminates the restriction against the
ownership and operation of cable systems by telephone companies within their
local exchange service areas; and (iv) liberalizes certain of the FCC's
cross-ownership restrictions. The FCC will have to conduct a number of
rulemaking proceedings in order to implement many of the provisions of the
1996 Act.
FEDERAL REGULATION
The FCC, the principal federal regulatory agency with jurisdiction over
the cable television industry, has promulgated regulations covering a number
of subject matter areas. The FCC has the authority to enforce these
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. A
brief summary of the most significant of these federal regulations as adopted
to date follows.
RATE REGULATION
The 1984 Cable Act codified existing FCC preemption of rate regulation for
premium channels and optional nonbasic program tiers. The 1984 Cable Act also
deregulated basic cable rates for cable television systems determined by the
FCC to be subject to "effective competition." The 1992 Cable Act replaced the
FCC's old
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standard for determining "effective competition," under which most cable
television systems were exempt from local rate regulation, with a statutory
provision that subjected nearly all cable television systems to local rate
regulation of basic service. The 1996 Act expands the definition of
"effective competition" to cover situations where a local telephone company
or its affiliate, or any multichannel video provider using telephone company
facilities, offers comparable video service by any means except DBS.
Regulation of both basic and nonbasic tier cable rates ceases for any cable
system subject to "effective competition."
Additionally, the 1992 Cable Act authorized the FCC to adopt a formula,
for franchising authorities to enforce, to ensure that basic cable rates are
reasonable; allowed the FCC to review rates for nonbasic service tiers (other
than per-channel or per-program services) in response to complaints filed by
franchising authorities and/or cable customers; prohibited cable television
systems from requiring subscribers to purchase service tiers above basic
service in order to purchase premium services if the system is technically
capable of doing so; required the FCC to adopt regulations to establish, on
the basis of actual costs, the price for installation of cable service,
remote controls, converter boxes and additional outlets; and allows the FCC
to impose restrictions on the retiering and rearrangement of cable services
under certain limited circumstances.
The FCC adopted rules designed to implement these rate regulation
provisions on April 1, 1993, and then significantly amended them on
reconsideration on February 22 and November 10, 1994. The FCC's regulations
contain standards for the regulation of basic and nonbasic cable service
rates (other than per-channel or per-program services). The rate regulations
adopt a benchmark price cap system for measuring the reasonableness of
existing basic and nonbasic service rates, and a formula for evaluating
future rate increases. Alternatively, cable operators have the opportunity to
make cost-of-service showings which, in some cases, may justify rates above
the applicable benchmarks. The rules also require that charges for
cable-related equipment (e.g., converter boxes and remote control devices)
and installation services be unbundled from the provision of cable service
and based upon actual costs plus a reasonable profit. The charges for
equipment and installation services must be recalculated annually and
adjusted accordingly.
The 1996 Act eliminates regulation of rates for CPS packages for all cable
operators as of March 31, 1999. In the interim, regulation of rates for CPS
packages can only be triggered if a franchising authority complaint based on
more than one subscriber complaint is made with the FCC within 90 days after
a rate increase. These 1996 Act provisions should materially alter the
applicability of FCC rate regulations adopted under the 1992 Cable Act.
In addition, the 1996 Act relaxes the uniform rate requirements of the
1992 Cable Act, which required an operator of cable television systems to
have a uniform rate structure for the provision of cable services throughout
the geographic area in which the operator provides cable service.
Specifically, the new legislation clarifies that the uniform rate provision
does not apply where an operator of a cable television system faces
"effective competition." In addition, bulk discounts to multiple dwelling
units are exempted from the uniform rate requirements. However, complaints
may be made to the FCC against operators of cable television systems not
subject to effective competition for "predatory" pricing (including with
respect to bulk discounts to multiple dwelling units). The 1996 Act also
permits operators of cable television systems to aggregate, on a franchise,
system, regional or company level, its equipment costs in broad categories.
The 1996 Act is expected to facilitate the rationalization of equipment rates
across jurisdictional boundaries. However, these cost-aggregation rules do
not apply to the limited equipment used by subscribers who only receive basic
service.
Local franchising authorities and/or the FCC are empowered to order a
reduction of existing rates which exceed the maximum permitted level for
either basic and/or nonbasic cable services and associated equipment, and
refunds could be required. In general, the reduction for existing basic and
nonbasic cable service rates under the original rate regulations would be to
the greater of (i) the applicable benchmark level or (ii) the rates in force
as of September 30, 1992, minus 10 percent; in both cases adjusted forward
for inflation. The current regulations require an aggregate reduction of as
much as 17 percent, adjusted forward for inflation, from the rates in force
as of September 30, 1992. The regulations also provide that future rate
increases may not exceed an inflation-indexed amount, plus increases in
certain costs beyond the cable operator's control, such as taxes, franchise
fees and increased programming costs. Cost-based adjustments to these capped
rates can also be made in the event a cable operator adds or deletes
channels. The November 10, 1994 amendments incorporated an alternative
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method for adjusting the rates charged for a regulated nonbasic service tier
when new services are added. This method will allow cable operators to increase
the monthly rate to each customer by as much as $1.50 over a two year period to
reflect the addition of up to six new channels of service on regulated nonbasic
service tiers (an additional increase of $0.20 is permitted in the third year
if a seventh channel is added). In addition, new product tiers consisting of
services new to the cable television system can be created free of rate
regulation as long as certain conditions are met such as not moving services
from existing tiers to the new tier.
Recently, the FCC has taken two actions, initiated prior to the 1996 Act,
that may have a beneficial effect on revenue and cash flow. First, the FCC
has adopted a procedure under which cable operators can file abbreviated cost
of service showings for system rebuilds and upgrades, the result of which
would be a permitted increase in regulated rates to allow recovery of those
costs. Second, the FCC has adopted a new procedure for the annual
pass-through of increases in certain external costs, such as programming
costs, under which cable operators could increase rates based on actual and
anticipated cost increases for the coming year. This would be an alternative
to the methodology described in the previous paragraph whereby such costs can
be passed through on a quarterly basis, but only for cost increases already
incurred.
In November 1995, the FCC proposed to provide operators of cable
television systems with the option of establishing uniform rates for similar
service packages offered in multiple franchise areas located in the same
region. Under the FCC's current rules, operators of cable television systems
subject to rate regulation are required to establish rates on a
franchise-specific basis. The proposed rules could lower such operators'
marketing costs and also allow operators to respond better to competition
from alternative providers. The Company is unable to predict if these
proposed rules will ultimately be promulgated by the FCC and, if they are
promulgated, their effect on the Company.
CARRIAGE OF BROADCAST TELEVISION SIGNALS
The 1992 Cable Act allows commercial television broadcast stations which
are "local" to a cable television system to elect every three years either
(i) to require the cable television system to carry the station, subject to
certain exceptions (known as the "must carry" requirement), or (ii) to deny
the cable television system the right to carry the station without the
station's express consent (known as "re-transmission consent"). The next
election between must-carry and retransmission consent will be October 1,
1996. Local non-commercial television stations are also given mandatory
carriage rights, subject to certain exceptions, but are not given the option
to negotiate retransmission consent for the carriage of their signal. In
addition, cable television systems must obtain retransmission consent for the
carriage of all "distant" commercial broadcast stations, except for certain
"superstations," i.e., commercial satellite-delivered independent stations
such as WTBS, WGN, and WWOR-TV. The legality of these "must-carry" provisions
is currently under judicial review. Invalidation of the "must-carry"
provisions would free cable operators (except for any contractual
commitments) to replace the carriage of any or all local broadcast stations
with other programming. However, the outcome of the pending judicial review
cannot be predicted.
DELETION OF CERTAIN PROGRAMMING
Cable television systems that have 1,000 or more customers must, upon the
appropriate request of a local television station, delete the simultaneous or
nonsimultaneous network programming of a distant station when such
programming has also been contracted for by the local station on an exclusive
basis. FCC regulations also enable television stations that have obtained
exclusive distribution rights for syndicated programming in their market to
require a cable television system to delete or "black out" such programming
from other television stations which are carried by the cable television
system.
RENEWAL OF FRANCHISES
The 1984 Cable Act established renewal procedures and criteria designed to
protect incumbent franchisees against arbitrary denials of renewal. While
these formal procedures are not mandatory unless timely invoked by either the
cable operator or the franchising authority, they can provide substantial
protection to incumbent franchisees. Notwithstanding the renewal process,
franchising authorities and cable operators remain free to negotiate a
renewal outside the formal process. Nevertheless, renewal is by no means
assured, as the franchisee must
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meet certain statutory standards if the formal renewal procedures are
invoked. Even if a franchise is renewed, a franchising authority may impose
new and more onerous requirements such as upgrading facilities and equipment,
although the municipality must take into account the cost of meeting such
requirements.
The 1992 Cable Act makes several changes to the process under which a
cable operator seeks to enforce his renewal rights which could make it easier
in some cases for a franchising authority to deny renewal. Franchising
authorities may consider the "level" of programming service provided by a
cable operator in deciding whether to renew. For alleged franchise violations
occurring after December 29, 1984, franchising authorities are no longer
precluded from denying renewal based on failure to substantially comply with
the material terms of the franchise where the franchising authority has
"effectively acquiesced" to such past violations. Rather, the franchising
authority is estopped if, after giving the cable operator notice and
opportunity to cure, it fails to respond to a written notice from the cable
television operator of its failure or inability to cure. Courts may not
reverse a denial of renewal based on procedural violations found to be
"harmless error."
CHANNEL SET-ASIDES
The 1984 Cable Act permits local franchising authorities to require cable
operators to set aside certain channels for public, educational and
governmental access programming. The 1984 Cable Act further requires cable
television systems with thirty-six or more activated channels to designate a
portion of their channel capacity for commercial leased access by
unaffiliated third parties. The 1992 Cable Act requires the FCC to establish
a formula for determining maximum reasonable rates. The FCC is presently
engaged in a proceeding in which it may alter the leased access rate formula.
The FCC has tentatively concluded that the current formula overcompensates
operators of cable television systems. Therefore, the FCC is considering
changes in its leased access rate rules that may result in operators of cable
television systems being compensated less for leased access. In this
proceeding, the FCC is also considering requiring operators of cable
television systems to reserve a portion of their leased access capacity for
not-for-profit programmers and/or establishing special preferential rates for
such programmers. The Company cannot predict the outcome of this proceeding
or its effect on the Company.
OWNERSHIP
The 1996 Act repealed the statutory ban against local exchange telephone
companies ("LECs") from providing video programming directly to customers
within their local exchange telephone service areas, except in rural areas or
by specific waiver of FCC rules. Consequently, the 1996 Act permits telephone
companies to compete directly with operators of cable television systems.
Under the 1996 Act and FCC rules recently adopted to implement the 1996 Act,
LECs may provide video service as broadcasters, common carriers, or cable
operators or LECs and others may also provide video service through "open
video systems" ("OVS"), a regulatory regime that may give them more
flexibility than traditional cable systems. OVS operators (including LECs)
may operate "open video systems" without obtaining a local cable franchise,
although they can be required to make payments to local governmental bodies
in lieu of cable franchise fees. In general, OVS operators must make their
systems available to programming providers on rates, terms and conditions
that are reasonable and nondiscriminatory. Where carriage demand by
programming providers exceeds the channel capacity of an open video system,
two-thirds of the channels must be made available to programmers unaffiliated
with the OVS operator.
The 1996 Act generally prohibits buyouts of cable television systems
(including any ownership interest of such systems exceeding 10%) by LECs
within an LEC's telephone service area, buyouts by operators of cable
television systems of LEC systems within a cable operator's franchise area,
and joint ventures between operators of cable television systems and LECs in
the same markets. There are some statutory exceptions, including a rural
exemption that permits buyouts in which the purchased system serves a
non-urban area with fewer than 35,000 inhabitants. Also, the FCC may grant
waivers of the buyout provisions in cases where (i) the operator of a cable
television system or the LEC would be subject to undue economic distress if
such provisions were enforced, (ii) the system or facilities would not be
economically viable in the absence of a buyout or a joint venture or (iii)
the anticompetitive effects of the proposed transaction are clearly
outweighed by the transaction's effect in light of community needs. The
respective local franchising authority must approve any such waiver.
The 1996 Act also authorizes registered utility holding companies and
their subsidiaries to provide video programming services, notwithstanding the
Public Utility Holding Company Act. In order to take advantage of the new
legislation, public utilities must establish separate subsidiaries through
which to operate any cable operations. Such utility companies must also apply
to the FCC for operating authority.
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The 1996 Act eliminated the FCC rule prohibiting common ownership between
a cable system and a national broadcast television network. The 1996 Act also
eliminated the statutory ban covering certain common ownership interests,
operation or control between a television station and cable system within the
station's Grade B signal coverage area. However, the parallel FCC rule
against cable/television station cross-ownership remains in place, subject to
review by the FCC within two years. Finally, the 1992 Cable Act prohibits
common ownership, control or interest in cable television systems and MMDS
facilities or satellite master antenna television ("SMATV") systems having
overlapping service areas, except in limited circumstances. The 1996 Act
exempts cable systems facing "effective competition" from the MMDS and SMATV
cross-ownership restrictions.
Pursuant to the 1992 Cable Act, the FCC has adopted rules which, with
certain exceptions, preclude a cable television system from devoting more
than 40% of its first 75 activated channels to national video programming
services in which the cable system owner has an attributable interest. The
FCC also has set a limit of 30% of total nationwide cable homes that can be
served by any multiple cable system operator. The FCC has stayed the
effectiveness of this ruling pending the outcome of its appeal from the U.S.
District Court decision holding the multiple ownership limit provision of the
1992 Cable Act unconstitutional.
EQUAL EMPLOYMENT OPPORTUNITY
The 1984 Cable Act includes provisions to ensure that minorities and women
are provided equal employment opportunities within the cable television
industry. The statute requires the FCC to adopt reporting and certification
rules that apply to all cable television system operators with more than five
full-time employees. Pursuant to the requirements of the 1992 Cable Act, the
FCC has imposed more detailed annual Equal Employment Opportunity ("EEO")
reporting requirements on cable operators and has expanded those requirements
to all multichannel video service distributors. Failure to comply with the
EEO requirements can result in the imposition of fines and/or other
administrative sanctions, or may, in certain circumstances, be cited by a
franchising authority as a reason for denying a franchisee's renewal request.
FRANCHISE TRANSFERS
The 1992 Cable Act requires franchising authorities to act on any
franchise transfer request within 120 days after receipt of all information
required by FCC regulations and by the franchising authority. Approval is
deemed to be granted if the franchising authority fails to act within such
period unless an extension of time has been agreed to.
TECHNICAL REQUIREMENTS
The FCC has imposed technical standards applicable to all channels on
which downstream video programming is carried, and has prohibited franchising
authorities from adopting standards which are in conflict with or more
restrictive than those established by the FCC. Local franchising authorities
are permitted to enforce the FCC's new technical standards. In order to
prevent harmful interference with aeronautical navigation and safety radio
services, the FCC also has adopted additional standards applicable to cable
television systems using frequencies in the 108-137 MHz and 225-400 MHz bands
and established limits on cable television system signal leakage. Periodic
testing by cable operators for compliance with these technical standards and
signal leakage limits is required.
The FCC has adopted regulations to implement the requirements of the 1992
Cable Act designed to improve the compatibility of cable television systems
and consumer electronics equipment. These regulations, inter alia, generally
prohibit cable operators from scrambling their basic service tier and from
changing the infrared codes used in their existing customer premises
equipment. Under the 1996 Act, local franchising authorities may not
prohibit, condition or restrict a cable system's use of any type of
subscriber equipment or transmission technology.
FCC IMPLEMENTATION OF THE 1996 ACT
The FCC has recently initiated a proceeding to implement most of the
cable-related reform provisions of the 1996 Act. In this proceeding, the FCC
has adopted certain interim rules to govern cable operators while the agency
completes its implementation of the cable-related reform provisions of the
1996 Act. Among other things,
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<PAGE>
the FCC is requiring on an interim basis that for an LEC to constitute
"effective competition" to cable operators, the LEC's programming must
include the signals of local broadcasters. Cable television systems may file
a petition with the FCC at any time for a determination as to whether they
are subject to "effective competition" and thus exempt from rate regulation.
Depending on the outcome of the FCC proceeding, several of the Company's
systems in the Philadelphia area may become deregulated.
The FCC has also adopted interim rules governing the filing of rate
complaints regarding nonbasic cable service by local franchising authorities.
Local franchising authorities may file rate complaints with the FCC when the
local franchising authorities receive more than one customer complaint
concerning a cable operator's rate increase within 90 days of the date such
increase becomes effective. If the local franchising authority receives more
than one such customer complaint and decides to file its own complaint with
the FCC, it must do so within 180 days of the date the rate increase becomes
effective. Before filing a complaint with the FCC, the local franchising
authority must first provide the operator of the cable system written notice
of its intent to do so and must give the operator a minimum of 30 days to
file the relevant FCC forms used to justify a rate increase with the local
franchising authority. The local franchising authority must then forward its
complaint and the operator's response to the FCC within the 180 day deadline.
The FCC must issue a final order within 90 days of the date it receives a
local franchising authority complaint.
OTHER MATTERS
FCC regulation also includes matters regarding a cable television system's
carriage of local sports programming; franchise fees; pole attachments; home
wiring; customer service; rules applicable to origination cablecasts; rules
governing political programming; sponsorship identification; lottery
information; and limitations on advertising contained in children's
programming.
The 1996 Act imposes new requirements on operators of cable television
systems, including an obligation, upon request, to fully scramble or block at
no charge the audio and video portion of any channel not specifically
subscribed to by a household. The 1996 Act also directs the FCC to adopt
regulations that ensure, with certain exceptions, that video programming is
fully accessible through closed captioning. The FCC is presently engaged in a
proceeding to establish regulations to implement such closed captioning
requirements.
COPYRIGHT
Cable television systems are subject to federal copyright licensing
covering carriage of broadcast signals. In exchange for making semi-annual
payments to a federal copyright royalty pool and meeting certain other
obligations, cable operators obtain a statutory license to retransmit
broadcast signals. The amount of this royalty payment varies, depending on
the amount of system revenues from certain sources, the number of distant
signals carried, and the location of the cable television system with respect
to over-the-air television stations. Cable operators are liable for interest
on underpaid and unpaid royalty fees, but are not entitled to collect
interest on refunds received for overpayment of copyright fees.
The Copyright Office has commenced a proceeding aimed at examining its
policies governing the consolidated reporting of commonly owned and
contiguous cable television systems. The present policies governing the
consolidated reporting of certain cable television systems have often led to
substantial increases in the amount of copyright fees owed by the systems
affected. These situations have most frequently arisen in the context of
cable television system mergers and acquisitions. While it is not possible to
predict the outcome of this proceeding, any changes adopted by the Copyright
Office in its current policies may have the effect of reducing the copyright
impact of certain transactions involving cable company mergers and cable
television system acquisitions.
STATE AND LOCAL REGULATION
Because a cable television system uses local streets and rights-of-way,
cable television systems are subject to state and local regulation, typically
imposed through the franchising process. State and/or local officials are
usually involved in franchise selection, system design and construction,
safety, service rates, consumer relations, billing practices and community
related programming and services.
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<PAGE>
Cable television systems generally are operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. Franchises generally are granted for fixed terms and
in many cases are terminable if the franchise operator fails to comply with
material provisions. Although the 1984 Cable Act provides for certain
procedural protections, there can be no assurance that renewals will be
granted or that renewals will be made on similar terms and conditions.
Franchises usually call for the payment of fees (which are limited to 5% of
the system's gross subscriber revenues under the 1992 Cable Act) to the
granting authority. Upon receipt of a franchise, the cable television system
owner usually is subject to a broad range of obligations to the issuing
authority directly affecting the business of the system. Franchises generally
contain provisions governing charges for basic cable television services,
fees to be paid to the franchising authority, length of the franchise term,
renewal, sale or transfer of the franchise, territory of the franchise,
design and technical performance of the system, use and occupancy of public
streets and number and types of cable services provided. The terms and
conditions of franchises vary materially from jurisdiction to jurisdiction,
and even from city to city within the same state, historically ranging from
reasonable to highly restrictive or burdensome.
The 1992 Cable Act prohibits exclusive franchises, and allows franchising
authorities to exercise greater control over the operation of franchised
cable television systems than the 1984 Cable Act did, especially in the area
of customer service and rate regulation. The 1992 Cable Act also allows
franchising authorities to operate their own multichannel video distribution
system without having to obtain a franchise and permits states or local
franchising authorities to adopt certain restrictions on the ownership of
cable television systems. Moreover, franchising authorities are immunized
from monetary damage awards arising from regulation of cable television
systems or decisions made on franchise grants, renewals, transfers and
amendments.
Various proposals have been introduced at the state and local levels with
regard to the regulation of cable television systems, and a number of states
have adopted legislation subjecting cable television systems to the
jurisdiction of centralized state governmental agencies, some of which impose
regulation of a character similar to that of a public utility.
The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation relating to the cable
television industry. Other existing federal regulations, copyright licensing
and, in many jurisdictions, state and local franchise requirements, currently
are the subject of a variety of judicial proceedings, legislative hearings
and administrative and legislative proposals which could change, in varying
degrees, the manner in which cable television systems operate. Neither the
outcome of these proceedings nor their impact upon the cable television
industry can be predicted at this time.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as set forth
below:
<TABLE>
<CAPTION>
Name Age Position
---- ----- --------
<S> <C> <C>
H.F. Lenfest ......... 66 President, CEO and Director
Marguerite B. Lenfest 63 Secretary/Treasurer and Director
Samuel W. Morris, Jr. 53 Vice President-General Counsel, Assistant Secretary and
Director
John C. Malone ....... 55 Director
Brendan R. Clouston .. 43 Director
Harry F. Brooks ...... 59 Executive Vice President, Assistant Secretary
Donald L. Heller ..... 50 Vice President
Stephen N. Plant ..... 55 Vice President
Jeffrey DiFrancesco .. 32 Vice President
Robert W. Mohollen ... 34 Assistant Treasurer, Assistant Secretary
</TABLE>
H.F. Lenfest is the founder, a director and President and Chief Executive
Officer of the Company, the sole director of each of the Company's
subsidiaries and the President of each of the subsidiaries other than Lenfest
Programming, TeleSTAR Marketing, Inc. ("TeleSTAR"), and MicroNet and its
subsidiaries. Mr. Lenfest's principal occupation since 1974 has been serving
as the President and CEO of the Company and its subsidiaries. He is married
to Marguerite B. Lenfest. Mr. Lenfest is currently a director of TelVue
Corporation and a director of Video Jukebox Network, Inc.
Marguerite B. Lenfest has served as a director and the Secretary/Treasurer
of the Company since 1974. She is the wife of H.F. Lenfest and the sister of
Harry F. Brooks.
Samuel W. Morris, Jr. has been Vice President-General Counsel and
Assistant Secretary of the Company since November 1993. Mr. Morris became a
director of the Company on April 4, 1996. Prior to assuming his current
position, he was a founding partner in the law firm of Hoyle, Morris & Kerr,
where he remains Of Counsel. Mr. Morris is also Vice President-General
Counsel and Secretary of each of the Company's subsidiaries.
John C. Malone has served as a director of the Company since January 1982.
Dr. Malone has served as Chief Executive Officer and President of TCI since
January 1994, Chief Executive Officer of TCI Communications, Inc. from March
1992 to October 1994 and President of TCI Communications, Inc. from 1973 to
October 1994. He currently is a director of TCI, Tele-Communications
International, Inc., Turner Broadcasting System, Inc., Discovery
Communications, Inc., Home Shopping Network and The Bank of New York.
Brendan R. Clouston became a director of the Company on April 4, 1996. Mr.
Clouston serves as Executive Vice President and Chief Operating Officer of
TCI and as President and CEO of TCI Communications, Inc.
Harry F. Brooks is Executive Vice President/Assistant Secretary of the
Company. He has been Executive Vice President since 1991 and a Vice President
since 1983. Mr. Brooks is also Vice President/Assistant Treasurer/Assistant
Secretary of each of the Company's subsidiaries other than TeleSTAR (where he
is Treasurer and Assistant Secretary), Lenfest Raystay Holdings, Inc. (where
he is Vice President and Assistant Secretary) and Lenfest Atlantic, Inc. He
is the brother of Marguerite B. Lenfest.
Donald L. Heller has been a Vice President of the Company since March
1993. Prior to assuming his current position, Mr. Heller was, from June 1984
to January 1993, the Vice President and General Manager of Sportschannel
Prism Associates, a regional cable television service which provides movies
and professional sports. Mr. Heller is also Vice President of Lenfest
International, Inc., Lenfest Australia, Inc. and Lenfest Programming. He is
currently a director of TelVue Corporation.
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<PAGE>
Stephen N. Plant has been a Vice President of the Company since September,
1993. Prior to assuming his current position, he was Senior Vice President
and Manager - Telecommunication and Media Lending of PNC Bank, National
Association, one of the Company's current group of lending banks. He is also
a Vice President of Lenfest Australia, Inc.
Jeffrey J. DiFrancesco has been Vice President of Strategic Planning and
Business Development of the Company since January 1, 1996. Prior to assuming
his current position, he was Principal Consultant with Price Waterhouse's
Entertainment, Media and Communications Group. Prior to that he was a
Managing Director at Bell Atlantic Video Services Company and Tele-TV.
Robert W. Mohollen has been Assistant Treasurer and Assistant Secretary of
the Company since August 1992. Prior to assuming his current position, he was
Controller since June 1989. Prior to that he was an accountant and auditor
with Pressman Ciocca & Smith, Certified Public Accountants, the Company's
accountants. Mr. Mohollen is also Treasurer and Assistant Secretary of each
of the Company's subsidiaries except TeleSTAR.
All directors serve until the next annual meeting of stockholders and
until their successors have been elected and have qualified. All executive
officers serve at the discretion of the Board of Directors. The directors of
the Company receive no compensation in their capacity as directors.
OTHER PRINCIPAL EMPLOYEES
Debra Krzywicki has been an Executive Vice President of Suburban Cable
since January 1, 1996, and a Vice President of Suburban Cable from 1989 to
December 31, 1995. She is primarily responsible for marketing, programming,
customer service, training and public relations.
Robert Lawrence has been an Executive Vice President of Suburban Cable
since January 1996, and a Regional Vice President and General Manager of
Suburban Cable from March 1982 to December 31, 1995. He is responsible for
technical operations, engineering, franchise relations, information systems
and purchasing. He is also currently a director of TelVue Corporation.
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EXECUTIVE COMPENSATION
The Company has no long-term compensation plans. The following table sets
forth certain information for the years ended December 31, 1993, 1994 and
1995 concerning cash and non-cash compensation earned by the CEO and the four
other most highly compensated executive officers of the Company whose
combined salary and bonus exceeded $100,000 during such periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Name and All Other
Principal Position Year Salary Bonus Compensation
------------------------ ------ ----------- ----------- --------------
<S> <C> <C> <C> <C>
H.F. Lenfest ........... 1995 $500,000 $ 750,000 $294,958(a)(b)
President and CEO 1994 500,000 -- 283,931(a)(b)
1993 175,000 2,500,000 312,621(a)(b)
Harry F. Brooks ........ 1995 $135,000 -- $ 6,750(a)
Executive Vice President 1994 130,000 -- 6,500(a)
1993 120,000 -- 6,000(a)
Samuel W. Morris, Jr. .. 1995 $200,000 $ 100,000 $ 9,240(a)
Vice President and 1994 200,000 50,000 10,000(c)
General Counsel 1993 23,846 -- --
Stephen N. Plant ....... 1995 $125,000 -- $ 6,250
Vice President 1994 120,000 -- --
1993 38,308 -- --
Donald L. Heller ....... 1995 $115,000 -- $ 5,750(a)
Vice President 1994 110,000 -- 4,231(a)
1993 78,846 -- --
</TABLE>
- ------
(a) Matching contributions under the Company's 401(k) Plan for H.F. Lenfest
amounted to $9,240, $5,830 and $8,750 and for Harry F. Brooks, $6,750,
$6,500, and $6,000 for the years ended December 31, 1995, 1994, and 1993,
respectively, and for Donald L. Heller, $5,750 and $4,231 for the years
ended December 31, 1995 and 1994, respectively; for Samuel W. Morris,
Jr., $9,240 for the year ended December 31, 1995; and for Stephen N.
Plant, $6,250 for the year ended December 31, 1995.
(b) Pursuant to agreements between the Company and a foundation and trusts
created by H.F. Lenfest, the foundation and the trusts have purchased
split-dollar life insurance policies on H.F. Lenfest's life and on the
joint lives of Mr. Lenfest and his wife, Marguerite Lenfest, an officer
and director of the Company. Under these agreements, the Company pays (i)
the premium on each policy, minus a sum equal to the lesser of the
applicable one-year term premium cost computed under the Internal Revenue
Service Ruling 55-747 or the cost of comparable one-year term life
insurance in the amount of each policy or (ii) the entire premium. The
trusts and foundation are the beneficiaries of the insurance policies.
However, the Company has been granted a security interest in the death
benefits of each policy equal to the sum of all premium payments made by
the Company. These arrangements are designed so that if the assumptions
made as to mortality experience, policy dividends and expenses are
realized, the Company, upon the deaths of Mr. and Mrs. Lenfest or the
surrender of the policies, will recover all of its insurance premium
payments. The premiums paid by the Company in 1995, 1994 and 1993
pursuant to these arrangements were $325,471, $328,449 and $362,517,
respectively. The amounts in this column include the present value of
such premium payments using an imputed interest rate, such present value
calculated based upon Mr. and Mrs. Lenfest's remaining life expectancy,
which totaled $232,985 $278,101 and $303,871 in 1995, 1994 and 1993,
respectively. In addition, in 1995, Mr. Lenfest received $52,733 of
additional compensation, of which $50,213 consisted of the payment by the
Company of expenses incurred by Mr. Lenfest in connection with personal
investments.
(c) The $10,000 additional compensation was to reimburse Mr. Morris for
medical insurance premiums.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has no compensation committee. H.F. Lenfest has participated
in the past, and is expected to continue to participate, in the deliberations
of the Board of Directors concerning executive compensation. See "Risk
Factors -- Concentration of Control in Single Stockholder."
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CERTAIN TRANSACTIONS
The Company is a party to an agreement with Satellite Services, Inc.
("SSI"), an affiliate of TCI, the indirect parent of LMC Lenfest, Inc., a 50%
stockholder of the Company, pursuant to which SSI provides certain cable
programming to the Company at a rate fixed as a percentage in excess of the
rate available to TCI. Management believes that these rates are significantly
less than the rates that the Company could obtain independently. For the year
ended December 31, 1995, the Company paid SSI approximately $37.7 million.
The Company, through its StarNet, Inc. and StarNet Development, Inc.
subsidiary, sells cross channel tune-in promotional services for cable
television to affiliates of TCI. For the year ended December 31, 1995, the
Company received $3.9 million for such services.
In 1994, the Company sold the assets of Stockdale Productions, Inc., a
subsidiary that has been merged out of existence as of December 31, 1994, to
TCI for $225,000. The assets were sold on a liquidation basis at a price
negotiated by Harry F. Brooks.
The Company rents four office and warehouse spaces from H.F. Lenfest and
Marguerite Lenfest. For the year ended December 31, 1995, the Company paid
the Lenfests an aggregate of $801,000 under such leases. Rental payments made
to stockholders are on terms that are no less favorable than those the
Company could obtain from independent parties.
The Company reimbursed Mr. Lenfest approximately $8.8 million in June
1994, representing funds advanced by him on behalf of the Company for the
deposits for Australian pay television licenses. The Company also paid all
interest and other costs incurred by Mr. Lenfest in connection with such
advances. See "Business -- Non-Cable Investments -- Lenfest Australia, Inc."
The Company reimbursed Mr. Lenfest approximately $10.2 million in 1995,
representing his costs incurred on behalf of the Company for the buyout of
the investment partnership of Garden State Cablevision L.P.
For the year ended December 31, 1995, the Company paid TelVue Corporation,
an affiliate of the Company, $190,000 for pay-per-view order placement
services.
In November 1994, Mr. Lenfest and TCI International, Inc. jointly and
severally guaranteed up to $67 million in program license payment obligations
of the distributor of Australis' movie programming. The Company has agreed to
indemnify Mr. Lenfest against loss from such guaranty to the fullest extent
permitted under the Company's debt obligations. The Company has neither
sought nor obtained any consents which may be required. The terms of the
guarantees provide that the amount of the guarantees will be reduced on a
dollar-for-dollar basis with the provision of one or more letters of credit,
which may not exceed $33.5 million. Under the terms of the New Bank Credit
Facility, however, Mr. Lenfest's claims for indemnification are limited to
$33.5 million, which amount will be further reduced by the aggregate face
amount of any letters of credit, if any, requested by the Company to be
issued under the New Bank Credit Facility with respect to the program license
payment obligations guarantees. If the Company obtains such letter of credit
facility, the Company would be directly obligated for the face amount of such
letter of credit and may remain indirectly obligated for the balance of the
program license payment obligations. The Company has deferred any decision
concerning the obtaining of any letter of credit facility (including the
amount thereof) until after the Australis long-term financing has been
successfully completed. See "Risk Factors -- Investment in Australis Media
Limited."
On February 29, 1996, Mr. Lenfest guaranteed the full payment and
performance of the Lenfest Australia Credit Facility.
The Company has agreed to pay the legal expenses of H.F. Lenfest and
Marguerite Lenfest related to a pending SEC action against them. See
"Business -- Legal Proceedings." H.F. Lenfest and Marguerite Lenfest have
agreed to repay such expenses if it is subsequently determined that the
Company is not permitted to make such payments under Delaware corporate law.
The Company has agreed to pay the legal expenses of Harry Brooks related
to a pending federal criminal action against him. See "Business -- Legal
Proceedings." Mr. Brooks has agreed to repay such expenses if it is
subsequently determined that the Company is not permitted to make such
payments under Delaware corporate law.
On February 12, 1996, the Company completed the exchange of its cable
television systems in the East San Francisco Bay Area, a 41.67% partnership
interest in Bay Cable Advertising, and the right to acquire certain other
cable television systems for TCI's Wilmington, Delaware area cable television
systems. In connection with that transaction, the Company also purchased the
Philadelphia area assets of Cable AdNet Inc., a subsidiary of TCI, for
approximately $1.1 million.
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<PAGE>
John C. Malone, a director of the Company, is also a director of The Bank
of New York, which is the Trustee under the Indenture for the Company's 8 3/8
% Senior Notes, a lender under the New Bank Credit Facility, the Trustee
under the Indenture and the Exchange Agent under the Exchange Offer.
For the year ended December 31, 1995, Cable AdNet Partners, an affiliate
of TCI and John C. Malone, paid Suburban Cable TV Co. Inc., a subsidiary of
the Company, approximately $2.6 million for Suburban Cable TV Co. Inc.'s
share of advertising revenue under a certain advertising agreement.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of December 31, 1995, certain
information with respect to the Common Stock beneficially owned by each
director, all officers and directors of the Company as a group, and each
person known to the Company to own beneficially more than 5% of such Common
Stock. Unless otherwise noted, the individuals have sole voting and
investment power.
<TABLE>
<CAPTION>
Shares of Percent of
Name and Address Common Stock Common Stock
-------------------------------------------------- -------------- --------------
<S> <C> <C>
H.F. Lenfest, Director (a)(b)(c)(d) .............. 79,448(c) 50.0%
Marguerite B. Lenfest, Director (a) .............. -- --
John C. Malone, Director (e) ..................... 79,448(f) 50.0%
Brook J. Lenfest (a)(c)(d) ....................... 14,862(g) 9.4%
H. Chase Lenfest (a)(c)(d) ....................... 14,862(g) 9.4%
Diane A. Lenfest (a)(c)(d) ....................... 14,862(g) 9.4%
LMC Lenfest, Inc. (c)(h) ......................... 79,448(c) 50.0%
(an indirect wholly owned subsidiary of TCI)
All officers and directors as a group (9 persons) 158,896 100.0%
</TABLE>
- ------
(a) Such person's address is c/o The Lenfest Group, 200 Cresson Boulevard,
Oaks, PA 19456.
(b) Includes 14,862 and 14,862 shares owned by Brook J. Lenfest, H. Chase
Lenfest which are held in trusts established by each of them, and 14,862
shares owned by Diane A. Lenfest, respectively, all of whom are children
of Mr. Lenfest. See Note (d) below.
(c) H.F. Lenfest and LMC Lenfest, Inc., as successor in interest to Liberty
Media Corporation, have an agreement that provides, together with the
amended and restated Articles of Incorporation of the Company, that Mr.
Lenfest has the right to designate a majority of the Board of Directors
until January 1, 2002. During such period, vacancies in respect of the
directors designated by Mr. Lenfest shall be filled by designees of Mr.
Lenfest or, in the event of Mr. Lenfest's death, of The Lenfest
Foundation. Thereafter, the Lenfest Family and LMC Lenfest, Inc. will
have the right to appoint an equal number of members of the Company's
Board of Directors. This right will continue for so long as any member of
the Lenfest Family owns any stock in the Company. Pursuant to a separate
agreement, each of H.F. Lenfest, Brook J. Lenfest, H. Chase Lenfest and
Diane A. Lenfest (the "Lenfest Shareholders") have granted to LMC
Lenfest, Inc. a right of first refusal with respect to their shares of
stock in the Company and LMC Lenfest, Inc. has granted a right of first
refusal to the Lenfest Shareholders with respect to its shares of stock
in the Company.
(d) Each of Mr. Lenfest, Brook J. Lenfest and H. Chase Lenfest hold their
34,862 shares, 14,862 shares and 14,862 shares, respectively, in trusts
established by each of them, each of which trusts is terminable at will.
(e) Dr. Malone's address is c/o Terrace Tower II, 5619 DTC Parkway,
Englewood, CO 80111.
(f) Includes 79,448 shares owned by LMC Lenfest, Inc., of which Dr. Malone is
an affiliate. Dr. Malone disclaims beneficial ownership of these shares.
(g) Each of Brook J. Lenfest, H. Chase Lenfest and Diane A. Lenfest has given
to H.F. Lenfest an irrevocable proxy granting him the power (until March
30, 2000) to vote their shares for the election of directors. H.F.
Lenfest disclaims beneficial ownership of these shares.
(h) LMC Lenfest, Inc.'s address is 8101 East Pacific Avenue, Suite 500,
Englewood, CO 80111.
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DESCRIPTION OF OTHER DEBT OBLIGATIONS
11.84% SENIOR NOTES DUE 1998
In May 1989, the Company sold to an institutional investor $50 million of
10.69% Senior Notes due 1998, which interest rate was increased to 11.84% in
November 1995 (the "11.84% Senior Notes"). The 11.84% Senior Notes mature on
May 15, 1998. As of June 30, 1996, as a result of mandatory prepayments
required by the note purchase agreement pursuant to which the 11.84% Senior
Notes were issued (the "11.84% Senior Note Purchase Agreement"), there was
$21.0 million principal amount of the 11.84% Senior Notes outstanding. In
connection with the offering and sale of the 8 3/8 % Senior Notes, the
Company and the holders of the 11.84% Senior Notes agreed to amend the terms
thereof by permitting the TCI Exchange, by increasing the interest rate
thereon to 11.84% per annum, by changing the debt incurrence covenant such
that the Company may not incur debt if the Company's Senior Debt Leverage
Ratio and Total Debt Leverage Ratio would exceed 700% and 750%, respectively,
through September 30, 1996, and 650% and 700%, respectively, thereafter and
by specifying that the prepayment premium specified in such agreement will
remain at its current level through the termination of such agreement. A
mandatory prepayment in the amount of $10.5 million is due on May 15, 1997.
11.30% SENIOR NOTES DUE 2000
In September 1988, the Company sold to certain institutional investors
$125 million of 10.15% Senior Notes due 2000, which interest rate was
increased to 11.30% in November 1995 (the "11.30% Senior Notes"). The 11.30%
Senior Notes mature on September 1, 2000. As of June 30, 1996, as a result of
mandatory prepayments required by the note purchase agreement pursuant to
which the 11.30% Senior Notes were issued (the "11.30% Senior Note Purchase
Agreement"), there was $75.0 million principal amount of the 11.30% Senior
Notes outstanding. In connection with the offering and sale of the 8 3/8 %
Senior Notes, the Company and the holders of the 11.30% Senior Notes agreed
to amend the terms thereof by permitting the TCI Exchange, by increasing the
interest rate thereon to 11.30% per annum, by changing the debt incurrence
covenant such that the Company may not incur debt if the Company's Senior
Debt Leverage Ratio and Total Debt Leverage Ratio would exceed 700% and 750%,
respectively, through September 30, 1996, and 650% and 700%, respectively,
thereafter and by specifying that the prepayment premium specified in such
agreement will remain at its current level through the termination of such
agreement. Mandatory prepayments of $15 million will be due on each September
1, commencing on September 1, 1996, until maturity.
9.93% SENIOR NOTES DUE 2001
In September 1991, the Company sold to certain institutional investors
$100 million of 9.93% Senior Notes due 2001 (the "9.93% Senior Notes"). The
9.93% Senior Notes mature on September 30, 2001. As of June 30, 1995, there
was $100 million principal amount of the 9.93% Senior Notes outstanding,
which has been subsequently reduced to $14.25 million due to additional
mandatory prepayments and optional prepayments made with the net proceeds of
the offering of the 8 3/8 % Senior Notes.
8 3/8 % SENIOR NOTES DUE 2005
In November 1995, the Company publicly issued $700 million of 8 3/8 %
Senior Notes due 2005 (the "8 3/8 % Senior Notes"). The 8 3/8 % Senior Notes
mature on November 1, 2005. As of June 30, 1996, there was $700 million
principal amount of the 8 3/8 % Senior Notes outstanding. The 8 3/8 % Senior
Notes were issued pursuant to an indenture containing covenants substantially
similar to the Indenture governing the Notes.
NEW BANK CREDIT FACILITY
On June 27, 1996, The Toronto-Dominion Bank, PNC Bank, N.A. and
NationsBank of Texas, N.A. and certain other lenders party thereto
(collectively, the "Lenders") entered into a credit agreement with the
Company pursuant to which the Lenders provided the Company with the $450
million New Bank Credit Facility ($150 million term and $300 million
revolving).
Principal payments under the term loan facility and commitment reductions
under the revolving loan facility will commence on March 31, 1999, with
quarterly reductions thereafter until the termination of the New
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Bank Credit Facility on September 30, 2003. Loans outstanding under the New
Bank Credit Facility will bear interest, at the Company's option, at either
(i) the Base Rate plus an applicable margin ranging from 0% to 1 3/8 % or
(ii) LIBOR plus an applicable margin ranging from 3/4 % to 2 3/8 %, in each
case based upon certain levels of leverage ratios.
The terms of the New Bank Credit Facility prohibit the Company from (i)
incurring certain additional Indebtedness in excess of $10 million until the
ratio of Total Debt to Annualized Operating Cash Flow is less than 6.00:1,
(ii) having a Senior Debt Leverage Ratio for the most recent quarter end in
excess of 5.75:1 through December 30, 1996, and declining thereafter to
4.50:1 beginning December 31, 1999, (iii) having a ratio of Operating Cash
Flow to Total Interest Expense of less than 1.50:1 through December 31, 1997,
and less than 1.75:1 thereafter and (iv) having a Total Debt Leverage Ratio
in excess of 7.50:1 through December 30, 1996, and declining thereafter to
6.00:1 beginning on December 31, 1998. In addition, the New Bank Credit
Facility contains certain restrictions on the Company and its Restricted
Subsidiaries with respect to, among other things, the payment of dividends,
the repurchase of stock, the making of Restricted Payments and Restricted
Purchases, the making of investments, the creation of Liens, certain asset
sales, sale-leaseback transactions, transactions with Affiliates, the
disposition of certain securities of its Restricted Subsidiaries, the
designation of subsidiaries as Restricted Subsidiaries and Unrestricted
Subsidiaries and mergers and consolidations; provided, however, that the
Company will be permitted under the terms of the New Bank Credit Facility (a)
to make investments in related businesses not to exceed $70 million so long
as the Lenfest Australia Credit Facility or any payment obligation of Lenfest
Australia, Inc. thereunder remains outstanding, and $90 million in the
aggregate, until the ratio of Total Debt to Annualized Operating Cash Flow is
less than 6.00:1 for two consecutive fiscal quarters, and (b) to make
acquisitions in an aggregate amount of $100 million, including the
Turnersville Acquisition. In addition, the Company will be permitted to make
distributions equal to 50% of Excess Cash Flow once the ratio of Total Debt
to Annualized Operating Cash Flow is less than 6.00:1 for two consecutive
fiscal quarters. In addition, it is an event of default if neither H.F.
Lenfest (individually or by written proxy of the voting rights of the members
of his immediate family with respect to the capital stock of the Company) nor
TCI own beneficially 50% or more of the voting shares of the Company's
capital stock and have the right to elect at least 50% of the members of the
board of directors of the Company. Terms capitalized but not defined above
have the meanings assigned to them in the New Bank Credit Facility.
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DESCRIPTION OF NOTES
GENERAL
The Exchange Notes will be issued under an indenture dated as of June 15,
1996 (the "Indenture") between the Company and The Bank of New York, as
trustee (the "Trustee"). The Indenture authorizes the issuance of $300
million in aggregate principal amount of the Exchange Notes. The form and
terms of the Exchange Notes are identical in all material respects to the
form and terms of the Old Notes, except that the Exchange Notes will be
registered under the Securities Act and, therefore, will be treated as a
single class under the Indenture with any Old Notes that remain outstanding.
The Exchange Notes and the Old Notes are herein collectively referred to as
the "Notes".
The following is a summary of certain provisions of the Indenture and the
Notes, a copy of which Indenture and the form of Notes have been filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act"), as in effect on the date of the
Indenture. The Notes are subject to all such terms, and holders of the Notes
are referred to the Indenture and the Trust Indenture Act for a statement of
those terms. The statements under this caption relating to the Notes and the
Indenture are summaries and do not purport to be complete. Such summaries may
make use of certain terms defined in the Indenture and are qualified in their
entirety by express reference to the Indenture. A copy of the proposed form
of Indenture is available upon request to the Company at the address set
forth under "Available Information."
The principal of and interest on the Notes will be payable at the office
or agency to be maintained by the Company, which, unless otherwise provided
by the Company, will be the offices of the Trustee. The principal of and
interest payments on the Notes may be paid by check. The Notes may be
presented for registration of transfer and exchange at such offices.
The Notes will be issued in fully registered form only and will be issued
in denominations of $1,000 and integral multiples thereof.
TERMS OF THE NOTES
Maturity. The Notes will mature on June 15, 2006.
Interest. The Company will pay interest on the Notes on June 15 and
December 15 of each year, commencing December 15, 1996, to the persons who
are registered holders at the close of business on June 1 and December 1
immediately preceding the interest payment date.
RANKING
The indebtedness evidenced by the Notes will be senior subordinated,
unsecured obligations of the Company. The payment of the principal of,
premium (if any) and interest on the Notes is subordinate in right of
payment, as set forth in the Indenture, to the prior payment in full of all
Senior Indebtedness, whether outstanding on the Issue Date or thereafter
incurred, including the Company's obligations under the New Bank Credit
Facility, the 8 3/8 % Senior Notes and the Private Placement Notes.
As of June 30, 1996, after giving pro forma effect to the Transactions,
the Company's Senior Indebtedness would have been approximately $1,030
million. Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company may incur, under certain
circumstances the amount of such Indebtedness could be substantial and, in
any case, such Indebtedness may be Senior Indebtedness. See "-- Certain
Covenants -- Limitation an Indebtedness."
All the operations of the Company are conducted through its subsidiaries.
Claims of creditors of such subsidiaries, including trade creditors, secured
creditors and creditors holding indebtedness and guarantees issued by such
subsidiaries, and claims of preferred stockholders (if any) of such
subsidiaries generally will have pri-
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ority with respect to the assets and earnings of such subsidiaries over the
claims of creditors of the Company, including holders of the Notes, even
though such obligations will not constitute Senior Indebtedness. The Notes,
therefore, will be effectively subordinated to creditors (including trade
creditors) and preferred stockholders (if any) of subsidiaries of the
Company. At June 30, 1996, the total liabilities of the Company's
subsidiaries (including trade payables and accrued liabilities) were
approximately $119 million, of which approximately $31 million was
indebtedness. Although the Indenture limits the incurrence of Indebtedness
and preferred stock of certain of the Company's subsidiaries, such limitation
is subject to a number of significant qualifications. Moreover, the Indenture
does not impose any limitation on the incurrence by such subsidiaries of
liabilities that are not considered Indebtedness under the Indenture. See "--
Certain Covenants -- Limitation on Indebtedness."
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company. The Company has agreed in the Indenture that it
will not Incur, directly or indirectly, any Indebtedness that is subordinate
or junior in ranking in right of payment to its Senior Indebtedness unless
such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness.
Unsecured Indebtedness is not deemed to be subordinated or junior to secured
Indebtedness merely because it is unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not repurchase, redeem or otherwise retire any
Notes (collectively, "pay the Notes") if (i) any Designated Senior
Indebtedness is not paid when due or (ii) any other default on Designated
Senior Indebtedness occurs and the maturity of such Designated Senior
Indebtedness is accelerated in accordance with its terms unless, in either
case, the default has been cured or waived and any such acceleration has been
rescinded or such Designated Senior Indebtedness has been paid in full.
However, the Company may pay the Notes without regard to the foregoing if the
Company and the Trustee receive written notice approving such payment from
the Representative of the Designated Senior Indebtedness with respect to
which either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of
any default (other than a default described in clause (i) or (ii) of the
first sentence of this paragraph) with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods,
the Company may not pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to the Company) of
written notice (a "Blockage Notice") of such default from the Representative
of the holders of such Designated Senior Indebtedness specifying an election
to effect a Payment Blockage Period and ending 179 days thereafter (or
earlier if such Payment Blockage Period is terminated (i) by written notice
to the Trustee and the Company from the Person or Persons who gave such
Blockage Notice, (ii) because the default giving rise to such Blockage Notice
is no longer continuing or (iii) because such Designated Senior Indebtedness
has been repaid in full). Notwithstanding the provisions described in the
immediately preceding sentence, unless the holders of such Designated Senior
Indebtedness or the Representative of such holders have accelerated the
maturity of such Designated Senior Indebtedness, the Company may resume
payments on the Notes after the end of such Payment Blockage Period. The
Notes shall not be subject to more than one Payment Blockage Period in any
consecutive 360-day period, irrespective of the number of defaults with
respect to Designated Senior Indebtedness during such period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar
proceeding relating to the Company or its property, the holders of Senior
Indebtedness will be entitled to receive payment in full of such Senior
Indebtedness before the Noteholders are entitled to receive any payment, and
until the Senior Indebtedness is paid in full, any payment or distribution to
which Noteholders would be entitled but for the subordination provisions of
the Indenture will be made to holders of such Senior Indebtedness as their
interests may appear. If a distribution is made to Noteholders that, due to
the subordination provisions, should not have been made to them, such
Noteholders are required to hold it in trust for the holders of Senior
Indebtedness and pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of Designated Senior
Indebtedness or the Representative of such holders of the acceleration.
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By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders, and creditors
of the Company who are not holders of Senior Indebtedness may recover less,
ratably, than holders of Senior Indebtedness and may recover more, ratably,
than the Noteholders.
The terms of the subordination provisions described above will not apply
to payments from money or the proceeds of U.S. Government Obligations held in
trust by the Trustee for the payment of principal of and interest on the
Notes pursuant to the provisions described under "-- Defeasance."
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Exchange Notes sold will be issued in the
form of a Global Note. The Global Note will be deposited with, or on behalf
of, the Depository and registered in the name of the Depository or its
nominee. Except as set forth below, the Global Note may be transferred, in
whole and not in part, only to the Depository or another nominee of the
Depository. Investors may hold their beneficial interests in the Global Note
directly through the Depository if they have an account with the Depository
or indirectly through organizations which have accounts with the Depository.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of
New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and "a clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depository was created to hold securities of institutions that have
accounts with the Depository ("participants") and to facilitate the clearance
and settlement of securities transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of
securities certificates. The Depository's participants include securities
brokers and dealers, banks, trust companies, clearing corporations and
certain other organizations. Access to the Depository's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
Upon the issuance of the Global Note, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the
Exchange Notes represented by such Global Note to the accounts of
participants. Ownership of beneficial interests in the Global Note will be
limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests in the Global Note will be
shown on, and the transfer of those ownership interests will be effected only
through, records maintained by the Depository (with respect to participants'
interest) and such participants (with respect to the owners of beneficial
interests in the Global Note other than participants). The laws of some
jurisdictions may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and laws may
impair the ability to transfer or pledge beneficial interests in the Global
Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Exchange
Notes for all purposes of such Exchange Notes and the Indenture. Except as
set forth below, owners of beneficial interests in the Global Note will not
be entitled to have the Exchange Notes represented by the Global Note
registered in their names, will not receive or be entitled to receive
physical delivery of certificated Exchange Notes in definitive form and will
not be considered to be the owners or holders of any Exchange Notes under the
Global Note. The Company understands that under existing industry practice,
in the event an owner of a beneficial interest in the Global Note desires to
take any action that the Depository, as the holder of the Global Note, is
entitled to take, the Depository would authorize the participants to take
such action, and that the participants would authorize beneficial owners
owning through such participants to take such action or would otherwise act
upon the instructions of beneficial owners owning through them.
Payment of principal of and interest on Exchange Notes represented by the
Global Note registered in the name of and held by the Depository or its
nominee will be made to the Depository or its nominee, as the case may be, as
the registered owner and holder of the Global Note.
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The Company expects that the Depository or its nominee, upon receipt of
any payment of principal of or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in
the Global Note held through such participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants. The Company will not have any responsibility or liability for
any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in the Global Note for any Note or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for any other aspect of the relationship between the
Depository and its participants or the relationship between such participants
and the owners of beneficial interests in the Global Note owning through such
participants.
Unless and until it is exchanged in whole or in part for certificated
Exchange Notes in definitive form, the Global Note may not be transferred
except as a whole by the Depository to a nominee of such Depository or by a
nominee of such Depository to such Depository or another nominee of such
Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of
the Depository, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Trustee nor the Company will have any responsibility for the performance
by the Depository or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES
The Exchange Notes represented by the Global Note are exchangeable for
certificated Exchange Notes in definitive form of like tenor as such Notes in
denominations of U.S. $1,000 and integral multiples thereof if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for the Global Note or if at any time the Depository ceases to be
a clearing agency registered under the Exchange Act, (ii) the Company in its
discretion at any time determines not to have all of the Notes represented by
the Global Note or (iii) a default entitling the holders of the Notes to
accelerate the maturity thereof has occurred and is continuing. Any Exchange
Note that is exchangeable pursuant to the preceding sentence is exchangeable
for certificated Exchange Notes issuable in authorized denominations and
registered in such names as the Depository shall direct. Subject to the
foregoing, the Global Note is not exchangeable, except for a Global Note of
the same aggregate denomination to be registered in the name of the
Depository or its nominee.
OPTIONAL REDEMPTION
The Notes are not redeemable at the option of the Company prior to
maturity.
MANDATORY SINKING FUND
There are no mandatory sinking fund payments for the Notes.
CHANGE OF CONTROL OFFER
Within 30 days of the occurrence of a Change of Control Triggering Event
with respect to the Notes, the Company shall notify the Trustee in writing of
such proposed occurrence and shall make an offer to purchase (the "Change of
Control Offer") the Notes at a purchase price equal to 101% of the principal
amount thereof plus any accrued and unpaid interest thereon to the Change of
Control Payment Date (as defined) (the "Change of Control Purchase Price") in
accordance with the procedures set forth in this covenant.
Within 50 days of the occurrence of a Change of Control Triggering Event
with respect to the Notes, the Company also shall (i) cause a notice of the
Change of Control Offer to be sent at least once to the Dow Jones News
Service or similar business news service in the United States and (ii) send
by first-class mail, postage prepaid, to the Trustee and to each registered
holder of the Notes, at his address appearing in the register of the Notes
maintained by the Registrar, a notice stating:
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(1) that the Change of Control Offer is being made pursuant to this
covenant and that all such Notes tendered will be accepted for payment,
provided that a Change of Control Triggering Event has occurred and
otherwise subject to the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 30 days and no later than 60 days
after the date on which such notice is mailed) (the "Change of Control
Payment Date");
(3) that any such Note not tendered will continue to accrue interest;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any such Notes accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender such
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a facsimile
transmission or letter setting forth the name of the holder, the principal
amount of such Notes delivered for purchase, and a statement that such
holder is withdrawing his election to have such Notes purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, provided that each Note purchased and each such new
Note issued shall be in an original principal amount in denominations of
$1,000 and integral multiples thereof; and
(8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance.
On the Change of Control Payment Date, the Company shall (i) accept for
payment the Notes or portions thereof tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so tendered and (iii) deliver
or cause to be delivered to the Trustee the Notes so accepted together with
an Officers' Certificate indicating the Notes or portions thereof tendered to
the Company. The Paying Agent shall promptly mail to each holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Trustee shall promptly authenticate and mail to such holder a new Note
equal in principal amount to any unpurchased portion of the Notes
surrendered; provided that each such new Note shall be issued in an original
principal amount in denominations of $1,000 and integral multiples thereof.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to the
covenant described hereunder. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
Management has no present intention to engage in a transaction involving a
Change of Control, although it is possible that the Company would decide to
do so in the future. Subject to the limitations discussed below, the Company
could, in the future, enter into certain transactions, including
acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control under the Indenture, but that could increase
the amount of indebtedness outstanding at such time or otherwise affect the
Company's capital structure or credit ratings. Restrictions on the ability of
the Company to incur additional Indebtedness are contained in the covenant
described under " -- Limitation on Indebtedness." Such restrictions can only
be waived with the consent of the registered holders of a majority in
principal amount of the Notes then outstanding. Except for the limitations
contained in such covenants, however, the Indenture will not contain any
covenants or provisions that may afford holders of the Notes protection in
the event of a highly leveraged transaction.
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The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the New Bank Credit Facility and the
Private Placement Note Agreements, and may require the Company to offer to
repurchase the 8 3/8 % Senior Notes. In addition, future senior indebtedness
of the Company may contain prohibitions on the occurrence of certain events
that would constitute a Change of Control or require such senior indebtedness
to be repurchased upon a Change of Control. In the event a Change of Control
occurs at a time when such prohibitions are in effect, the Company could seek
the consent of its lenders or other holders of senior indebtedness to the
purchase of Notes or could attempt to refinance borrowings containing such
prohibitions. If the Company does not obtain such consents or repay such
borrowings, the Company will be effectively prohibited from purchasing Notes.
Moreover, the exercise by the holders of the Notes of their right to require
the Company to repurchase the Notes could cause a default under such senior
indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the holders of Notes following the occurrence of a
Change of Control Triggering Event may be limited by the Company's then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indenture. During
any period of time that (i) the ratings assigned to the Notes by both of the
Rating Agencies are Investment Grade Ratings and (ii) no Default has occurred
and is continuing under the Indenture, the Company and its Restricted
Subsidiaries will not be subject to the provisions of the Indenture described
below under "Limitation on Indebtedness," "Limitation on Restricted
Payments," "Limitation on Transactions with Affiliates" and clause (iv) of
"Merger, Consolidation and Sale of Assets" (collectively, the "Suspended
Covenants"). In the event that the Company and its Restricted Subsidiaries
are not subject to the Suspended Covenants with respect to the Notes for any
period of time as a result of the preceding sentence and, subsequently, one
or both Rating Agencies withdraws its ratings or downgrades the ratings
assigned to such Notes below the required Investment Grade Ratings, then the
Company and its Restricted Subsidiaries will thereafter again be subject to
the Suspended Covenants for the benefit of such Notes and compliance with the
Suspended Covenants with respect to Restricted Payments made after the time
of such withdrawal or downgrade will be calculated in accordance with the
terms of the covenant described below under "Limitation on Restricted
Payments" as if such covenant had been in effect during the entire period of
time from the date of the Indenture.
Limitation on Indebtedness. The Company shall not, and shall not permit
any Restricted Subsidiary to, directly or indirectly, create, incur, issue,
assume or become liable for, contingently or otherwise (collectively
"incur"), any Indebtedness unless, after giving effect to such incurrence on
a pro forma basis, the Company's Leverage Ratio would not exceed 8.00.
Notwithstanding the foregoing limitation, the Company and its Restricted
Subsidiaries may incur the following Indebtedness: (i) the Notes; (ii)
Indebtedness outstanding on the Issue Date; (iii) Permitted Refinancing
Indebtedness incurred in respect of Indebtedness incurred pursuant to the
provisions of the immediately preceding paragraph or clauses (i) and (ii) of
this paragraph; (iv) Indebtedness of the Company owing to and held by a
Restricted Subsidiary and Indebtedness of a Restricted Subsidiary owing to
and held by the Company or any other Restricted Subsidiary; provided,
however, that any subsequent issuance or transfer of any Capital Stock or
other event that results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or a Restricted Subsidiary) shall be deemed, in each
case, to constitute the incurrence of such Indebtedness by the issuer
thereof; (v) Indebtedness under Interest Rate Agreements; provided, however,
such Interest Rate Agreements do not increase the Indebtedness of the Company
outstanding at any time other than as a result of fluctuations in interest
rates or by reason of customary fees, indemnities and compensation payable
thereunder and (vi) Indebtedness in connection with one or more standby
letters of credit or performance bonds issued in the ordinary course of
business or pursuant to self-insurance obligations.
Limitation on Restricted Payments. The Company shall not make, and shall
not permit any Restricted Subsidiary to make, any Restricted Payment if at
the time of, and after giving effect to, such proposed Restricted Payment,
(i) a Default shall have occurred and be continuing, (ii) the aggregate
amount of such Restricted Payment and
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all other Restricted Payments made since November 14, 1995 (the amount of any
Restricted Payment, if other than cash, to be based upon Fair Market Value),
would exceed an amount equal to the sum of (a) the excess of (1) Cumulative
EBITDA over (2) the product of 1.2 and Cumulative Interest Expense, (b) Capital
Stock Sale Proceeds, (c) the amount by which Indebtedness of the Company or any
Restricted Subsidiary is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary) subsequent to November 14,
1995 of any Indebtedness of the Company or any Restricted Subsidiary convertible
or exchangeable for Capital Stock (other than Redeemable Stock) of the Company
(less the amount of any cash or other Property distributed by the Company or any
Restricted Subsidiary upon conversion or exchange) and (d) $100,000,000, or
(iii) the Company could not incur at least $1.00 of additional Indebtedness
pursuant to the first paragraph of " -- Limitation on Indebtedness."
Notwithstanding the foregoing limitation, the Company may (i) pay
dividends on its Capital Stock within 60 days of the declaration thereof if,
on the declaration date, such dividends could have been paid in compliance
with the foregoing limitation, (ii) redeem, repurchase, defease, acquire or
retire for value, any Indebtedness subordinate (whether pursuant to its terms
or by operation of law) in right of payment to the Notes with the proceeds of
any Permitted Refinancing Indebtedness or (iii) acquire, redeem or retire
Capital Stock or Indebtedness subordinate (whether pursuant to its terms or
by operation of law) in right of payment to the Notes in exchange for, or in
connection with a substantially concurrent issuance of, Capital Stock of the
Company (other than Redeemable Stock).
Any payments made pursuant to clauses (ii) and (iii) of the immediately
preceding paragraph shall be excluded from the calculation of the aggregate
amount of Restricted Payments made after November 14, 1995; provided,
however, that the proceeds from the issuance of Capital Stock pursuant to
clause (iii) of the immediately preceding paragraph shall not constitute
Capital Stock Sale Proceeds for purposes of clause (ii)(b) of the first
paragraph of this covenant.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly,
conduct any business or enter into or suffer to exist any transaction or
series of transactions (including the purchase, sale, transfer, lease or
exchange of any Property or the rendering of any service) with, or for the
benefit of, any Affiliate (an "Affiliate Transaction") unless (i) the terms
of such Affiliate Transaction are in writing, (ii) such Affiliate Transaction
is in the best interest of the Company or such Restricted Subsidiary, as the
case may be, (iii) such Affiliate Transaction is on terms as favorable to the
Company or such Restricted Subsidiary, as the case may be, as those that
could be obtained at the time of such Affiliate Transaction for a similar
transaction in arms-length dealings with a Person who is not such an
Affiliate and (iv) with respect to each Affiliate Transaction involving
aggregate payments in excess of $50 million, the Company delivers to the
Trustee an opinion letter from an Independent Appraiser to the effect that
such Affiliate Transaction is fair, from a financial point of view and an
Officers' Certificate certifying that such Affiliate Transaction was approved
by a majority of the Board of Directors of the Company and that such
Affiliate Transaction complies with clauses (ii) and (iii).
Notwithstanding the foregoing limitation, the Company may enter into or
suffer to exist the following: (i) any transaction pursuant to any contract
in existence on the Issue Date, including contracts for the acquisition of
cable television programming and renewals, extensions and replacements
thereof on terms no less favorable to the Company and its Restricted
Subsidiaries; (ii) any Restricted Payment permitted to be made pursuant to
the covenant described under "Limitation on Restricted Payments;" (iii) any
transaction or series of transactions between the Company and one or more of
its Restricted Subsidiaries or between two or more of its Restricted
Subsidiaries (provided that no more than 5% of the equity interest in any of
its Restricted Subsidiaries is owned by an Affiliate); and (iv) the payment
of compensation (including, amounts paid pursuant to employee benefit plans)
for the personal services of officers, directors and employees of the Company
or any of its Restricted Subsidiaries, so long as the Board of Directors of
the Company in good faith shall have approved the terms thereof and deemed
the services theretofore or thereafter to be performed for such compensation
or fees to be fair consideration therefor.
Designation of Restricted and Unrestricted Subsidiaries. The Board of
Directors of the Company may designate an Unrestricted Subsidiary as a
Restricted Subsidiary or designate a Restricted Subsidiary as an Unrestricted
Subsidiary at any time; provided, however, that immediately after giving
effect to such designation on a
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pro forma basis, (i) the Company's Leverage Ratio would not exceed 8.00, (ii)
the Company and its Restricted Subsidiaries are in compliance with the
provisions of the Indenture described under "Limitation on Layered
Indebtedness" and "Limitation on Subordinated Liens" and (iii) an Officers'
Certificate with respect to such designation is delivered to the Trustee
within 75 days after the end of the fiscal quarter of the Company in which
such designation is made (or, in the case of a designation made during the
last fiscal quarter of the Company's fiscal year, within 120 days after the
end of such fiscal year), which Officers' Certificate shall state the
effective date of such designation.
Limitation on Layered Indebtedness. The Company shall not, directly or
indirectly, incur any Indebtedness that is subordinate or junior in ranking
in right of payment to any other Indebtedness of the Company unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated
in right of payment to Senior Subordinated Indebtedness.
Limitation on Subordinated Liens. The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, incur or suffer
to exist any Lien (other than Permitted Liens) on or with respect to any of
its property or assets (including Capital Stock), whether owned on the Issue
Date or thereafter acquired, or any interest therein or any income or profits
therefrom securing any obligation or Indebtedness that is subordinate or
junior in ranking in right of payment to, or ranks pari passu with, the
Notes, unless contemporaneously therewith effective provision is made to
secure the Notes equally and ratably with (or prior to) such obligation or
Indebtedness for so long as such obligation or Indebtedness is so secured.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Company may not consolidate with or merge with or into, or convey,
sell, transfer, lease or otherwise dispose of all or substantially all of its
assets (as an entirety or substantially as an entirety in one transaction or
a series of related transactions), to any Person unless: (i) the Company
shall be the surviving Person (the "Surviving Person"), or the Surviving
Person (if other than the Company) formed by such consolidation or into which
the Company is merged or to which the assets of the Company are transferred
shall be a corporation organized and existing under the laws of the United
States or any State thereof or the District of Columbia; (ii) the Surviving
Person (if other than the Company) shall expressly assume, by supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all of the obligations of the Company under the Notes and the
Indenture, and the obligations under the Indenture shall remain in full force
and effect; (iii) immediately before and immediately after giving effect to
such transaction, no Default shall have occurred and be continuing; and (iv)
immediately after giving effect to such transaction on a pro forma basis
(including, any Indebtedness incurred or anticipated to be incurred in
connection with such transaction or series of transactions), the Surviving
Person would be able to incur at least $1.00 of additional Indebtedness
pursuant to the first paragraph of " -- Limitation on Indebtedness."
In connection with any consolidation, merger or transfer contemplated by
this provision, the Company shall deliver, or cause to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
SEC REPORTS
Notwithstanding that the Company may not be required to remain subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall file with the Commission and provide the Trustee and holders of
the Notes with such annual reports and such information, documents and other
reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times
specified for the filing of such information, documents and reports under
such Sections.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the Company fails to make the payment of any principal of, or premium, if
any, on the Notes when the same becomes due and payable at matu-
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rity, upon acceleration, redemption or declaration, or otherwise; (ii) the
Company fails to make the payment of any interest on the Notes when the same
becomes due and payable, and such failure continues for a period of 30 days;
(iii) the Company fails to comply with any other covenant in the Notes or
Indenture and such failure continues for 30 days after written notice from
the Trustee or the registered holders of not less than 25% in aggregate
principal amount of the Notes then outstanding; (iv) the Company or any
Restricted Subsidiary fails to pay when due principal, interest or premium
aggregating $10,000,000 or more with respect to any Indebtedness of the
Company or any Restricted Subsidiary or the acceleration of any such
Indebtedness, which default shall not be cured or waived or which
acceleration shall not be rescinded or annulled, within 10 days after written
notice (the "cross default provisions"); (v) any final judgment or judgments
for the payment of money in excess of $10,000,000 shall be rendered against
the Company or any Restricted Subsidiary and shall not be discharged for any
period of 30 consecutive days during which a stay of enforcement shall not be
in effect (the "judgment default provisions"); or (vi) certain events
involving bankruptcy, insolvency or reorganization of the Company or any
Restricted Subsidiary (the "bankruptcy provisions"). The Indenture provides
that the Trustee may withhold notice to the holders of the Notes of any
default (except in payment of principal or premium, if any, or interest on
such Notes) if the Trustee considers it to be in the best interest of the
holders of the Notes to do so.
The Indenture provides that if an Event of Default with respect to the
Notes (other than an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization with respect to the Company) shall
have occurred and be continuing, the Trustee or the registered holders of not
less than 25% in aggregate principal amount of the Notes then outstanding may
declare to be immediately due and payable the principal amount of all the
Notes then outstanding, plus accrued but unpaid interest to the date of
acceleration; provided, however, that after such acceleration but before a
judgment or decree based on acceleration is obtained by the Trustee, the
registered holders of a majority in aggregate principal amount of the Notes
then outstanding may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the nonpayment of
accelerated principal, premium or interest, have been cured or waived as
provided in the Indenture. In case an Event of Default resulting from certain
events of bankruptcy, insolvency or reorganization with respect to the
Company shall occur, such amount with respect to all of the Notes shall be
due and payable immediately without any declaration or other act on the part
of the Trustee or the holders of the Notes.
The registered holders of a majority in principal amount of the Notes then
outstanding shall have the right to waive any existing Default with respect
to the Notes or compliance with any provision of the Indenture or the Notes
and to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, subject to certain limitations specified in
the Indenture.
No holder of the Notes will have any right to institute any proceeding
with respect to the Indenture or for any remedy thereunder, unless such
holder shall have previously given to the Trustee written notice of a
continuing Event of Default and unless also the registered holders of at
least 25% in aggregate principal amount of the Notes then outstanding shall
have made written request and offered reasonable indemnity to the Trustee to
institute such proceeding as a trustee, and unless the Trustee shall not have
received from the registered holders of a majority in aggregate principal
amount of the Notes then outstanding a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a holder of a
Note for enforcement of payment of the principal of and premium, if any, or
interest on such Note on or after the respective due dates expressed in such
Note.
AMENDMENTS AND WAIVERS
The Indenture may be amended with the consent of the registered holders of
a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for the
Notes) and any past default or compliance with any provisions may also be
waived with the consent of the registered holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note, no amendment may, among other things, (i)
reduce the amount of Notes whose holders must consent to an amendment, (ii)
reduce the rate of or extend the time for payment of interest on any Note,
(iii) reduce the principal of or extend the stated maturity of any Note, (iv)
make any Note payable in money other than that stated in the Note, (v) impair
the right of any holder of the Notes to
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receive payment of principal of and interest on such holder's Notes on or
after the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such holder's Notes, (vi) make any change in
the amendment provisions which require each holder's consent or in the waiver
provisions or (vii) make any change to the subordination provisions of the
Indenture that would adversely affect the Noteholders.
Without the consent of any holder of the Notes, the Company and the
Trustee may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of
the obligations of the Company under the Indenture, to provide for
uncertificated Notes in addition to or in place of certificated Notes
(provided that the uncertificated Notes are issued in registered form for
purposes of Section 163(f) of the Internal Revenue Code, or in a manner such
that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Internal Revenue Code), to add Guarantees with respect to the Notes, to
secure the Notes, to add to the covenants of the Company for the benefit of
the holders of the Notes or to surrender any right or power conferred upon
the Company, to make any change that does not adversely affect the rights of
any holder of the Notes or to comply with any requirement of the Commission
in connection with the qualification of the Indenture under the Trust
Indenture Act. However, no amendment made to the subordination provisions of
the Indenture that adversely affects the rights of any holder of Senior
Indebtedness then outstanding shall be effective as to such holder of Senior
Indebtedness unless such holder (or its Representative) consents to such
change.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to registered holders of the Notes a notice briefly
describing such amendment. However, the failure to give such notice to all
holders of the Notes, or any defect therein, will not impair or affect the
validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register
the transfer or exchange of the Notes, to replace mutilated, destroyed, lost
or stolen Notes and to maintain a registrar and paying agent in respect of
the Notes. The Company at any time may terminate its obligations under the
covenants described under " -- Certain Covenants" (other than the covenant
described under " -- Merger, Consolidation and Sale of Assets"), the
operation of the cross default provisions, the bankruptcy provisions with
respect to Restricted Subsidiaries, the judgment default provisions described
under " -- Events of Default" above and the limitations contained in clause
(iv) under " -- Certain Covenants -- Merger, Consolidation and Sale of
Assets" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises
its legal defeasance option, payment of the Notes may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in clause (iii) (with respect to the
covenants described under "Certain Covenants," other than the covenant
described under " -- Certain Covenants -- Merger, Consolidation and Sale of
Assets" above), (iv), (v) or (vi) (with respect only to Restricted
Subsidiaries) under " -- Events of Default" above or because of the failure
of the Company to comply with clause (iv) under " -- Certain Covenants --
Merger, Consolidation and Sale of Assets" above.
In order to exercise either defeasance option, the Company must
irrevocably deposit in trust (the "defeasance trust") with the Trustee money
or U.S. Government Obligations for the payment of principal and interest on
the Notes to maturity and must comply with certain other conditions,
including delivery to the Trustee of an Opinion of Counsel to the effect that
holders of the Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposit and defeasance and will be
subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance
had not occurred (and, in the case of legal defeasance only, such Opinion of
Counsel must be based on a ruling of the Internal Revenue Service or other
change in applicable Federal income tax law).
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THE TRUSTEE
The Bank of New York is to be the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the
Notes. The Indenture provides that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs. John C. Malone, a director of the Company, is a director of The Bank
of New York.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Affiliate" of any specified Person means (i) any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person or (ii) any other Person who is a
director or officer (a) of such specified Person, (b) of any Subsidiary of
such specified Person or (c) of any Person described in clause (i) above. For
the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities,
by contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. For purposes of the covenants
described under "Limitation on Transactions with Affiliates" only,
"Affiliate" shall also mean any beneficial owner of shares representing 10%
or more of the total voting power of the Capital Stock (on a fully diluted
basis) of the Company or of rights or warrants to purchase such Capital Stock
(whether or not currently exercisable) and any Person who would be an
Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"Annualized Pro Forma EBITDA" means, with respect to any Person, the
product of such Person's Pro Forma EBITDA for the latest fiscal quarter for
which financial statements are available multiplied by four.
"Asset Sale" means the sale, transfer or other disposition (other than to
the Company or any of its Restricted Subsidiaries) in any single transaction
or series of related transactions of (a) any Capital Stock of or other equity
interest in any Restricted Subsidiary, (b) all or substantially all of the
assets of the Company or of any Restricted Subsidiary or (c) all or
substantially all of the assets of (1) a Company System or part thereof
serving at least 50,000 basic customers, (2) a division, (3) a line of
business or (4) a comparable business segment of the Company or any
Restricted Subsidiary.
"Attributable Indebtedness" means Indebtedness deemed to be incurred in
respect of a Sale and Leaseback Transaction and shall be, at the date of
determination, the present value (discounted at the actual rate of interest
implicit in such transaction, compounded annually), of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale and Leaseback Transaction (including any period for
which such lease has been extended).
"Bank Indebtedness" means the Indebtedness and all other monetary
obligations of the Company incurred under the New Bank Credit Facility.
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of corporate stock, partnership
interests or any other participation, right, warrant, option or other
interest in the nature of an equity interest in such Person, but excluding
any debt security convertible or exchangeable into such equity interest.
"Capital Stock Sale Proceeds" means the aggregate Net Cash Proceeds
received by the Company from the issue or sale (other than to a Subsidiary or
an employee stock ownership plan or trust established by the Company or any
Subsidiary) by the Company of any class of its Capital Stock (other than
Redeemable Stock) after November 14, 1995.
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"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with generally accepted accounting
principles and the amount of such Indebtedness shall be the capitalized
amount of such obligations determined in accordance with generally accepted
accounting principles.
"Change of Control" means such time as a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than one
or more of the Permitted Holders and their Affiliates, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more
than 50% of the total voting power required to elect or designate for
election a majority of the Company's Board of Directors and attaching to the
then outstanding voting Capital Stock of the Company.
"Change of Control Triggering Event" means, with respect to the Notes, the
occurrence of both a Change of Control and a Rating Decline with respect to
the Notes.
"Company System" means any cable television system owned by the Company or
any Restricted Subsidiary.
"Consolidated Interest Expense" means, for any Person, for any period, the
amount of interest in respect of Indebtedness (including amortization of
original issue discount, fees payable in connection with financings,
including commitment, availability and similar fees, and amortization of debt
issuance costs, non-cash interest payments on any Indebtedness and the
interest portion of any deferred payment obligation and after taking into
account the effect of elections made under, and the net costs associated
with, any Interest Rate Agreement, however denominated, with respect to such
Indebtedness), the amount of Redeemable Dividends, the amount of Preferred
Stock dividends in respect of all Preferred Stock of Restricted Subsidiaries
held by Persons other than the Company or a Restricted Subsidiary,
commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing, and the interest
component of rentals in respect of any Capitalized Lease Obligation or Sale
and Leaseback Transaction paid, accrued or scheduled to be paid or accrued by
such Person during such period, determined on a consolidated basis in
accordance with generally accepted accounting principles. For purposes of
this definition, interest on a Capitalized Lease Obligation shall be deemed
to accrue at an interest rate reasonably determined by such Person to be the
rate of interest implicit in such Capitalized Lease Obligation in accordance
with generally accepted accounting principles consistently applied.
"Consolidated Net Income" means for any period, the net income (loss) of
the Company and its Subsidiaries; provided, however, that there shall not be
included in such Consolidated Net Income (i) any net income (loss) of any
Person if such Person is not a Restricted Subsidiary, except that (a) subject
to the limitations contained in (iv) below, the Company's equity in the net
income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution to a Restricted Subsidiary, to the limitations
contained in clause (iii) below) and (b) the Company's equity in a net loss
of any such Person (other than an Unrestricted Subsidiary) for such period
shall be included in determining such Consolidated Net Income, (ii) any net
income (loss) of any Person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition, (iii) any net income (loss) of any Restricted Subsidiary if such
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to the Company, except that (a) subject to the
limitations contained in (iv) below, the Company's equity in the net income
of any such Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend (subject, in the case
of a dividend to another Restricted Subsidiary, to the limitation contained
in this clause) and (b) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income, (iv) any gain (but not loss) realized upon the sale
or other disposition of any property, plant or equipment of the Company or
its consolidated Subsidiaries (including pursuant to any Sale and Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary
course of business and any gain (but not loss) realized upon the sale or
other disposition of any Capital Stock of any Person, (v) any extraordinary
gain or loss and (vi) the cumulative effect of a change in accounting
principles.
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"Cumulative EBITDA" means at any date of determination the cumulative
EBITDA of the Company from and after September 30, 1995 to the end of the
fiscal quarter immediately preceding the date of determination or, if such
cumulative EBITDA for such period is negative, minus the amount by which such
cumulative EBITDA is less than zero.
"Cumulative Interest Expense" means at any date of determination the
aggregate amount of Consolidated Interest Expense paid, accrued or scheduled
to be paid or accrued by the Company from September 30, 1995 to the end of
the fiscal quarter immediately preceding the date of determination determined
on a consolidated basis in accordance with generally accepted accounting
principles.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness, (ii) the
8 3/8 % Senior Notes and (iii) any other Senior Indebtedness of the Company
which, at the date of determination, has an aggregate principal amount
outstanding of, or under which, at the date of determination, the holders
thereof are committed to lend up to, at least $100 million and is
specifically designated by the Company in the instrument evidencing or
governing such Senior Indebtedness as "Designated Senior Indebtedness" for
purposes of the Indenture.
"EBITDA" means, for any Person, for any period, an amount equal to (A) the
sum of (i) Consolidated Net Income for such period, plus (ii) the provision
for taxes for such period based on income or profits to the extent such
income or profits were included in computing consolidated net income and any
provision for taxes utilized in computing net loss under clause (i) hereof,
plus (iii) Consolidated Interest Expense for such period, plus (iv)
depreciation for such period on a consolidated basis, plus (v) amortization
of intangibles for such period on a consolidated basis, plus (vi) any other
non-cash items reducing consolidated net income for such period, minus (B)
all non-cash items increasing consolidated net income for such period, all
for such Person and its Subsidiaries determined in accordance with generally
accepted accounting principles consistently applied, except that with respect
to the Company each of the foregoing items shall be determined on a
consolidated basis with respect to the Company and its Restricted
Subsidiaries only.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means with respect to any Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value will be
determined, except as otherwise provided, (i) if such property or asset has a
Fair Market Value of less than $5 million, by any Officer of the Company or
(ii) if such property or asset has a Fair Market Value in excess of $5
million, by a majority of the Board of Directors of the Company and evidenced
by a resolution, dated within 30 days of the relevant transaction, of such
Board delivered to the Trustee.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Indebtedness" means (without duplication), with respect to any Person,
any indebtedness, secured or unsecured, contingent or otherwise, which is for
borrowed money (whether or not the recourse of the lender is to the whole of
the assets of such Person or only to a portion thereof), or evidenced by
bonds, notes, debentures or similar instruments or representing the balance
deferred and unpaid of the purchase price of any property (excluding any
balances that constitute customer advance payments and deposits, accounts
payable or trade payables, and other accrued liabilities arising in the
ordinary course of business) if and to the extent any of the foregoing
indebtedness would appear as a liability upon a balance sheet of such Person
prepared in accordance with
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generally accepted accounting principles, and shall also include, to the
extent not otherwise included (i) any Capitalized Lease Obligations, (ii)
Indebtedness of other Persons secured by a Lien to which the property or
assets owned or held by such Person is subject, whether or not the obligation
or obligations secured thereby shall have been assumed (the amount of such
Indebtedness being deemed to be the lesser of the value of such property or
assets or the amount of the Indebtedness so secured), (iii) Guarantees of
Indebtedness of other Persons, (iv) any Redeemable Stock, (v) any
Attributable Indebtedness, (vi) all obligations of such Person in respect of
letters of credit, bankers' acceptances or other similar instruments or
credit transactions (including reimbursement obligations with respect
thereto), other than obligations with respect to letters of credit securing
obligations (other than obligations described in this definition) entered
into in the ordinary course of business of such Person to the extent such
letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit, (vii) in the case of the Company, Preferred Stock of its
Restricted Subsidiaries and (viii) obligations of any such Person under any
Interest Rate Agreement applicable to any of the foregoing. Notwithstanding
the foregoing, Indebtedness shall not include any interest or accrued
interest until due and payable.
"Independent Appraiser" means, an investment banking firm of national
standing with non-investment grade debt underwriting experience or any third
party appraiser of national standing; provided, however, that such firm or
appraiser is not an Affiliate of the Company.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement.
"Investment Grade Rating" means a rating equal to or higher than Baa3 (or
the equivalent) and BBB- (or the equivalent) by Moody's Investors Service,
Inc. (or any successor to the rating agency business thereof) and Standard &
Poor's Rating Group (or any successor to the rating agency business thereof),
respectively.
"Issue Date" means the date on which the Notes are initially issued.
"Lenfest Family" means collectively H. F. Lenfest and members of his
immediate family, any of their respective spouses, estates, lineal
descendants, heirs, executors, personal representatives, administrators,
trusts for any of their benefit and charitable foundations to which shares of
the Company's Capital Stock beneficially owned by any of the foregoing have
been transferred.
"Leverage Ratio" is defined as the ratio of (i) the outstanding
Indebtedness of a Person and its Subsidiaries (or in the case of the Company,
its Restricted Subsidiaries) divided by (ii) the Annualized Pro Forma EBITDA
of such Person.
"Lien" means, with respect to any Property of any Person, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness or marketability), encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind
or nature whatsoever on or with respect to such Property (including any
Capitalized Lease Obligation, conditional sale or other title retention
agreement having substantially the same economic effect as any of the
foregoing or any Sale and Leaseback Transaction).
"Net Cash Proceeds" with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale, net of attorney's fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Officer" means the President, the Treasurer, or any Executive Vice
President or Vice President of the Company.
"Officers' Certificate" means a certificate signed by two Officers at
least one of whom shall be the principal executive officer, principal
accounting officer or principal financial officer of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to
the Company or the Trustee.
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"Permitted Holders" means the Lenfest Family and Tele-Communications, Inc.
"Permitted Liens" means (i) Liens on the Property of the Company or any
Restricted Subsidiary existing on the Issue Date; (ii) Liens on the Property
of the Company or any Restricted Subsidiary to secure any extension, renewal,
refinancing, replacement or refunding (or successive extensions, renewals,
refinancings, replacements or refundings), in whole or in part, of any
Indebtedness secured by Liens referred to in any of clauses (i), (vi) or
(ix); provided, however, that any such Lien will be limited to all or part of
the same Property that secured the original Lien (plus improvements on such
Property) and the aggregate principal amount of Indebtedness that is secured
by such Lien will not be increased to an amount greater than the sum of (A)
the outstanding principal amount, or, if greater, the committed amount, of
the Indebtedness described under clauses (i), (vi) and (ix) at the time the
original Lien became a Permitted Lien under the Indenture and (B) an amount
necessary to pay any premiums, fees and other expenses incurred by the
Company in connection with such refinancing, refunding, extension, renewal or
replacement; (iii) Liens for taxes, assessments or governmental charges or
levies on the Property of the Company or any Restricted Subsidiary if the
same shall not at the time be delinquent or thereafter can be paid without
penalty, or are being contested in good faith and by appropriate proceedings;
(iv) Liens imposed by law, such as carriers', warehousemen's and mechanics'
Liens and other similar Liens on the Property of the Company or any
Restricted Subsidiary arising in the ordinary course of business which secure
payment of obligations not more than 60 days past due or are being contested
in good faith and by appropriate proceedings; (v) Liens on the Property of
the Company or any Restricted Subsidiary in favor of issuers of performance
bonds and surety or appeal bonds; (vi) Liens on Property at the time the
Company or any Restricted Subsidiary acquired such Property, including any
acquisition by means of a merger or consolidation with or into the Company or
such Restricted Subsidiary; provided, however, that such Lien shall not have
been incurred in anticipation or in connection with such transaction or
series of related transactions pursuant to which such Property was acquired
by the Company or such Restricted Subsidiary; (vii) other Liens on the
Property of the Company or any Restricted Subsidiary incidental to the
conduct of their respective businesses or the ownership of their respective
Properties which were not created in connection with the incurrence of
Indebtedness or the obtaining of advances or credit and which do not in the
aggregate materially detract from the value of their respective Properties or
materially impair the use thereof in the operation of their respective
businesses; (viii) pledges or deposits by the Company or any Restricted
Subsidiary under workmen's compensation laws, unemployment insurance laws or
similar legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which the
Company or any Restricted Subsidiary is a party, or deposits to secure public
or statutory obligations of the Company or any Restricted Subsidiary, or
deposits for the payment of rent, in each case incurred in the ordinary
course of business, (ix) Liens on the Property of a Person at the time such
Person becomes a Restricted Subsidiary; provided, however, that any such Lien
may not extend to any other Property of the Company or any Restricted
Subsidiary; provided further, however, that any such Lien was not incurred in
anticipation of or in connection with the transaction or series of related
transactions pursuant to which such Person became a Restricted Subsidiary or
(x) utility easements, building restrictions and such other encumbrances or
charges against real property as are of a nature generally existing with
respect to properties of a similar character.
"Permitted Refinancing Indebtedness" means any renewals, extensions,
substitutions, refinancings or replacements of any Indebtedness, including
any successive extensions, renewals, substitutions, refinancings or
replacements so long as (i) the aggregate amount of Indebtedness represented
thereby is not increased by such renewal, extension, substitution,
refinancing or replacement, (ii) the average life and the date such
Indebtedness is scheduled to mature is not shortened and (iii) the new
Indebtedness shall not be senior in right of payment to the Indebtedness that
is being extended, renewed, substituted, refinanced or replaced.
"Person" means any individual, corporation, company (including limited
liability company), partnership, joint venture, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of
other Capital Stock issued by such Person.
"Private Placement Note Agreements" means (i) the Note Agreement dated as
of September 14, 1988, as amended, among the Company, The Equitable Life
Assurance Society of the United States, The Mutual Life
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Insurance Company of New York, The Mutual Benefit Life Insurance Company and
The Prudential Insurance Company of America; (ii) the Note Agreement dated as
of May 22, 1989, as amended, between the Company and The Prudential Insurance
Company of America; and (iii) the Note Agreement dated as of September 27,
1991, as amended, among the Company and Teachers Insurance and Annuity
Association of America, Jackson National Life Insurance Company, UNUM Life
Insurance Company, First UNUM Life Insurance Company, IDS Life Insurance
Company of New York, American Enterprise Life Insurance Company, New York
Life Insurance Company and SAFECO Life Insurance Company.
"Private Placement Notes" means (i) the 11.84% Senior Notes due 2000; (ii)
the 11.30% Senior Notes due 1998; and (iii) the 9.93% Senior Notes due 2001,
all as issued pursuant to the Private Placement Note Agreements.
"Pro Forma EBITDA" means for any Person, for any period, the EBITDA of
such Person as determined on a consolidated basis in accordance with
generally accepted accounting principles consistently applied after giving
effect to the following: (i) if, during or after such period, such Person or
any of its Subsidiaries shall have made any Asset Sale, Pro Forma EBITDA of
such Person and its Subsidiaries for such period shall be reduced by an
amount equal to the Pro Forma EBITDA (if positive) directly attributable to
the assets which are the subject of such Asset Sale for the period or
increased by an amount equal to the Pro Forma EBITDA (if negative) directly
attributable thereto for such period and (ii) if, during or after such
period, such Person or any of its Subsidiaries completes an acquisition of
any Person or business which immediately after such acquisition is a
Subsidiary of such Person or whose assets are held directly by such Person or
a Subsidiary of such Person, Pro Forma EBITDA shall be computed so as to give
pro forma effect to the acquisition of such Person or business; provided,
however, that, with respect to the Company, all of the foregoing references
to "Subsidiary" or "Subsidiaries" shall be deemed to refer only to the
"Restricted Subsidiaries" of the Company.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including, without limitation, Capital Stock in any
other Person (but excluding Capital Stock or other securities issued by such
Person).
"Rating Agencies" mean Standard and Poor's Rating Group, a division of
McGraw Hill, Inc., and Moody's Investors Service, Inc. or any successor to
the respective rating agency businesses thereof.
"Rating Date" means the date which is 90 days prior to the earlier of (i)
a Change of Control and (ii) public notice of the occurrence of a Change of
Control or of the intention of the Company to effect a Change of Control.
"Rating Decline" means, with respect to the Notes, the occurrence of the
following on, or within 90 days after, the date of public notice of the
occurrence of a Change of Control or of the intention by the Company to
effect a Change of Control (which period shall be extended so long as the
rating of such Notes is under publicly announced consideration for possible
downgrade by either of the Rating Agencies): (a) in the event the Notes are
assigned an Investment Grade Rating by either of the Rating Agencies on the
Rating Date, the rating of the Notes by both of the Rating Agencies shall be
below an Investment Grade Rating; or (b) in the event the Notes are rated
below an Investment Grade Rating by both of the Rating Agencies on the Rating
Date, the rating of the Notes by either of the Rating Agencies shall be
decreased by one or more gradations (including gradations within rating
categories as well as between rating categories).
"Redeemable Dividend" means, for any dividend with regard to Redeemable
Stock, the quotient of the dividend divided by the difference between one and
the maximum statutory federal income tax rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Redeemable Stock.
"Redeemable Stock" means, with respect to any Person, any Capital Stock
that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or otherwise (i) matures or is
mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is redeemable at the option of the holder thereof, in whole or in part,
or (iii) is convertible or exchangeable for Indebtedness.
"Representative" means any trustee, agent or representative (if any) for
an issue of Senior Indebtedness of the Company.
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"Restricted Payment" means (i) any dividend or distribution (whether made
in cash, property or securities) declared or paid on or with respect to any
shares of Capital Stock of the Company or Capital Stock of any Restricted
Subsidiary except for any dividend or distribution which is made solely to
the Company or a Restricted Subsidiary (and, if such Restricted Subsidiary is
not wholly owned, to the other shareholders of such Restricted Subsidiary on
a pro rata basis) or dividends or distributions payable solely in shares of
Capital Stock (other than Redeemable Stock) of the Company; (ii) a payment
made by the Company or any Restricted Subsidiary to purchase, redeem, acquire
or retire any Capital Stock of the Company or Capital Stock of any Affiliate
of the Company (other than a Restricted Subsidiary) or any warrants, rights
or options to directly or indirectly purchase or acquire any such Capital
Stock or any securities exchangeable for or convertible into any such Capital
Stock; or (iii) a payment made by the Company or any Restricted Subsidiary to
redeem, repurchase, defease or otherwise acquire or retire for value, prior
to any scheduled maturity, scheduled sinking fund or mandatory redemption
payment (other than the purchase, repurchase, or other acquisition of any
Indebtedness subordinate in right of payment to the Notes purchased in
anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of
acquisition), Indebtedness of the Company which is subordinate (whether
pursuant to its terms or by operation of law) in right of payment to the
Notes.
"Restricted Subsidiary" means (a) Suburban Cable TV Co. Inc., LenComm,
Inc., Lenfest West, Inc., Lenfest Atlantic, Inc., Lenfest South Jersey
Investments, Inc., South Jersey Cablevision Associates, Lenfest Newcastle
County, Lenfest Newcastle County, Inc. and CAH, Inc.; (b) any Subsidiary of
the Company after the Issue Date unless such Subsidiary shall have been
designated an Unrestricted Subsidiary as permitted pursuant to " -- Certain
Covenants -- Designation of Restricted and Unrestricted Subsidiaries": and
(c) an Unrestricted Subsidiary which is redesignated as a Restricted
Subsidiary as permitted pursuant to " -- Certain Covenants -- Designation of
Restricted and Unrestricted Subsidiaries."
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a Restricted Subsidiary of such Person and is
thereafter leased back from the purchaser or transferee thereof by such
Person or one of its Restricted Subsidiaries.
"Senior Indebtedness" means (i) Indebtedness of the Company, whether
outstanding on the Issue Date or thereafter Incurred and (ii) accrued and
unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company to the
extent post-filing interest is allowed in such proceeding) in respect of (A)
indebtedness of the Company for money borrowed and (B) indebtedness evidenced
by notes, debentures, bonds or other similar instruments for the payment of
which the Company is responsible or liable unless, in the instrument creating
or evidencing the same or pursuant to which the same is outstanding, it is
provided that such obligations are subordinate in right of payment to the
Notes; provided, however, that Senior Indebtedness shall not include (1) any
obligation of the Company to any Subsidiary, (2) any liability for Federal,
state, local or other taxes owed or owing by the Company, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course
of business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of the Company (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect to
any other Indebtedness or other obligation of the Company or (5) that portion
of any Indebtedness which at the time of incurrence is incurred in violation
of the Indenture.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness
is to rank pari passu with the Notes in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which
more than 50% of the total voting power of the Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, officers or trustees thereof is held by such first-named Person
or any of its Subsidiaries; or (ii) in the case of a partnership, joint
venture, association or other business
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entity, with respect to which such first-named Person or any of its
Subsidiaries has the power to direct or cause the direction of the management
and policies of such entity by contract or otherwise if in accordance with
generally accepted accounting principles such entity is consolidated with the
first-named Person for financial statement purposes.
"Unrestricted Subsidiary" means (a) any Subsidiary in existence on the
Issue Date that is not a Restricted Subsidiary; (b) any Subsidiary of an
Unrestricted Subsidiary and (c) any Subsidiary of the Company which is
designated after the Issue Date as an Unrestricted Subsidiary as permitted
pursuant to " -- Certain Covenants -- Designation of Restricted and
Unrestricted Subsidiaries" and not thereafter redesignated as a Restricted
Subsidiary as permitted pursuant thereto.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on June 27, 1996 to the Initial
Purchasers in reliance on Section 4(2) of the Securities Act. The Initial
Purchasers offered and sold the Old Notes only to "qualified institutional
buyers" (as defined in Rule 144A) in compliance with Rule 144A and to a
limited number of other institutional "accredited investors" (as defined in
Rule 501 (a) (1), (2), (3) or (7) under the Securities Act) that, prior to
their purchase of Old Notes, delivered to the Initial Purchasers a letter
containing certain representations and agreements.
In connection with the sale of the Old Notes, the Company and the Initial
Purchasers entered into a Registration Agreement dated June 20, 1996 (the
"Registration Agreement"), which generally requires the Company (i) to cause
the Old Notes to be registered under the Securities Act pursuant to a Shelf
Registration Statement (as defined) or (ii) to file with the Commission the
Exchange Offer Registration Statement with respect to the Exchange Offer. The
Exchange Offer is being made pursuant to the Registration Agreement to
satisfy the Company's obligations thereunder with regard to the Exchange
Notes. The term "holder" with respect to the Exchange Offer means any person
in whose name Notes are registered on the registrar's books or any other
person who has obtained a properly completed bond power from the registered
holder, or any person whose Notes are held of record by The Depository Trust
Company ("DTC") who desires to deliver such Old Notes, by book-entry
transfer at DTC.
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes the Exchange
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder thereof
(other than broker-dealers, as set forth below, and any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange
Notes are acquired in the ordinary course of such holder's business and that
such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. Any holder who
tenders in the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the Exchange Notes or who is
an affiliate of the Company may not rely upon such interpretations by the
staff of the Commission and, in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction. Failure
to comply with such requirements in such instance may result in such holder
incurring liabilities under the Securities Act for which the holder is not
indemnified by the Company. Each broker-dealer (other than an affiliate of
the Company) that receives Exchange Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. See "Plan of Distribution." The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. The Company has agreed that, for a period
of 180 days after the Expiration Date, it will make the Prospectus available
to any broker-dealer for use in connection with any such sale. See "Plan of
Distribution." Any broker-dealer who is an affiliate of the Company may not
rely on such no-action letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction.
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The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, holders of Old Notes in any jurisdiction in
which this Exchange Offer or the acceptance thereof would not be in
compliance with the securities or blue sky laws of such jurisdiction.
By tendering in the Exchange Offer, each holder of Old Notes will
represent to the Company that, among other things, (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving such Exchange Notes, whether or
not such person is the holder, (ii) neither the holder of Old Notes nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, (iii) neither the
holder nor any such other person is an "affiliate" of the Company as defined
in Rule 405 under the Securities Act or, if such holder is an "affiliate,"
that such holder will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable, (iv) if the
holder is not a broker-dealer, that neither the holder nor any such other
person is engaged in or intends to engage in the distribution of such
Exchange Notes, and (v) if such holder is a broker-dealer, that it will
receive Exchange Notes for its own account in exchange for Old Notes that
were acquired as a result of market-making activities or other trading
activities and that it will be required to acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes.
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to participate. Holders of the Old Notes are urged
to consult their financial and tax advisors in making their own decisions on
whether to participate in the Exchange Offer.
Pursuant to the terms of the Registration Agreement, if, under certain
circumstances, the Exchange Offer is not permitted, the Company shall, as
promptly as practicable (but in no event more than 30 days after so required
or requested pursuant to Registration Agreement), file with the Commission
and thereafter shall cause to be declared effective under the Securities Act
by the 150th day after the Closing Date (as defined in the Registration
Agreement) a Shelf Registration Statement relating to the offer and sale of
the Old Notes or the Exchange Notes, as applicable, by the Holders from time
to time in accordance with the methods of distribution elected by such
Holders and set forth in such Shelf Registration Agreement. The Company will
be required to keep the Shelf Registration Statement continuously effective
in order to permit the prospectus forming part thereof to be usable by the
Holders for a period of three years from the date of the Shelf Registration
Statement is declared effective by the Commission or such shorter period that
will terminate when all the Old Notes or Exchange Notes, as applicable,
covered by the Shelf Registration Statement have been sold pursuant to the
Shelf Regisstration Statement.
TERMS OF THE EXCHANGE OFFER
General Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company hereby offers to
exchange any and all Old Notes validly tendered and not withdrawn prior to
5:00 p.m., New York City time, on the Expiration Date. Subject to the minimum
denomination requirements of the Exchange Notes, the Company will issue
$1,000 principal amount of Exchange Notes in exchange for each $1,000
principal amount of outstanding Old Notes accepted in the Exchange Offer.
Holders may tender some or all of their Old Notes pursuant to the Exchange
Offer. However, Old Notes may be tendered only in amounts that are integral
multiples of $1,000 principal amount.
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Old Notes except that (i) the Exchange
Notes will be registered under the Securities Act and, therefore, will not
bear legends restricting the transfer and (ii) holders of the Exchange Notes
will not be entitled to certain rights of holders of Old Notes under the
Registration Agreement, which will terminate upon consummation of the
Exchange Offer. The Exchange Notes will evidence the same debt as the Old
Notes, will be entitled to the benefits of the Indenture and will be treated
as a single class thereunder with any Old Notes that remain outstanding. The
Exchange Offer is not conditioned upon any minimum aggregate principal amount
of Old Notes being tendered for exchange.
As of the date of this Prospectus, $300,000,000 aggregate principal amount of
Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about September 9, 1996 to all holders
known to the Company.
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Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the provisions of the Registration Agreement and the
applicable requirements of the Exchange Act, and the rules and regulations of
the Commission thereunder. Old Notes which are not tendered for exchange in
the Exchange Offer will remain outstanding and interest thereon will continue
to accrue.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purposes of receiving the Exchange Notes from the Company. If
any tendered Old Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "-- Fees and Expenses".
Expiration Date; Extensions; Amendments. The term "Expiration Date" shall
mean 5:00 p.m., New, York City time, on October 9, 1996, unless the Company, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended. Although the Company has no current intention to extend
the Exchange Offer, the Company reserves the right to extend the Exchange
Offer at any time and from time to time by giving oral or written notice to
the Exchange Agent and by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release to
the Dow Jones News Service. During any extension of the Exchange Offer, all
Notes previously tendered pursuant to the Exchange Offer and not withdrawn
will remain subject to the Exchange Offer. The date of the exchange of the
Exchange Notes for Old Notes will be the first New York Stock Exchange
trading day following the Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth under "-- Conditions of the
Exchange Offer" below shall not have been satisfied, by giving oral or
written notice of such delay, extension or termination to the Exchange Agent
or (ii) to amend the terms of the Exchange Offer in any manner. Any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof to the holders of
Old Notes. If the Exchange Offer is amended in any manner determined by the
Company to constitute a material change, the Company will promptly disclose
such amendment by means of a prospectus supplement that will be distributed
to the holders of Old Notes, and the Company will extend the Exchange Offer
for a period of time, depending upon the significance of the amendment and
the manner of disclosure to such holders, if the Exchange Offer otherwise
would expire during such period.
In all cases, issuance of the Exchange Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of a properly completed and duly
executed Letter of Transmittal and all other required documents; provided,
however, that the Company reserves the absolute right to waive any conditions
of the Exchange Offer or defects or irregularities in the tender of Old
Notes. If any tendered Old Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Old Notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Old Notes or substitute Old Notes evidencing the
unaccepted portion, as appropriate, will be returned without expense to the
tendering holder (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at DTC pursuant to the book-entry
procedures described below, such non-exchanged Old Notes will be credited to
an account maintained with DTC), unless otherwise provided in the Letter of
Transmittal, as promptly as practicable after the expiration or termination
of the Exchange Offer.
Interest on the Exchange Notes. Holders of Old Notes that are accepted for
exchange will not receive accrued interest thereon at the time of exchange.
However, each Exchange Note will bear interest from the most recent date to
which interest has been paid on the Old Notes or Exchange Notes, or if no
interest has been paid on the Old Notes or Exchange Notes, from June 27,
1996.
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Procedures for Tendering Old Notes. The tender to the Company of Old Notes
by a holder thereof pursuant to one of the procedures set forth below will
constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the
Letter of Transmittal. A holder of the Old Notes may tender such Old Notes by
(i) properly completing and signing a Letter of Transmittal or a facsimile
thereof (all references in this Prospectus to a Letter of Transmittal shall
be deemed to include a facsimile thereof) and delivering the same, together
with any corresponding certificate or certificates representing Old Notes
being tendered (or confirmation of a book-entry-transfer of such Old Notes
into the Exchange Agent's account at DTC pursuant to the book-entry
procedures described below) and any required signature guarantees, to the
Exchange Agent at its address set forth in the Letter of Transmittal on or
prior to the Expiration Date (or complying with the procedure for book-entry
transfer described below) or (ii) complying with the guaranteed delivery
procedures described below.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange
therefor are to be issued (and any untendered Old Notes are to be reissued)
in the name of the registered holder (which term, for the purposes described
herein, shall include any participant in DTC (also referred to as a
book-entry facility) whose name appears on a security listing as the owner of
Old Notes, the signature of such signer need not be guaranteed. In any other
case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed
by the registered holder and the signature on the endorsement or instrument
of transfer must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or an "eligible guarantor institution" as defined by rule
17Ad-15 under the Exchange Act (any of the foregoing hereinafter referred to
as an "Eligible Institution"). If the Exchange Notes or Old Notes not
exchanged are to be delivered to an address other than that of the registered
holder appearing on the note register for the Old Notes, the signature in the
Letter of Transmittal must be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at DTC) is received by the
Exchange Agent or (ii) a Notice of Guaranteed Delivery or letter, telegram or
facsimile transmission to similar effect (as provided below) from an Eligible
Institution is received by the Exchange Agent. Issuances of Exchange Notes in
exchange for Old Notes tendered pursuant to a Notice of Guaranteed Delivery
or letter, telegram or facsimile transmission to similar effect (as provided
below) by an Eligible Institution will be made only against submission of a
duly signed Letter of Transmittal (and any other required documents) and
deposit of the tendered Old Notes (or confirmation of a book-entry transfer
of such Old Notes into the Exchange Agent's account at DTC pursuant to the
book-entry procedures described below).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company, which determination will be final and binding. The Company
reserves the absolute right to reject any and all tenders not in proper form
or the acceptance for exchange of which may, in the opinion of the Company's
counsel, be unlawful. The Company also reserves the absolute right to waive
any of the conditions of the Exchange Offer or any defect or irregularity in
the tender of any Old Notes. None of the Company, the Exchange Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification. Any Old Notes received by the Exchange Agent that are not
validly tendered and as to which the defects
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<PAGE>
or irregularities have not been cured or waived, or if Old Notes are
submitted in principal amount greater than the principal amount of Old Notes
being tendered by such tendering holder, such unaccepted or non-exchanged Old
Notes will be returned by the Exchange Agent to the tendering holder, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion (i) to
purchase or make offers for any Old Notes that remain outstanding subsequent
to the Expiration Date and (ii) to the extent permitted by applicable law, to
purchase Old Notes in the open market, in privately negotiated transactions
or otherwise. The terms of any such purchases or offers will differ from the
terms of the Exchange Offer.
Book-Entry Transfer. The Company understands that the Exchange Agent will
make a request promptly after the date of this Prospectus to establish an
account with respect to the Old Notes at DTC for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in DTC's system may make book-entry
delivery of Old Notes by causing DTC to transfer such Old Notes into the
Exchange Agent's account with respect to the Old Notes in accordance with DTC
procedure for such transfer. Although delivery of the Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at
DTC, an appropriate Letter of Transmittal with any required signature
guarantee and all other required documents must in each case be transmitted
to and received or confirmed by the Exchange Agent at the address set forth
in the Letter of Transmittal on or prior to the Expiration Date, or if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures.
Guaranteed Delivery Procedures. If a holder desires to participate in the
Exchange Offer and such holder's Old Notes are not immediately available, or
time will not permit such holder's Old Notes or other required documents to
reach the Exchange Agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) on
or prior to the Expiration Date, the Exchange Agent has received from an
Eligible Institution a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the tendering holder, the name(s) in which the Old Notes are
registered, the certificate number(s) of the Old Notes to be tendered and the
amount tendered, and stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after
the date of execution of the Notice of Guaranteed Delivery, such Old Notes,
in proper form for transfer (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC), will be delivered by
such Eligible Institution together with any other documents required by the
Letter of Transmittal and (iii) the certificates for all physically tendered
Old Notes, in proper form for transfer, or a confirmation of book-entry
transfer such Old Notes into the Exchange Agent's account at DTC, as the case
may be, and all other documents required by the Letter of Transmittal are
received by the Exchange Agent within three New Stock Exchange Trading Days
after the date of execution of the Notice of Guaranteed Delivery. Unless Old
Notes being tendered by the above-described method are deposited with the
Exchange Agent within the time period set forth above (accompanied or
preceded by a properly completed Letter of Transmittal and any other required
documents), the Company may, at its option, reject the tender. Copies of a
Notice of Guaranteed Delivery which may be used by Eligible Institutions for
the purposes described in this paragraph are available from the Exchange
Agent.
Terms and Conditions of the Letter of Transmittal. The Letter of
Transmittal contains, among other things, the following terms and conditions,
which are part of the Exchange Offer.
The party tendering Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably
constitutes and appoints the Exchange Agent as the Transferor's true and
lawful agent and attorney-in-fact with respect to such tendered Old Notes,
with full power of substitution, among other things, to cause the Old Notes
to be assigned, transferred and exchanged. The Transferor represents and
warrants that it has full power and authority to tender, exchange, assign and
transfer the Old Notes and to acquire Exchange Notes issuable upon the
exchange of such tendered Old Notes, and that, when the same are accepted for
exchange, the Company will acquire good and unencumbered title to the
tendered Old Notes, free and clear of all liens, restrictions, charges,
encumbrances and adverse claims. The Transferor also warrants that it will,
upon request, execute and deliver any additional documents reasonably
requested by the Company or the
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Exchange Agent as necessary or desirable to complete and give effect to the
transactions contemplated by the Letter of Transmittal. All authority
conferred by the Transferor will survive the death, bankruptcy or incapacity
of the Transferor and every obligation of the Transferor shall be binding
upon the heirs, personal representatives, executors, administrators,
successors, assigns, trustees in bankruptcy and other legal representatives
of such Transferor.
By executing a Letter of Transmittal, each holder will make to the Company
the representations set forth above under the heading "-- Purpose and Effect
of the Exchange Offer".
Withdrawal of Tenders of Notes. Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn (including the certificate number or numbers
and principal amount of such Old Notes), (iii) contain a statement that such
holder is withdrawing his election to have such Old Notes exchanged, (iv) be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such Old
Notes in the name of the person withdrawing the tender and (v) specify the name
in which any such Old Notes are to be registered, if different from that of the
Depositor. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer, any notice of withdrawal must specify the name and number
of the account at DTC. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
which determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder (or, in the case of Old Notes tendered by
book-entry transfer into the Exchange Agent's account at DTC pursuant to the
book-entry transfer procedures described above, such Old Notes will be credited
to an account maintained with DTC for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering Old Notes" at any
time on or prior to the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, or any extension of
the Exchange Offer, the Company shall not be required to accept for exchange,
or exchange Exchange Notes for, any Old Notes, and may terminate the Exchange
Offer as provided herein before the acceptance of such Old Notes, if:
(a) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any court or governmental authority which,
in the reasonable judgment of the Company, seeks to or would prohibit,
restrict, materially delay or otherwise render illegal consummation of the
Exchange Offer, or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its
subsidiaries has occurred which, in the sole judgment of the Company,
might materially impair the ability of the Company to proceed with the
Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Company, or
(c) there shall occur a change in the current interpretations by the
staff of the Commission which, in the Company's reasonable judgment, might
materially impair the Company's ability to proceed with the Exchange
Offer.
If the Company determines in its sole discretion that any of the above
conditions is not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the Expiration
Date, subject, however, to the right
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of holders to withdraw such Old Notes (see "-- Terms of the Exchange Offer --
Withdrawal of Tenders of Old Notes") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all validly tendered
Old Notes which have not been withdrawn. If such waiver constitutes a
material change to the Exchange Offer, the Company will promptly disclose
such waiver by means of a prospectus supplement that will be distributed to
the holders of Old Notes, and the Company will extend the Exchange Offer for
a period of time, depending upon the significance of the waiver and the
manner of disclosure to the such holders, if the Exchange Offer otherwise
would expire during such period.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. All executed Letters of Transmittal should be directed to the Exchange
Agent at one of the addresses set forth below. Requests for additional copies
of this Prospectus or of the Letter of Transmittal and requests for Notices
of Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
The Bank of New York
Reorganization Section
101 Barclay Street-7E
New York, New York 10286
Attn: Ms. Jodi Smith
By Facsimile Transmission (for Eligible Institutions only):
(212) 571-3080
Attn: Ms. Jodi Smith
Confirm by Telephone:
(212) 815-2791
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional
solicitation may be made by telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates. No additional
compensation will be paid to any such officers and employees who engage in
soliciting tenders.
The Company has not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to
brokers, dealers or others soliciting acceptance of the Exchange Offer. The
Company, however, will pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company also may pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Prospectus, the Letter
of Transmittal and related documents to the beneficial owners of the Old
Notes and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company. Such expenses include, among others, fees and expenses
of the Exchange Agent, accounting and legal fees and printing costs.
The Company will pay all transfer taxes, if any, applicable to the
exchange of the Old Notes pursuant to the Exchange Offer. If, however,
Exchange Notes, or Old Notes for principal amounts not tendered or accepted
for exchange, are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of the Old Notes tendered or if a
transfer tax is imposed for any reason other than the exchange of the Old
Notes pursuant to the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the holder or any other persons) will be payable by
the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering
holder.
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CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities within the meaning of Rule
144 of the Securities Act. Accordingly, such Old Notes may be resold only (i)
to the Company or any subsidiary thereof, (ii) inside the United States to a
qualified institutional buyer in compliance with Rule 144A, (iii) inside the
United States to an institutional accredited investor that, prior to such
transfer, furnishes to the Trustee a signed letter containing certain
representations and agreements relating to the restrictions on transfer of
the Old Notes (the form of which letter can be obtained from the Trustee)
and, if such transfer is in respect of an aggregate principal amount of Old
Notes at the time of transfer of less than $100,000, an opinion of counsel
acceptable to the Company that such transfer is in compliance with the
Securities Act, (iv) outside the United States in compliance with Rule 904
under the Securities Act, (v) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act (if available) or (vi) pursuant
to an effective registration statement under the Securities Act. The
liquidity of the Old Notes could be adversely affected by the Exchange Offer.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The costs of the Exchange Offer and the
unamortized expenses related to the issuance of the Old Notes will be
amortized over the term of the Exchange Notes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the federal income tax consequences of
exchanging Old Notes for Exchange Notes pursuant to the Exchange Offer is
based upon current provisions of the Internal Revenue Code of 1986, as
amended, existing and proposed regulations thereunder, and current
administrative rulings and court decisions. All of the foregoing are subject
to change, possibly on a retroactive basis, and no ruling has been or will be
sought from the Internal Revenue Service. This discussion does not address
any of the federal income tax consequences of owning or disposing of Exchange
Notes, nor does it address the applicability or effect of any state, local or
foreign tax laws. Each holder should consult such holder's own tax advisor
concerning the application of federal income tax laws, as well as the laws of
any state, local or foreign taxing jurisdiction, to their particular
situations.
The exchange of Old Notes for Exchange Notes pursuant to the Exchange
Offer should not be treated as a taxable "exchange" for federal income tax
purposes. As a result, there should be no federal income tax consequences to
holders exchanging Old Notes for Exchange Notes pursuant to the Exchange
Offer.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date and
ending on the close of business on the 180th day following the Expiration
Date, it will make this Prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with any such resale. In addition,
until October 19, 1996, all dealers effecting transactions in the Exchange
Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers
of any such Exchange Notes.
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Any broker-dealer that resells Exchange Notes that were received by it for
its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one
counsel for the holders of the Notes) other than commissions or concessions
of any brokers or dealers and will indemnify the holders of the Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act,
LEGAL MATTERS
The legality of the Exchange Notes offered hereby will be passed upon for
the Company by Saul, Ewing, Remick & Saul, Philadelphia, Pennsylvania and
Samuel W. Morris, Jr., Esquire, Vice President and General Counsel of the
Company. Certain legal matters with respect to regulation and legislation
concerning the cable television industry will be passed upon for the Company
by Fleischman and Walsh, L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company and its subsidiaries as of December 31, 1994 and 1995, and for
each of the three years in the period ended December 31, 1995, included in
this Prospectus and in the Registration Statement have been audited by
Pressman Ciocca & Smith, independent certified public accountants, as stated
in their report appearing herein and elsewhere in the Registration Statement.
Such financial statements and financial statement schedule have been included
herein in reliance upon such reports of such firm given upon their authority
as experts in auditing and accounting. The pro forma statement of operations
for the year ended December 31, 1995, included under "Pro Forma Financial
Information" has been examined by Pressman Ciocca & Smith and is included
herein in reliance upon the report of such firm given upon their authority on
reporting on examinations of pro forma financial statements. With respect to
the unaudited financial statements as of June 30, 1996, and for the six month
periods ended June 30, 1995 and 1996, and the pro forma balance sheet as of
June 30, 1996, and the pro forma statement of operations for the six months
ended June 30, 1996, included herein, the independent certified public
accountants have applied limited procedures in accordance with professional
standards for a review of such information. However, as stated in their
separate reports appearing herein they did not audit and they do not express
an opinion on that interim and pro forma financial information. Because of
the limited nature of the review procedures applied, the degree of reliance
on their report on such information should be restricted. In addition, the
accountants are not subject to the liability provisions of Section 11 of the
Securities Act of 1933 for their report on the unaudited interim and pro
forma financial information because that report is not a "report" or a "part"
of the Registration Statement prepared or certified by the accountants within
the meaning of Sections 7 and 11 of the Securities Act of 1933.
The combined financial statements and financial statement schedule
relating to Sammons Cable as of December 31, 1994 and 1995, and for each of
the three years in the period ended December 31, 1995, included in this
Prospectus and in the Registration Statement have been audited by Coopers &
Lybrand L.L.P., independent accountants, as stated in their report appearing
herein and elsewhere in the Registration Statement. Such financial statements
and financial statement schedule have been included herein in reliance upon
such reports of such firm given upon their authority as experts in auditing
and accounting. With respect to the unaudited financial information for the
six and two month periods ended June 30, 1995 and February 29, 1996,
respectively, included herein, the independent accountants have applied
limited procedures in accordance with professional standards for a review of
such information. However, as stated in their separate report included
herein, they did not audit and they do not express an opinion on that interim
financial information. Because of the limited nature of the review procedures
applied, the degree of reliance on their report on such information should be
restricted.
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The accountants are not subject to the liability provisions of Section 11 of
the Securities Act of 1933 for their report on the unaudited interim
financial information because that report is not a "report" or a "part" of
the Registration Statement prepared or certified by the accountants within
the meaning of Sections 7 and 11 of the Securities Act of 1933.
The financial statements and financial statement schedule relating to the
Wilmington System as of December 31, 1994 and 1995, and for each of the three
years in the period ended December 31, 1995, included in this Prospectus and
in the Registration Statement have been audited by Pressman Ciocca & Smith,
independent certified public accountants, as stated in their report appearing
herein and elsewhere in the Registration Statement. Such financial statements
and financial statement schedule have been included herein in reliance upon
such reports of such firm given upon their authority as experts in auditing
and accounting. With respect to the unaudited financial information for the
periods ended June 30, 1995 and February 12, 1996, respectively, included
herein, the independent certified public accountants have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their separate report included herein,
they did not audit and they do not express an opinion on that interim
financial information. Because of the limited nature of the review procedures
applied, the degree of reliance on their report on such information should be
restricted. In addition, the accountants are not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their report on
the unaudited interim financial information because that report is not a
"report" or a "part" of the Registration Statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of the Securities Act
of 1933.
The financial statements and financial statement schedule relating to
Garden State Cablevision L.P. as of December 31, 1994 and 1995, and for each
of the three years in the period ended December 31, 1995, included in this
Prospectus and in the Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts in accounting and auditing in giving said reports.
With respect to the unaudited financial information as of June 30, 1996, and
the six month periods ended June 30, 1995 and 1996, included herein, the
independent public accountants have applied limited procedures in accordance
with professional standards for a review of such information. However, their
separate report thereon states that they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their report on that information should be restricted
in light of the limited nature of the review procedures applied. In addition,
the accountants are not subject to the liability provisions of Section 11 of
the Securities Act of 1933 for their report on the unaudited interim
financial information because that report is not a "report" or a "part" of
the Registration Statement prepared or certified by the accountants within
the meaning of Sections 7 and 11 of the Securities Act of 1933.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants ...................................................... F-2
Report of Independent Certified Public Accountants ...................................................... F-3
Report of Independent Certified Public Accountants on Pro Forma Financial Information ................... F-4
Consolidated Balance Sheets, December 31, 1994 and 1995, and June 30, 1996 .............................. F-5
Consolidated Statements of Operations, Years Ended December 31, 1993, 1994 and 1995, and Six Months Ended
June 30, 1995 and 1996 ................................................................................. F-7
Consolidated Statements of Changes in Stockholder's Equity (Deficit), Years Ended December 31, 1993, 1994
and 1995, and Six Months Ended June 30, 1995 and 1996 .................................................. F-8
Consolidated Statements of Cash Flows, Years Ended December 31, 1993, 1994 and 1995, and Six Months Ended
June 30, 1995 and 1996 ................................................................................. F-9
Notes to Consolidated Financial Statements. ............................................................. F-11
THE WILMINGTON, DELAWARE SYSTEM
Report of Independent Certified Public Accountants ...................................................... F-38
Report of Independent Certified Public Accountants ...................................................... F-39
Balance Sheets, December 31, 1994 and 1995 .............................................................. F-40
Statements of Operations, Years Ended December 31, 1993, 1994 and 1995, and Six Months Ended June 30,
1995 and period ended February 12, 1996 ................................................................ F-41
Statements of Changes in Equity Investment, Years Ended December 31, 1993, 1994 and 1995 ................ F-42
Statements of Cash Flows, Years Ended December 31, 1993, 1994 and 1995 .................................. F-43
Notes to Financial Statements ........................................................................... F-44
SAMMONS CABLE
Report of Independent Accountants ....................................................................... F-51
Report of Independent Accountants ....................................................................... F-52
Combined Balance Sheets, December 31, 1994 and 1995 ..................................................... F-53
Combined Statements of Income, Years Ended December 31, 1993, 1994 and 1995, and Six Months Ended June
30, 1995 and Two Months Ended February 29, 1996 ........................................................ F-55
Combined Statements of Changes in Equity Investment, Years Ended December 31, 1993, 1994 and 1995 ....... F-56
Combined Statements of Cash Flows, Years Ended December 31, 1993, 1994, and 1995 ........................ F-57
Notes to Combined Financial Statements .................................................................. F-58
GARDEN STATE CABLEVISION L.P.
Report of Independent Public Accountants ................................................................ F-63
Report of Independent Public Accountants ................................................................ F-64
Balance Sheets, December 31, 1994 and 1995, and June 30, 1996 ........................................... F-65
Statements of Operations, Years Ended December 31, 1993, 1994 and 1995, and Six Months Ended June 30,
1995 and 1996 .......................................................................................... F-66
Statements of Cash Flows, Years Ended December 31, 1993, 1994 and 1995, and Six Months Ended June 30,
1995 and 1996 .......................................................................................... F-67
Statements of Partners' (Deficit) Capital, Years Ended December 31, 1993, 1994 and 1995, and Six Months
Ended June 30, 1996 .................................................................................... F-68
Notes to Financial Statements ........................................................................... F-69
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Lenfest Communications, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Lenfest
Communications, Inc. and subsidiaries as of December 31, 1994 and 1995, and
the related consolidated statements of operations, changes in stockholders'
equity (deficit) and cash flows for each of the years in the three-year
period ended December 31, 1995. 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 did not audit the financial statements of Garden State
Cablevision, L.P., the investment in which, as discussed in Note 7 to the
financial statements, is accounted for by the equity method of accounting.
The financial statements reflect equity in accumulated losses, net of related
receivable, in excess of the investments in Garden State in the amounts of
$34,078,000 and $15,451,000 at December 31, 1994 and 1995, respectively, and
equity in its net losses of $8,570,000, $7,476,000 and $8,527,000 for each of
the years in the three-year period ended December 31, 1995. The financial
statements of Garden State were audited by other auditors whose report has
been furnished to us and our opinion, insofar as it relates to the amounts
included for Garden State, is based solely on the report of the other
auditors.
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 consolidated financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, 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, 1994 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 11 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" in 1994. Also as discussed in Note
18 to the consolidated financial statements, the Company changed its method
of accounting for income taxes in 1993.
PRESSMAN CIOCCA & SMITH
Hatboro, Pennsylvania
July 18, 1996
(except for Notes 20 and 26,
as to which the
date is August 30, 1996)
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Lenfest Communications, Inc. and Subsidiaries:
We have reviewed the accompanying consolidated balance sheet of Lenfest
Communications, Inc. and subsidiaries as of June 30, 1996, and the related
consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the six month periods ended June 30, 1996 and
1995. These consolidated financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the consolidated
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
PRESSMAN CIOCCA & SMITH
Hatboro, Pennsylvania
August 13, 1996
F-3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Lenfest Communications, Inc. and Subsidiaries:
We have examined the pro forma adjustments reflecting the Transactions and
the Offering (both as defined herein) and the application of those
adjustments to the historical amounts in the pro forma condensed statement of
operations of Lenfest Communications, Inc. for the year ended December 31,
1995 (appearing under "Pro Forma Financial Information" in the Offering
Memorandum of which this report forms a part). The historical condensed
financial statement is derived from the historical financial statements of
Lenfest Communications, Inc., which were audited by us, the historical
financial statement of the Wilmington System, which were audited by us, and
the historical financial statement of the Sammons Systems, which were audited
by other accountants, appearing elsewhere herein. Such pro forma adjustments
are based upon management's assumptions described in the notes. Our
examination was made in accordance with standards established by the American
Institute of Certified Public Accountants and, accordingly, included such
procedures as we considered necessary in the circumstances.
The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the
Transactions and the Offering occurred at an earlier date. However, the pro
forma condensed financial statements are not necessarily indicative of the
results of operations or related effects on financial position that would
have been attained had the above-mentioned transactions actually occurred
earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the
above-mentioned transactions, the related pro forma adjustments give
appropriate effect to those assumptions, and the pro forma column reflects
the proper application of those adjustments to the historical financial
statement amounts in the pro forma condensed statement of operations for the
year ended December 31, 1995.
In addition, we have reviewed the related pro forma adjustments reflecting
the Transactions and the Offering and the application of those adjustments to
the historical amounts in the accompanying pro forma condensed balance sheet
of Lenfest Communications, Inc. as of June 30, 1996, and the pro forma
statement of operations for the six months then ended (appearing under "Pro
Forma Financial Information" in the Offering Memorandum of which this report
forms a part). These historical condensed financial statements are derived
from the historical financial statements of Lenfest Communications, Inc.
which were reviewed by us, the historical financial statement of the
Wilmington System, which were reviewed by us, and the historical financial
statement of the Sammons Systems, which were reviewed by other accountants,
appearing elsewhere herein. Such pro forma adjustments are based upon
management's assumptions described in the notes. Our review was made in
accordance with standards established by the American Institute of Certified
Public Accountants.
A review is substantially less in scope than an examination, the objective of
which is the expression of an opinion on management's assumptions, the pro
forma adjustments and the application of those adjustments to historical
financial information. Accordingly, we do not express such an opinion on the
pro forma adjustments or the application of such adjustments to the pro forma
condensed balance sheet as of June 30, 1996, and the pro forma condensed
statement of operations for the six months then ended.
Based on our review, however, nothing came to our attention that caused us to
believe that management's assumptions do not provide a reasonable basis for
presenting the significant effects directly attributable to the
above-mentioned transactions, that the related pro forma adjustments do not
give appropriate effect to those assumptions, or that the pro forma column
does not reflect the proper application of those adjustments to the
historical financial statement amounts in the pro forma condensed balance
sheet as of June 30, 1996, and the pro forma condensed statement of
operations for the six months then ended.
PRESSMAN CIOCCA & SMITH
Hatboro, Pennsylvania
August 28, 1996
F-4
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
December 31, June 30,
--------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents .............................. $ 4,302 $164,943 $ 3,242
Cash - restricted escrow ............................... 3,273 -- --
Marketable securities .................................. 135,113 169,581 29,028
Accounts receivable - trade and other, less allowance
for doubtful accounts of $828 in 1994, $1,104 in 1995
and $1,651 in 1996 .................................... 14,629 12,701 18,913
Accounts receivable - affiliate ........................ 466 103 3,047
Notes receivable ....................................... -- 86 --
Inventories ............................................ 7,192 4,932 3,809
Prepaid expenses ....................................... 4,486 3,946 3,367
Property and equipment, net of accumulated depreciation 211,127 211,780 383,865
Investments in affiliates, accounted for under the
equity method, and related receivables ................ 36,529 49,072 40,139
Other investments, at cost, and related receivables .... 10,414 10,410 10,410
Goodwill, net of amortization .......................... 50,989 52,874 75,816
Deferred franchise costs, net of amortization .......... 146,476 133,525 521,133
Other intangible assets, net of amortization ........... 22,598 20,519 22,490
Deferred Federal tax asset (net) ....................... 15,268 14,707 45,213
Other assets ........................................... 2,484 2,569 7,430
----------- ----------- ------------
$665,346 $851,748 $1,167,902
=========== =========== ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, (Unaudited)
-------------------------- June 30,
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Notes payable ........................................... $ 620,788 $ 812,441 $1,264,450
Obligations under capital leases - related party ........ 5,333 5,284 5,248
Accounts payable and accrued expenses - unrelated parties 21,725 33,926 30,563
Accounts payable - affiliate ............................ 7,638 7,205 20,042
Unearned revenues and customer prepayments .............. 3,232 3,402 4,749
Deposits on converters .................................. 5,791 5,853 4,698
Deferred state tax liability (net) ...................... 13,029 9,940 8,740
Investment in Garden State Cablevision L.P. ............. 34,078 15,451 19,117
----------- ----------- ------------
TOTAL LIABILITIES ..................................... 711,614 893,502 1,357,607
MINORITY INTERESTS in equity of consolidated subsidiaries 3,341 3,438 3,472
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value, 158,896 shares authorized,
issued and outstanding ................................. 2 2 2
Additional paid-in capital .............................. 50,747 50,747 50,747
Unrealized gain on marketable securities, net of deferred
taxes of $8,172 in 1994, $21,759 in 1995 and $427 in
1996 ................................................... 14,719 40,410 793
Cumulative foreign currency translation adjustment, net
of deferred taxes of $5,461 in 1994 and $4,071 in 1995 . 10,600 7,560 --
Accumulated deficit ..................................... (125,677) (143,911) (244,719)
----------- ----------- ------------
(49,609) (45,192) (193,177)
----------- ----------- ------------
$ 665,346 $ 851,748 $1,167,902
=========== =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES ...................... $213,240 $236,195 $266,249 $ 131,263 $ 184,665
OPERATING EXPENSES
Service ..................... 16,254 18,344 20,659 9,699 15,668
Programming - from affiliate 29,851 33,782 37,685 18,989 25,315
Programming - other cable ... 14,182 15,485 17,637 8,182 11,192
Programming - non-cable ..... 7,750 10,085 10,101 5,235 6,538
Cost of sales - equipment ... 279 3,076 8,515 3,745 3,141
Selling and marketing ....... 6,411 8,263 9,328 4,166 7,803
General and administrative .. 43,332 45,504 49,982 24,338 32,231
Depreciation ................ 45,348 50,001 51,624 25,242 31,832
Amortization ................ 19,847 25,517 26,076 11,176 19,605
------------ ------------ ------------ ----------- -----------
183,254 210,057 231,607 110,772 153,325
------------ ------------ ------------ ----------- -----------
OPERATING INCOME ......... 29,986 26,138 34,642 20,491 31,340
OTHER INCOME (EXPENSE)
Interest expense ............ (35,090) (47,749) (61,538) (28,261) (47,971)
Equity in net (losses) of
unconsolidated affiliates (8,450) (7,940) (10,682) (6,588) (9,207)
Other income (expense) ...... (1,347) 923 14,988 14,776 (75,970)
------------ ------------ ------------ ----------- -----------
(44,887) (54,766) (57,232) (20,073) (133,148)
------------ ------------ ------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY LOSS
(14,901) (28,628) (22,590) 418 (101,808)
INCOME TAX BENEFIT (EXPENSE)
Current ..................... (400) (40) -- (400) (1,479)
Deferred .................... 3,434 9,769 11,095 33 4,963
------------ ------------ ------------ ----------- -----------
3,034 9,729 11,095 (367) 3,484
------------ ------------ ------------ ----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS ..... (11,867) (18,899) (11,495) 51 (98,324)
EXTRAORDINARY (LOSS)
Early extinguishment of debt,
net of deferred taxes of
$3,629 in 1995 and $1,337
in 1996 .................. -- -- (6,739) -- (2,484)
------------ ------------ ------------ ----------- -----------
NET INCOME (LOSS) ........ $ (11,867) $ (18,899) $ (18,234) $ 51 $ (100,808)
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes.
F-7
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
Year Ended December 31, June 30,
---------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
COMMON STOCK
BALANCE AT BEGINNING AND END OF PERIOD $ 2 $ 2 $ 2 $ 2 $ 2
============= ============= ============= ============= =============
ADDITIONAL PAID-IN CAPITAL
BALANCE AT BEGINNING AND END OF PERIOD $ 50,747 $ 50,747 $ 50,747 $ 50,747 $ 50,747
============= ============= ============= ============= =============
UNREALIZED GAIN (LOSS) ON MARKETABLE
SECURITIES
Balance at beginning of period ......... $ -- $ -- $ 14,719 $ 14,719 $ 40,410
Adjustment for the cumulative effect of
applying the new method of accounting
for certain investments in debt and
equity securities, net of deferred
taxes of $4,300 in 1994 .............. -- 8,440 -- -- --
Net unrealized gain (loss) on marketable
securities, net of deferred taxes .... -- 6,279 25,691 (21,154) (39,617)
------------- ------------- ------------- ------------- -------------
BALANCE AT END OF PERIOD .......... $ -- $ 14,719 $ 40,410 $ (6,435) $ 793
============= ============= ============= ============= =============
CUMULATIVE FOREIGN CURRENCY TRANSLATION
ADJUSTMENT
Balance at beginning of period ......... $ -- $ -- $ 10,600 $ 10,600 $ 7,560
Net change in cumulative foreign
currency translation net of deferred
taxes ................................ -- 10,600 (3,040) (6,606) (7,560)
------------- ------------- ------------- ------------- -------------
BALANCE AT END OF PERIOD .......... $ -- $ 10,600 $ 7,560 $ 3,994 $ --
============= ============= ============= ============= =============
ACCUMULATED DEFICIT
Balance at beginning of period, as
previously reported .................. $ (127,446) $ (106,778) $ (125,677) $ (125,677) $ (143,911)
Adjustment for the cumulative effect on
prior years of applying retroactively
the new method of accounting for
income taxes ......................... 32,535 -- -- -- --
------------- ------------- ------------- ------------- -------------
Balance at beginning of period, as
adjusted ............................. (94,911) (106,778) (125,677) (125,677) (143,911)
Net income (loss) ...................... (11,867) (18,899) (18,234) 51 (100,808)
------------- ------------- ------------- ------------- -------------
BALANCE AT END OF PERIOD .......... $ (106,778) $ (125,677) $ (143,911) $ (125,626) $ (244,719)
============= ============= ============= ============= =============
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) .................... $ (56,029) $ (49,609) $ (45,192) $ (77,318) $ (193,177)
============= ============= ============= ============= =============
</TABLE>
See accompanying notes.
F-8
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
Year Ended December 31, June 30,
---------------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) ................ $ (11,867) $ (18,899) $ (18,234) $ 51 $ (100,808)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities
Depreciation and amortization . 65,195 75,518 77,700 36,418 51,437
Extraordinary loss ............ -- -- 10,368 -- 3,821
Accretion of debt discount .... -- -- 328 -- 308
Net (gains) losses on sales of
marketable securities ....... (3,292) 209 (13,517) (13,106) (307)
Recognized loss on decline in
market value of securities .. -- -- -- -- 66,945
Provision for potential
reduction in note receivable
and accrued interest ........ -- -- -- -- 19,685
(Gain) on disposition of
partnership ................. -- -- -- -- (6,974)
Deferred income tax (benefit) . (3,434) (9,769) (14,724) (33) (6,300)
Write off of assets upon
rebuild of cable systems .... 1,445 2,245 282 -- --
(Gain) on sale of property and
equipment ................... (1,150) (371) (143) (53) (27)
Equity in net losses of
unconsolidated affiliates ... 8,450 7,940 10,682 6,588 9,207
Loss on other investments ..... -- -- 75 -- --
Interest paid from loan
proceeds .................... -- 1,792 -- -- --
Deferred interest on capital
leases ...................... 49 19 -- 3 --
Minority interest ............. (78) (581) (1,347) (187) (943)
Changes in operating assets and
liabilities, net of effects
from acquisitions
Cash -- restricted escrow ..... -- (3,273) 3,273 3,273 --
Accounts receivable ........... (1,704) (3,595) 2,205 586 (576)
Accrued interest receivable ... -- -- -- -- (1,155)
Inventories ................... (3,502) (2,657) 2,260 (240) 1,123
Prepaid expenses .............. 204 478 540 1,372 343
Other assets .................. (278) (564) (85) 6 (438)
Accounts payable and accrued
expenses:
Affiliate ................... (2,091) 4,176 (433) (530) 10,381
Unrelated parties ........... 4,607 (773) 12,201 (2,924) (3,791)
Unearned revenues and customer
prepayments ................. 155 1,930 (137) 1,123 1,567
Deposits on converters ........ 166 294 62 133 6
------------- ------------- ------------- ---------- ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ..... 52,875 54,119 71,356 32,480 43,504
------------- ------------- ------------- ---------- ------------
</TABLE>
See accompanying notes.
F-9
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
Year Ended December 31, June 30,
-------------------------------------------- ---------------------------
1993 1994 1995 1995 1996
------------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of cable systems ..... $ (80,557) -- -- $ -- $ (604,032)
Acquisition of the minority
interest of South Jersey
Cablevision Associates ......... -- -- (8,838) (8,838) --
Non cable acquisitions ............ -- -- (198) (198) (1,100)
Purchases of property and equipment (45,584) (48,525) (47,735) (25,112) (21,700)
Purchases of marketable securities (30,981) (9,023) (2,678) (2,352) (326)
Purchases of other investments .... (10,359) (55) (71) (20) --
Proceeds from sales of property and
equipment ...................... 1,860 607 253 57 182
Proceeds from sales of marketable
securities ..................... 37,744 6,974 16,575 15,359 1,662
Loans to Australis Media .......... -- -- -- -- (34,030)
Proceeds from note receivable ..... -- -- 19,240 19,240 15,500
Investments in unconsolidated
affiliates ..................... (18,625) (5,071) (19,492) (10,573) (2,761)
Distributions from unconsolidated
affiliates ..................... 1,450 2,825 1,826 75 --
(Increase) in other intangible
assets -- investing ............ (170) (490) (539) (154) (1,076)
Loans and advances to
unconsolidated affiliates ...... (6,610) (1,979) (726) (2,084) (121)
Loans and advances from
unconsolidated affiliates ...... 333 837 1,110 212 1,145
------------ ----------- ----------- ---------- -------------
NET CASH (USED BY) INVESTING
ACTIVITIES ................ (151,499) (53,900) (41,273) (14,388) (646,657)
CASH FLOWS FROM
FINANCING ACTIVITIES
Increases in debt ................. 187,590 275,950 741,363 24,000 907,201
Early extinguishment of debt ...... -- -- (91,118) -- (448,821)
Other debt reduction:
Notes .......................... (91,932) (274,350) (515,528) (42,388) (10,500)
Bonds .......................... (367) (67) -- -- --
Obligations under capital leases (72) (90) (49) (19) (36)
(Increase) in other intangible
assets -- financing ............ (3,319) (76) (4,110) (154) (6,392)
------------ ----------- ----------- ---------- -------------
NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES ...... 91,900 1,367 130,558 (18,561) 441,452
------------ ----------- ----------- ---------- -------------
NET INCREASE
(DECREASE) IN CASH ........ (6,724) 1,586 160,641 (469) (161,701)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ............... 9,440 2,716 4,302 4,302 164,943
------------ ----------- ----------- ---------- -------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD ............................ $ 2,716 $ 4,302 $ 164,943 $ 3,833 $ 3,242
============ =========== =========== ========== =============
</TABLE>
See accompanying notes.
F-10
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1994 and 1995
(Information as of June 30, 1996, and for the six months
ended June 30, 1995 and 1996, is unaudited)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Lenfest Communications,
Inc. and subsidiaries ("the Company") is presented to assist in understanding
its financial statements. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the consolidated financial statements.
BUSINESS ACTIVITIES AND CONCENTRATIONS OF CREDIT RISK
The Company, through its cable subsidiaries, owns and operates clusters of
cable television systems located in the New Jersey and Pennsylvania suburbs
of Philadelphia, Pennsylvania, westward through Lancaster County,
Pennsylvania and (until February 12, 1996), in Oakland, California and
Berkeley, California and other nearby municipalities in the East San
Francisco Bay Area. After February 12, 1996, the Company, through its
subsidiaries, acquired a cable system serving northern Delaware in exchange
for the cable systems located in California (See Note 26). In addition, the
Company, through its non-cable subsidiaries, provides satellite delivered
cross channel tune-in promotional services for cable television, microwave
transmission of video, voice and data and is developing cable advertising and
billing software and commercial insertion equipment which it markets. The
Company's ability to collect the amounts due from customers is affected by
economic fluctuations in these geographic areas and in the cable television
industry generally.
The Company maintains cash balances at several financial institutions
located primarily in the Philadelphia and East San Francisco Bay Areas.
Accounts at each institution are insured by either the Bank Insurance Fund or
another institutional insurance fund up to $100,000 and $500,000,
respectively. The Company maintains cash balances in excess of the insured
amounts.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Lenfest
Communications, Inc. and those of all wholly owned subsidiaries. In addition,
effective 1995, the accounts of L-TCI Associates, a partnership that is owned
approximately sixty-eight percent (68%) by the Company, are also included.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
UNAUDITED INTERIM STATEMENTS
The financial statements as of June 30, 1996, and for the six months ended
June 30, 1995 and 1996 are unaudited; however, in the opinion of the
management of the Company, all adjustments (consisting solely of normal
recurring adjustments) necessary to a fair presentation of the financial
statements for these interim periods have been made. The results for the
interim periods ended June 30, 1995 and 1996 are not necessarily indicative
of the results to be obtained for a full fiscal year.
USE OF ESTIMATES
The preparation of the consolidated 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 consolidated financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and marketable debt
securities with original maturities of three months or less.
In connection with the upgrading of certain cable systems by South Jersey
Cablevision Associates, the State of New Jersey required the Company to
establish a restricted escrow until the State approved the upgrades. The
escrow was released in April 1995.
F-11
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
INVENTORIES
Inventories are stated at the lower of cost or market on a first-in,
first-out basis. Inventories consist of equipment assembled and sold by the
Company's wholly owned subsidiaries, StarNet, Inc. and StarNet Development,
Inc.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. For the newly acquired systems
or companies, the purchase price has been allocated to net assets on the
basis of fair market values as determined by an independent appraiser.
Depreciation is provided using the accelerated and straight-line methods of
depreciation for financial reporting purposes at rates based on estimated
useful lives. For income tax purposes, recovery of capital costs for property
and equipment is made using accelerated methods over statutory recovery
periods.
Expenditures for renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred.
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 statements of operations.
CAPITALIZATION OF COSTS
All costs properly attributable to capital items, including that portion
of employees' compensation allocable to installation, engineering, design,
construction and various other capital projects are capitalized. Installation
income has been fully recognized.
INVESTMENTS
Investments in which the ownership interest is less than 20% are generally
carried at cost. Investments in marketable equity securities are carried at
fair market value and any unrealized appreciation is presented as a separate
component of stockholders' equity (deficit), net of deferred taxes. For those
investments in affiliates in which the Company's voting interest is 20% to
50%, the equity method of accounting is used. Under this method, the original
investment, recorded at cost, is adjusted to recognize the Company's share of
the net earnings or losses of the affiliates as they occur rather than as
dividends or other distributions are received, limited to the extent of the
Company's investment in, advances to and guarantees for the investee. The
Company's share of net earnings or losses of affiliates includes the
amortization of purchase adjustments.
DEFERRED FRANCHISE COSTS, GOODWILL AND OTHER INTANGIBLE ASSETS
Deferred franchise costs, goodwill and other intangible assets acquired in
connection with the purchases of cable systems and other companies have been
valued at acquisition cost on the basis of the allocation of the purchase
price on a fair market value basis to net assets as determined by an
independent appraiser. Additions to these assets are stated at cost. Other
intangible assets consist of debt acquisition costs, organization costs,
covenants not to compete and software development costs. Goodwill represents
the cost of acquired cable systems and companies in excess of amounts
allocated to specific assets based on their fair market values. Deferred
franchise costs are amortized on the straight-line method over the legal
franchise lives, generally 10 to 20 years. Other intangible assets are being
amortized on the straight-line method over their legal or estimated useful
lives, generally ranging from 5 to 10 years. Goodwill is amortized on the
straight-line method over 20 to 40 years. In accordance with Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", the Company
assesses on an on-going basis the recoverability of intangible assets based
on estimates of future undiscounted cash flows for the applicable business
acquired compared to net book value. If the future undiscounted cash flow
estimate is less than net book
F-12
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
value, net book value is then reduced to the undiscounted cash flow estimate.
The Company also evaluates the amortization periods of intangible assets to
determine whether events or circumstances warrant revised estimates of useful
lives. As of December 31, 1995, management believes that no revisions to the
remaining useful lives or writedowns of deferred charges are required.
FOREIGN CURRENCY TRANSLATION
All balance sheet accounts of foreign investments are translated at the
current exchange rate as of the end of the year. Statement of operations
items are translated at average currency exchange rates. The resulting
translation adjustment is presented as a separate component of stockholders'
equity (deficit), net of deferred taxes.
INCOME TAXES
The Company files a consolidated Federal tax return. Investment and other
tax credits are recognized under the flow-through method of accounting.
INTEREST RATE PROTECTION AGREEMENTS
The amount to be paid or received is accrued as interest rates change and
is recognized over the life of the agreements as an adjustment to interest
expense.
COMPENSATED ABSENCES
Employees of the Company are entitled to carry over up to five days of
earned, unused vacation to the following year. The Company also pays
employees for earned, unused vacation upon termination of employment. The
Company does not accrue this liability because it does not believe this
liability to be material.
REVENUE RECOGNITION
The Company bills its customers in advance; however, revenue is recognized
as cable television services are provided. Receivables are generally
collected within 30 days. Credit risk is managed by disconnecting services to
customers who are delinquent. Other revenues are recognized as services are
provided or equipment is delivered. Revenues obtained from the connection of
customers of the cable television system are less than related direct selling
costs; therefore, such revenues are recognized as received.
RESTATEMENT AND RECLASSIFICATIONS
Certain amounts have been reclassified for comparability with the 1995
presentation. In addition, certain 1995 amounts have been reclassified to
present underwriters' commissions and other debt issuance costs as debt
discount and related accretion of discount as interest expense.
NOTE 2 -- COMMON STOCK OWNERSHIP AND CONTROL
The 158,896 shares of common stock outstanding at December 31, 1994 and
1995, are 50% beneficially owned by members of the Lenfest Family and 50% by
LMC Lenfest, Inc., an indirect wholly owned subsidiary of
Tele-Communications, Inc. ("TCI"). Pursuant to an agreement between H.F.
Lenfest and LMC Lenfest, Inc. and the amended and restated Articles of
Incorporation of the Company, Mr. Lenfest has the right to continue as chief
executive officer of the Company until January 1, 2002 and has the right to
designate a majority of the Board of Directors of the Company until January
1, 2002. During such period, vacancies in respect of the directors designated
by Mr. Lenfest shall be filled by designees of Mr. Lenfest or, in the event
of Mr. Lenfest's death, of The Lenfest Foundation. Thereafter, the Lenfest
family and LMC Lenfest, Inc. will have the right to appoint an equal number
of members of the Company's Board of Directors. This right will continue for
so long as any member of the Lenfest Family owns any stock in the Company.
F-13
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 3 -- SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
Year Ended December 31, June 30,
------------------------------------ -----------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Cash paid during the period for:
Interest ....................... $36,908 $44,613 $55,845 $ 28,420 $46,139
========= ========== ========== ========== =========
Income taxes ................... $ 400 $ 121 $ 160 $ 110 $ --
========= ========== ========== ========== =========
</TABLE>
SUPPLEMENTAL SCHEDULES RELATING TO ACQUISITIONS
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
Year Ended December 31, June 30,
-------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ---------- ---------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Property and equipment ......... $ 24,839 $ -- $ 4,932 $ 4,932 $ 167,965
Deferred franchise costs ....... 69,988 -- 2,124 2,124 406,819
Intangible and other assets .... 10,518 -- 6,158 6,158 30,348
Debt assumed ................... (19,160) -- -- -- --
Liability assumed .............. (1,628) -- -- -- --
Minority interest in partnership
equity ........................ (4,000) -- 3,129 3,129 --
Customer prepayments and
deposits ...................... -- -- (307) (307) --
---------- ---------- ---------- ----------- -----------
-- -- 16,036 16,036 605,132
Amount financed ................ -- -- 7,000 7,000 --
---------- ---------- ---------- ----------- -----------
NET CASH PAID ................ $ 80,557 $ -- $ 9,036 $ 9,036 $ 605,132
========== ========== ========== =========== ===========
Unrealized gains (losses) on
marketable securities ......... $ 12,739 $38,952 $73,800 $ (4,325) $ 1,220
========== ========== ========== =========== ===========
</TABLE>
NONCASH INVESTING AND FINANCING TRANSACTIONS
In 1995, the Company financed a $19,240,000 loan to Australis Media
Limited and $20,000,000 of its additional investment in Garden State
Cablevision, L.P.
The Company's 1994 investment in Raystay Co. was financed by a promissory
note to Raystay Co. in the amount of $3,000,000 and promissory notes to
several selling shareholders totaling $3,238,000.
In 1994, the Company financed the payment of $90,972,000 of maturing debt,
$1,792,000 of interest and $4,236,000 of loan costs.
In 1994, the Company converted $2,200,000 of convertible promissory notes
and $154,000 of accrued interest into 1,833,555 shares of Video Jukebox
Network, Inc.
The Company's 1993 investment in Australis Media Limited was financed by
notes payable to a group of banks in the amount of $85,000,000 and by a
promissory note to a principal stockholder of the Company in the amount of
$5,972,000.
In 1993, the Company refinanced $19,160,000 of debt assumed by South
Jersey Cablevision Associates.
During 1993, 1994 and 1995, the Company disposed of $307,000, $2,037,000
and $4,231,000, respectively, of fully depreciated plant in connection with
the rebuild of certain of its systems. The Company retired $250,000 of fully
depreciated equipment in 1994.
F-14
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 3 -- SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS - (Continued)
The Company incurred additional capital lease obligations in the amount of
$954,000 in 1993. Additionally, the Company reclassified $777,000 and $10,000
of equipment under capital lease as property and equipment in 1994 and 1995,
respectively, at the conclusion of the lease obligations.
NOTE 4 -- NEW BUSINESS AND ACQUISITIONS
CABLE SYSTEMS
On June 29, 1995, the Company, through its subsidiary, Lenfest Raystay
Holdings, Inc., exercised an option to acquire an additional 5,275 shares of
Class B common stock of Raystay Co. for $3,073,000 increasing the Company's
ownership to 45%. The Company initially acquired 31.99% of the outstanding
stock of Raystay Co. for $6,238,000 on July 29, 1994. The Company uses the
equity method to account for this investment.
On June 23, 1995, the Company, through its newly formed subsidiary,
Lenfest South Jersey Investments, Inc. purchased the remaining 40% minority
general partnership interest in South Jersey Cablevision Associates ("South
Jersey") for $8,838,000. The Company, through its subsidiary, Lenfest
Atlantic, Inc., owned a sixty percent (60%) general partnership interest in
South Jersey, and has managed the South Jersey's operations since its
inception on April 2, 1993. Lenfest Atlantic's original investment was
$6,000,000. South Jersey owns and operates contiguous cable systems serving
approximately 20,000 subscribers in southern New Jersey.
On January 10, 1995, the Company, through its subsidiary, Lenfest Jersey,
Inc., acquired a 10.005% general partnership interest in Garden State
Cablevision, L.P. for $29,250,000, increasing its ownership to a total of 50%
of the partnership.
On August 20, 1993, the Company, through its subsidiary, Suburban Cable TV
Co. Inc., acquired the assets of a cable television system serving a total of
approximately 25,000 subscribers located in Norristown, Pennsylvania and
surrounding areas. The acquisition was accounted for under the purchase
method. The purchase price was $75,500,000.
On May 28, 1993, the Company, through its newly formed subsidiary, Lenfest
York, Inc., acquired 14.9% of the voting stock of Susquehanna Cable Co.
("Susquehanna"), a majority-owned subsidiary of Susquehanna Pfaltzgraff Co.,
and 17.75% of the voting stock of four of Susquehanna's subsidiaries for
$11,000,000. On November 30, 1993, Lenfest York, Inc. acquired 17.75% of the
voting stock of a fifth subsidiary of Susquehanna for $14,000,000. The
Company's direct and indirect investment in each of the five subsidiaries
("Subsidiaries") aggregates 30%. The Company utilizes the equity method to
account for its investment in the Subsidiaries and the cost method to account
for its investment in Susquehanna. Susquehanna and Subsidiaries own and
operate several cable systems serving a total of over 120,000 subscribers,
the largest of which is located in York County, Pennsylvania and is
contiguous to the Company's cable systems located in Lancaster County,
Pennsylvania. The Company has the right of first refusal on any sale of stock
of the Subsidiaries owned by Susquehanna and on any sale of cable television
system assets owned by Susquehanna or Subsidiaries. In addition, after May
28, 1998, the agreement provides that either the Company or Susquehanna can
initiate a buy-sell transaction for all of the outstanding ownership
interests in Susquehanna and Subsidiaries.
The accompanying consolidated financial statements include the results of
operations for these acquisitions since the date of acquisition.
The following summarized pro forma (unaudited) information assumes the
acquisitions had occurred on January 1, 1993:
<TABLE>
<CAPTION>
(Dollars in thousands)
1993 1994 1995
------------- ------------- -------------
<S> <C> <C> <C>
Revenues ...................... $223,046 $ 237,195 $266,249
------------ ------------ ------------
Loss before extraordinary loss $ (11,200) $ (20,056) $ (11,707)
------------ ------------ ------------
Net loss ...................... $ (11,200) $ (20,056) $ (18,446)
------------ ------------ ------------
</TABLE>
F-15
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4 -- NEW BUSINESS AND ACQUISITIONS - (Continued)
INTERNATIONAL
In December 1993, the Company, through its newly formed subsidiary,
Lenfest Australia, Inc., formed an Australian subsidiary, Lenfest Australia
Group Pty Limited. Lenfest Australia Group Pty Limited was formed to acquire
11,000,000 shares of the voting stock (approximately 8.2%, at that time) and
173,000,000 non-voting debentures for a total equity interest of
approximately 50.5% (at that time), (49.1% on a fully-diluted basis) of
Australis Media Limited ("Australis"), a publicly traded Australian company
for $90,972,000, which includes a reimbursement of $7,500,000 to H.F. Lenfest
for his payment of deposits for a Pay TV license. Australis holds one of two
Australian commercial Pay TV Direct Broadcast Satellite licenses as well as a
number of MDS licenses serving several major metropolitan areas of Australia.
The Company classifies this investment as marketable securities. Although the
Company's total equity interest in Australis exceeds 20%, the Company does
not utilize the equity method to account for this investment because it
presently owns less than 5% of the voting stock of Australis and the Company
does not have the ability to exert significant influence over Australis'
operational and financial policies. (See Note 11).
In April 1993, the Company, through its newly formed subsidiary, Lenfest
International, Inc., formed L-TCI Associates ("L-TCI"), a general partnership
with UA-France, Inc. ("UAF"), an indirect, wholly owned subsidiary of
Tele-Communications, Inc. L-TCI was formed to subscribe to and acquire shares
of stock in Videopole, a French cable television holding and management
company that franchises, builds and operates cable television systems in
medium to smaller communities in France. In May 1993, L-TCI acquired 29% of
the issued and outstanding stock of Videopole. The Company invested
$4,860,000 to fund its pro-rata share of the L-TCI acquisition in 1993 and
made an additional investment of $1,627,000 in 1994. The Company used the
equity method to account for its investment in L-TCI in 1993 and 1994. L-TCI
is obligated to make additional capital contributions pursuant to its stock
subscription agreement. In 1995, UAF did not fund its pro-rata share of the
capital contributions. Pursuant to the L-TCI partnership agreement, the
Company is contingently liable for the UAF share of the L-TCI's commitment
and invested $7,168,000 to fund the contribution. The 1995 investment
increased the Company's ownership percentage of L-TCI to approximately 68%.
L-TCI's commitment amounts to 43,660,000 and 20,010,000 French francs in 1996
and 1997, respectively, which as of the date of these statements, amounted to
$8,902,000 and $4,080,000, respectively.
OTHER
On January 4, 1995, the Company acquired all of the general and limited
partnership interests of OPM Real Estate, L.P., a company that provided
microwave transmission services throughout Delaware, Maryland and Virginia,
for a price of $7,500,000 before deductions for customer prepayments and
deposits. The Company acquired these interests through MicroNet Diversified
Investments, Inc. and MicroNet Delmarva, Inc., newly formed, wholly owned
subsidiaries of MicroNet, Inc., a wholly owned subsidiary of the Company.
Immediately upon acquisition, the name of the limited partnership was changed
to MicroNet Delmarva Associates, L.P. ("Associates"). As an indirect, wholly
owned subsidiary of the Company, Associates is included in the consolidated
financial statements of the Company. This acquisition was financed in part by
a new $7,000,000 credit facility issued by PNC Bank to MicroNet, Inc.
On August 24, 1993, the Company, through its newly formed subsidiary,
StarNet Interactive Entertainment, Inc., formed a partnership with CEA
Investors Partnership II, Ltd. ("Investors") for the sole purpose of jointly
holding a substantial equity interest in Video JukeBox Network, Inc. ("VJN"),
a publicly traded Florida corporation. The name of the partnership is
StarNet/CEA II Partners ("Partners"). The Company contributed $3,305,808 for
a fifty percent (50%) partnership interest and Investors contributed cash of
$105,808 and 2,834,908 shares of VJN common stock valued at $3,200,000. On
August 30, 1993, Partners acquired 2,014,520 shares of VJN common stock from
New Vision Music for $1,611,616, 687,500 shares of newly issued VJN common
stock for $550,000 and a convertible promissory note issued by VJN for
$1,200,000, with interest accruing at the rate of prime plus 1%, with the
note convertible at the rate of $.80 per share and accrued interest on the
note at the rate of $1.25 per share. As of December 16, 1993, the $1,200,000
convertible promissory note was converted into 1,500,000 shares of VJN common
stock and the related accrued interest of $24,855 was converted into 19,884
shares of VJN common stock. In 1994, the Partners acquired an additional
1,957,033
F-16
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4 -- NEW BUSINESS AND ACQUISITIONS - (Continued)
shares of VJN stock for $1,949,000. At December 31, 1995, Partners owned a
total of 9,013,845 shares of VJN common stock, which represents direct
ownership by Partners of approximately 37.6% of VJN's outstanding shares of
common stock. In addition, Investors also controls irrevocable proxies in its
favor on an additional 3,308,810 shares. Investors has agreed that it will
vote the proxy shares in the same manner as Partners, thereby giving Partners
and Investors voting control over approximately 51.5% of VJN voting stock.
In connection with the above stock acquisitions, StarNet, Inc.
("StarNet"), a subsidiary of the Company, entered into consulting, management
and service agreements with VJN, whereby StarNet is responsible for the
day-to-day management and supervision of VJN and whereby StarNet will provide
technology relating to a system for digital satellite distribution, headend
storage and playback of discrete video segments. StarNet was compensated at
the rate of $25,000 per month during the consulting period (August 24, 1993
to December 16, 1993). Under the management agreement, which expired December
31, 1994, StarNet was compensated in the amount of $250,000 plus costs
incurred by StarNet in developing the above technology. Under the service
agreement, StarNet was providing analog uplink service and satellite capacity
to VJN on Satcom C-4 for the delivery of VJN's programming service known as
"The Box" for a fee of $200,000 per month. Upon conversion of The Box from
analog to digital transmission, which occurred in February 1995, the monthly
charge was reduced to $110,000 per month, and further reduced to $73,500 in
April 1995. As permitted by the service agreement, VJN elected to defer the
first eleven months of payments by the issuance of convertible promissory
notes totaling $2,200,000, such notes bearing interest at prime plus one
percent (1%). On December 12, 1994, StarNet converted the convertible
promissory notes and $154,000 of accrued interest into 1,833,555 shares of
VJN. By mutual agreement, the service agreement will terminate in April 1996.
The Company's direct and indirect investment in VJN via Investors and
StarNet amount to approximately 45.3% of the outstanding stock of VJN. The
Company utilizes the equity method to account for its investment in VJN.
NOTE 5 -- INVENTORIES
The schedule of inventories at December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(Dollars in thousands)
<S> <C> <C>
Raw materials ..................... $5,429 $3,428
Finished goods and work-in-process 1,763 1,504
--------- ---------
$7,192 $4,932
========= =========
</TABLE>
At December 31, 1995, inventories have been written down to estimated net
realizable value and the accompanying consolidated statement of operations
for 1995 includes a corresponding charge of $1,346,000, which has been
included with cost of sales-equipment.
F-17
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 6 -- PROPERTY AND EQUIPMENT
The schedule of property and equipment at December 31, 1994 and 1995 is as
follows:
<TABLE>
<CAPTION>
Estimated
Useful Lives
1994 1995 in Years
----------- ----------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Land .................................... $ 4,456 $ 4,660 --
Building and improvements ............... 12,918 13,574 10-39
Cable distribution systems .............. 420,144 458,520 5-12
Microwave equipment ..................... 28,609 30,717 7
Satellite communications equipment ...... 6,380 9,806 7
Office equipment, furniture and fixtures 14,301 16,457 4-15
Assets under capital leases ............. 5,142 5,132 4-15
----------- ----------- --------------
491,950 538,866
Accumulated depreciation ................ 280,823 327,086
----------- -----------
$211,127 $211,780
===========
</TABLE>
NOTE 7 -- INVESTMENTS IN AFFILIATES INCLUDING GARDEN STATE
CABLEVISION L.P.
The Company, through several subsidiaries, owns non-controlling equity
interests in several general partnerships and corporations. Any subsidiary of
the Company that is a general partner is, as such, liable, as a matter of
partnership law, for all debts of such partnership in the event liabilities
of that partnership were to exceed its assets. Investments and advances in
affiliates accounted for under the equity method amounted to $36,529,000 and
$49,072,000 at December 31, 1994 and 1995, respectively. Net losses
recognized under the equity method for the years ended December 31, 1993,
1994 and 1995 were $8,450,000, $7,940,000 and $10,682,000, respectively.
Under the equity method, the initial investments are recorded at cost.
Subsequently, the carrying amount of the investments are adjusted to reflect
the Company's share of net income or loss of the affiliates as they occur.
Losses in excess of amounts recorded as investments on the Company's books
have been offset against loans and advances to these unconsolidated
affiliates to the extent they exist.
The Company, through its subsidiary, Lenfest Jersey, Inc., owns a 10.005%
general partnership interest and a 39.995% limited partnership interest in
Garden State Cablevision L.P. ("Garden State"), a cable company now serving
approximately 198,000 subscribers in southern New Jersey. Under a consulting
agreement, the Company advises Garden State on various operational and
financial matters for a consulting fee equal to 1.5% of Garden State's gross
revenue. On January 10, 1995, in connection with the increase in ownership
described in Note 4, the consulting fee was changed to 3% of gross revenue.
However, due to restrictions contained in Garden State's debt agreements, the
payment of a portion of these fees has been deferred. Garden State also
obtains its cable television programming from Satellite Services, Inc.
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, 1993, 1994 and 1995, the total programming obtained through the Company
was approximately $10,226,000, $11,150,000 and $11,985,000, respectively. The
Company accounts for its investment in Garden State under the equity method.
Effective January 10, 1995, the Company is allocated a total of 50% of Garden
State's losses. Previously, the Company was allocated 49.5% of 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 accompanying financial
statements reflect equity in accumulated losses, net of related receivable,
in excess of the investments in Garden State in the amount of $34,078,000 and
$15,451,000 at December 31, 1994 and 1995, respectively.
F-18
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7 -- INVESTMENTS IN AFFILIATES INCLUDING GARDEN STATE
CABLEVISION L.P. - (Continued)
Summarized audited financial information of Garden State, accounted for
under the equity method, at December 31, 1994 and 1995, is as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Financial Position
Cash and cash equivalents ............ $ 4,610 $ 3,259
Accounts receivable, net ............. 2,227 2,640
Prepaid expenses ..................... 1,105 1,104
Property and equipment, net .......... 75,695 72,485
Other deferred assets, net ........... 142,997 113,711
----------- -----------
TOTAL ASSETS ....................... $226,634 $193,199
=========== ===========
Debt ................................. $262,000 $245,000
Liabilities to the Company ........... 7,087 7,801
Accounts payable and accrued expenses 14,792 18,188
Customer prepayments and deposits .... 1,022 971
Other liabilities .................... 902 964
Partners' deficit .................... (59,169) (79,725)
----------- -----------
TOTAL LIABILITIES AND DEFICIT ...... $226,634 $193,199
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995
----------- ------------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Results of Operations
Revenues ............................. $ 90,824 $ 92,514 $ 92,815
Operating expenses ................... (38,014) (40,294) (41,639)
Depreciation and amortization ........ (47,682) (47,293) (46,976)
---------- ------------- ------------
OPERATING INCOME ................... 5,128 4,927 4,200
Interest expense ..................... (20,904) (19,132) (19,166)
Other expense ........................ (3,633) (3,700) (5,590)
Effect of accounting change .......... (657) -- --
----------- ------------- -----------
NET LOSS ........................... $ 20,066) $ (17,905) $(20,556)
=========== ============= ===========
Cash Flows
Cash flows from operating activities . $ 34,946 $ 30,043 $ 30,452
Cash flows from investing activities . (8,731) (15,369) (14,794)
Cash flows from financing activities . (34,525) (15,279) (17,009)
----------- ------------- -----------
(DECREASE) IN CASH AND CASH
EQUIVALENTS ................... (8,310) (605) (1,351)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR ............................ 13,525 5,215 4,610
----------- ------------- -----------
CASH AND CASH EQUIVALENTS AT END
OF YEAR ....................... $ 5,215 $ 4,610 $ 3,259
=========== ============= ===========
</TABLE>
F-19
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7 -- INVESTMENTS IN AFFILIATES INCLUDING GARDEN STATE
CABLEVISION L.P. - (Continued)
Summarized unaudited financial information of affiliates other than Garden
State, accounted for under the equity method, at December 31, 1994 and 1995,
is as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Financial Position
Cash and cash equivalents ................. $ 5,349 $ 10,206
Accounts receivable, net .................. 10,558 15,458
Prepaid expenses .......................... 2,333 1,425
Property and equipment, net ............... 50,253 67,061
Due from the Company ...................... 3,000 --
Due from related party (not the Company) .. 274 15
Deferred tax asset ........................ 3,223 2,122
Other assets, net ......................... 33,801 14,898
----------- -----------
TOTAL ASSETS ............................ $108,791 $111,185
=========== ===========
Liabilities to the Company ................ $ 1,815 $ 2,514
Accounts payable and accrued expenses ..... 20,846 20,945
Debt ...................................... 45,997 31,193
Deferred tax liability .................... 5,879 9,716
Payable to related party (not the Company) 59,803 66,194
Deficit ................................... (25,549) (19,377)
----------- -----------
TOTAL LIABILITIES AND DEFICIT ........... $108,791 $111,185
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Results of Operations
Revenues ............................ $ 81,073 $ 99,256 $124,171
Operating expenses .................. (63,209) (68,382) (84,615)
Depreciation and amortization ....... (7,538) (12,122) (15,876)
---------- ---------- ----------
OPERATING INCOME .................. 10,326 18,752 23,680
Interest expense .................... (4,495) (7,748) (8,988)
Other income (expense) .............. (4,034) (2,064) (2,548)
---------- ---------- ----------
NET INCOME ........................ $ 1,797 $ 8,940 $ 12,144
========== ========== ==========
Cash Flows
Cash flows from operating activities $ 12,208 $ 16,384 $ 18,146
Cash flows from investing activities (17,048) (14,213) (24,598)
Cash flows from financing activities 6,359 (1,448) 4,289
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ......... $ 1,519 $ 723 $ (2,163)
========== ========== ==========
</TABLE>
F-20
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7 -- INVESTMENTS IN AFFILIATES INCLUDING GARDEN STATE
CABLEVISION L.P. - (Continued)
The following table reflects the carrying value of the Company's
investments, other than Garden State, accounted for under the equity method,
including related receivables, as of December 31, 1995:
<TABLE>
<CAPTION>
(Dollars in thousands)
Susquehanna Cable Co. Subsidiaries ("SCC Subs") (Note 4) $11,889
<S> <C>
Video JukeBox Network, Inc. ("VJN") (Note 4) ........... 6,832
Raystay Co. ("Raystay") (Note 4) ....................... 8,556
Videopole (Note 4) ..................................... 13,663
Bay Cable Advertising ("BCA") .......................... 4,058
MetroNet Communications and GlobeNet ("MetroNet") ...... 2,149
Cable Adcom ("Adcom") .................................. 786
Philadelphia Cable Advertising ("PCA") ................. 425
Other .................................................. 714
--------------------
$49,072
====================
</TABLE>
CAH, Inc., a subsidiary of the Company, owned a 41.667% general
partnership interest in Bay Area Interconnect d/b/a Bay Cable Advertising, a
cable advertising interconnect serving the San Francisco, California, Area of
Dominant Influence ("ADI") (See Note 26). Suburban Cable TV Co. Inc., a
wholly owned subsidiary of the Company, owns a 25% and a 20% general
partnership interest in Cable Adcom and Greater Philadelphia Cable
Interconnect d/b/a Philadelphia Cable Advertising, respectively. These
partnerships are cable advertising interconnects that serve the Harrisburg,
Pennsylvania, and Philadelphia, Pennsylvania, ADI's. The Company's indirect,
wholly owned subsidiary, LenNet, Inc., owns a 50% general partnership
interest in MetroNet Communications, a company that provides microwave
transmissions of voice and data between two points of presence for its
customers located throughout the United States and a 50% general partnership
interest in GlobeNet, a company that provides long distance telephone service
for its customers located in foreign countries.
The following table reflects the Company's share of earnings or losses of
Garden State and each of the aforementioned affiliates:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ----------
(Dollars in thousands)
<S> <C> <C> <C>
Results of Operations
Garden State ........ $ (8,570) $ (7,476) $ (8,527)
SCC Subs ............ (857) (1,150) (1,263)
VJN ................. (74) (654) 132
Raystay ............. -- 132 (886)
Videopole ........... (382) (1,518) (2,644)
BCA ................. 1,457 2,143 1,711
MetroNet ............ 94 213 190
Adcom ............... 153 400 530
PCA ................. (36) (20) 7
Other ............... (235) (10) 68
----------- ----------- -----------
$ (8,450) $ (7,940) $ (10,682)
=========== =========== ===========
</TABLE>
F-21
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 8 -- OTHER INVESTMENTS
Other investments, accounted for under the cost method, are summarized as
follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Susquehanna Cable Co., Inc. (a) $10,359 $10,359
Other .......................... 55 51
---------- ----------
$10,414 $10,410
========== ==========
</TABLE>
- ------
(a) The Company has 14.9% ownership of the voting stock of Susquehanna Cable
Co. Inc. and accounts for this investment under the cost method.
Susquehanna is an indirect subsidiary of Susquehanna Pfaltzgraff Co. and
is the parent company of five cable operating subsidiaries, of which the
Company has a direct ownership interest of the voting stock of 17.75%.
The Company's investment in these subsidiaries are accounted for under
the equity method because the Company's direct and indirect ownership
interests in these subsidiaries approximate thirty percent (30%).
NOTE 9 -- GOODWILL
The excess of the purchase price paid over the acquired net assets has
been allocated to goodwill. Accumulated amortization at December 31, 1994 and
1995, was $19,124,000 and $22,390,000, respectively.
NOTE 10 -- DEFERRED FRANCHISE COSTS AND OTHER INTANGIBLE ASSETS
A schedule of deferred franchise costs and other intangible assets and
accumulated amortization at December 31, 1994 and 1995, is as follows:
<TABLE>
<CAPTION>
Accumulated
Amount Amortization Net
----------- -------------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
December 31, 1994
Deferred franchise costs $258,050 $111,574 $146,476
=========== ============== ===========
Debt acquisition costs .. $ 8,583 $ 2,278 $ 6,305
Covenants not to compete 12,646 2,806 9,840
Other deferred assets ... 8,714 2,261 6,453
----------- -------------- -----------
$ 29,943 $ 7,345 $ 22,598
=========== ============== ===========
December 31, 1995
Deferred franchise costs $260,321 $126,796 $133,525
=========== ============== ===========
Debt acquisition costs .. $ 8,104 $ 2,368 $ 5,736
Covenants not to compete 12,646 4,409 8,237
Other deferred assets ... 9,970 3,424 6,546
----------- -------------- -----------
$ 30,720 $ 10,201 $ 20,519
=========== ============== ===========
</TABLE>
NOTE 11 -- MARKETABLE SECURITIES
In 1994, the Company changed its method of accounting for marketable
securities to conform to the requirements of Financial Accounting Standards
Board Statement (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities". The adoption of SFAS 115 changed the Company's method
of accounting for certain investments from the lower of cost or market to
fair market value. Under this method, certain investments in debt and equity
securities are carried at their fair market value. Any unrealized
appreciation or depreciation is presented as a separate component of
stockholders' equity (deficit), net of deferred taxes. The new method of
accounting decreased stockholders' deficit as of January 1, 1994, by
$8,440,000.
F-22
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 11 -- MARKETABLE SECURITIES - (Continued)
The change in accounting has been applied prospectively and, accordingly,
the prior years' financial statements have not been restated. Prior to 1994,
the Company valued its marketable securities on the lower of cost or market
method. The Company's investment in the securities of Australis Media Limited
consists of 11,000,000 shares of voting stock and 173,000,000 non-voting
convertible debentures. The debentures are classified as equity securities by
Australis as the debentures are unsecured non-voting securities that have
interest entitlements equivalent in both timing and amount to the dividend
entitlements attaching to common stock and will be subordinated to all
creditors other than common stock shareholders upon any liquidation or
winding up. The convertible notes will not be redeemable for cash but will be
convertible into ordinary shares on a one-for- one basis providing that
certain conditions are met. The notes are convertible once they have been
transferred from the initial subscriber.
At December 31, 1994, the debentures were not listed on the Sydney or any
other exchange. As a result, the market value of the debentures could not be
determined directly. Management believes that, because there was no public
market for the debentures and debentures comprise the majority of the
securities, it was appropriate to discount the estimated fair value of such
debentures by 25% from the market value of the voting stock at December 31,
1994. Management selected the above discount rate because it felt this was a
realistic estimate of the value of the debentures off-market at that date. At
December 31, 1995, the debentures were listed on the Sydney exchange and are
valued at the quoted market value on that date. The aggregate cost and market
values of the securities at December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
Gross
Aggregate Unrealized Fair
Cost Gain (Loss) Value
----------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C>
December 31, 1994
QVC, Inc. ..................................... $ 28 $11,994 $ 12,022
Australis Media Limited convertible debentures 85,534 23,150 108,684
Australis Media Limited common stock .......... 5,438 3,776 9,214
Other marketable equity securities ............ 5,161 32 5,193
----------- ------------ -----------
$96,161 $38,952 $135,113
=========== ============ ===========
December 31, 1995
Australis Media Limited convertible debentures $85,534 $68,817 $154,351
Australis Media Limited common stock .......... 5,438 3,967 9,405
Other marketable equity securities ............ 4,809 1,016 5,825
----------- ------------ -----------
$95,781 $73,800 $169,581
=========== ============ ===========
</TABLE>
All of the Company's securities are considered to be available for sale.
Net realized gains (losses) from the sale of marketable securities, in the
amount of $3,292,000, $(209,000) and $13,517,000 are included in other income
(expense) in 1993, 1994 and 1995, respectively. The 1995 net realized gains
includes a net gain of approximately $13,100,000 from the sale of its QVC,
Inc. stock holdings. The specific identification method is used to determine
the cost of each security at the time of sale.
F-23
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 12 -- NOTES PAYABLE
Notes payable consisted of the following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
(Dollars in thousands)
<S> <C> <C>
8.375% senior notes due November 1, 2005 (a) ........... $ -- $684,691
Notes payable to banks (b) ............................. 367,450 --
11.30% senior promissory notes due September 1, 2000 (c) 86,000 75,000
11.84% senior promissory notes due May 15, 1998 (d) .... 42,000 31,500
9.93% senior promissory notes due September 30, 2001 (e) 100,000 14,250
Notes payable to bank due June 30, 1999 (f) ............ -- 7,000
Notes payable to bank (g) .............................. 19,100 --
Promissory notes payable (h) ........................... 6,238 --
----------- -----------
Notes payable ........................................ $620,788 $812,441
=========== ===========
</TABLE>
- ------
(a) These notes, which are stated net of unamortized discount and issuance
costs of $15,309,000 at December 31, 1995, were issued through a public
offering in November 1995. The notes require semi-annual interest
payments. The notes are not redeemable at the option of the Company prior
to maturity. Upon a Change of Control Triggering Event, holders of the
notes may require the Company to purchase all or a portion of the notes
at a purchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest. The net proceeds were used to provide funds
for the early extinguishment of debt, to pay off notes payable to banks,
and to provide funding for the exchange of assets with TCI (Note 26) and
to provide partial funding for the cable television systems acquired from
Sammons Communications, Inc. (Note 26).
(b) The credit agreement dated June 24, 1994, amended December 16, 1994, and
as of January 10, 1995, related to these notes were with a group
consisting of several banks provided for up to $450,000,000 of
borrowings. The credit agreement provided the financing to repay existing
debt and fund acquisitions, investments, capital expenditures and working
capital needs.
The interest rate was based upon the agent bank's base rate plus 1/8 % -
5/8 % or LIBOR plus 3/4 % - 1 5/8 %. The level of borrowing margin was
based upon the Company's and certain of its subsidiaries leverage ratio.
The Company also paid a commitment fee of 3/8 % per annum on the unused
portion of the facility. The Company's weighted-average effective
interest rate on borrowings at December 31, 1994, was 7.62%.
In November 1995, the then outstanding balance of $438,690,000 was paid
off with a portion of the proceeds from the notes described in (a) above.
(c) These notes are payable to a group consisting of several insurance
companies. The notes are payable in annual installments, with the final
payment due September 1, 2000. In connection with the offering described
in (a), the Company and the holders have agreed to amend the terms
thereof, which included increasing the interest rate from 10.15% to
11.30% per annum. Interest is payable quarterly.
(d) These notes are payable to an insurance company and to its assignees. The
notes are payable in annual installments, with the final payment due May
15, 1998. In connection with the offering described in (a), the Company
and the holders have agreed to amend the terms thereof, which included
increasing the interest rate from 10.69% to 11.84% per annum. Interest is
payable quarterly.
(e) At December 31, 1995, this consists of a note payable to an insurance
company. At December 31, 1994, these notes were payable to a group
consisting of several insurance companies. The outstanding note is
payable in annual installments, with the final payment due September 30,
2001. Interest is at the fixed rate of 9.93% per annum, payable
semi-annually. All of these notes, except for the outstanding note, were
redeemed in connection with the offering described in (a). The Company
incurred extraordinary charges associated with the early extinguishment
of these notes. These charges increased net loss by $6,739,000, net of
income tax benefit of $3,629,000 in 1995.
F-24
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 12 -- NOTES PAYABLE - (Continued)
The above debt agreements place certain financial restriction on the
Company and its restricted subsidiaries which, among others, require
meeting certain ratios relating to interest coverage and principal
coverage.
(f) These notes are payable by the Company's subsidiary, MicroNet, Inc., to a
bank, pursuant to a credit agreement dated January 3, 1995. The agreement
provides for a revolving loan not to exceed $7,000,000 through June 30,
1996, at which time the outstanding balance will convert to a term loan
payable in quarterly installments with the initial payment due July 1,
1996, and maturing on June 30, 1999. The loan is secured by the real and
personal property of MicroNet. The loan bears interest at either the
bank's base prime rate plus 3/4 % - 1 3/4 % ("Prime Based Rate") or LIBOR
plus 1 3/4 % - 2 1/4 % ("LIBOR Based Rate"). Interest is payable monthly
with respect to portions of the loan bearing interest at the Prime Based
Rate, and on the last day of each LIBOR maturity period with respect to
portions of the loan bearing interest at the LIBOR Based Rate, not to
exceed three months. The loan requires mandatory principal prepayments
when certain cash flow targets have been met.
(g) These notes were payable by South Jersey, to two banks, pursuant to a
credit agreement dated April 2, 1993. The agreement provided for a
revolving and term loan not to exceed $20,000,000 for a period of one
year at which time the outstanding balance under the revolving loan
converted to a loan payable in 24 consecutive quarterly installments with
the initial payment due on June 30, 1994, and maturing March 31, 2000.
These notes were repaid in 1995 with proceeds from the bank credit
facility described in (b) above.
(h) These eight notes were payable to Raystay Co. and selling shareholders.
The notes funded the initial investment in Raystay Co. by the Company's
subsidiary, Lenfest Raystay Holdings, Inc. The notes bore interest at the
rate of prime plus one percent (1%). The effective interest rate at
December 31, 1994 was 9.5%. These notes were paid in full in June 1995.
Maturities of notes payable, excluding unamortized discount and issuance
costs of $15,309,000, are as follows:
<TABLE>
<CAPTION>
(Dollars in
thousands)
Year Ending December 31,
------------------------
<S> <C>
1996 ................... $ 27,675
1997 ................... 28,960
1998 ................... 30,040
1999 ................... 18,950
2000 ................... 18,000
Thereafter ............. 704,125
--------------------
$827,750
====================
</TABLE>
As of December 14, 1995, the Company entered into a new bank credit
facility in the aggregate amount of $600 million which consists of a $400
million term loan facility and a $200 million revolving credit facility. The
new bank facility will be used to fund the acquisition of the Salem, New
Jersey cable television system and to fund the balance of the acquisition of
the cable television systems from Sammons Communications, Inc. and to provide
funds for working capital purposes. There were no borrowings outstanding
under this credit facility at December 31, 1995. (See Note 26).
The Company has entered into interest rate cap agreements to reduce the
impact of changes in interest rates on its floating rate long-term debt. At
December 31, 1995, the Company had outstanding three interest rate cap
agreements with commercial banks, having notional principal amounts of
$50,000,000, $25,000,000, and $25,000,000. These agreements effectively
change the Company's interest rate exposure on $100,000,000 of its floating
rate debt to a maximum LIBOR rate of eight percent (8%) plus an applicable
level of borrowing margin. The interest rate cap agreements terminate on July
18, 1996, November 8, 1996, and February 27, 1997. In addition, the Company
has entered into an interest rate swap agreement with a commercial bank,
having a notional principal amount of $200,000,000. This interest rate swap
agreement terminates on June 28, 1996. Under the swap agreement, the Company
effectively converted $200,000,000 of its floating debt to a fixed rate of
6.11% plus applicable LIBOR margin.
F-25
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 12 -- NOTES PAYABLE - (Continued)
The Company is exposed to credit loss in the event of nonperformance by
the other party to the interest rate cap agreement. However, the Company does
not anticipate nonperformance by the counterparties.
NOTE 13 -- LEASES
Subsidiaries of the Company have entered into four leases for office and
warehouse space from H.F. Lenfest, a principal stockholder of the Company,
and his wife. The leases are classified as capital leases. At December 31,
1995, three of the leases provide for an aggregate minimum monthly payment of
$46,000. On each anniversary date of these three leases, the monthly payment
will increase by a minimum of 6%. At December 31, 1995, the minimum monthly
payment of the fourth lease is $22,000. On each anniversary date of the
fourth lease, the minimum monthly payment will increase by $957. For the
years ended December 31, 1993 and 1994, interest expense in the amounts of
$49,000 and $19,000 in excess of the minimum monthly payments has been
accrued and added to obligations under capital leases.
Future minimum lease payments under all capital leases and non-cancelable
operating leases with initial terms of one year or more consisted of the
following at December 31, 1995:
<TABLE>
<CAPTION>
Capital
Leases -
Principal Operating
Stockholder Leases
------------- -----------
(Dollars in thousands)
Year Ending December 31,
-------------------------
<S> <C> <C>
1996 ................................... $ 845 $ 5,363
1997 ................................... 890 3,482
1998 ................................... 938 2,739
1999 ................................... 988 1,000
2000 ................................... 1,040 206
Thereafter ............................. 5,677 1,057
------------- -----------
TOTAL MINIMUM LEASE PAYMENTS ........... 10,378 $13,847
===========
LESS AMOUNT REPRESENTING INTEREST ...... (5,094)
-------------
PRESENT VALUE OF MINIMUM LEASE PAYMENTS
$ 5,284
=============
</TABLE>
Property and equipment under capitalized leases at December 31, 1994 and
1995, are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(Dollars in thousands)
<S> <C> <C>
Buildings - related party $5,132 $5,132
Office equipment ......... 10 --
--------- ---------
5,142 5,132
Accumulated depreciation . 1,470 1,849
--------- ---------
$3,672 $3,283
========= =========
</TABLE>
Rental expense for all operating leases, principally office and warehouse
facilities, pole rent and satellite transponder, amounted to $6,697,000,
$7,691,000 and $7,986,000 for the years ended December 31, 1993, 1994 and
1995, respectively. In addition, the Company made total payments to a
principal stockholder for buildings under capitalized leases of $755,000,
$759,000 and $801,000 in 1993, 1994 and 1995, respectively.
In addition to fixed rentals, certain leases require payment of
maintenance and real estate taxes and contain escalation provisions based on
future adjustments in price indices. It is expected that, in the normal
course of business, expiring leases will be renewed or replaced by leases on
other properties; thus, it is anticipated that future minimum operating lease
commitments will not be less than the amount shown for 1996.
F-26
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 13 -- LEASES - (Continued)
In June 1989, the Company entered into a four-year agreement with GE
American Communications, Inc. requiring monthly payments of $160,000 to lease
a transponder on a communications satellite designated as Satcom C-4. The
lease commenced on January 1, 1993, the commercial operational date. The
Company has an option to renew the satellite service agreement for a first
renewal term of four (4) years at $160,000 per month and a second renewal
term of four (4) years at $170,000 per month.
On September 20, 1991, the Company entered into a six-year satellite
service agreement with GE American Communications, Inc. requiring monthly
payments of $162,500 to lease a second transponder on the Satcom C-4
communications satellite. The lease payments commenced on March 31, 1993. The
Company has an option to renew the satellite service agreement for a term of
six (6) years at $170,000 per month.
NOTE 14 -- FRANCHISE COMMITMENTS
The Company's operating cable television subsidiaries hold various
franchises and, in connection therewith, are obligated to pay franchise fees
based on certain gross revenues. For the years ended December 31, 1993 and
1994, franchise fees in the amount of $7,454,000 and $8,453,000 were paid.
For the year ended December 31, 1995, franchise fees in the amount of
$9,166,000 will be paid.
NOTE 15 -- RESEARCH AND DEVELOPMENT
The Company, through its subsidiaries StarNet Development, Inc. and
StarNet, Inc., incurred research and development costs of $2,053,000,
$2,095,000 and $1,037,000 for the years ended December 31, 1993, 1994 and
1995, respectively, in connection with the development of new equipment and
computer software. These costs have been included with programming expenses
on the accompanying consolidated statements of operations.
NOTE 16 -- EMPLOYEE HEALTH BENEFIT PLAN
On February 1, 1984, the Company established the Lenfest Group Employee
Health Benefit Plan (a trust), which provides health insurance for the
employees of most of its subsidiaries and affiliates. This trust is organized
under Internal Revenue Code Section 501(c)(9) - Voluntary Employees
Beneficiary Association (VEBA). Benefits are prefunded by contributions from
each participating subsidiary. Insurance expense is recognized as benefits
are incurred. The Company does not provide post retirement benefits to its
employees. Therefore, Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Post Retirement Benefits Other than Pensions, does
not have an impact on the Company's financial statements.
NOTE 17 -- 401(K) PLAN
The Company provides a 401(k) profit sharing plan. The Company matches the
entire amount contributed by a participating, eligible employee up to five
percent (5%) of salary. For the years ended December 31, 1993, 1994 and 1995,
the Company matched contributions of $670,000, $725,000 and $877,000,
respectively.
NOTE 18 -- CORPORATE INCOME TAXES
In 1993, the Company changed its method of accounting for income taxes to
conform to the requirements of Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes". The adoption of SFAS 109
changed the Company's method of accounting for income taxes from the deferred
method to the asset and liability method. SFAS 109 requires recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the financial statements or tax
returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement carrying
amounts and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse.
Differences between financial reporting and tax bases arise most
frequently from differences in timing of income and expense recognition and
as a result of business acquisitions. Deferred income tax expense is measured
by the change in the net deferred income tax asset or liability during the
year.
F-27
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 18 -- CORPORATE INCOME TAXES - (Continued)
The provisions for income tax benefit (expense) consists of the following
components:
<TABLE>
<CAPTION>
1993 1994 1995
---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Current
Federal ................................. $ (300) $ -- $ --
State ................................... (100) (40) --
---------- --------- ---------
(400) (40) --
Deferred
Federal ................................. 383 4,553 1,327
State ................................... 100 (217) 3,088
Benefit of operating loss carryforward .. 3,028 5,700 6,583
(Increase) decrease in valuation
allowance ............................ (77) (267) 97
---------- --------- ---------
3,434 9,769 11,095
---------- --------- ---------
$3,034 $9,729 $11,095
========== ========= =========
</TABLE>
The categories of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
Federal State
-------------------------- ----------------------------
1994 1995 1994 1995
----------- ----------- ------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Deferred Tax Assets:
Allowance for doubtful accounts ........ $ 241 $ 335 $ 87 $ 95
Deferred start-up costs ................ 959 308 -- --
Net operating loss carryforward ........ 58,872 69,086 -- --
Investments and other tax credits ...... 2,229 1,849 249 249
---------- ---------- ------------ ----------
Gross Deferred Tax Asset ............ 62,301 71,578 336 344
Deferred Tax Liabilities:
Property and equipment, principally due
to differences in depreciation ...... (11,321) (12,724) (4,884) (4,002)
Investments in affiliates, principally
due to differences in taxable income (5,123) (2,317) (1,783) (1,432)
Property and equipment and intangible
assets arising from purchase
accounting adjustments .............. (16,311) (15,452) (6,698) (4,850)
Unrealized gain on marketable securities (13,633) (25,830) -- --
---------- ---------- ------------ ----------
Gross Deferred Tax Liability ........ (46,388) (56,323) (13,365) (10,284)
---------- ---------- ------------ ----------
Net deferred tax asset (liability)
before valuation allowance .......... 15,913 15,255 (13,029) (9,940)
Valuation allowance .................... (645) (548) -- --
---------- ---------- ------------ ----------
Net Deferred Tax Asset (Liability) .. $ 15,268 $ 14,707 $ (13,029) $ (9,940)
========== ========== ============ ==========
</TABLE>
F-28
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 18 -- CORPORATE INCOME TAXES - (Continued)
The difference between the net income tax benefit (expense) and the
amounts expected by applying the U.S. Federal income tax rate of 35% to loss
before income taxes is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Federal income tax benefit at statutory rates ............ $ 5,216 $10,020 $ 7,907
Nondeductible amortization of goodwill and other
intangibles ............................................. (949) (949) (949)
Provision for state income taxes, net of Federal income
tax benefit ............................................. -- (167) 2,007
Other .................................................... (1,233) 825 2,130
-------- ------- -------
$ 3,034 $ 9,729 $11,095
======== ======= =======
</TABLE>
The Company has a net operating loss carryforward of approximately
$197,000,000 on a tax reporting basis. The carryforward will begin to expire
in 2001, if not utilized. The Company has available an alternative minimum
tax credit of $430,000 for indefinite carryover to subsequent years. The
Company also has available unused general business tax credits, after
reduction required under the Tax Reform Act of 1986, of approximately
$1,419,000 for carryover to subsequent years. The general business tax
credits expire as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1996 ................... $ 129,000
1997 ................... 166,000
1998 ................... 252,000
1999 ................... 361,000
2000 ................... 485,000
2001-2006 .............. 26,000
------------
$1,419,000
============
</TABLE>
NOTE 19 -- OTHER INCOME (EXPENSE)
The schedules of other income (expense) for the years ended December 31,
1993, 1994 and 1995 and six months ended June 30, 1995 and 1996 are as
follows:
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
Year Ended December 31, June 30,
----------------------------------------- ------------------------
1993 1994 1995 1995 1996
------------ ------------ ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
(Loss) on disposal of assets upon rebuild of
cable systems ................................ $ (1,445) $ (2,245) $ (282) $ -- $ --
Gain on sale of property and equipment ........ 1,150 371 143 53 27
Gain (loss) on sales of marketable securities . 3,292 (209) 13,517 13,106 307
Recognized loss on decline in market value of
securities (Note 26).......................... -- -- -- -- (66,945)
Provision for potential reduction in value of
note receivable and accrued interest
(Note 26)...................................... -- -- -- -- (19,685)
Gain on disposal of partnership interest ...... -- -- -- -- 6,974
Interest and dividend income .................. 632 1,244 2,086 850 2,466
Minority interest in net loss of unconsolidated
subsidiaries ................................. 78 581 1,347 187 943
Litigation settlements ........................ (4,348) (250) (1,900) (800) --
Ad Valorem tax reassessment ................... 821 1,656 -- -- --
Traffic Pro 2000 costs ........................ (1,507) -- -- -- --
Miscellaneous income (expense) ................ (20) (225) 77 1,380 (57)
------------ ------------ ---------- ---------- ----------
$ (1,347) $ 923 $14,988 $ 14,776 $ (75,970)
============ ============ ========== ========== ==========
</TABLE>
F-29
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 19 -- OTHER INCOME (EXPENSE) - (Continued)
In December 1995, the Company's subsidiary, LenComm, Inc. d/b/a Bay
Cablevision, paid a contractor $1,550,000 under a binding arbitration award
in connection with a breach of contract action.
In October 1995, the Company's subsidiary, Lenfest West, Inc. d/b/a Cable
Oakland, under an order by the Superior Court of the State of California,
County of Alameda, paid $350,000 into a settlement fund in settlement of a
class action which alleged that the charges imposed by Cable Oakland for
delinquent payments from subscribers were illegally high. Approximately
$207,000 of the settlement was distributed to local non-profit and municipal
entities. The remaining balance was used to defray plaintiffs' attorney fees
and other costs.
In December 1993, the United States government filed a civil action
alleging false filings of copyright royalty statements with the Register of
Copyrights of the United States. The complaint alleged that the Company
misreported its subscriber rates to the copyright office and underpaid
copyright royalty fees. The Company settled this claim in 1994 with a payment
of $5,000,000. The settlement was accrued as a liability at December 31, 1993
and expensed in that year. The Company classified $4,348,000 relating to
copyright fee liability for years prior to 1993 as "other expense".
The Company, through its subsidiary, LenComm, Inc., was reassessed for
prior years' ad valorem taxes, namely, California Business Personal Property
and Possessory Interest taxes. The Company contested the reassessment and, in
1993 and 1994, received reductions in the amounts of $821,000 and $1,656,000,
respectively.
The Company, through its subsidiary, StarNet Development, Inc. ("SDI")
acquired the assets related to the cable TV services division of LJ
Development, Inc. and Unibase Data Entry, Inc. Included in the assets were
all rights and privileges to the development of traffic and billing software
known as Traffic Pro 2000. Included in the acquisition of these assets by SDI
was capitalized software development costs of $1,265,000 net of 1992
amortization of $31,000. In 1993, SDI incurred additional capitalized
software development costs of $242,000. In January 1994, the Company
responded to pressure from its customer base to port the Traffic Pro 2000
over a more flexible operating system. Therefore, the Company decided to
reformat the Traffic Pro 2000 programs to make it easier to use and more
widely accepted. As a result, the Company has recorded as a charge against
income all software development costs that were acquired or capitalized. This
charge amounts to $1,507,000 for the year ended December 31, 1993.
NOTE 20 -- COMMITMENTS AND CONTINGENCIES
In November 1994, Mr. Lenfest and Tele-Communications International, Inc., an
affiliate of TCI, jointly and severally guaranteed $67.0 million in program
license payment obligations of the distributor of Australis' movie programming.
The Company has agreed to indemnify Mr. Lenfest against loss from such guaranty
to the fullest extent permitted under the Company's debt obligations. The
Company has neither sought nor obtained any consents which may be required in
connection with this indemnification obligation. The terms of the guarantees
provide that the amount of the guarantees will be reduced on a dollar-for-dollar
basis with the provision of one or more letters of credit, which may not exceed
$33.5 million. Under the terms of the New Bank Credit Facility (See Note 26),
however, Mr. Lenfest's claims for indemnification are limited to $33.5 million,
which amount will be further reduced by the aggregate face amount of any letters
of credit, if any, requested by the Company to be issued under the New Bank
Credit Facility with respect to the program license payment obligations
guarantees. If the Company obtains such letter of credit facility, the Company
would be directly obligated for the face amount of such letter of credit and may
remain indirectly obligated for the balance of the program license payment
obligations. The Company has deferred any decision concerning the obtaining of
any letter of credit facility (including the amount thereof) until after the
Australis long-term financing has been successfully completed. In addition, in
February 1996, Mr. Lenfest provided his personal guaranty of an approximately
$18.7 million loan to Lenfest Australis, Inc. by two commercial banks. (See Note
26). The Company has agreed to indemnify Mr. Lenfest against losses incurred by
him in connection with his guarantees to the fullest extent permitted under the
Company's debt obligations. Mr. Lenfest has unilaterally agreed to limit the
amount of the indemnity he would seek to the amount available under the
Company's New Credit Facility.
F-30
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 20 -- COMMITMENTS AND CONTINGENCIES - (Continued)
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, the Company's president and chief executive officer,
involved in the acquisition of a company owned by the Plaintiff, the assets
of which included the right to acquire Satellite License B from the
Australian government. The Plaintiff alleges that the Defendants defrauded
him by making certain representations to him in connection with the acquisition
of his company and claims total damages of Australian $705 million
(approximately U.S. $557 million as of August 30, 1996). The Plaintiff also
alleges 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 and their intention to defend this action
vigorously.
On August 16, 1993, LJ Development, Inc. ("LJ") (See Note 19) served a
complaint against StarNet Development, Inc. ("SDI"), a subsidiary of the
Company. The claim is for an alleged breach of an Asset Purchase Agreement
for computer software called Traffic Pro 2000 and other assets purchased from
LJ. On November 30, 1994, the parties reached a settlement. SDI agreed to pay
LJ $250,000 plus royalties. LJ will be entitled to a 10% royalty on the first
$5,000,000 of revenue arising out of the sale, marketing or licensing by SDI
of the Traffic Pro 2000 software to third parties. No royalty obligation will
exist for the next $5,000,000 of gross revenue. LJ will be entitled to a 5%
royalty on the third $5,000,000 of gross revenue, that is $10,000,000--
$15,000,000. No additional royalty will be owed if revenues exceed
$15,000,000. No royalty or other obligation will exist after November 30,
1996. If the gross revenues from the sale or licensing of the Traffic Pro
2000 are less than $1,500,000 in the two year period or if SDI abandons or
terminates its interest in Traffic Pro 2000, LJ will be entitled to a minimum
additional cash payment of $150,000.
The Company has also been named as a defendant in various legal
proceedings arising in the ordinary course of business. In the opinion of
management, the ultimate amount of liability with respect to the above
actions, will not materially affect the financial position, the results of
operations or the cash flows of the Company.
As mentioned in Note 4, the Company is obligated to purchase additional
shares of stock valued at a total of 63,670,000 French francs (approximately
$12,982,000) in Videopole for the years 1996-1997. The Company's future
commitment in dollars is subject to changes in the exchange rate.
NOTE 21 -- RELATED PARTY TRANSACTIONS
The Company has entered into an agreement whereby Satellite Services,
Inc., an affiliate of TCI, provides certain cable television programming to
the Company and its unconsolidated cable television affiliates. This
agreement provides 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, 1993,
1994 and 1995, the Company recorded programming expenses of $29,851,000,
$33,782,000 and $37,685,000, respectively, under this agreement.
The Company, through its subsidiary, Lenfest Australia Group Pty Limited,
has entered into a ten year technical services agreement with Australis.
Under the agreement, the Company, through its subsidiary, has agreed to
provide technical expertise and assistance to Australis for ten years for an
annual fee based on a percentage of gross revenues of 5% in year one
decreasing to 1% in year six capped at a maximum of 6.5 million Australian
dollars (approximately 5 million U.S. dollars). The term of the technical
services agreement commenced January 1, 1996.
The Company, through its subsidiaries, StarNet and SDI, generates revenue
from cross channel tune-in promotional services for cable television and
equipment sales to affiliates of TCI. For the years ended December 31, 1993,
1994 and 1995, the Company has generated revenues of $1,561,000, $1,525,000
and $3,900,000, respectively, from affiliates of TCI.
F-31
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 21 -- RELATED PARTY TRANSACTIONS - (Continued)
Cable AdNet Partners, an affiliate of TCI, paid Suburban Cable TV Co. Inc.
("Suburban"), a subsidiary of the Company, approximately $1,139,000,
$1,500,000 and $2,637,000 for the years ended December 31, 1993, 1994 and
1995, respectively, for Suburban's share of advertising revenue under certain
advertising agreements.
The Company paid TelVue Corporation, an affiliate of the Company,
$117,000, $174,000 and $190,000 for the years ended December 31, 1993, 1994
and 1995, respectively, for pay-per-view order placement services.
In January 1995, H.F. Lenfest advanced $10,000,000 to the Company in
connection with the investment by the Company's subsidiary, Lenfest Jersey,
Inc., in Garden State Cablevision, L.P. The advance was repaid on April 20,
1995.
In January 1995, the Company loaned $19,240,000 to Australis (See Note 4).
The funds were used to prepay license fees to U.S. movie studios in
connection with and under certain contracts to supply movies to Australis.
The loan bore interest at a rate equal to the rate charged to the Company its
related borrowing under its bank credit facility dated June 24, 1994. The
loan was repaid on April 20, 1995.
In 1994, the Company sold the assets of one of its subsidiaries, Stockdale
Productions, Inc., to TCI for $225,000.
In 1993, H.F. Lenfest advanced $5,972,000 to the Company in connection
with the investment by the Company's subsidiary, Lenfest Australia, Inc., in
Australis Media, Ltd. The loan was repaid in June 1994.
Subsidiaries of the Company have entered into various leasing arrangements
with a principal stockholder for office and warehouse facilities. (See Note
13 -- Leases)
NOTE 22 -- SEGMENT INFORMATION
The Company operates primarily in the cable television industry. Certain
subsidiaries of the Company operate in other industries which provide
microwave transmission and promotional, cable advertising traffic and billing
services.
<TABLE>
<CAPTION>
Cable Other Total
----------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C>
Year Ended December 31, 1993
Revenues .................................... $197,630 $ 15,610 $213,240
=========== ============ ==========
Operating income (loss) ..................... $ 39,809 $ (9,823) $ 29,986
=========== ============ ==========
Depreciation and amortization ............... $ 60,654 $ 4,541 $ 65,195
=========== ============ ==========
Capital expenditures, including acquisitions $117,394 $ 33,535 $150,929
=========== ============ ==========
Identifiable assets ......................... $448,623 $183,720 $632,343
=========== ============ ==========
Year Ended December 31, 1994
Revenues .................................... $212,800 $ 23,395 $236,195
=========== ============ ==========
Operating income (loss) ..................... $ 34,843 $ (8,705) $ 26,138
=========== ============ ==========
Depreciation and amortization ............... $ 70,867 $ 4,651 $ 75,518
=========== ============ ==========
Capital expenditures, including acquisitions $ 42,162 $ 6,363 $ 48,525
=========== ============ ==========
Identifiable assets ......................... $440,640 $224,706 $665,346
=========== ============ ==========
Year Ended December 31, 1995
Revenues .................................... $232,155 $ 34,094 $266,249
=========== ============ ==========
Operating income (loss) ..................... $ 44,199 $ (9,557) $ 34,642
=========== ============ ==========
Depreciation and amortization ............... $ 71,054 $ 6,646 $ 77,700
=========== ============ ==========
Capital expenditures, including acquisitions $ 47,658 $ 16,420 $ 64,078
=========== ============ ==========
Identifiable assets ......................... $576,855 $274,893 $851,748
=========== ============ ==========
</TABLE>
F-32
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 23 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is presented in accordance with the provisions of SFAS No. 107
"Disclosures about Fair Value of Financial Instruments". The following
methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate that value:
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND DEPOSITS
ON CONVERTERS
The carrying amount approximates fair market value because of the short
maturity of those instruments
MARKETABLE SECURITIES
The fair market values of securities are estimated based on quoted market
prices for those investments.
OTHER INVESTMENTS
The Company's investment in Susquehanna Cable Co., Inc. is carried at
cost. (See Note 8). There are no quoted market prices for Susquehanna, which
is a holding company that has majority ownership in cable operating
Subsidiaries in which the Company also has ownership interests. The Company
uses the equity method to account for its ownership in the Subsidiaries. (See
Notes 4 and 7). Because of its relationship with Subsidiaries, the Company
does not believe that it is practicable to estimate fair market value for its
investment in Susquehanna.
LONG-TERM DEBT
The fair value is based on current rates at which the Company could borrow
funds with similar remaining maturities.
INTEREST RATE SWAP AND CAP AGREEMENTS
The fair values of the interest rate swap and cap agreements are estimated
based on mark-to-market values.
The estimated fair values of the Company's financial instruments as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------------ -----------
(Dollars in thousands)
<S> <C> <C>
Balance Sheet Financial Instruments
Cash and cash equivalents ............. $ 164,943 $ 164,943
Marketable securities ................. 169,581 169,581
Long-term debt ........................ (817,725) (838,791)
Deposits on converters ................ (5,853) (5,853)
Off Balance Sheet Financial Instruments
Interest rate swap .................... $ -- $ (619)
Interest rate caps .................... -- --
</TABLE>
LIMITATIONS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature, involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
NOTE 24 -- 1992 CABLE ACT
On April 1, 1993, the Federal Communications Commission ("FCC") adopted
regulations ("Rate Rule I") under The Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Cable Act") govern-
F-33
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 24 -- 1992 CABLE ACT - (Continued)
ing rates charged to subscribers for basic and tier service and for equipment
and installation charges (the "Regulated Services"). The 1992 Cable Act placed
the Company's regulated services under the jurisdiction of local franchising
authorities and the FCC. The rate regulations do not apply to services offered
on an individual service basis, such as per-channel or pay-per-view services.
The FCC's rate regulations became effective on September 1, 1993. Under Rate
Rule I, the regulated services were evaluated against competitive "benchmark"
rates established by the FCC. Cable operators could justify basic and service
tier rates that were above the benchmarks by using reasonable cost-of-service
principles. During 1995, the FCC announced its revised benchmark rules ("Rate
Rule II") and its interim cost-of-service rule. Rate Rule II revised the
benchmark formulas established by the FCC in 1993 and is applied prospectively
from May 15, 1994. Rate Rule II requires cable operators to reduce existing
rates to the higher of (i) the rates calculated using the revised benchmarks or
(ii) a level 17 percent below such cable operators' rates as of September 30,
1992, adjusted for inflation and certain increases in programming costs. Rates
may be increased periodically to reflect inflation and increases in certain
external costs. In addition, rates may be increased for tier service when new
programming channels are added. At the end of 1995, the FCC adopted final cost
of service rules ("COS Rule"). Cable operators which cannot or do not wish to
comply with Rate Rule II may choose to justify their existing rates under the
"COS Rule". This rule established a cost-of-service rate system which evaluates
the rates charged by cable operators based on their operating expenses and
capital costs.
The Company believes that is has complied in all material respects with
the provision of the 1992 Cable Act, including its rate setting provisions.
However, the Company's rates for Regulated Services are subject to review by
the FCC, if a complaint has been filed, or the appropriate franchise
authority, if such authority has been certified. If, as a result of the
review process, a cable system cannot substantiate its rates, it could be
required to retroactively reduce its rates to the appropriate benchmark and
refund the excess portion of rates received. Any refunds of the excess
portion of tier service rates would be retroactive to the date of complaint.
Any refunds of the excess portion of all other Regulated Service rates would
be retroactive to the later of September 1, 1993, or one year prior to the
Refund Order issued by the applicable franchise authority. The amount of
refunds, if any, which could be payable by the Company in the event that
systems rates are successfully challenged by franchising authorities is not
considered to be material.
NOTE 25 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following as of
December 31:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Accounts payable -- unrelated parties $ 7,251 $10,403
Accounts payable -- affiliate ....... 7,638 7,205
Accrued copyright fees .............. 1,102 685
Accrued franchise fees .............. 4,701 5,301
Accrued interest .................... 6,006 11,371
Accrued payroll and fringe benefits . 706 934
Accrued sales taxes ................. 378 273
Accrued other ....................... 1,581 4,959
---------- ----------
$29,363 $41,131
========== ==========
</TABLE>
NOTE 26 -- SUBSEQUENT EVENTS
On January 19, 1996, the Company, through its subsidiary, Lenfest Australia,
Inc. loaned $18,530,000 from funds on hand to Australis (See Note 4) for
short-term operating and capital funding needs, which loan accrues interest at
the rate of 14%. Such loan is due on the earlier of September 30, 1996, or the
refinancing by Australis of its bank-credit facility as discussed below. In
March and April 1996, the Company loaned an additional $15.5 million to
Australis from cash on hand. The March and April loans were repaid with interest
on May 11, 1996.
F-34
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 26 -- SUBSEQUENT EVENTS - (Continued)
On February 29, 1996, Lenfest Australia, Inc. entered into a credit facility
(as subsequently amended, the "Lenfest Australia Credit Facility") with two of
the banks which are parties to the New Bank Credit Facility (see below). The
amount borrowed, approximately $18.7 million, was used to repay the intercompany
advance from the Company and transaction costs associated with the loan to
Lenfest Australia, Inc. The Lenfest Australia Credit Facility is an unsecured
facility which must be repaid on the earlier of repayment of the loans by
Australis and September 30, 1996. The full payment and performance of the
Lenfest Australia Credit Facility was guaranteed by Mr. Lenfest. As a condition
to granting their consent to the entering into of the Lenfest Australia Credit
Facility, the lenders under the New Bank Credit Facility required the Company to
agree to reduce the aggregate principal amount available for advances under the
revolving credit portion of the New Bank Credit Facility by $20.0 million so
long as any portion of the Lenfest Australia Credit Facility remains
outstanding.
On April 24, 1996, the Company guaranteed up to $75,000,000 of a new
$125,000,000 Australis bank facility as part of recapitalization plans currently
being pursued by Australis. Australis has announced that it plans to repay the
Australis bank facility with the proceeds of long-term debt and equity financing
in conjunction with its proposed recapitalization. In connection with such
long-term financing, the Company has agreed to make an additional $40,000,000
equity investment in Australis, subject to a number of conditions, including the
completion of the recapitalization and the equity contributions of certain other
investors. If the Australis long-term financing is completed, Australis will
repay the $18,530,000 loan, with interest, and the $75,000,000 guaranty will
expire. There can be no assurance that the Australis long-term financing will be
completed or completed on a timely basis. The board of directors of Australis
has publicly stated that if Australis is unable to obtain the long-term
financing prior to the expiration of the Australis bank facility (scheduled to
expire on October 31, 1996), there is substantial doubt as to Australis' ability
to continue as a going concern. If the Australis long-term financing is not
completed, the $18,530,000 loan may not be repaid, the $75,000,000 guaranty may
be drawn in whole or in part and the Company's existing equity investment in
Australis may lose all or a substantial portion of its value. As of June 30,
1996, as a result of uncertainties associated with the successful completion by
Australis of its proposed recapitalization, the Company has recognized a loss of
$66,900,000 resulting from a write-down of the Australis securities from cost.
As of August 30, 1996, the approximate market value of the securities was
$26,200,000. Also, the Company has provided a 100% allowance for doubtful
account for its note receivable and accrued interest from Australis.
In connection with the Australis Guaranty, the Company entered into a
stand-by $75.0 million senior subordinated credit facility (the "Stand-by
Facility") on May 2, 1996 with The Toronto-Dominion Bank in order to provide any
required funding under the Australis Guaranty. The terms of the Stand-by
Facility provide that any loan will be subordinated to the senior lenders to the
Company, be unsecured and be due on the first to occur of November 18, 1996, the
issuance of public debt by Australis in an amount sufficient to repay the
Australis Bank Facility or the issuance of additional public securities by the
Company. In addition, any such loan will not require principal amortization
prior to maturity.
Effective February 12, 1996, the Company exchanged the assets of its cable
television systems in the East San Francisco Bay area and its 41.67%
partnership interest in Bay Cable Advertising for the Wilmington, Delaware
and surrounding area cable television system, owned by a subsidiary of TCI.
In connection with the exchange, the Company acquired cable systems for
approximately $45 million. These cable systems were included with the assets
transferred to TCI. For financial reporting purposes, the Company will
account for this exchange as a nonmonetary exchange of productive assets in
accordance with Accounting Principles Board Opinion Number 29, whereby the
assets acquired will be valued at the historical cost values of the assets
disposed. The acquisition of these cable systems were financed with proceeds
from the Company's public debt offering described in Note 12.
On February 29, 1996, the Company acquired four cable television systems
from Sammons Communications, Inc. for approximately $531,000,000. The
systems, which are located in Bensalem and Harrisburg, Pa. and in Vineland
and Atlantic City/Pleasantville, N.J., pass approximately 358,000 homes and
serve approximately
F-35
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 26 -- SUBSEQUENT EVENTS - (Continued)
277,000 basic subscribers. For financial reporting purposes, the Company will
account for the acquisition of these assets under the purchase method. The
acquisition was funded in part by $420,000,000 borrowed on the new bank credit
facility described in Note 12, and excess proceeds from the public debt
offering.
On March 28, 1996, the Company signed an agreement to acquire from Cable
TV Fund 14-A, Ltd., an affiliate of Jones Intercable, Inc., its Turnersville
cable television system in New Jersey for approximately $84,500,000, subject
to certain adjustments. At closing, which the parties have agreed will occur
in the first quarter of 1997, the Company expects that the Turnersville
system will pass approximately 46,200 homes and serve approximately 36,300
basic subscribers. For financial reporting purposes, the Company will account
for the acquisition of these assets under the purchase method. Funds to
acquire this system are expected to be provided in part by borrowings under
the New Bank Credit Facility as described below.
On April 30, 1996, the Company acquired from Tri-County Cable Television
Company, an affiliate of Time Warner, its Salem cable television system for
approximately $16,000,000. The system, located in Salem, N.J., passes
approximately 10,600 homes and serves approximately 7,700 basic subscribers.
On the same date, the Company acquired from Shore Cable Company of New Jersey
its Shore cable television system for approximately $11,000,000. The system
passes approximately 6,100 homes and serves approximately 5,000 basic
subscribers. For financial reporting purposes, the Company will account for
the acquisition of these assets under the purchase method. These acquisitions
were funded in part by the existing bank credit facility described in Note
12.
The results of operations for these acquisitions will be included with the
results of the Company from the respective dates of acquisitions. Assuming
the acquisitions, New Debt Offering (described below) and New Bank Credit
Facility had occurred on January 1, 1995, the Company's pro forma revenues,
loss before extraordinary loss and net loss would have been approximately
$394,000,000, $(37,500,000) and $(44,500,000), respectively. These pro forma
amounts include adjustments for programming costs using rates under the SSI
programming agreement, interest on debt, amortization on intangibles
including goodwill and depreciation on revalued property and equipment. These
pro forma amounts are not necessarily indicative of operating results which
would have occurred if the cable systems acquired had been operated under
Company management.
On May 3, 1996, The News Corporation Limited ("News") filed an action
against the Company for unspecified damages in the Supreme Court of New South
Wales, Australia. The action claims that the Company violated an alleged oral
agreement it made to inform News prior to taking any steps to effect a
recapitalization plan for Australis Media Limited. The Company does not
believe that the suit has merit. On June 6, 1996, the Company filed suit in
federal court in Philadelphia seeking a declaration that no oral agreement
was made with News to notify News prior to making a separate refinancing
proposal to Australis and that there is no agreement whatsoever with News
that would delay or prevent the Company's participation in providing
refinancing to Australis.
On March 21, 1996, the Company entered into a three-year agreement
requiring monthly payments of $55,000 to lease office space. The lease will
commence on June 15, 1996. The Company has an option to renew the agreement
for a term of two (2) years. The Company has an option to purchase the
property for $4,750,000.
On June 27, 1996, the Company issued $300,000,000 10 1/2 % Senior
Subordinated Notes Due 2006, through a private offering ("New Debt
Offering"). The proceeds of the notes are net of the initial purchasers'
discount and issuance costs of $6,500,000. The notes require semi-annual
interest payments. The notes are not redeemable at the option of the Company
prior to maturity. Upon a Change of Control Triggering Event, holders of the
notes may require the Company to purchase all or a portion of the notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest. The net proceeds will be used to provide for the partial
early extinguishment of bank debt.
On June 27, 1996, the Toronto-Dominion Bank, PNC Bank, N.A. and
NationsBank of Texas, N.A. and certain other lenders party thereto
(collectively, the "Lenders") entered into a credit agreement with the
Company
F-36
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 26 -- SUBSEQUENT EVENTS - (Continued)
pursuant to which the Lenders provided the Company with a $450,000,000 New Bank
Credit Facility ($150,000,000 term and $300,000,000 revolving). Principal
payments under the term loan facility and commitment reductions under the
revolving loan facility will commence on March 31, 1999, with quarterly
reductions thereafter until termination of the New Bank Credit Facility on
September 30, 2003. Loans outstanding under the New Bank Credit Facility will
bear interest, at the Company's option, at either (i) the Base Rate plus an
applicable margin ranging from 0% to 1 3/8 % or (ii) LIBOR plus an applicable
margin ranging from 3/4 % to 2 3/8 %, in each case based upon certain levels of
leverage ratios.
F-37
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Heritage Cable of Delaware, Inc. and
Lenfest Communications, Inc.
We have audited the accompanying balance sheets of The Wilmington, Delaware
System (A Cable Television System of Heritage Cable of Delaware, Inc.
Acquired by Lenfest Communications, Inc. in an Exchange of Assets
Transaction) as of December 31, 1994 and 1995, and the related statements of
operations, changes in equity investment and cash flows for each of the years
in the three-year period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of The Wilmington, Delaware
System (A Cable Television System of Heritage Cable of Delaware, Inc.
Acquired by Lenfest Communications, Inc. in an Exchange of Assets
Transaction) as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for each year in the three-year period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
PRESSMAN CIOCCA & SMITH
Hatboro, Pennsylvania
April 5, 1996
F-38
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Heritage Cable of Delaware, Inc. and
Lenfest Communications, Inc.
We have reviewed the accompanying statements of operations of the Wilmington,
Delaware System (A Cable Television System of Heritage Cable of Delaware,
Inc. Acquired by Lenfest Communications, Inc. in an Exchange of Assets
Transaction) for the six months ended June 30, 1995 and the period ended
February 12, 1996. These financial statements are the responsibility of the
System's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
PRESSMAN CIOCCA & SMITH
Hatboro, Pennsylvania
May 17, 1996
F-39
<PAGE>
THE WILMINGTON, DELAWARE SYSTEM
(A Cable Television System of Heritage Cable of Delaware, Inc.
Acquired by Lenfest Communications, Inc. in an Exchange of Assets Transaction)
BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash ........................................ $ 726 $ 114
Accounts receivable - trade and other ....... 729 1,326
Less allowance for doubtful accounts ....... 130 243
----------- -----------
599 1,083
Prepaid expenses ............................ 23 39
Property and equipment ...................... 67,157 71,485
Less accumulated depreciation .............. 32,305 36,831
----------- -----------
34,852 34,654
Deferred franchise costs, net of amortization 107,247 103,946
----------- -----------
$143,447 $139,836
=========== ===========
LIABILITIES AND EQUITY INVESTMENT
Accounts payable and accrued expenses ....... $ 1,441 $ 1,813
Deferred Federal and state tax liability .... 48,749 52,893
----------- -----------
TOTAL LIABILITIES ................. 50,190 54,706
COMMITMENTS AND CONTINGENCIES
Equity investment ........................... 93,257 85,130
----------- -----------
$143,447 $139,836
=========== ===========
</TABLE>
See accompanying notes.
F-40
<PAGE>
THE WILMINGTON, DELAWARE SYSTEM
(A Cable Television System of Heritage Cable of Delaware, Inc.
Acquired by Lenfest Communications, Inc. in an Exchange of Assets Transaction)
STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
----------------------------
Six
Months Period
Ended Ended
Year Ended December 31, June 30, February 12,
------------------------------------- ---------- --------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
REVENUES .................. $55,372 $55,448 $58,030 $29,136 $ 6,948
OPERATING EXPENSES
Service ................. 4,123 4,089 4,278 1,995 984
Programming -- affiliate 8,716 9,271 11,123 5,472 1,412
Programming -- other .... 1,136 2,365 2,381 1,171 141
Selling and marketing ... 2,575 2,355 1,719 1,122 152
General and
administrative ....... 9,303 8,408 9,305 4,024 1,341
Depreciation ............ 4,712 4,695 4,854 2,406 411
Amortization ............ 3,301 3,301 3,301 1,651 275
---------- ---------- ---------- ---------- --------------
33,866 34,484 36,961 17,841 4,716
---------- ---------- ---------- ---------- --------------
OPERATING INCOME ..... 21,506 20,964 21,069 11,295 2,232
OTHER EXPENSE
Interest expense ........ 13,808 9,743 9,164 4,550 957
---------- ---------- ---------- ---------- --------------
INCOME BEFORE INCOME
TAXES .............. 7,698 11,221 11,905 6,745 1,275
INCOME TAX EXPENSE ........ 4,214 4,709 4,936 2,742 529
---------- ---------- ---------- ---------- --------------
NET INCOME ........... $ 3,484 $ 6,512 $ 6,969 $ 4,003 $ 746
========== ========== ========== ========== ==============
</TABLE>
See accompanying notes.
F-41
<PAGE>
THE WILMINGTON, DELAWARE SYSTEM
(A Cable Television System of Heritage Cable of Delaware, Inc.
Acquired by Lenfest Communications, Inc. in an Exchange of Assets Transaction)
STATEMENTS OF CHANGES IN EQUITY INVESTMENT
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
BALANCE AT JANUARY 1, 1993 ............................... $103,422
Net income ............................................... 3,484
Reduction in equity investment ............................ (9,840)
----------
BALANCE AT DECEMBER 31, 1993 ............................. 97,066
Net income ............................................... 6,512
Reduction in equity investment ............................ (10,321)
----------
BALANCE AT DECEMBER 31, 1994 ............................. 93,257
Net income ............................................... 6,969
Reduction in equity investment ............................ (15,096)
----------
BALANCE AT DECEMBER 31, 1995 ............................. $ 85,130
==========
</TABLE>
See accompanying notes.
F-42
<PAGE>
THE WILMINGTON, DELAWARE SYSTEM
(A Cable Television System of Heritage Cable of Delaware, Inc.
Acquired by Lenfest Communications, Inc. in an Exchange of Assets Transaction)
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................... $ 3,484 $ 6,512 $ 6,969
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization ............................. 8,013 7,996 8,155
Deferred tax expense ...................................... 1,362 267 4,144
Changes in operating assets and liabilities
Accounts receivable ....................................... 873 229 (484)
Prepaid expenses .......................................... (44) 42 (16)
Accounts payable and accrued expenses ..................... (77) 416 372
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............... 13,611 15,462 19,140
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment .......................... (3,057) (4,779) (4,656)
Other investing activities ................................... -- (10) --
---------- ---------- ----------
NET CASH (USED BY) INVESTING ACTIVITIES ................. (3,057) (4,789) (4,656)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in cash overdraft ................................... (340) -- --
Net decrease in equity investment ............................ (9,840) (10,321) (15,096)
---------- ---------- ----------
NET CASH (USED BY) FINANCING ACTIVITIES ................. (10,180) (10,321) (15,096)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH ......................... 374 352 (612)
CASH AT BEGINNING OF YEAR ...................................... -- 374 726
---------- ---------- ----------
CASH AT END OF YEAR ..................................... $ 374 $ 726 $ 114
========== ========== ==========
</TABLE>
See accompanying notes.
F-43
<PAGE>
THE WILMINGTON, DELAWARE SYSTEM
(A Cable Television System of Heritage Cable of Delaware, Inc.
Acquired by Lenfest Communications, Inc. in an Exchange of Assets Transaction)
NOTES TO FINANCIAL STATEMENTS
December 31, 1993, 1994 and 1995
(Information for the six months ended June 30, 1995
and the period ended February 12, 1996 is unaudited)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements include the accounts of a cable television system
serving the Wilmington, Delaware area, which, as of December 31, 1995, was
owned by Heritage Cable of Delaware, Inc. ("Heritage" or the "System").
Heritage is a wholly owned subsidiary of Tele-Communications, Inc. ("TCI").
On September 8, 1995, TCI entered into an amended and restated agreement to
exchange the assets of the cable television system of Heritage for certain
assets of cable television systems serving the Oakland, California area and
the 41.67% partnership interest in or proportionate share of the assets of
Bay Area Interconnect that are owned by Subsidiaries of Lenfest
Communications, Inc. ("Lenfest"). In addition to the above consideration,
Lenfest agreed to acquire and deliver the Fort Collins, CO cable television
system. (See Note L). These financial statements present the historical basis
on the books of Heritage of assets, liabilities and operations of the
Wilmington, Delaware system. In addition, these financial statements include
allocations of certain corporate administrative costs attributed to the
Wilmington, Delaware system. The methods by which such amounts are
attributable or allocated are deemed reasonable by the management of TCI.
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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs of cable television
systems, including interest during construction and applicable overhead, are
capitalized. Interest capitalized during 1993, 1994 and 1995 was not
material.
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 15 years for cable distribution systems and 3 to 40 years for
support equipment and buildings.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales or
other dispositions of property, the original cost and cost of removal of such
property are charged to accumulated depreciation, and salvage, if any, is
credited thereto. Gains or losses are only recognized in connection with the
sales of properties in their entirety.
DEFERRED FRANCHISE COSTS
Deferred franchise costs include the difference between the cost of
acquiring cable television systems and amounts assigned to their tangible
assets. Given the nature of the franchise right renewal process, such amounts
are generally amortized on a straight-line basis over 40 years.
The System continually reevaluates the propriety of the carrying amount of
deferred franchise costs as well as the amortization period to determine
whether current events and circumstances warrant adjustments to the carrying
value and/or revisions of the estimated useful lives. At this time, the
System believes that no significant impairment of the deferred franchise
costs has occurred.
F-44
<PAGE>
THE WILMINGTON, DELAWARE SYSTEM
(A Cable Television System of Heritage Cable of Delaware, Inc.
Acquired by Lenfest Communications, Inc. in an Exchange of Assets Transaction)
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1993, 1994 and 1995
(Information for the six months ended June 30, 1995
and the period ended February 12, 1996 is unaudited)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
EQUITY INVESTMENT
Equity investment represents the excess of assets over liabilities for the
System. Equity investment is increased, or decreased, by the net income
(loss) of the System plus or minus advances from or to TCI and affiliates.
UNAUDITED INTERIM STATEMENTS
The financial statements for the six months ended June 30, 1995 and period
ended February 12, 1996 are unaudited; however, in the opinion of TCI
management, all adjustments (consisting solely of normal recurring
adjustments) necessary to a fair presentation of the financial statements for
these interim periods have been made. The results for the interim periods
ended June 30, 1995 and February 12, 1996 are not necessarily indicative of
the results to be obtained for a full fiscal year.
The interim financial statements for 1996 only include the activity of the
System under the ownership of Heritage, and therefore do not include any
activity subsequent to February 12, 1996.
INCOME TAXES
The System adopted Statement of Financial Accounting Standards No. 109 in
1993 and has applied the provisions of Statement No. 109 retroactively to
January 1, 1986. Statement No. 109 requires a change from the deferred method
of accounting for income taxes of APB Opinion No. 11 to the asset and
liability method of accounting for income taxes. Under the asset and
liability method of Statement No. 109, deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates in effect for the year
in which those temporary differences are expected to be recovered or settled.
Under Statement No. 109, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in the statement of operations in the
period that includes the enactment date.
The System computes the provision for federal income taxes on a separate
company basis.
NOTE B -- SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1993 1994 1995
---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Cash paid during the year for:
Interest -- affiliates ....... $13,808 $9,743 $9,164
========== ========= =========
Income taxes ................. $ 2,852 $4,442 $ 792
========== ========= =========
</TABLE>
NOTE C -- PROPERTY AND EQUIPMENT
The schedule of property and equipment at December 31, 1994 and 1995, is
as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ---------
(Dollars in thousands)
<S> <C> <C>
Land .......................... $ 474 $ 474
Cable distribution systems .... 61,541 65,045
Support equipment and building 5,142 5,966
---------- ---------
$67,157 $71,485
========== =========
</TABLE>
F-45
<PAGE>
THE WILMINGTON, DELAWARE SYSTEM
(A Cable Television System of Heritage Cable of Delaware, Inc.
Acquired by Lenfest Communications, Inc. in an Exchange of Assets Transaction)
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1993, 1994 and 1995
(Information for the six months ended June 30, 1995
and the period ended February 12, 1996 is unaudited)
NOTE D -- DEFERRED FRANCHISE COSTS
A schedule of deferred franchise costs and accumulated amortization at
December 31, 1994 and 1995, is as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Deferred franchise costs $131,679 $131,679
Accumulated amortization 24,432 27,733
----------- -----------
$107,247 $103,946
=========== ===========
</TABLE>
NOTE E -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following as of
December 31:
<TABLE>
<CAPTION>
1994 1995
--------- --------
(Dollars in thousands)
<S> <C> <C>
Accounts payable ......... $ 84 $ 104
Accrued copyright fees ... 114 120
Accrued franchise fees ... 319 319
Accrued programming costs 204 247
Accrued refunds .......... 415 231
Accrued sales taxes ...... 186 389
Accrued bonuses .......... -- 239
Accrued other ............ 119 164
--------- --------
$1,441 $1,813
========= ========
</TABLE>
NOTE F -- ADVANCES FROM AFFILIATES
TCI and its affiliates have advanced funds to the System. Interest is
charged to the System based on the System's related intercompany balances.
These funds are included in equity investment on the accompanying balance
sheets because the intercompany payables are not included in the exchange
transactions and, therefore, will not be repaid by either the System or
Lenfest. The amounts of these advances included in equity investment are as
follows: 1993, $144,653,000; 1994, $137,474,000 and 1995, $121,586,000.
F-46
<PAGE>
THE WILMINGTON, DELAWARE SYSTEM
(A Cable Television System of Heritage Cable of Delaware, Inc.
Acquired by Lenfest Communications, Inc. in an Exchange of Assets Transaction)
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1993, 1994 and 1995
(Information for the six months ended June 30, 1995
and the period ended February 12, 1996 is unaudited)
NOTE G -- LEASES
The total rental expense under operating leases for pole rent and office
space amounted to $463,000, $574,000 and $602,000 for the years ended
December 31, 1993, 1994 and 1995, respectively. Future minimum lease payments
under all non-cancelable operating leases with initial terms of one year or
more consisted of the following at December 31, 1995:
<TABLE>
<CAPTION>
(Dollars in
thousands)
Year Ending December 31,
<S> <C>
1996 ..................................................... $319
1997 .................................................... 303
1998 .................................................... 300
1999 .................................................... 300
2000 .................................................... 300
Thereafter .............................................. 775
---------
$2,297
=========
</TABLE>
It is expected that, in the normal course of business, expiring leases
will be renewed or replaced by other leases; thus, it is anticipated that
future minimum operating lease payments will not be less than the amount
expensed for 1995.
NOTE H -- RELATED PARTY TRANSACTIONS
The System pays TCI and other related parties for various services. In
addition, the System reimburses TCI for certain general and operating
expenses. These amounts are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Cable television programming expense ................ $ 8,716 $9,271 $11,123
Interest expense .................................... 13,775 9,743 9,164
Reimbursement of general and administrative expenses 1,864 1,647 2,076
</TABLE>
F-47
<PAGE>
THE WILMINGTON, DELAWARE SYSTEM
(A Cable Television System of Heritage Cable of Delaware, Inc.
Acquired by Lenfest Communications, Inc. in an Exchange of Assets Transaction)
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1993, 1994 and 1995
(Information for the six months ended June 30, 1995
and the period ended February 12, 1996 is unaudited)
NOTE I -- INCOME TAXES
The System joins in the filing of a consolidated Federal income tax return
with TCI and subsidiaries. Income tax expense or benefit for the System for
reporting purposes has been computed on a separate company basis.
The provision for income tax expense consists of the following components:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Current
Federal .................... $2,242 $3,491 $ 623
State ...................... 610 951 169
--------- --------- --------
2,852 4,442 792
--------- --------- --------
Deferred
Federal .................... 1,304 210 3,257
State ...................... 58 57 887
--------- --------- --------
1,362 267 4,144
--------- --------- --------
$4,214 $4,709 $4,936
========= ========= ========
</TABLE>
The categories of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful
accounts ................. $ 53 $ 99
Net operating loss
carryforwards ............ 6,085 --
Investment and other tax
credits .................. 457 457
------------ ------------
Gross Deferred Tax
Asset ............... 6,595 556
Deferred tax liabilities:
Property and equipment ..... (11,754) (11,202)
Amortization of franchise
costs .................... (43,590) (42,247)
------------ ------------
Gross Deferred Tax
Liability ........... (55,344) (53,449)
------------ ------------
Net Deferred Tax
Liability ........... $ (48,749) $ (52,893)
============ ============
</TABLE>
F-48
<PAGE>
THE WILMINGTON, DELAWARE SYSTEM
(A Cable Television System of Heritage Cable of Delaware, Inc.
Acquired by Lenfest Communications, Inc. in an Exchange of Assets Transaction)
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1993, 1994 and 1995
(Information for the six months ended June 30, 1995
and the period ended February 12, 1996 is unaudited)
NOTE I -- INCOME TAXES - (Continued)
The difference between the net income tax expense and the amounts expected
by applying the U.S. Federal income tax rate of 35% to income before income
taxes are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Federal income tax expense at statutory rates ............ $2,694 $3,927 $4,167
Provision for state income taxes, net of Federal income
tax benefit ............................................. 434 655 686
Effect of one percent Federal tax rate increase on
deferred tax balance at January 1, 1993 ................. 1,093 -- --
Other .................................................... (7) 127 83
--------- --------- ---------
$4,214 $4,709 $4,936
========= ========= =========
</TABLE>
NOTE J -- FAIR VALUE OF FINANCIAL STATEMENTS
The following disclosure of the estimated fair value of financial
instruments is presented in accordance with the provisions of SFAS No. 107
"Disclosures about Fair Value of Financial Instruments". The following
methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practical to estimate that value:
CASH, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE
The carrying amount approximates fair market value because of the short
maturity of those instruments.
NOTE K -- COMMITMENTS AND CONTINGENCIES
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and
1994, the FCC adopted certain rate regulations required by the 1992 Cable Act
and imposed a moratorium on certain rate increases. As a result of such
actions, the System's basic and tier service rates and its equipment and
installation charges (the "Regulated Services") are subject to the
jurisdiction of local franchising authorities and the FCC. Basic and tier
service rates are evaluated against competitive benchmark rates as published
by the FCC, and equipment and installation charges are based on actual costs.
Any rates for Regulated Services that exceeded the benchmarks were reduced as
required by the 1993 and 1994 rate regulations.
The System believes that it has complied in all material respects with the
provisions of the 1992 Cable Act, including its rate setting provisions.
However, the System's rates for tier services are subject to review by the
FCC, if a complaint has been filed, or, in the case of basic service rates,
by the appropriate franchise authority, if such authority has been certified.
If, as a result of the review process, a system cannot substantiate its
rates, it could be required to retroactively reduce its rates to the
appropriate level and refund the excess portion of rates received. The System
has recorded a refund liability in the amount of $231,000, which amount is
classified in the balance sheet caption accounts payable and accrued
expenses.
NOTE L -- SUBSEQUENT EVENTS
Effective February 12, 1996, Heritage exchanged the assets of the System
for certain assets of cable television systems serving Oakland, CA, the East
San Francisco Bay area and a 41.67% partnership interest in Bay Cable
Advertising owned by subsidiaries of Lenfest. In addition, under the terms of
the asset exchange agree-
F-49
<PAGE>
THE WILMINGTON, DELAWARE SYSTEM
(A Cable Television System of Heritage Cable of Delaware, Inc.
Acquired by Lenfest Communications, Inc. in an Exchange of Assets Transaction)
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 1993, 1994 and 1995
(Information for the six months ended June 30, 1995
and the period ended February 12, 1996 is unaudited)
NOTE L -- SUBSEQUENT EVENTS - (Continued)
ment, Lenfest agreed to acquire and deliver the Fort Collins, CO, cable
television system. Effective February 16, 1996, Lenfest acquired and
delivered the Fort Collins system to Heritage in completion of the asset
exchange at a cost to Lenfest of approximately $45 million. The asset
exchange is subject to final working capital and other adjustments, as
defined in the asset exchange agreement.
F-50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Sammons Communications, Inc. and
Lenfest Communications, Inc.:
We have audited the accompanying combined balance sheets of Sammons Cable (as
defined in Note 1) as of December 31, 1994 and 1995, and the related combined
statements of income, changes in equity investment and cash flows for each of
the three years in the period ended December 31, 1995. These combined
financial statements are the responsibility of Sammons Communications, Inc.
management. Our responsibility is to express an opinion on these 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the combined financial position of Sammons Cable as of
December 31, 1994 and 1995, and the combined results of their operations and
their cash flows for each of the three years in the period ended December 31,
1995 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
April 18, 1996
F-51
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Sammons Communications, Inc. and
Lenfest Communications, Inc.:
We have reviewed the accompanying combined statements of income of Sammons
Cable (as defined in Note 1) for the six months ended June 30, 1995 and the
two months ended February 29, 1996. These financial statements are the
responsibility of Sammons Communications, Inc. management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of material modifications that should
be made to the accompanying combined statements of income for them to be in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
June 5, 1996
F-52
<PAGE>
SAMMONS CABLE
COMBINED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents ................................................ $ 496 $ 703
Accounts receivable subscribers, net of allowance of $163 in 1994 and $157
in 1995 ................................................................. 5,153 5,565
Deferred federal and state income taxes .................................. 6,532 5,884
----------- -----------
Total current assets ........................................... 12,181 12,152
----------- -----------
Property and equipment:
Cable systems ....................................................... 197,909 204,892
Vehicles and other .................................................. 8,519 8,541
Land and buildings .................................................. 4,915 4,736
----------- -----------
211,343 218,169
Less accumulated depreciation ....................................... (127,908) (142,474)
----------- -----------
Net property and equipment ..................................... 83,435 75,695
Franchises and goodwill, net of accumulated amortization of $25,215 in
1994 and $28,195 in 1995 ............................................... 95,495 92,516
Other assets ............................................................. 1,805 5,128
----------- -----------
Total assets ................................................... $ 192,916 $ 185,491
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-53
<PAGE>
SAMMONS CABLE
COMBINED BALANCE SHEETS, CONTINUED
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1995
---------- ----------
<S> <C> <C>
LIABILITIES AND EQUITY INVESTMENT
Current liabilities:
Accounts payable, trade ............ $ 1,851 $ 932
Interest payable ................... 1,034 --
Accrued expenses ................... 5,896 4,853
Deferred revenue ................... 3,846 3,981
Federal and state income taxes
payable .......................... 109 161
Notes payable--parent .............. 134,724 --
---------- ----------
Total current liabilities ..... 147,460 9,927
Accrued pensions and other .............. 715 666
Subscriber advance payments and deposits 377 363
Deferred federal and state income taxes . 21,579 25,393
---------- ----------
Total liabilities ............. 170,131 36,349
Commitments and contingencies (Note 7)
Equity investment ....................... 22,785 149,142
---------- ----------
Total liabilities and equity
investment .................. $192,916 $185,491
========== ==========
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-54
<PAGE>
SAMMONS CABLE
COMBINED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Two
Months Ended Months Ended
Year Ended December 31, June 30, February 29,
------------------------------------- -------------- --------------
1993 1994 1995 1995 1996
---------- ---------- ---------- -------------- --------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues ................................... $ 93,893 $ 95,241 $100,619 $49,368 $16,512
---------- ---------- ---------- -------------- --------------
Operating Expenses:
Service expense .......................... 12,561 12,682 11,129 5,507 2,127
Local origination expense ................ 217 235 296 138 43
Pay-per view expense ..................... 998 924 925 412 164
Marketing expense ........................ 1,452 1,698 1,140 626 106
Programming cost ......................... 20,222 23,321 25,219 12,698 4,221
General and administrative ............... 14,256 14,480 15,647 7,231 2,994
Management fees .......................... 4,696 4,771 5,037 2,485 827
Depreciation and amortization ............ 17,315 17,924 17,877 8,781 3,140
---------- ---------- ---------- -------------- --------------
71,717 76,035 77,270 37,878 13,622
---------- ---------- ---------- -------------- --------------
Operating income ....................... 22,176 19,206 23,349 11,490 2,890
Other income ............................... 192 473 615 398 110
Interest expense ........................... (12,850) (12,923) (12,399) (6,054) --
---------- ---------- ---------- -------------- --------------
Income before provision for federal and
state income taxes ................... 9,518 6,756 11,565 5,834 3,000
Provision for federal and state income taxes (4,411) (2,941) (4,703) (2,250) (1,218)
---------- ---------- ---------- -------------- --------------
Net income ............................ $ 5,107 $ 3,815 $ 6,862 $ 3,584 $ 1,782
========== ========== ========== ============== ==============
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-55
<PAGE>
SAMMONS CABLE
COMBINED STATEMENTS OF CHANGES IN EQUITY INVESTMENT
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1, 1993 ................. $ 36,354
Net income ............................... 5,107
Reduction in equity investment ........... (10,950)
----------
Balance at December 31, 1993 ............... 30,511
Net income ............................... 3,815
Reduction in equity investment ........... (11,541)
----------
Balance at December 31, 1994 ............... 22,785
Net income ............................... 6,862
Conversion of note payable -- parent (Note
2) .................................... 134,724
Reduction in equity investment ........... (15,229)
----------
Balance at December 31, 1995 ............... $149,142
==========
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-56
<PAGE>
SAMMONS CABLE
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 5,107 $ 3,815 $ 6,862
---------- ---------- ----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for uncollectible receivables ............. 836 776 691
Depreciation and amortization ....................... 17,315 17,924 17,877
Provision for deferred income taxes ................. 4,196 2,760 4,462
Gain on sales of property and equipment ............. (32) (178) (88)
Changes in certain assets and liabilities:
Accounts receivable, subscribers .................. (1,490) (749) (1,103)
Other assets ...................................... (794) 369 (991)
Accounts payable, trade ........................... 473 180 (919)
Interest payable .................................. 512 (1) (1,034)
Accrued expenses .................................. 513 (912) (1,092)
Subscriber advance payments and deposits .......... (6) 27 (14)
Deferred revenue .................................. 104 940 135
Federal and state income taxes payable ............ 22 (25) 52
---------- ---------- ----------
Total adjustments .............................. 21,649 21,111 17,976
---------- ---------- ----------
Net cash provided by operating activities ...... 26,756 24,926 24,838
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sales of property and equipment .......... 90 179 262
Cable system acquisitions .............................. (17,386) -- --
Purchases of property and equipment .................... (13,241) (13,273) (7,262)
Investment in partnerships ............................. -- -- (2,402)
---------- ---------- ----------
Net cash used in investing activities .......... (30,537) (13,094) (9,402)
---------- ---------- ----------
Cash flows from financing activities: ....................
Net change in equity investment ........................ (10,950) (11,541) (15,229)
Issuance of notes payable -- parent .................... 14,724 -- --
Issuance of term debt .................................. 75 -- --
Payments of term debt .................................. -- (75) --
---------- ---------- ----------
Net cash provided by (used in) financing
activities ................................... 3,849 (11,616) (15,229)
---------- ---------- ----------
Net increase in cash and cash equivalents ................ 68 216 207
Cash and cash equivalents, beginning of year ............. 212 280 496
---------- ---------- ----------
Cash and cash equivalents, end of year ................... $ 280 $ 496 $ 703
========== ========== ==========
Supplemental information:
Interest paid .......................................... $ 12,338 $ 12,924 $ 13,433
========== ========== ==========
Income taxes paid ...................................... $ 191 $ 207 $ 189
========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of the combined financial statements.
F-57
<PAGE>
SAMMONS CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
The combined financial statements include the accounts of certain cable
television systems which were previously owned by Sammons Communications,
Inc. ("SCI") (collectively, "Sammons Cable"). SCI is a wholly- owned
subsidiary of Sammons Enterprises, Inc. ("SEI"). In May 1995, SCI entered
into an asset purchase agreement (the "Agreement") to sell Sammons Cable and
other cable systems to TCI Communications, Inc. ("TCI") for approximately
$800,000,000 in cash, subject to various conditions and approvals as defined
in the agreement. Upon closing of the transaction (see Note 11), Sammons
Cable is to be assigned to Lenfest Communications, Inc. ("Lenfest"). These
combined financial statements include the historical basis of assets,
liabilities and operations of the cable television systems to be assigned to
Lenfest. In addition, these financial statements include allocations of
certain corporate administrative costs attributed to the cable systems to be
assigned to Lenfest. The methods by which such amounts are attributable or
allocated are deemed reasonable by management of SCI. All significant
intersystem balances and transactions have been eliminated from the combined
financial statements. The following cable television systems are included in
the accompanying combined financial statements:
System Coverage Area
------ -------------
Sammons Communications of New Jersey, Inc. Vineland, NJ
AtlanticCity/Pleasantville, NJ
Oxford Valley Cablevision, Inc. Bensalem, PA
Sammons Communications of Pennsylvania, Inc. Harrisburg, PA
Cash and Cash Equivalents
Sammons Cable considers all demand deposit accounts to be cash equivalents.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the related assets as
follows:
Cable systems 5 to 15 years
Vehicles and other 4 to 10 years
Buildings 15 to 25 years
The material and labor costs for the initial connection of a residence are
capitalized and depreciated over ten years. The costs of subsequently
disconnecting and reconnecting a residence are charged to expense in the
period incurred.
Certain costs incurred during the period of cable system construction are
deferred and amortized over the estimated useful lives of the related cable
systems.
When property is retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts and any resulting gain
or loss is reflected in income in the period incurred.
Franchises and Goodwill
Goodwill acquired prior to October 31, 1970 is not being amortized.
Goodwill acquired subsequent to October 31, 1970 is capitalized and amortized
on a straight-line basis over forty years.
The direct costs to acquire cable television franchises are capitalized
and amortized on a straight-line basis over the lives of the franchises, not
exceeding forty years.
F-58
<PAGE>
SAMMONS CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
1. Organization and Summary of Significant Accounting Policies: - (Continued)
Sammons Cable continually reevaluates the propriety of the carrying amount
of goodwill and other intangibles as well as the amortization period to
determine whether current events and circumstances warrant adjustments to the
carrying value and/or revisions of the estimated useful lives. At this time,
Sammons Cable believes that no significant impairment of goodwill or other
intangibles has occurred.
Equity Investment
Equity investment represents the excess of assets over liabilities for
Sammons Cable. Equity investment is increased or decreased by the net income
(loss) of Sammons Cable plus or minus advances from or to the parent.
Income Taxes
Sammons Cable is a member of SEI's consolidated United States federal
income tax group. The policy for intercompany allocation of federal income
taxes provides that Sammons Cable computes the provision for federal income
taxes on a separate company basis. Sammons Cable makes payments to, or
receives payments from, SEI in the amount they would have paid to or received
from the Internal Revenue Service had they not been members of the
consolidated tax group. The separate company provisions and payments are
computed using the tax elections made by SEI. Sammons Cable uses the
"flow-through" method of accounting for investment tax credits.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," deferred tax liabilities
and assets are recognized based upon the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Accounting 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.
Other Accounting Issues
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of." This
statement requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
circumstances indicate that the carrying amount of an asset may not be
recoverable. The impact of this standard has been assessed by management and
should not have a material effect on Sammons Cable's financial statements.
Interim Financial Information
The combined statements of operations for the six months ended June 30,
1995 and the two months ended February 29, 1996 have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
included only normal, recurring adjustments) necessary to present fairly the
results of operations for all periods presented have been made. The results
of operations for the interim periods are not necessarily indicative of the
operating results for the full year.
2. NOTES PAYABLE--PARENT:
During 1995, Sammons Cable renewed a financing arrangement with SEI which
provided revolving lines of credit of $134,723,541 maturing May 30, 1996.
Outstanding borrowings under the revolving lines of credit bear interest at
9% payable quarterly. Borrowings against these lines totaled $134,723,541 at
December 31, 1994; such borrowings were settled during 1995 through
intercompany accounts and have been appropriately reflected as such in the
equity investment.
F-59
<PAGE>
SAMMONS CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
3. INCOME TAXES:
The provision for income taxes consists of the following (amounts in
thousands):
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal . $ 215 $ 181 $ 241
State ... -- -- --
Deferred:
Federal . 3,153 2,129 3,734
State ... 1,043 631 728
-------- -------- --------
$4,411 $2,941 $4,703
======== ======== ========
</TABLE>
The components of the net deferred tax liability are as follows (amounts
in thousands):
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax liability:
Amortization -- franchise cost ............................. $(29,295) $(28,302)
Basis in property and equipment ............................ (18,285) (16,773)
----------- -----------
(47,580) (45,075)
----------- -----------
Deferred tax asset:
Net opeating loss ("NOL") carryforwards .................... 29,338 22,330
Investment credit ("ITC") carryforwards and alternative minimum
tax credits ............................................. 2,575 2,736
Accrued pension liability .................................. 114 33
Various accrued expenses not currently deductible .......... 506 467
----------- -----------
32,533 25,566
Valuation allowance .......................................... -- --
----------- -----------
Net deferred tax liability ................................... $(15,047) $(19,509)
=========== ===========
Net current deferred tax asset ............................... $ 6,532 $ 5,884
Net noncurrent deferred tax liability ........................ (21,579) (25,393)
----------- -----------
Net deferred tax liability ................................... $(15,047) $(19,509)
=========== ===========
</TABLE>
The difference between the provision for income taxes attributable to
income before income taxes and the amounts that would be expected using the
U.S. federal statutory income tax rate of 35% is as follows (amounts in
thousands):
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Federal income taxes at the statutory rate $3,331 $2,365 $4,048
State income taxes ....................... 679 410 474
Amortization of nondeductible
intangibles ............................. 97 97 97
Effect of one percent federal tax rate
increase on deferred tax balance at
January 1, 1993 ......................... 226 -- --
Other .................................... 78 69 84
-------- -------- --------
Provision for income taxes ............... $4,411 $2,941 $4,703
======== ======== ========
</TABLE>
F-60
<PAGE>
SAMMONS CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
3. Income Taxes: - (Continued)
The NOL carryforwards, ITC tax carryforwards and AMT credit carryforwards
have been utilized by other members of SEI's consolidated tax group.
Consistent with SEI's policy for intercompany allocation of federal income
taxes, Sammons Cable will be reimbursed at such time as the credit and
carryforwards could be utilized on a separate company basis. The NOL
carryforwards expire in the years 2002 -- 2006 and the ITC tax carryforwards
in 1998.
4. EMPLOYEE STOCK OWNERSHIP PLAN:
SCI is a participant in the Sammons Enterprises, Inc. Employee Stock
Ownership Plan ("ESOP"). Sammons Cable's allocated contribution to the ESOP
was approximately $486,000 and $299,000 for 1993 and 1994, respectively.
There was no ESOP contribution in 1995.
5. EMPLOYEE BENEFIT PLANS:
Sammons Cable is a participant in SEI's noncontributory defined benefit
pension plan (the "Pension Plan") covering certain full-time employees.
Pension benefits are generally based upon years of service and include
accruing pension cost currently, contributing the maximum amount deductible
for federal income taxes and meeting minimum funding standards of the
Employee Retirement Income Security Act of 1974 as determined by an actuarial
valuation. Pension Plan assets consist primarily of cash equivalents, listed
stocks and bonds, and group annuity contracts with an affiliated insurance
company.
As a participant in the Plan, Sammons Cable is allocated a portion of the
Plan's annual expense. Sammons Cable's allocated share of the 1993, 1994 and
1995 pension expense was approximately $164,000, $182,000 and $183,000,
respectively.
6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
Sammons Cable provides certain postretirement health care and life
insurance benefits for eligible active and retired employees through SEI's
defined benefit plan (the "Postretirement Plan"). As a participant in the
Postretirement Plan, Sammons Cable is allocated a portion of the
Postretirement Plan's annual expense. Sammons Cable's allocated share of the
1993, 1994 and 1995 expense was approximately $64,000, $72,000 and $87,000,
respectively.
7. COMMITMENTS AND CONTINGENCIES:
Sammons Cable generally acts as a self-insurer with regard to loss or
damage to its cable distribution systems. No provision for future losses has
been provided.
At December 31, 1994, Sammons Cable had purchase commitments of
approximately $427,000 for property and equipment. There were no purchase
commitments at December 31, 1995.
Sammons Cable pays pole use, vehicle, office space, land and plant
facilities rentals under various agreements. Rental expense for 1993, 1994
and 1995 was approximately $1,036,000, $1,275,000 and $1,312,000, including
amounts paid to a related party of approximately $325,000, $418,000 and
$492,000, respectively.
F-61
<PAGE>
SAMMONS CABLE
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
7. Commitments and Contingencies: - (Continued)
Approximate minimum future rentals under noncancelable operating leases
are as follows (amounts in thousands):
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1996 ....................................................... $106
1997 ....................................................... 81
1998 ....................................................... 58
1999 ....................................................... 26
2000 ....................................................... 10
Thereafter ................................................. 21
------
$302
======
</TABLE>
8. ACQUISITIONS:
During 1993, Sammons Cable acquired the assets of several cable television
systems for an aggregate purchase price of $17,086,000 including franchise
agreements and goodwill of $12,423,000. The acquisitions were accounted for
as purchases, and accordingly, the results of operations have been included
in the combined financial statements from their respective dates of
acquisition, principally April 1993.
9. RELATED PARTY TRANSACTIONS:
Sammons Cable pays SCI and other related parties for various services. In
addition, Sammons Cable reimburses SCI for certain general and operating
expenses. These amounts are as follows (amounts in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Management fee expense ............................. $4,696 $4,771 $5,037
Reimbursement of general and administrative expenses 2,284 2,420 2,732
</TABLE>
10. LITIGATION:
In the course of conducting its business, Sammons Cable is from time to
time named as a defendant in litigation actions. Sammons Cable is currently
involved as a defendant in certain legal issues. Management currently
believes the disposition of all claims and disputes, individually or in the
aggregate, should not have a material adverse effect on Sammons Cable's
combined financial position.
11. SUBSEQUENT EVENT:
On February 29, 1996, the purchase and assignment of Sammons Cable to
Lenfest was completed, subject to a purchase price adjustment, as defined in
the purchase agreement.
F-62
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Garden State Cablevision L.P.:
We have audited the accompanying balance sheets of Garden State Cablevision
L.P. (a Delaware Limited Partnership) as of December 31, 1994 and 1995, and
the related statements of operations, partners' deficit and cash flows for
each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of Garden State Cablevision
L.P. as of December 31, 1994 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 16, 1996
F-63
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Garden State Cablevision L.P.:
We have reviewed the accompanying balance sheet of Garden State Cablevision
L.P. (a Delaware Limited Partnership) as of June 30, 1996, and the related
statements of operations and cash flows for the six-month periods ended June
30, 1995 and 1996. These financial statements are the responsibility of the
company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
August 27, 1996
F-64
<PAGE>
GARDEN STATE CABLEVISION L.P.
BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, June 30,
-------------------------- -----------
1994 1995 1996
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................... $ 4,610 $ 3,259 $ 4,087
Accounts receivable, less allowance for
doubtful accounts of $642 in 1994, $609 in
1995 and $689 in 1996 ...................... 2,227 2,640 2,289
Prepaids and other ............................ 564 858 662
----------- ----------- -----------
Total current assets ....................... 7,401 6,757 7,038
PREPAID INTEREST ................................ 541 246 100
PROPERTY, PLANT AND EQUIPMENT, net .............. 75,695 72,485 68,698
DEFERRED CHARGES, net ........................... 142,997 113,711 99,016
----------- ----------- -----------
$226,634 $193,199 $ 174,852
=========== =========== ===========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses ......... $ 9,521 $ 11,303 $ 11,352
Accrued interest .............................. 1,017 603 261
Subscribers' advance payments and deposits .... 1,022 971 975
----------- ----------- -----------
Total current liabilities .................. 11,560 12,877 12,588
LONG-TERM DEBT .................................. 262,000 245,000 233,000
DEFERRED MANAGEMENT AND CONSULTING FEES ......... 11,341 14,083 15,697
OTHER LIABILITIES ............................... 902 964 1,024
CONTINGENCY (Note 11)
PARTNERS' DEFICIT ............................... (59,169) (79,725) (87,457)
----------- ----------- -----------
$226,634 $193,199 $ 174,852
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-65
<PAGE>
GARDEN STATE CABLEVISION L.P.
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended June 30,
------------------------------------------- -------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
SERVICE INCOME ............................ $ 90,824 $ 92,514 $ 92,815 $ 46,066 $ 49,469
COSTS AND EXPENSES:
Operating ............................... 27,351 29,710 31,003 14,248 15,679
Selling, general and administrative ..... 10,663 10,584 10,636 5,954 6,003
Depreciation and amortization ........... 47,682 47,293 46,976 23,338 24,169
------------ ------------ ------------ ----------- ----------
Operating income ..................... 5,128 4,927 4,200 2,526 3,618
OTHER EXPENSES:
Management, consulting and other fees ... 3,633 3,700 5,590 2,793 2,968
Interest expense, net of interest income
of $178, $227, $247, $125 and $149 ... 20,904 19,132 19,166 9,698 8,382
------------ ------------ ------------ ----------- ----------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE .................... (19,409) (17,905) (20,556) (9,965) (7,732)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (Note 10) ..................... (657) -- -- -- --
------------ ------------ ------------ ----------- ----------
NET LOSS .................................. $ (20,066) $ (17,905) $ (20,556) $ (9,965) $ (7,732)
============ ============ ============ =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-66
<PAGE>
GARDEN STATE CABLEVISION L.P.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended June 30,
---------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss .......................... $(20,066) $ (17,905) $(20,556) $(9,965) $ (7,732)
Noncash items included in net
loss--
Cumulative effect of change in
accounting principle ......... 657 -- -- -- --
Depreciation and amortization .. 47,682 47,293 46,976 23,338 24,169
Deferred interest payable ...... 1,881 -- -- -- --
Loss on disposal of property,
plant and equipment .......... 362 183 323 41 29
Amortization of prepaid interest -- 49 295 146 146
Deferred management and
consulting fees .............. 2,725 926 2,742 1,407 1,614
(Increase) decrease in accounts
receivable and prepaids and
other ........................ 223 (678) (707) 937 547
Increase (decrease) in accounts
payable and accrued expenses,
accrued interest and
subscribers' advance payments
and deposits ................. 1,360 52 1,317 (768) (289)
Increase in other long-term
liabilities .................. 122 123 62 -- 60
----------- ----------- ----------- ---------- ----------
Net cash provided by operating
activities ................ 34,946 30,043 30,452 15,136 18,544
----------- ----------- ----------- ---------- ----------
INVESTING ACTIVITIES
Additions to property, plant and
equipment ...................... (8,731) (15,298) (14,652) (7,567) (5,690)
Additions to deferred charges ..... -- (71) (142) (70) (26)
----------- ----------- ----------- ---------- ----------
Net cash used in investing
activities ................ (8,731) (15,369) (14,794) (7,637) (5,716)
----------- ----------- ----------- ---------- ----------
FINANCING ACTIVITIES
Repayments of debt, net ........... (34,525) (285,402) (17,000) (7,000) (12,000)
Proceeds from long-term borrowing . -- 275,000 -- --
Deferred financing costs .......... -- (4,286) (9) -- --
Prepaid interest .................. -- (591) -- -- --
----------- ----------- ----------- ---------- ----------
Net cash used in financing
activities ................ (34,525) (15,279) (17,009) (7,000) (12,000)
----------- ----------- ----------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ....................... (8,310) (605) (1,351) 499 828
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD ......................... 13,525 5,215 4,610 4,610 3,259
----------- ----------- ----------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD ............................ $ 5,215 $ 4,610 $ 3,259 $ 5,109 $ 4,087
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-67
<PAGE>
GARDEN STATE CABLEVISION L.P.
STATEMENTS OF PARTNERS' (DEFICIT) CAPITAL
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
---------- ------------ ------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1993 ........ $23,541 $ (44,739) $ (21,198)
Net loss ...................... (201) (19,865) (20,066)
---------- ------------ ------------
BALANCE, DECEMBER 31, 1993 ...... 23,340 (64,604) (41,264)
Net loss ...................... (179) (17,726) (17,905)
---------- ------------ ------------
BALANCE, DECEMBER 31, 1994 ...... 23,161 (82,330) (59,169)
Net loss ...................... (206) (20,350) (20,556)
---------- ------------ ------------
BALANCE, DECEMBER 31, 1995 ...... 22,955 (102,680) (79,725)
Net loss (unaudited) .......... (77) (7,655) (7,732)
---------- ------------ ------------
BALANCE, JUNE 30, 1996
(unaudited) .................... $22,878 $(110,335) $ (87,457)
========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-68
<PAGE>
GARDEN STATE CABLEVISION L.P.
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996, IS UNAUDITED)
1. ORGANIZATION AND PARTNERS' INTERESTS
FORMATION AND BUSINESS
Garden State Cablevision L.P. (the "Partnership"), a Delaware limited
partnership, was formed on February 17, 1989, to acquire, own, operate and
maintain a cable television system (the "System") servicing Camden,
Burlington, Gloucester, Ocean and Salem counties in New Jersey. The System
was acquired by the Partnership on August 15, 1989, from The New York Times
Company. Through January 10, 1995, the General Partner was Garden State
Cablevision, Inc. ("GSC"). On January 10, 1995, the General Partner's
interest was purchased by Comcast Garden State, Inc., an affiliate of Comcast
Corporation, and Lenfest Jersey, Inc., an affiliate of Lenfest
Communications, Inc. The Limited Partners are AWACS Garden State, Inc., an
indirect subsidiary of Comcast Corporation, and Lenfest Jersey, Inc.
PARTNERS' CAPITAL
GSC contributed $25 million and each Limited Partner contributed $50
million to the Partnership. If the General Partner determines that the
Partnership requires additional capital beyond the Partnership's borrowing
capacity, then additional capital contributions may be requested from the
partners in proportion to each partner's percentage interest.
DISTRIBUTION RATIOS
Net losses are allocated 1% to the General Partner and 99% to the Limited
Partners.
PARTNERSHIP AGREEMENT
Each Limited Partner may at any time, without the approval of any other
partner, transfer all of its Partnership interests to any of its affiliates
subject to the maintenance of certain criteria as specified by the Credit
Agreement. Remaining partners have the right of first refusal to purchase the
interests of a partner seeking to transfer ownership to a third party.
On January 10, 1995, the Partnership Agreement was amended to reflect the
purchase of the previous General Partner's interest by Lenfest Jersey, Inc.
and Comcast Garden State, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CHANGES IN ACCOUNTING PRINCIPLES
The Partnership adopted Statement of Financial Accounting Standards
("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," effective January 1, 1993 (see Note 10).
The Partnership adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," effective January 1, 1994. The adoption of this
statement did not have a material effect on the Partnership's financial
position or results of operations.
PERVASIVENESS 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.
F-69
<PAGE>
GARDEN STATE CABLEVISION L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
(amounts in thousands)
(Information as of June 30, 1996, and for the six months ended
June 30, 1995 and 1996, is unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
CASH EQUIVALENTS
Cash equivalents consist of bank commercial paper that is readily
convertible to cash and is recorded at cost plus accrued interest which
approximates its market value.
PREPAID INTEREST
Prepaid interest represents the unamortized portion of prepaid two-year
interest rate protection agreements which are amortized over such period.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided
using the straight-line method over estimated useful lives, as follows:
Distribution plant ........................ 3 to 12 years
Converters ................................ 3 to 4 1/4 years
Subscriber drop installations ............. 8 years
Building .................................. 20 years
Other operating facilities ................ 6 to 12 years
Other equipment ........................... 3 to 6 years
DEFERRED CHARGES
Deferred charges consist principally of subscriber contracts, franchise
operating rights and fees, debt acquisition costs, organization costs and the
cost of the acquired business in excess of amounts allocated to specific
assets based on their fair values, and are being amortized on a straight-line
basis over their legal or estimated useful lives to a maximum of 40 years
(see Note 6). The Company continually evaluates whether events or
circumstances have occurred that indicate that the remaining useful lives of
the deferred charges should be revised or that the remaining balance of such
assets may not be recoverable. As of June 30, 1996, management believes that
no revisions to the remaining useful lives or write-downs of deferred charges
are required.
INCOME TAXES
Income taxes have not been recorded in the accompanying financial
statements because they accrue directly to the partners.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Partnership believes that the carrying value of all financial
instruments, including the aggregate carrying value of long-term debt, is a
reasonable estimate of fair value at December 31, 1994 and 1995. The fair
value of long-term debt was estimated using interest rates that would be
currently available to the Partnership for debt issuances of similar terms
and remaining maturities.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
F-70
<PAGE>
GARDEN STATE CABLEVISION L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
(amounts in thousands)
(Information as of June 30, 1996, and for the six months ended
June 30, 1995 and 1996, is unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
INTERIM FINANCIAL INFORMATION
The unaudited interim financial statements as of June 30, 1996, and for
the six-month periods ended June 30, 1995 and 1996, include all adjustments
(consisting only of normal recurring accruals) that the Partnership believes
are necessary for a fair presentation of the financial statements. The
interim operating results are not necessarily indicative of the results for a
full year.
3. SUPPLEMENTAL CASH FLOW DISCLOSURES
The Partnership paid interest of $19.8 million, $28.8 million and $19.8
million in 1993, 1994 and 1995, respectively. The Company also paid interest
of $8.4 million and $8.8 million for the six months ended June 30, 1995 and
1996, respectively.
4. PREPAID EXPENSES AND OTHER
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1994 1995
------ ------
<S> <C> <C>
Prepaid expenses ... $ 67 $361
Nontrade receivables 497 497
------ ------
$564 $858
====== ======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
---------------------------------
1994 1995
---------- ----------
<S> <C> <C>
Distribution plant ............ $ 78,572 $ 90,956
Converters .................... 34,329 33,185
Subscriber drop installations . 19,787 19,787
Land and building ............. 5,417 5,433
Other operating facilities .... 6,050 6,133
Other equipment ............... 8,225 9,491
---------- ----------
152,380 164,985
Less- Accumulated depreciation (76,685) (92,500)
---------- ----------
$ 75,695 $ 72,485
========== ==========
</TABLE>
6. DEFERRED CHARGES
<TABLE>
<CAPTION>
December 31,
--------------------------------
1994 1995
----------- -----------
<S> <C> <C>
Subscriber contracts ............... $ 163,251 $ 163,251
Franchise operating rights and fees 136,139 136,186
Goodwill ........................... 9,379 9,379
Debt acquisition costs ............. 4,286 4,295
Organization costs ................. 716 95
----------- -----------
313,771 313,206
Less-Accumulated amortization ...... (170,774) (199,495)
----------- -----------
$ 142,997 $ 113,711
=========== ===========
</TABLE>
F-71
<PAGE>
GARDEN STATE CABLEVISION L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
(amounts in thousands)
(Information as of June 30, 1996, and for the six months ended
June 30, 1995 and 1996, is unaudited)
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
December 31,
-----------------------------
1994 1995
--------- ---------
<S> <C> <C>
Accounts payable ..................... $1,382 $ 650
Subscriber refund liability (Note 10) -- 1,925
Franchise fees ....................... 1,600 1,543
Accrued wages and benefits ........... 642 771
Management fees ...................... 701 796
Programming costs .................... 2,355 2,787
Deferred advertising revenues ........ 940 981
Other ................................ 1,901 1,850
--------- ---------
$9,521 $11,303
========= =========
</TABLE>
8. LONG-TERM DEBT
On May 10, 1994, the Partnership entered into a $300,000,000 Credit
Agreement ("the 1994 Credit Agreement") with various banks to refinance the
bank term loan, subordinated debt, and deferred and accrued interest.
Scheduled principal reductions of the total commitment began on December 31,
1994, and extend through March 2002. At December 31, 1994 and 1995, $262
million and $245 million, respectively was outstanding under the 1994 Credit
Agreement.
Interest rate options under the 1994 Credit Agreement are periodically
fixed for defined terms based on one or more of the following rates, as
agreed by the Partnership and the banks:
Base rate (higher of federal funds rate plus 1/2% or prime) plus up to
3/8%.
Eurodollar Rate (Eurodollar Rate divided by a percentage equal to 1 minus
the reserve requirement in effect) plus 7/8% to 1-1/2%.
The level of the preceding applicable margin is based upon the leverage
ratio, as defined. The Partnership also pays a commitment fee of 3/8% on the
unused principal. The loan is secured by the ownership interests of the
General Partners and the Limited Partners in the assets of the Partnership.
All borrowings under the bank term loan were subject to the Eurodollar Rate
interest rate option, resulting in an interest rate of 7.43% as of December
31, 1995.
The 1994 Credit Agreement requires 50% of the aggregate principal amount
of the loan outstanding to be hedged against interest rate risk for at least
two years. The Partnership purchased three separate interest rate protection
agreements on $135,000 of the loan. The total cost of the agreements was
capitalized and will be amortized to interest expense over the two-year
terms.
The 1994 Credit Agreement is subject to certain restrictive covenants,
with which the Partnership was in compliance as of December 31, 1995.
Based upon the outstanding borrowings at December 31, 1995, maturities for
the four years after 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $14,000
1998 37,500
1999 43,500
2000 51,000
</TABLE>
F-72
<PAGE>
GARDEN STATE CABLEVISION L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
(amounts in thousands)
(Information as of June 30, 1996, and for the six months ended
June 30, 1995 and 1996, is unaudited)
8. LONG-TERM DEBT - (Continued)
The bank term loan and bank revolving credit agreement were originally
entered into on August 15, 1989, and matured on March 30, 1994, but were
extended until May 10, 1994. Interest rate options under the Senior Loan
Credit Agreement were periodically fixed for defined terms not to exceed one
year based upon one or more of the following rates, as agreed to by the
Partnership and the senior lenders:
Base rate (higher of federal funds plus 1/2% or prime) plus up to 1%.
Certificate of deposit rate plus 7/8% to 2-1/8%.
London Interbank Offered Rate ("LIBOR") plus 3/4% to 2%.
The Subordinated Debt Agreement, dated August 15, 1989, provided for an
original principal balance of $50 million. The interest rate on the
subordinated loan was fixed at 15.5%, 12.75% paid quarterly in arrears and
2.75% deferred until the loan matured. The deferred portion earned interest
at a rate of 15.5%. Both the 12.75% interest payments on the outstanding
principal balance and the 15.5% interest payments on the deferred portion
were funded by the bank and added to the principal balance of the loan
through January 15, 1992, and were repaid with the 1994 Credit Agreement.
9. MANAGEMENT AND CONSULTING FEES
In connection with the Amended and Restated Agreement of Limited
Partnership (Note 1) and Amended Consulting Agreement, Comcast Corporation
and Lenfest Communications, Inc. are each compensated for their services as
consultants at a fee equal to 3% of service income. Services include
providing the Partnership advice and consultation based on their industry
experience, knowledge and trained personnel. Payment of such fees is
subordinated to the prior payment of and provision for operating expenses and
capital requirements and pursuant to certain financial conditions as defined
in the 1994 Credit Agreement. In 1995, the Partnership paid $2 million under
the Amended Consulting Agreement and the remainder of fees have been accrued
with the unpaid fees from prior years, as a long-term liability in the
accompanying balance sheet.
Prior to January 10, 1995, in accordance with the terms of the original
Partnership Agreement, the General Partner was entitled to receive a
management fee equal to 1% of the System's service income. This fee was
currently payable provided the Partnership was in compliance with terms of
the loan agreement. The Limited Partners each received an amount equal to
1.25% of the System's service income as a payment for the use of their
original capital contributions. The Partnership had also entered into a
consulting agreement with Comcast Corporation and Lenfest Communications,
Inc. (the "Consultants"), whereby they are each entitled to a fee equal to
1/4% of the System's service income. In accordance with the loan agreement,
the payments to the Limited Partners and Consultants could not have been made
unless certain financial conditions, as defined in the agreements, were met.
In 1993, 1994 and 1995, the Partnership paid $896,000, $2,304,000 and
$715,000 to the Partners under the original Partnership Agreement.
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1993, the Partnership adopted SFAS No.106, which
requires the Partnership to accrue the estimated cost of retiree benefits
earned during the years the employee provides services. The Partnership
previously expensed the cost of these benefits as claims were incurred. The
Partnership elected to immediately recognize the cumulative effect of the
change in accounting for postretirement benefits of $657, which represents
the accumulated postretirement benefit obligation ("APBO") existing at
January 1, 1993. The Partnership continues to fund benefit costs principally
on a pay-as-you-go basis, with the retiree paying a portion of the costs. The
Partnership's liability for postretirement benefits is included in other
liabilities.
F-73
<PAGE>
GARDEN STATE CABLEVISION L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
(amounts in thousands)
(Information as of June 30, 1996, and for the six months ended
June 30, 1995 and 1996, is unaudited)
11. CABLE REGULATION
On April 1, 1993, the FCC adopted regulations under the Cable Television
Consumer Protection and Competition Act of 1992 (the "1992 Cable Act")
governing the rates charged to subscribers for basic service and cable
programming service (the "Regulated Services"), other than programming
offered on a per-channel or per-program basis. The FCC's rate regulations
became effective on September 1, 1993. The FCC adopted a benchmark
methodology as the principal method of regulating rates for Regulated
Services. Cable operators with rates above the allowable level under the
FCC's benchmark methodology may justify such rates using reasonable
cost-of-service principles. Local franchising authorities may not elect
cost-of-service as their primary form of rate regulation but must apply the
FCC benchmark rules unless the operator justifies its basic rates on a
cost-of-service basis.
The Partnership is seeking to justify its existing rates on the basis of
cost-of-service showings; however, interim cost-of-service regulations
promulgated by the FCC do not support positions taken by the Partnership.
On February 12, 1996, the FCC placed on public notice, for a thirty-day
period, a proposed resolution of the Partnership's rate complaints. A final
release of the resolution is pending at the FCC. If accepted by the FCC, the
proposed resolution will, among other provisions, deem the Partnership's
programming service rates reasonable and provide for refunds in the amount of
$1.6 million plus interest. The Partnership will also forego certain
inflation and external cost adjustments. While the Partnership has no reason
to believe the current form of the proposed resolution will not be accepted
by the FCC, and has accrued the costs of the proposed settlement in the
accompanying balance sheet as of December 31, 1995, its ultimate outcome
cannot be predicted at this time.
On February 8, 1996 the Telecommunications Act of 1996 (the "1996 Act"),
became law. The 1996 Act materially alters federal, state and local laws and
regulations pertaining to cable television, telecommunications and other related
services and, in particular, substantially amends the Communications Act of 1934
(the "Communications Act"). Certain provisions of the 1996 Act could materially
affect the growth and operation of the cable television industry and the cable
services provided by the Company. Although the new legislation may substantially
lessen regulatory burdens, the cable television industry may be subject to
additional competition as a result thereof. There are numerous rulemakings to be
undertaken by the FCC which will interpret and implement the provisions of the
1996 Act. In addition, certain provisions of the new legislation (such as the
deregulation of rates for cable programming service packages) will not
immediately be effective. Furthermore, certain provisions of the 1996 Act have
been, and likely will be, subject to judicial challenge. The Company is unable
at this time to predict the outcome of such rulemakings or ligitation or the
short and long-term effect (financial or otherwise) of the 1996 Act and FCC
rulemakings on the Company.
12. RELATED-PARTY TRANSACTIONS
The Partnership has entered into an agreement whereby Lenfest
Communications, Inc., an affiliate of Lenfest Jersey, Inc., a Limited
Partner, provides certain cable television programming to the Partnership at
rates that are not more than the Partnership could obtain independently. For
the years ended December 31, 1993, 1994 and 1995, the Partnership expensed
approximately $10.2 million, $11.2 million and $12.3 million, respectively,
under this agreement.
A subsidiary of Comcast Corporation provides the Partnership with the use
of certain computerized financial systems at a rate that may be more
favorable than those available from unrelated parties. The Partnership
expensed $24 in 1993, 1994 and 1995 for such services.
In addition, the Partnership has acquired certain vendor services through
cooperative arrangements with affiliates of the Limited Partners. These
services include such items as pay-per-view programming, insurance and
association dues. The amounts paid for these services are not more than the
Partnership could obtain independently. Payments to affiliates of Lenfest
Jersey, Inc. totaled $159, $94 and $88 in 1993, 1994 and 1995, respectively.
Payments to affiliates of AWACS Garden State, Inc. were $551, $357 and $234
in 1993, 1994 and 1995, respectively.
F-74
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given
or made, such information or representations must not be relied upon as
having been authorized by Lenfest. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of Lenfest since the
date as of which information is given in this Prospectus. This Prospectus
does not constitute an offer or solicitation by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to anyone to
whom it is unlawful to make such offer or solicitation.
------
TABLE OF CONTENTS
Page
--------
Available Information ..................... 3
Prospectus Summary ........................ 4
Risk Factors .............................. 14
Use of Proceeds ........................... 18
Capitalization ............................ 19
Pro Forma Financial Information ........... 20
Selected Consolidated Financial and
Operating Data ........................... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 30
Business .................................. 40
Legislation and Regulation ................ 54
Management ................................ 61
Certain Transactions ...................... 64
Principal Stockholders .................... 65
Description of Other Debt Obligations ..... 66
Description of Notes ...................... 68
The Exchange Offer ........................ 85
Certain Federal Income Tax Consequences ... 92
Plan of Distribution ...................... 92
Legal Matters ............................. 93
Experts ................................... 93
Index to Consolidated Financial Statements . F-1
$300,000,000
Lenfest
Communications, Inc.
Offer to Exchange its
10 1/2 % Senior Subordinated
Notes Due 2006
for
10 1/2 % Senior Subordinated
Notes Due 2006
Which have been
Registered Under the
Securities Act of 1933
LOGO
Prospectus
Dated September 6, 1996
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's By-laws provide that persons who are made a party to certain
actions (other than an action by or in the right by the Company) by reason of
the fact that they are or were a director, officer, employee or agent of the
Company shall be indemnified by the Company against expenses (including
attorneys' fees), judgments, fines and amounts incurred by such person if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to, the best interests of the Company.
With respect to actions by or in the right of the Company, such directors,
officers, employees and agents shall be indemnified by the Company against
expenses (including attorneys' fees) incurred in a defense if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Company; except, however, that no
indemnification shall be made in respect of any matter as to which such
person shall have been adjudged to be liable for negligence or misconduct in
the performance of his duty to the Corporation.
Any indemnification shall be made upon a determination that such
indemnification is proper by a vote of the directors who are not parties to
the action, by independent legal counsel in a written opinion or by the
stockholders of the Company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following Exhibits are furnished as part of this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit
Number Title or Description
------------- ---------------------
<S> <C>
+++1 -- Purchase Agreement, dated as of June 20, 1996, between the Registrant and Salomon Brothers
Inc as representatives of the several purchasers.
*2.1 -- Amended and Restated Asset Exchange Agreement, dated September 8, 1995, between Lencom, Inc.
and Lenfest West, Inc. and Heritage Cablevision of Delaware, Inc.
*++++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.
*2.3 -- Assignment and Assumption Agreement, dated as of June 1, 1995, among TCI Communications, Inc.,
TKR Cable Company and Lenfest Communications, Inc.
*2.4 -- Asset Purchase Agreement, dated as of September 7, 1995, by and between Lenfest Atlantic,
Inc. and Tri-County Cable Television Company.
*2.5 -- Letter Agreement, dated July 13, 1995, between Suburban Cable TV Co., Inc. and Service Electric
Cable TV, Inc.
*2.6 -- Letter Agreement, dated August 11, 1995, between Suburban Cable TV Co., Inc. and Service Electric
Cablevision, Inc.
++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.
++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.
***2.9 -- Asset Purchase Agreement, dated March 28, 1996, between Cable TV Fund 14-A, Ltd. and Lenfest
Atlantic, Inc.
+++3.1 -- Restated Certificate of Incorporation of the Registrant.
+++3.2 -- Amended and Restated By-laws of the Registrant.
*4.1 -- Form of $700,000,000 8 3/8 % Senior Note Due 2005.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title or Description
------------- ---------------------
<S> <C>
**4.2 -- Indenture, dated as of November 1, 1995, between the Registrant and The Bank of New York.
+++4.3 -- Indenture, dated as of June 15, 1996, between the Registrant and The Bank of New York.
+++4.4 -- Form of Certificated Note, dated June 27, 1996 between the Registrant and Salomon Brothers
Inc (In accordance with Item 601 of Regulation S-K similar Notes between the Registrant and
Salomon Brothers Inc have not been filed because they are identical in all material respects
to the filed exhibit.)
+++4.5 -- Form of 10 1/2 % Senior Subordinated Note, dated June 27, 1996 in the principal sum of $296,700,000.
+++4.6 -- Registration Agreement, dated as of June 20, 1996, between the Registrant and Salomon Brothers
Inc., Toronto Dominion Securities (USA) Inc., CIBC Wood Gundy Securities Corp. and Nationsbanc
Capital Markets, Inc.
5 -- Opinion of Saul, Ewing, Remick & Saul.
*10.1 -- Credit Agreement, dated as of June 24, 1994, as amended December 16, 1994 and January 10,
1995, among Lenfest Communications, Inc., the Toronto-Dominion Bank and PNC Bank, National
Association as Managing Agents, the Lenders and Toronto- Dominion (Texas), Inc., as Administrative
Agent.
*10.2 -- Note Agreement, dated as of May 22, 1989, among Lenfest Communications, Inc. and the Prudential
Insurance Company of America with respect to $50,000,000 10.69% Senior Notes due 1998.
*10.3 -- Note Agreement, dated as of September 14, 1988 among Lenfest Communications, Inc. and certain
Institutions described therein with respect to $125,000,000 10.15% Senior Notes due 2000.
*10.4 -- Note Agreement, dated as of September 27, 1991 among Lenfest Communications, Inc. and Certain
Institutions described therein with respect to $100,000,000 9.93% Senior Notes due 2001.
*++++10.5 -- Programming Supply Agreement, effective as of September 30, 1986, between Satellite Services,
Inc. and Lenfest Communications, Inc.
*10.6 -- Lease, dated as of May 1, 1990 by and between H.F. Lenfest and Marguerite Lenfest and Suburban
Cable TV Co. Inc.
*10.7 -- Lease, dated as of May 1, 1990 by and between H.F. Lenfest and Marguerite Lenfest and Suburban
Cable TV Co. Inc.
*10.8 -- Lease, dated as of May 24, 1990 by and between H.F. Lenfest and Marguerite Lenfest and MicroNet,
Inc.
*10.9 -- Lease, dated as of June 20, 1991, as amended January 1, 1995, by and between H.F. Lenfest
and Marguerite Lenfest and StarNet, Inc. (as successor to NuStar).
*10.10 -- 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.
*10.11 -- Amendment to Supplemental Agreement, dated May 4, 1984 between Lenfest Communications, Inc.
and TCI Growth, Inc.
*10.12 -- 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, Telecommunications, Inc. and
Liberty Media Corporation.
*10.13 -- 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.
*10.14 -- Letter Agreement, dated as of December 18, 1991, among Liberty Media Corporation, Lenfest
Communications, Inc., Marguerite B. Lenfest, Diane A. Lenfest, H. Chase Lenfest, Brooke J.
Lenfest and the Lenfest Foundation.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title or Description
------------- ---------------------
<S> <C>
*10.15 -- Irrevocable Proxies of H. Chase Lenfest, Diane A. Lenfest and Brook J. Lenfest, each dated
March 30, 1990.
*10.16 -- Partnership Agreement of L-TCI Associates, dated April 1993 between Lenfest International,
Inc. and UA-France, Inc.
*10.17 -- Stock Pledge Agreement, dated May 28, 1993, between Lenfest York, Inc. and CoreState Bank,
N.A., as Collateral Agent.
*10.18 -- Pledge Agreement, dated July 29, 1994, between Lenfest Raystay Holdings, Inc. and Farmers
Trust Company as Collateral Agent.
*++++10.19 -- Agreement, dated September 30, 1986, between Lenfest Communications, Inc and Tele-Communications,
Inc.
*10.20 -- Agreement for the Sale of Advertising on Cable Television Stations, dated as of November 25,
1991 between Suburban Cable TV Co. Inc. and Cable Ad Net Partners.
**10.21 -- Letter Agreement, dated November 8, 1995, between the Company and The Prudential Insurance
Company of America. (In accordance with Item 601 of Regulation S-K, agreements between the
Company and J.P. Morgan Investment Management Co. and Banker's Trust have not been filed because
they are identical in all material respects to the filed exhibit.)
**10.22 -- Letter Agreement, dated November 8, 1995, between the Company and The Prudential Insurance
Company of America. (In accordance with Item 601 of Regulation S-K, agreements between the
Company and MLB Life Assurance Corp., Full & Co., AUSA Life Insurance Company, Inc. and Equitable
Life Assurance Society have not been filed because they are identical in all material respects
to the filed exhibit.)
**10.23 -- Letter Agreement, dated October 31, 1995, between the Company and PPM America. (In accordance
with Item 601 of Regulation S-K, agreements between the Company and Unum Life Insurance Company
of America and First Unum Life Insurance Company, New York Life Insurance Co., SAFECO Life
Insurance Co., American Enterprise Life Insurance Company, IDS Life Insurance Company of New
York and Teachers Insurance and Annuity Association of America have not been filed because
they are identical in all material respects to the filed exhibit.)
**10.24 -- Letter Agreement, dated November 9, 1995, between the Company and Unum Life Insurance Company
of America and First Unum Life Insurance Company.
**10.25 -- Credit Agreement, dated as of December 14, 1995, among Lenfest Communications, Inc., The
Toronto-Dominion Bank, PNC Bank, National Association and NationsBank of Texas, as Arranging
Agents, the Lenders and Toronto-Dominion (Texas), Inc., as Administrative Agent.
***10.26 -- First Amendment to Credit Agreement, dated as of February 29, 1996 by and among Lenfest
Communications, Inc., The Toronto-Dominion Bank, PNC Bank, National Association and NationsBank
of Texas, N.A., as Arranging Agents, the Lenders and Toronto-Dominion (Texas), Inc., as
Administrative Agent.
***10.27 -- Agreement, dated as of February 29, 1996, in favor of the Company by H.F. Lenfest.
***10.28 -- Credit Agreement, dated as of February 29, 1996, between Lenfest Australia, Inc. and The
Toronto-Dominion Bank and NationsBank of Texas, N.A. and Toronto-Dominion (Texas), Inc. as
Administrative Agent.
***10.29 -- Sublease Agreement, dated March 21, 1996, between Suburban Cable TV Co. Inc. and Surgical
Laser Technologies, Inc.
***10.30 -- Letter Agreement, dated November 30, 1995, between the Company and The Prudential Insurance
Company of America.
***10.31 -- Letter Agreement, dated November 30, 1995, between the Company and The Prudential Insurance
Company of America. (In accordance with Item 601 of Regulation S-K, agreements between the
Company and MLB Life Assurance Corp. and Full & Co. have not been filed because they are identical
in all material respects to the filed exhibit.)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Title or Description
------------- ---------------------
<S> <C>
+10.32 -- Form of Second Amendment, dated as of April 29, 1996, to Credit Agreement, dated as of December
14, 1995, by and among Lenfest Communications, Inc., The Toronto- Dominion Bank, PNC Bank,
National Association and NationsBank of Texas, N.A., as Arranging Agents, the Lenders and
Toronto-Dominion (Texas), Inc., as Administrative Agent.
+10.33 -- Form of Letter Agreement, dated May 2, 1996, between the Company and The Prudential Insurance
Company of America.
+10.34 -- Form of Letter Agreement, dated May 2, 1996 between the Company and The Prudential Insurance
Company of America. (In accordance with Item 601 of Regulation S-K, agreements between the
Company and ECM Fund, L.P.I. and Equitable Life Insurance Society have not been filed because
they are identical in all material respects to the filed exhibit.)
+10.35 -- Form of Senior Subordinated Credit Agreement, dated as of May 2, 1996, between Lenfest Communications,
Inc. and The Toronto-Dominion Bank.
+++10.36 -- Letter Agreement, dated June 11, 1996, and accepted June 20, 1996, between the Company and
MBL Life Assurance Corporation. (In accordance with Item 601 of Regulation S-K, an agreement
between the Company and The Prudential Insurance Company of America has not been filed because
it is identical in all material respects to the filed exhibit.)
+++10.37 -- Letter Agreement, dated June 20, 1996, between the Company and The Prudential Insurance Company
of America.
+++10.38 -- Credit Agreement, dated June 27, 1996 between the Company, The Toronto-Dominion Bank, PNC
Bank, National Association and NationsBank of Texas, as Arranging Agents, the Lenders and
Toronto-Dominion (Texas), Inc., as Administrative Agent.
10.39 -- First Amendment to Credit Agreement, dated August 29, 1996, by and among Lenfest Australia,
Inc., The Toronto-Dominion Bank, NationsBank of Texas, N.A., and Toronto-Dominion (Texas),
Inc.
15.1 -- Acknowledgement of Pressman Ciocca & Smith
15.2 -- Acknowledgement of Arthur Andersen LLP
15.3 -- Acknowledgement of Coopers & Lybrand L.L.P.
*21 -- Subsidiaries of Registrant.
23.1 -- Consent of Saul, Ewing, Remick & Saul (included in Exhibit 5).
23.2 -- Consent of Fleishman & Walsh (FCC Counsel).
23.3 -- Consent of Pressman Ciocca & Smith.
23.4 -- Consent of Arthur Andersen LLP
23.5 -- Consent of Coopers & Lybrand L.L.P.
+++25 -- Statement of Eligibility on Form T-1 of The Bank of New York.
+++99.1 -- Form of Letter of Transmittal.
+++99.2 -- Form of Guaranteed Delivery Procedures.
+++99.3 -- Form of Exchange Agent Agreement between the Company and The Bank of New York.
</TABLE>
- ------
* Filed as an Exhibit to the Registrant's Registration Statement on Form S-1
(File No. 33-96804) declared effective by the Securities and Exchange
Commission on November 8, 1995, and incorporated herein by reference.
** Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q
(File No. 33-96804) for the quarter ended September 30, 1995, and
incorporated herein by reference.
***Filed as an Exhibit to the Registrant's Annual Report on Form 10-K (File
No. 33-96804) for the year ended December 31, 1995.
+Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q (File
No. 33-96804) for the quarter ended March 31, 1996, and incorporated
herein by reference.
++Filed as an Exhibit to the Registrant's Report on Form 8-K (File No.
33-96804) for the period ended February 26, 1996 and incorporated herein
by reference.
+++Filed as an Exhibit to the Registrant's Registration Statement on Form
S-4 (File No. 333-09631) filed on August 6, 1996.
++++Confidential portions have been omitted pursuant to Rule 406 and filed
separately with the Commission.
II-4
<PAGE>
(b) Financial Statement Schedules
The following financial statement schedules are included in Part II
beginning on page II-7:
(1) Report of Pressman Ciocca & Smith on Schedules
Schedule II -- Valuation and Qualifying Accounts
Lenfest Communications, Inc. and Subsidiaries
(2) Report of Pressman Ciocca & Smith on Schedules
Schedule II -- Valuation and Qualifying Accounts
The Wilmington, Delaware System
(3) Report of Arthur Andersen LLP on Schedules
Schedule II -- Valuation and Qualifying Accounts
Garden State Cablevision L.P.
(4) Report of Coopers & Lybrand L.L.P. on Schedules
Schedule II -- Valuation and Qualifying Accounts
Sammons Cable
ITEM 22. UNDERTAKINGS.
The Company hereby undertakes with respect to the securities offered by
it:
1. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted as to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion
of the Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
2. The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
3. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Philadelphia, Commonwealth of Pennsylvania, on the 6th day of September,
1996.
LENFEST COMMUNICATIONS, INC.
By /s/ H.F. LENFEST
---------------------------------
H.F. Lenfest
President and,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
----------------------------- --------------------------------- --------------------
<S> <C> <C>
/s/ H.F. LENFEST President, Chief Executive September 6, 1996
---------------------------- Officer and Director
H.F. Lenfest (Principal Executive Officer)
/s/ MARGUERITE B. LENFEST Director September 6, 1996
----------------------------
Marguerite B. Lenfest
Director September , 1996
----------------------------
John C. Malone
Director September , 1996
----------------------------
Brendan R. Clouston
/s/ SAMUEL W. MORRIS, JR. Director September 6, 1996
----------------------------
Samuel W. Morris, Jr.
/s/ HARRY F. BROOKS Executive Vice President September 6, 1996
---------------------------- (Principal Financial Officer)
Harry F. Brooks
/s/ ROBERT W. MOHOLLEN Assistant Treasurer September 6, 1996
---------------------------- (Chief Accounting Officer)
Robert W. Mohollen
</TABLE>
II-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
We have audited in accordance with generally accepted auditing standards, the
consolidated balance sheets of Lenfest Communications, Inc. and subsidiaries as
of December 31, 1994 and 1995 and the related consolidated statements of
operations, changes in stockholders' equity (deficit) and cash flows for each of
the years in the three-year period ended December 31, 1995, and have issued our
report thereon dated July 18, 1996 (except for Notes 20 and 26, as to which the
date is August 30, 1996), which is included in this registration statement. 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 statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
PRESSMAN CIOCCA & SMITH
Hatboro, Pennsylvania
July 18, 1996
II-7
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
--------------------------------- ------------ ------------ ------------ ----------
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Deductions of Year
------------ ------------ ------------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1993:
Allowance for doubtful accounts $1,287 $3,182 $3,608 $ 861
============ ============ ============ ==========
FOR THE YEAR ENDED
DECEMBER 31, 1994:
Allowance for doubtful accounts $ 861 $3,173 $3,206 $ 828
============ ============ ============ ==========
FOR THE YEAR ENDED
DECEMBER 31, 1995:
Allowance for doubtful accounts $ 828 $3,842 $3,566 $1,104
============ ============ ============ ==========
</TABLE>
II-8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Heritage Cable of Delaware, Inc. and
Lenfest Communications, Inc.
We have audited in accordance with generally accepted auditing standards, the
balance sheets of The Wilmington, Delaware System (A Cable Television System of
Heritage Cable of Delaware, Inc. Acquired by Lenfest Communications, Inc. in an
Exchange of Assets Transaction) as of December 31, 1994 and 1995, and the
related statements of operations, changes in equity investment and cash flows
for each of the years in the three-year period ended December 31, 1995 and have
issued our report thereon dated April 5, 1996, which is included in this
registration statement. In connection with our audits of the aforementioned
financial statements, we also audited the related financial statement schedule
II. This financial statement schedule is the responsibility of the System'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 financial statements taken as whole, present fairly, in
all material respects, the information set forth therein.
PRESSMAN CIOCCA & SMITH
Hatboro, Pennsylvania
April 5, 1996
II-9
<PAGE>
THE WILMINGTON, DELAWARE SYSTEM
(A Cable Television System of Heritage Cable of Delaware, Inc. Acquired by
Lenfest Communications, Inc. in an Exchange of Assets Transaction)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
------------------------------- -------------- ------------ ------------ -------------
Additions
Balance of Charged to
Beginning of Cost and Balance at
Year Expenses Deductions End of Year
-------------- ------------ ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED
DECEMBER 31, 1993:
Allowance for doubtful
accounts ..................... $252 $649 $650 $251
============== ============ ============ =============
FOR THE YEAR ENDED
DECEMBER 31, 1994:
Allowance for doubtful
accounts ..................... $251 $516 $637 $130
============== ============ ============ =============
FOR THE YEAR ENDED
DECEMBER 31, 1995:
Allowance for doubtful
accounts ..................... $130 $622 $509 $243
============== ============ ============ =============
</TABLE>
II-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Garden State Cablevision L.P.:
We have audited in accordance with generally accepted auditing standards, the
financial statements for Garden State Cablevision L.P. and have issued our
report thereon dated February 16, 1996, which is included in this
registration statement. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule of
valuation and qualifying accounts is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 16, 1996
II-11
<PAGE>
GARDEN STATE CABLEVISION L.P.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Additions
Balance of Charged to
Beginning of Cost and Balance at
Year Expenses Deductions End of Year
-------------- ------------ ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
For the year ended December 31, 1993:
Allowance for doubtful accounts .... $598 $830 $760 $668
-------------- ------------ ------------ -------------
For the year ended December 31, 1994:
Allowance for doubtful accounts .... $668 $701 $727 $642
-------------- ------------ ------------ -------------
For the year ended December 31, 1995:
Allowance for doubtful accounts .... $642 $658 $691 $609
-------------- ------------ ------------ -------------
</TABLE>
II-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS
SAMMONS COMMUNICATIONS, INC. AND
LENFEST COMMUNICATIONS, INC.:
In connection with our audits of the combined financial statements of
Sammons Cable as of December 31, 1994 and 1995, and for each of the three
years in the period ended December 31, 1995, which financial statements are
included in the Prospectus, we have also audited the financial statement
schedule listed in Item 21 herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
April 18, 1996
II-13
<PAGE>
SAMMONS CABLE
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
--------------------------------------------------- -------------- ------------ ------------ -------------
Additions
Balance at Charged to
Beginning of Costs and Balance at
Year Expenses Deductions End of Year
------------ ------------ ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
For the year ended December 31, 1993: Allowance
for doubtful accounts ......................................... $203 $836 $(854) $185
---- ---- ------ -----
For the year ended December 31, 1994: Allowance
for doubtful accounts ......................................... $185 $776 $(798) $163
--- ----- ------ -----
For the year ended December 31, 1995: Allowance
for doubtful accounts ......................................... $163 $691 $(697) $157
---- ----- ------ -----
</TABLE>
II-14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Title or Description Page
----------- ----------------------------------------------------------------------------------- --------
<S> <C> <C>
5 -- Opinion of Saul, Ewing, Remick & Saul.
10.39 -- First Amendment to Credit Agreement, dated August 29, 1996, by and among Lenfest Australia,
Inc., The Toronto-Dominion Bank, NationsBank of Texas, N.A. and Toronto-Dominion (Texas),
Inc.
15.1 -- Acknowledgement of Pressman Ciocca & Smith
15.2 -- Acknowledgement of Arthur Andersen LLP
15.3 -- Acknowledgement of Coopers & Lybrand L.L.P.
23.1 -- Consent of Saul, Ewing, Remick & Saul (included in Exhibit 5).
23.2 -- Consent of Fleishman & Walsh (FCC Counsel).
23.3 -- Consent of Pressman Ciocca & Smith.
23.4 -- Consent of Arthur Andersen LLP
23.5 -- Consent of Coopers & Lybrand L.L.P.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
LAW OFFICES OF
SAUL, EWING, REMICK & SAUL
BERWYN, PENNSYLVANIA 3800 CENTRE SQUARE WEST PRINCETON, NEW JERSEY
HARRISBURG, PENNSYLVANIA PHILADELPHIA, PA 19102 WESTMONT, NEW JERSEY
NEW YORK, NEW YORK WILMINGTON, DELAWARE
(215) 972-7777
Fax: (215) 972-7725
Internet Email: [email protected]
World Wide Web: http://www.saul.com
</TABLE>
September 6, 1996
Lenfest Communications, Inc.
200 Cresson Boulevard
Oaks, PA 19456
Ladies and Gentlemen:
We have acted as special counsel to Lenfest Communications, Inc. (the
"Company") in connection with the Registration Statement on Form S-4
(Registration No. 333-09631) filed by the Company with the Securities and
Exchange Commission on August 6, 1996 and Amendment No. 1 to Form S-4 filed on
September 6, 1996 (the "Registration Statement"), relating to the offering of
$300 million principal amount of 10 1/2% Senior Subordinated Notes Due 2006 (the
"Exchange Notes"), as more fully described in the Registration Statement. The
Exchange Notes are to be issued pursuant to the terms of the indenture, dated
June 15, 1996 (the "Indenture"), between the Company and The Bank of New York,
as trustee, as more fully described in the Registration Statement.
In connection with the proposed public offering of the Exchange Notes,
we have reviewed the Restated Certificate of Incorporation of the Company, the
Amended and Restated Bylaws of the Company, the relevant corporate proceedings
of the Company, the Registration Statement, the Exchange Notes and the
Indenture. No opinion is given herein as to the effect of any law or document
which we have not reviewed as described above. In the examination of such
documents, we have assumed the genuineness of all signatures and the
authenticity, correctness and completeness of all documents submitted to us as
originals or copies and the conformity to the original documents of all
documents submitted to us as copies.
Based on the foregoing, we are of the opinion that when the Exchange
Notes have been duly authorized, executed, authenticated and issued in
accordance with the Indenture and as set forth in the Registration Statement,
the Exchange Notes will be validly issued and will constitute binding
obligations of the Company, subject to, (i) bankruptcy, insolvency,
reorganization, arrangement, moratorium, fraudulent conveyance and other laws
and decisions relating to or affecting debtor's obligations or creditors' rights
generally, whether now or hereafter in effect, and (ii) general principles of
equity and fair dealing (whether enforcement is sought at law or in equity).
<PAGE>
Lenfest Communications, Inc.
September 6, 1996
Page 2
We are members of the bar of Pennsylvania and do not purport to be
experts respecting, and do not express any opinions herein concerning, any laws
other than (i) the existing substantive laws (excluding those relating to
conflicts of law) of the Commonwealth of Pennsylvania and (ii) the business
corporation law of the State of Delaware. In view of the fact that the Indenture
provides that it should be governed by and interpreted in accordance with the
laws of the State of New York, we have assumed, with your permission and without
independent investigation, that the applicable laws of the State of New York are
identical to the laws of the Commonwealth of Pennsylvania as the same would be
interpreted by the courts of the Commonwealth of Pennsylvania.
We hereby consent to the use of our name under the caption "Legal
Matters" in the Prospectus included in the Registration Statement and to the
filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Saul, Ewing, Remick & Saul
---------------------------
SAUL, EWING, REMICK & SAUL
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "Amendment") dated as of
the 29th day of August, 1996, by and among Lenfest Australia, Inc., a Delaware
corporation (the "Borrower"), The Toronto-Dominion Bank, NationsBank of Texas,
N.A. (collectively herein referred to as the "Lenders"), and Toronto Dominion
(Texas), Inc., in its capacity as administrative agent for the Lenders (the
"Administrative Agent"),
W I T N E S S E T H:
WHEREAS, the Borrower, the Administrative Agent, and the Lenders are
parties to that certain credit Agreement dated as of February 29, 1996 (the
"Credit Agreement"); and
WHEREAS, the Borrower, the Administrative Agent and the Lenders have
agreed to amend the Credit Agreement as set forth herein;
NOW THEREFORE, in consideration of the premises set forth above, the
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that all capitalized terms used herein shall have the
meanings ascribed thereto in the Credit Agreement, and further agree as follows:
1. Amendment to Article 1. Article 1 of the Credit Agreement,
Definitions, is hereby amended by deleting the existing definition of "Maturity
Date" set forth therein and substituting the following therefor:
"Maturity Date" shall mean the earlier to occur of (a)
September 30, 1996 or (b) such earlier date as payment of the Loans
shall be due (whether by acceleration or otherwise)."
2. Amendment to Section 8.1. Section 8.1 of the Credit Agreement,
Events of Default, is hereby amended by deleting existing subsection (n) thereof
and substituting the words "Intentionally Omitted" therefor.
3. No Other Amendment or Waiver. Notwithstanding the agreement of the
Administrative Agent and the Lenders to the terms and provisions of this
Amendment, the Borrower acknowledges and expressly agrees that this Amendment is
limited to the extent expressly set forth herein and shall not constitute a
modification of the Credit Agreement or a course of dealing at variance with the
terms of the Credit Agreement (other than as expressly set forth above) so as to
require further notice by the Administrative Agent or the Lenders, or any of
them, of its or their intent to require strict adherence to the terms of the
Credit Agreement in the future. All of the terms, conditions, provisions and
covenants of the Credit Agreement and the other Loan Documents shall remain
unaltered and in full force and effect except as expressly modified by this
Amendment.
<PAGE>
4. Representations and Warranties. The Borrower hereby represents and
warrants in favor of the Administrative Agent and each Lender, as follows:
(i) Each representation and warranty set forth in Article 4 of
the Credit Agreement is hereby restated and affirmed as true and correct in all
material respects as of the date hereof, except to the extent previously
fulfilled in accordance with the terms of the Credit Agreement, as amended
hereby, and to the extent relating specifically to the Agreement Date or
otherwise inapplicable;
(ii) The Borrower has the corporate power and authority to
enter into this Amendment and to do all acts and things as are required or
contemplated hereunder to be done, observed and performed by it;
(iii) This Amendment has been duly authorized, validly
executed and delivered by Authorized Signatories, and constitutes the legal,
valid and binding obligation of the Borrower enforceable against it in
accordance with its terms, subject, as to enforcement of remedies, to the
following qualifications: (i) an order of specific performance and an injunction
are discretionary remedies and, in particular, may not be available where
damages are considered an adequate remedy at law, and (ii) enforcement may be
limited by bankruptcy, insolvency liquidation, reorganization, reconstruction
and other similar laws affecting enforcement of creditors' rights generally
(insofar as any such law relates to the bankruptcy, insolvency or similar event
of the Borrower); and
(iv) The execution and delivery of this Amendment and the
Borrower's performance hereunder do not and will not require the consent or
approval of any regulatory authority or governmental authority or agency having
jurisdiction over the Borrower, nor be in contravention of or in conflict with
the certificate of incorporation or the by-laws of the Borrower, or the
provision of any statute, judgment, order, indenture, instrument, agreement, or
undertaking to which the Borrower is party or by which the Borrower's assets or
properties are or may become bound.
5. Conditions Precedent to Effectiveness of Amendment. The
effectiveness of this Amendment is subject to the following:
(i) the truth and accuracy of the representations and
warranties contained in Section 4 hereof; and
(ii) receipt by the Administrative Agent of such
documents as the Administrative Agent shall reasonably request.
-2-
<PAGE>
6. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute one and the same instrument.
7. Loan Documents. Each reference in the Credit Agreement or any other
Loan Document to the term "Credit Agreement" shall hereafter mean and refer to
the Credit Agreement as amended hereby or as the same may hereafter be amended.
8. Governing Law. This Amendment shall be construed in accordance with
and governed by the laws of the state of New York, without giving effect to any
conflict of laws principles.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto cause their respective duly
authorized officers or representatives to execute, deliver and, in the case of
the Borrower, seal this Amendment as of the day and year first above written, to
be effective as of the day and year first above written.
BORROWER: LENFEST AUSTRALIA, INC., a Delaware
corporation
By: /s/ Harry F. Brooks
----------------------------------------
[CORPORATE SEAL] Its: Executive Vice President
------------------------------------
Attest: /s/ Donald L. Heller
------------------------------------
Its: Vice President
------------------------------------
ADMINISTRATIVE AGENT: TORONTO DOMINION (TEXAS), INC.
By:
---------------------------------------
Its:
-----------------------------------
LENDERS: THE TORONTO-DOMINION BANK
By:
----------------------------------------
Its:
------------------------------------
NATIONSBANK OF TEXAS, N.A.
By:
----------------------------------------
Its:
------------------------------------
-4-
<PAGE>
Exhibit 15.1
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ACKNOWLEDGEMENT
We acknowledge the use of our report dated August 13, 1996, on the interim
financial statements of Lenfest Communications, Inc. and subsidiaries; the use
of our report dated May 17, 1996, on the interim financial statements of The
Wilmington, Delaware System (A Cable Television System of Heritage Cable of
Delaware, Inc. Acquired by Lenfest Communications, Inc. in an Exchange of Assets
Transaction); and the use of our report dated August 28, 1996, on the interim
pro forma financial statements of Lenfest Communications, Inc. and subsidiaries,
included in this Form S-4 registration of Lenfest Communications, Inc. and
subsidiaries.
Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not
be considered a part of this registration statement prepared or certified by us
within the meaning of Sections 7 and 11 of the Act.
/s/ PRESSMAN CIOCCA & SMITH
Hatboro, Pennsylvania
September 6, 1996
<PAGE>
Exhibit 15.2
ARTHUR
ANDERSEN LLP
September 6, 1996
Lenfest Communications, Inc.:
We are aware that Lenfest Communications, Inc. has included in its Amendment No.
1 to registration statement No. 333-09631 the balance sheet as of June 30, 1996
and the related statements of the operations, partners' (deficit) capital and
cash flows for the six month periods ended June 30, 1995 and 1996, of Garden
State Cablevision L.P., and includes our report dated August 27, 1996 covering
the unaudited interim financial information contained herein. Pursuant to
Regulation C of the Securities Act of 1933, that report is not considered a part
of the registration statement prepared or certified by our firm or a report
prepared or certified by our firm within the meaning of Sections 7 and 11 of
the Act.
Very truly yours,
/s/ Arthur Andersen LLP
<PAGE>
Exhibit 15.3
September 6, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Lenfest Communications, Inc.
Registration on Form S-4
We are aware that our report dated June 5, 1996 on our review of interim
financial information of Sammons Cable for the six months ended June 30, 1995
and the two months ended February 29, 1996 is included in this registration
statement. Pursuant to Rule 436(c) under the Securities Act of 1933, this report
should not be considered a part of the registration statement prepared or
certified by us within the meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
<PAGE>
EXHIBIT 23.2
To: Lenfest Communications, Inc.
Re: Amendment No. 1 to Registration Statement on Form S-4 for Senior Securities
Date: September 6, 1996
===============================================================================
In our capacity as special federal communications regulatory counsel to
Lenfest Communications, Inc., a Delaware corporation ("Lenfest"), we have
reviewed and advised Lenfest with respect to certain disclosure in the
Prospectus that forms a part of the above referenced Registration Statement,
including amendments thereto, under the heading "Legislation and Regulation."
In that regard, we hereby consent to the use of our name under the heading
"Legal Matters" in said Prospectus. In giving such consent, we do not thereby
concede that we are within the category of persons whose consent is required
under Section 7(a) of the Securities Act of 1933, as amended, or the rules and
regulations promulgated pursuant thereto by the Securities and Exchange
Commission.
Sincerely,
FLEISCHMAN AND WALSH, L.L.P.
/s/ Fleischman and Walsh, L.L.P.
---------------------------------
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made part of this
registration statement.
/s/ PRESSMAN CIOCCA & SMITH
Hatboro, Pennsylvania
September 6, 1996
<PAGE>
Exhibit 23.4
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Philadelphia, Pa.
September 6, 1996
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (File No.
333-09631) of our reports dated April 18, 1996, on our audits of the financial
statements and financial statement schedule of Sammons Cable. We also consent to
the reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
Dallas, Texas
September 6, 1996
