<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission file number 33-96804
--------
LENFEST COMMUNICATIONS, INC.
----------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2094942
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1105 North Market St., Suite 1300,
P.O. Box 8985,
Wilmington, Delaware 19899
--------------------------
(Address of Principal executive offices) (Zip Code)
(302) 427-8602
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of November 12, 1996: 158,896 shares of Common Stock, $0.01 par
value per share.
<PAGE>
LENFEST COMMUNICATIONS, INC.
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Report on Review by Independent Certified Public Accountants 4
Condensed Consolidated Balance Sheets as of September 30, 1996
(unaudited) and as of December 31, 1995 5
Consolidated Statements of Operations for the three months
and nine months ended September 30, 1996 (unaudited) and
September 30, 1995 (unaudited) 7
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 (unaudited) and September 30,
1995 (unaudited) 8
Notes to Condensed Consolidated Financial Statements (unaudited) 10
Statement by Management Concerning Review of Interim Financial
Information by Independent Certified Public Accountants 18
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 19
Part II. Other Information
Item 1. Legal Proceedings 31
Item 6. Exhibits and Reports on Form 8-K 32
</TABLE>
-2-
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<PAGE>
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Lenfest Communications, Inc. and Subsidiaries:
We have reviewed the accompanying condensed consolidated balance sheet of
Lenfest Communications, Inc. and subsidiaries as of September 30, 1996, and the
related consolidated statements of operations for the three month and nine month
periods ended September 30, 1996 and 1995, and the consolidated statements of
cash flows for the nine months ended September 30, 1996 and 1995, included in
the accompanying Securities and Exchange Commission Form 10-Q for the period
ended September 30, 1996. These condensed consolidated financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the condensed consolidated financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1995, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the year then ended (not presented herein). In our report
dated July 18, 1996, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1995, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
/s/ Pressman Ciocca & Smith
Hatboro, Pennsylvania
November 5, 1996
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September December
30, 1996 31, 1995
-------------- --------------
(Unaudited) (*)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 7,915 $ 164,943
Marketable securities 31,819 169,581
Accounts receivable, trade and other - unrelated parties, less allowance for
doubtful accounts of $2,651 in 1996 and $1,104 in 1995
16,304 12,787
Accounts receivable - affiliates, less allowance for doubtful
accounts of $1,900 in 1996 920 103
Notes receivable and accrued interest, due from an affiliate -
Australis Media Limited 27,451 -
Inventories 3,152 4,932
Prepaid expenses 5,491 3,946
Property and equipment, net of accumulated depreciation
of $296,978 in 1996 and $327,086 in 1995 383,123 211,780
Investments, principally in affiliates, and related receivables 51,571 59,482
Goodwill, net of amortization of $25,206 in 1996 and
$22,390 in 1995 73,191 52,874
Deferred franchise costs, net of amortization of $134,432 in
1996 and $126,796 in 1995 510,983 133,525
Other intangible assets, net of amortization of $12,733 in
1996 and $10,201 in 1995 26,709 20,519
Deferred Federal tax asset, net 50,426 14,707
Other assets 3,129 2,569
-------------- --------------
$ 1,192,184 $ 851,748
============== ==============
</TABLE>
(*) Condensed from audited financial statements.
See independent certified public accountants' review report and accompanying
notes.
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
September December
30, 1996 31, 1995
-------------- --------------
(Unaudited) (*)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Notes payable and obligations under capital leases $ 1,256,016 $ 817,725
Accounts payable and accrued expenses - unrelated parties 58,036 33,926
Accounts payable - affiliate 20,056 7,205
Deferred state tax liability 8,240 9,940
Customer service prepayments and deposits 9,103 9,255
Investment in Garden State Cablevision, L.P. 23,439 15,451
-------------- --------------
TOTAL LIABILITIES 1,374,890 893,502
MINORITY INTEREST in equity of consolidated subsidiaries 2,934 3,438
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value, 158,896 shares authorized,
issued and outstanding 2 2
Additional paid-in capital 50,747 50,747
Unrealized gain on marketable securities, net of deferred
taxes 2,187 40,410
Cumulative foreign currency translation adjustment,
net of deferred taxes 255 7,560
Accumulated deficit (238,831) (143,911)
-------------- --------------
(185,640) (45,192)
-------------- --------------
$ 1,192,184 $ 851,748
============== ==============
</TABLE>
(*) Condensed from audited financial statements.
See independent certified public accountants' review report and accompanying
notes.
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1996 1995 1996 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $ 104,530 $ 66,592 $ 290,636 $ 197,855
OPERATING EXPENSES
Service 8,908 5,140 24,576 14,839
Programming - from affiliate 15,694 9,289 41,009 28,278
Programming - other cable 6,248 4,567 17,440 12,316
Selling and marketing 3,846 2,297 10,757 6,463
General and administrative 20,437 12,755 52,668 37,093
Direct costs - non-cable 4,228 3,570 16,240 12,983
Depreciation 18,506 13,503 50,338 38,745
Amortization 12,549 5,545 32,154 16,721
------------- ------------ ------------ ------------
90,416 56,666 245,182 167,438
------------- ------------ ------------ ------------
OPERATING INCOME 14,114 9,926 45,454 30,417
OTHER INCOME (EXPENSE)
Interest expense (30,040) (14,107) (78,011) (42,368)
Equity in net (losses) of unconsolidated
affiliates (4,734) (4,704) (13,941) (9,912)
Net gain on sales of securities - 173 307 13,279
Recognized (loss) on decline in market value
of securities - Australis Media Limited - - (66,945) -
Elimination of provision for reduction
in value of note receivable and accrued interest 19,685 - - -
Gain on disposition of partnership interest - - 6,974 -
Other income and expense (net) 695 25 4,074 315
------------- ------------ ------------ ------------
(14,394) (18,613) (147,542) (38,686)
------------- ------------ ------------ ------------
(LOSS) BEFORE INCOME TAXES
TAXES AND EXTRAORDINARY LOSS (280) (8,687) (102,088) (8,269)
INCOME TAX BENEFIT 6,168 2,852 9,652 2,485
------------- ------------ ------------ ------------
INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS 5,888 (5,835) (92,436) (5,784)
EXTRAORDINARY LOSS
Early extinguishment of debt, net of
deferred taxes of $1,337 - - (2,484) -
------------- ------------ ------------ ------------
NET INCOME (LOSS) 5,888 (5,835) (94,920) (5,784)
BEGINNING ACCUMULATED DEFICIT (244,719) (125,626) (143,911) (125,677)
------------- ------------ ------------ ------------
ENDING ACCUMULATED DEFICIT $ (238,831) $ (131,461) $ (238,831) $ (131,461)
============= ============ ============ ============
</TABLE>
See independent certified public accountants' review report and accompanying
notes.
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------
1996 1995
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) $ (94,920) $ (5,784)
Adjustments to reconcile net (loss) to net cash provided
by operating activities
Depreciation and amortization 82,492 55,466
Extraordinary loss 3,821 -
Accretion of debt discount 709 -
Net (gains) on sales of marketable securities (307) (13,279)
Recognized loss on decline in market value of securities -
Australis Media Limited 66,945 -
(Gain) on disposition of partnership interest (6,974) -
Deferred income tax (benefit) (12,900) (2,935)
(Gain) on sale of property and equipment (186) (117)
Net loss on write-off of assets - 792
Equity in net losses of unconsolidated affiliates 13,941 9,912
Deferred interest on capital leases - 3
Minority interest (1,007) (187)
Changes in operating assets and liabilities, net of effects
from acquisitions
Cash - restricted escrow - 3,273
Accounts receivable
Affiliate (817) -
Unrelated parties 5,017 3,386
Accrued interest receivable (1,812) -
Inventories 1,780 58
Prepaid expenses 1,548 100
Other assets (637) (57)
Accounts payable and accrued expenses:
Affiliate 10,395 (319)
Unrelated parties 23,549 (6,528)
Customer service prepayments and deposits 753 1,366
------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 91,390 45,150
------------- -------------
</TABLE>
See independent certified public accountants' review report and accompanying
notes.
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (continued)
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------
1996 1995
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
<S> <C> <C>
Acquisitions of cable systems $ (604,032) $ -
Acquisition of the minority interest of South Jersey
Cablevision Associates - (8,838)
Non cable acquisitions (5,600) (198)
Purchases of property and equipment (39,818) (35,367)
Purchases of marketable securities (582) (2,678)
Purchases of other investments - (20)
Proceeds from transfer of cable system 4,500 -
Proceeds from sales of property and equipment 256 152
Proceeds from sales of marketable securities 1,662 16,276
Loans to Australis Media Limited (41,139) -
Proceeds from note receivable - Australis Media Limited 15,500 19,240
Investments in unconsolidated affiliates (4,111) (11,238)
Distributions from unconsolidated affiliates 1,686 175
(Increase) in other intangible assets - investing (4,496) (281)
Loans and advances to unconsolidated affiliates (259) (1,447)
Loans and advances from unconsolidated affiliates 2,035 272
------------- -------------
NET CASH (USED BY)
INVESTING ACTIVITIES (674,398) (23,952)
CASH FLOWS FROM FINANCING ACTIVITIES
Increases in debt 906,855 57,000
Early extinguishment of debt (448,821) -
Other debt reduction:
Note - stockholder - (10,000)
Notes - unrelated parties (25,500) (66,838)
Obligations under capital leases (162) (37)
(Increase) in other intangible assets - financing (6,392) (484)
------------- -------------
NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES 425,980 (20,359)
------------- -------------
NET INCREASE (DECREASE) IN CASH (157,028) 839
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 164,943 4,302
------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 7,915 $ 5,141
============= =============
</TABLE>
See independent certified public accountants' review report and accompanying
notes.
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Condensed Financial Information and Results of Operations
In the opinion of the management of Lenfest Communications, Inc. and
subsidiaries (the Company), the accompanying condensed unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles and with the regulations of the Securities and Exchange
Commission and contain all adjustments (consisting of only normal recurring
adjustments) necessary to make the condensed consolidated financial statements
not misleading and to present fairly the consolidated financial condition as of
September 30, 1996, the consolidated results of operations for the three and
nine months ended September 30, 1996 and 1995, and consolidated cash flows for
the nine months ended September 30, 1996 and 1995.
Certain information and note disclosures normally included in the Company's
annual consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Form S-4 dated September 6, 1996. The results of operations for the periods
ended September 30, 1996 and 1995, are not necessarily indicative of operating
results for the full year.
Prior period financial statements have been reclassified to conform with current
period presentation.
NOTE 2 - INVENTORIES
Inventories are stated at the lower of cost or market on a first-in, first-out
basis. Inventories consist of equipment sold by the Company's promotional and
advertising subsidiaries.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September December
30, 1996 31, 1995
-------------- --------------
(Dollars in thousands)
<S> <C> <C>
Raw materials $ 2,882 $ 3,428
Finished goods and work-in process 270 1,504
-------------- --------------
$ 3,152 $ 4,932
============== ==============
</TABLE>
NOTE 3 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1996 1995
-------------- --------------
(Dollars in thousands)
<S> <C> <C>
Cash paid during the period for
Interest $ 53,294 $ 45,235
============== ==============
Income taxes $ 211 $ 160
============== ==============
</TABLE>
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 3 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION, (continued)
<TABLE>
<CAPTION>
Supplemental Schedule Relating to Acquisitions
1996 1995
-------------- --------------
(Dollars in thousands)
<S> <C> <C>
Property and equipment $ 168,465 $ 4,932
Goodwill and other intangible assets 29,848 6,158
Deferred franchise costs 406,819 2,124
Other assets 4,500 -
Minority interest in partnership equity - 3,129
Customer prepayments and deposits - (307)
-------------- --------------
609,632 16,036
Amount financed - 7,000
-------------- --------------
NET CASH PAID $ 609,632 $ 9,036
============== ==============
</TABLE>
Noncash Investing and Financing Transactions
On September 30, 1996, the Company contributed the assets of a cable television
system for a partnership interest (See Note 4). Also, in September 1996, the
Company contributed the assets that comprise the business known as "the Barker"
to a newly formed joint venture (See Note 4).
In 1996, the Company incurred additional capital lease obligations of $968,000.
In February 1996, the Company exchanged the assets of its cable television
systems in the East San Francisco Bay area with a book value of $33,053,000, its
41.67% partnership interest in Bay Cable Advertising with a book value of
$3,781,000 and a fair market value of $10,755,000, and the right to purchase a
cable television system located in Fort Collins, CO, which right was acquired
for $54,385,000, less preliminary settlement adjustments of $9,219,000 for a
Wilmington, Delaware and surrounding area cable television system. The assets of
the Wilmington system have been recorded at the net book value of the cable
television system assets exchanged and the market value of the partnership
interest, less the settlement adjustment. A gain of $6,974,000, which represents
the excess of the market value of the partnership interest over its book value
has been included in the statement of operations.
In 1995, the Company financed its $19,240,000 loan to Australis Media Limited
and $20,000,000 of its additional investment in Garden State Cablevision, L.P.,
$10,000,000 of which was borrowed from a stockholder and then repaid.
NOTE 4 - NEW BUSINESS AND ACQUISITIONS
On September 30, 1996, the Company, through its subsidiary, Lenfest Advertising,
Inc., acquired the assets of Metrobase Cable Advertising from a subsidiary of
Harron Communications Corp. for approximately $4,500,000. For financial
reporting purposes, the Company accounts for the acquisition of these assets
under the purchase method. This acquisition was funded from available funds.
On September 30, 1996, the Company caused substantially all of the assets of the
Gettysburg, PA cable television system to be conveyed to GS Communications, Inc.
in exchange for the right to acquire substantially all of the assets of the
Stewartstown, PA cable television system and $4.5 million. No gain or loss was
recorded on the exchange. The Company through a newly formed subsidiary, Lenfest
Clearview Inc., contributed the right to acquire the assets of the Stewartstown
system and $500,000 (which was funded in October 1996) for a 30% partnership
interest in a newly formed partnership, Clearview Partners, with Clearview CATV,
Inc. Clearview CATV, Inc. contributed to Clearview Partners its cable television
system serving approximately 8,000 subscribers in York County, Pennsylvania and
Hartford County, Maryland. The Company will report its proportionate share of
partnership net income (loss) on the equity method. (See the acquisition from
Sammons Communications, Inc. discussed below).
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 4 - NEW BUSINESS AND ACQUISITIONS, (continued)
StarNet, Inc. ("StarNet"), a wholly owned subsidiary of the Company, entered
into a joint venture, effective September 11, 1996, with Prevue Networks, Inc.
("Prevue"), a wholly owned subsidiary of UV Corp. StarNet contributed the assets
that comprised the business known as "the Barker", a dedicated channel for the
promotion of pay-per-view movies, programming and events and Prevue contributed
the assets that comprised the business known as "Sneak Prevue", which does
substantially the same promotion as the Barker. The new entity will be known as
Sneak Prevue, L.L.C., and will be based in Tulsa, Oklahoma. StarNet will own 28%
of the new entity and will report its proportionate share of net income (loss)
on the equity method.
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 accounts for the acquisition of these
assets under the purchase method. These acquisitions were funded in part by the
existing bank credit facility at that date.
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 service
approximately 282,000 basic subscribers. For financial reporting purposes, the
Company accounts for the acquisition of these assets under the purchase method.
The acquisition was funded in part by $420,000,000 borrowed under the Company's
bank credit facility existing at that date, and the remaining proceeds from a
public offering of debt securities in November 1995. The Company paid for a
fifth system, located in Gettysburg, PA, but did not take title to it. The
Company was managing the system from February 29, 1996. As discussed above, the
Gettysburg system was transferred to GS Communications, Inc. on September 30,
1996.
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 Tele-Communications, Inc.
("TCI"). In connection with the exchange, the Company acquired the right to
purchase a cable system for approximately $54 million. This right, along with
the underlying cable television system assets, were included with the assets
transferred to TCI. For financial reporting purposes, the Company is accounting
for this exchange as a nonmonetary exchange of productive assets in accordance
with Accounting Principles Board Opinion Number 29, whereby the assets acquired
are valued at the historical cost values of the assets disposed. (See Note 3).
The acquisition of these cable systems were financed with proceeds from the
Company's public offering of debt securities in November 1995.
In February 1996, the Company purchased the Philadelphia area assets of Cable
AdNet, Inc., a subsidiary of TCI for approximately $1,100,000.
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 for $8,838,000. As
of June 30, 1996, Lenfest South Jersey Investments was merged into a wholly
owned subsidiary of the Company, Lenfest Atlantic, Inc., the owner of the 60%
interest in the partnership, thereby terminating the partnership.
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.
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 4 - NEW BUSINESS AND ACQUISITIONS, (continued)
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
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 $7,000,000
credit facility issued by PNC Bank, N.A., to MicroNet, Inc.
NOTE 5 - MARKETABLE SECURITIES
The Company's investment in the securities of Australis Media Limited
("Australis") 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.
The aggregate cost basis and market values of the securities at September 30,
1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Gross
Aggregate Unrealized
Cost Gain Market
Basis (Loss) Value
-------------- -------------- --------------
<S> <C> <C> <C>
September 30, 1996
Australis Media Limited convertible debentures $ 22,228 $ 3,101 $ 25,329
Australis Media Limited common stock 1,799 (276) 1,523
Other marketable equity securities 4,035 932 4,967
-------------- -------------- --------------
$ 28,062 $ 3,757 $ 31,819
============== ============== ==============
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. As of
August 12, 1996, the Australis securities held by the Company had a market value
of approximately $24.0 million. Due to uncertainty regarding the long-term
financing of Australis (See Note 9), the Company determined that the decline in
market value was other than temporary and, accordingly, the Company recognized a
loss of $66.9 million, as of June 30, 1996, resulting from a write-down of the
Australis investment from cost in the accompanying consolidated statement of
operations. The write-down established a new cost basis in the Australis
investment.
Net realized gains from the sale of marketable securities, in the amount of
$307,000 and $13,279,000 are included in the accompanying consolidated
statements of operations for 1996 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.
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 6 - INVESTMENTS, PRINCIPALLY IN AFFILIATES
The Company, through several subsidiaries, owns non-controlling partnership
interests in several general partnerships. 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 202,000 subscribers in Southern New Jersey. The Company accounts
for its investment in Garden State under the equity method. The Company is
allocated a total of 50% of Garden State's losses. In addition, the Company is
required to make up its partner capital deficits upon termination or liquidation
of the Garden State partnership. Because of the requirement to make up capital
deficits, the accompanying financial statements reflect equity in accumulated
losses, net of related receivables, in excess of the investments in Garden State
in the amount of $23,439,000 and $15,451,000 at September 30, 1996 and December
31, 1995, respectively.
Summarized statements of operations of Garden State, accounted for under the
equity method for the nine months ended September 30, 1996 and 1995, is as
follows:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
(Dollars in thousands)
<S> <C> <C>
Results of Operations
Revenues $ 74,863 $ 68,546
Operating expenses (32,548) (31,236)
Depreciation and amortization (36,367) (35,176)
------------- -------------
OPERATING INCOME 5,948 2,134
Interest expense (12,338) (14,579)
Other expense (4,492) (4,135)
------------- -------------
NET LOSS $ (10,882) $ (16,580)
============= =============
</TABLE>
NOTE 7 - LONG-TERM DEBT
Notes payable and obligations under capital leases consisted of the following
at September 30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
September December
30, 1996 31, 1995
-------------- --------------
(Dollars in thousands)
<C> <C> <C>
8.375% senior notes due November 1, 2005 $ 685,706 $ 684,691
10.5% senior subordinated notes due June 15, 2006 293,250 -
Bank credit facility 150,000 -
11.30% senior promissory notes due September 1, 2000 60,000 75,000
11.84% senior promissory notes due May 15, 1998 21,000 31,500
9.93% senior promissory notes due September 30, 2001 14,250 14,250
Notes payable to bank due June 30, 1999 7,000 7,000
Note payable to banks 18,720 -
Obligations under capital leases 6,090 5,284
-------------- --------------
$ 1,256,016 $ 817,725
============== ==============
</TABLE>
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 7 - LONG-TERM DEBT, (continued)
On June 27, 1996, the Company issued $300,000,000 in principal amount of 10.5%
senior subordinated notes due 2006. The notes are stated net of unamortized
discount and issuance costs. The senior subordinated notes are general unsecured
obligations of the Company subordinate in right of payment to all present and
future senior indebtedness of the Company. The net proceeds from the offering of
the senior subordinated notes were used, together with $150 million from initial
borrowings under the term loan portion of a new bank credit facility to prepay
all amounts outstanding under the Company's old bank credit facility. The
Company incurred extraordinary charges from the write-off of the unamortized
loan costs associated with the old bank credit facility. These charges increased
net loss by $2,484,000, net of income tax benefit of $1,337,000.
NOTE 8 - CORPORATE INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes
in accordance with Financial Accounting Standards Board Statement (SFAS) No.
109, "Accounting for Income Taxes". SFAS 109 requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the financial statement or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
differences between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Differences between financial reporting
and tax bases arise most frequently from differences in timing of income and
expense reorganization. Deferred income tax expense is measured by the change in
the net deferred income tax asset or liability during the year.
The net income tax benefit differs from amounts expected by applying the U.S.
Federal income tax rate of 35% to loss before income taxes primarily from
nondeductible amortization on goodwill and certain other intangibles and
provision for state income taxes. In 1996, the Company has not recognized a tax
benefit or expense from the write-down of the Australis securities (see Note 5),
the provision for reduction in value of note receivable and accrued interest or
the subsequent elimination of this provision.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
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") governing 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 June 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.
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 9 - COMMITMENTS AND CONTINGENCIES, (continued)
The Company believes that it has complied in all material respects with the
provision of the 1992 Cable Act, including its rate setting provisions. However,
the Company's rates for Regulated Services are subject to review by the FCC, if
a complaint has been filed, or the appropriate franchise authority, if such
authority has been certified. If, as a result of the review process, a cable
system cannot substantiate its rates, it could be required to retroactively
reduce its rates to the appropriate benchmark and refund the excess portion of
rates received. Any refunds of the excess portion of tier service rates would be
retroactive to the date of complaint. Any refunds of the excess portion of all
other Regulated Service rates would be retroactive to 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.
On April 24, 1996, the Company guaranteed up to $75,000,000 of a new
$125,000,000 Australis Media Limited ("Australis") bank facility as part of
recapitalization plans 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. In October 1996, the Australis
long-term financing was completed, the guaranty terminated and Australis repaid
amounts owing to the Company. Accordingly, the Company eliminated a provision
for doubtful account that was established at June 30, 1996. (See Note 10).
H.F. Lenfest, the Company's president and chief executive officer, and TCI have
jointly and severally guaranteed a $67 million obligation of Australis incurred
in connection with the purchase of program licenses in April 1995. The terms of
the guarantees provide that the amount of the guarantees will be reduced on a
dollar-for-dollar basis with the provision of one or more letters of credit,
which may not exceed $33.5 million. The Company is currently in discussions with
Australis and the beneficiaries under the guaranty with regard to providing
letters of credit in the aggregate amount of $33.5 million. If the Company
provides such letters of credit, the Company would be directly obligated for
$33.5 million and may remain indirectly obligated for the balance of the program
license payment obligations. Under the terms of its 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 issued under the Company's bank credit facility with respect to
program payment obligation guarantees. In addition, in February 1996, Mr.
Lenfest provided his personal guaranty of an approximately $18.7 million loan to
Lenfest Australia, Inc. by two commercial banks. The guaranty was terminated and
the $18.7 million loan was repaid in October 1996 with the funds received from
Australis.
In May 1996, The News Corporation Limited ("News") filed an action against the
Company claiming 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. In June 1996, the Company filed suit seeking a
declaration that no oral agreement was made. In September 1996, the Company and
News settled the pending suits by agreeing to dismiss all claims without payment
of any damages.
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 9 - COMMITMENTS AND CONTINGENCIES, (continued)
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.
On January 20, 1995, an individual (the "Plaintiff") filed suit in the Federal
Court of Australia, New South Wales District Registry against the Company and
several other entities and individuals (the "Defendants") including Mr. Lenfest,
involved in the acquisition of a company 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 $718 million (approximately U.S. $568
million). The Plaintiff also alleges that Australis and Mr. Lenfest owed to him
a fiduciary duty and that both parties breached his 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.
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 or the results of operations of the
Company.
The Company is obligated to purchase additional shares of stock valued at a
total of 49.8 million French francs (approximately $9,646,000) in Videopole for
the years 1996-1997. The Company's future commitment in dollars is subject to
change in the exchange rate.
NOTE 10 - SUBSEQUENT EVENTS
In October 1996, Australis Media Limited completed its refinancing plan by
issuing $150 million senior secured discount notes due 2002 and raising $100
million of new cash equity. In connection with the Australis financing, the
Company made an additional $40 million investment in equity securities and an
additional $40 million investment in debt securities. The proceeds of the
financing were used in part to repay a note and accrued interest due to the
Company.
<PAGE>
LENFEST COMMUNICATIONS AND SUBSIDIARIES
STATEMENT BY MANAGEMENT CONCERNING REVIEW OF
INTERIM FINANCIAL INFORMATION BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The September 30, 1996 and 1995 condensed consolidated financial statements
included in this filing on Form 10-Q have been reviewed by Pressman Ciocca &
Smith, Independent Certified Public Accountants, in accordance with established
professional standards and procedures for such a review.
The review report of Pressman Ciocca & Smith is included in Part I, Item 1.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
Substantially all of the Company's revenues are earned from customer
fees for cable television programming services, the sale of advertising,
commissions for products sold through home shopping networks and ancillary
services (such as rental of converters and remote control devices and
installations). Federal law and regulations, including the 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.
The Company has generated increases in revenues and EBITDA for the nine
months ended September 30, 1996 primarily through acquisitions and, to a lesser
extent, through internal customer growth, increases in monthly revenue per basic
customer and 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 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. 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 Condensed Consolidated Financial Statements
included elsewhere in this Quarterly Report, 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 account for 89.5% and 87.8% of the consolidated revenue
for the three months and nine months ending September 30, 1996. The Core Cable
Television Operations historically have achieved better results than have the
Company's non-cable, communications-related business subsidiaries.
<PAGE>
CONSOLIDATED RESULTS
Percentage of Revenues
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues ............................... 100.0% 100.0% 100.0% 100.0%
Programming expenses ................... 21.0 20.8 20.1 20.5
Selling, general & administrative........ 23.2 22.6 21.8 22.0
Technical and other .................... 12.6 13.1 14.1 14.1
Depreciation and amortization .......... 29.7 28.6 28.4 28.0
-------- -------- -------- --------
86.5 85.1 84.4 84.6
-------- -------- -------- --------
Operating income ........................ 13.5% 14.9% 15.6% 15.4%
======== ======== ======== ========
EBITDA .................................. 43.2% 43.5% 44.0% 43.4%
</TABLE>
CORE CABLE TELEVISION OPERATIONS (RESTRICTED GROUP)
Percentage of Revenues
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues .................................. 100.0% 100.0% 100.0% 100.0%
Programming expenses ...................... 23.5 23.6 22.9 23.9
Selling, general & administrative........... 19.0 20.2 18.7 19.7
Technical and other ....................... 7.8 6.7 7.9 6.5
Depreciation and amortization ............. 31.1 29.0 30.1 29.2
-------- -------- -------- -------
81.4 79.5 79.6 79.3
-------- -------- -------- --------
Operating income ......................... 18.6% 20.5% 20.4% 20.7%
======== ======== ======== ========
EBITDA ................................... 49.7% 49.5% 50.5% 49.9%
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1995
CONSOLIDATED RESULTS
Assets for the Company increased 40.0% to $1,192.2 million over the
December 31, 1995 year-end. There were large increases in deferred franchise
costs of 282.7% to $511.0 million and in property, plant and equipment of 80.9%
to $383.1 million. In both cases, the increases were primarily attributable to
the TCI Exchange (as defined herein) and the Sammons Acquisition (as defined
herein). On February 12, 1996, the Company completed an acquisition (the "TCI
Exchange") in which it received TCI's Wilmington, Delaware area cable television
systems in
<PAGE>
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. On February 29, 1996, the
Company acquired from Sammons Communications, Inc. its Bensalem and Harrisburg
cable television systems in Pennsylvania and its Vineland and Atlantic
City/Pleasantville systems in New Jersey (the "Sammons Acquisition"). Likewise,
the total liabilities of the Company increased 53.9% to $1,374.9 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 and accrued expenses
of 89.9% to $78.1 million, of which accrued interest increased from $11.4
million to $35.4 million, a 210.5% increase, and an increase of 53.6% to
$1,256.0 million for notes payable, in each case as a result of the foregoing
transactions.
Revenues for the Company increased 57.0% to $104.5 million in the 1996
three-month period as compared to the 1995 three-month period, primarily as a
result of a 57.6% increase in revenues from the Company's Core Cable Television
Operations. The increase was primarily attributable to the TCI Exchange and the
Sammons Acquisition and, to a lesser extent, the realization of the effect of
rate increases which were implemented and internal customer growth.
Operating expenses increased 59.6% to $90.4 million (86.5% of total
revenues) in the 1996 three-month period. Depreciation and amortization
increased 63.0% to $31.1 million (29.7% of total revenues) in the 1996
three-month period. All increases were due largely to the TCI Exchange and the
Sammons Acquisition.
Interest expense increased 112.9% to $30.0 million in the 1996
three-month period. The increase was primarily the result of additional
indebtedness associated with the 8 3/8% Senior Notes issued in November 1995,
the 10 1/2% Senior Subordinated Notes issued in June 1996, and borrowings under
the Company's bank credit facility for the purpose of funding acquisitions.
Other expenses decreased by $20.2 million to provide an income of $15.6
million in the 1996 three-month period due largely to the elimination of the
provision for reduction in value of the note receivable and accrued interest due
from Australis for which a provision was previously made in June 1996.
Loss before income taxes and extraordinary loss decreased to $0.3
million in the 1996 three-month period from a loss of $8.7 million in the 1995
three-month period. This decrease in the loss was primarily attributable to the
elimination of the provision associated with Australis of $19.7 million, the
increase in operating income of $4.2 million, and the increase in interest
expense of $15.9 million.
EBITDA increased $16.2 million to $45.2 million in the 1996 three-month
period as compared to the 1995 three-month period. The increase was primarily
attributable to the TCI Exchange and the Sammons Acquisition. EBITDA as a
percentage of revenue declined from 43.5% to 43.2% as a combined result of an
increase in the Core Cable Television Operations and a decrease in the
Unrestricted Subsidiaries Operations, as discussed below.
<PAGE>
CORE CABLE TELEVISION OPERATIONS
Revenues increased 57.6% to $93.5 million in the 1996 three-month
period as compared to the 1995 three-month period. Premium service revenues grew
by 91.9% to $28.8 million. Pay-per-view revenues increased 25.5% to $2.4
million. Equipment rental revenue increased by 99.6% to $3.6 million. The
increases are primarily attributable to the TCI Exchange and the Sammons
Acquisition, and to a lesser extent, the realization of the effect of rate
increases which were implemented and internal customer growth. Internal growth
of basic customers and homes passed increased by 8,010 and 5,310, respectively,
during the 1996 three-month period.
In the 1996 three-month period, programming expense increased 58.4% to
$21.9 million (23.5% of revenues of Core Cable Television Operations) as a
result of an increase in the number of basic cable television subscribers served
by the Company attributable to the TCI Exchange and the Sammons Acquisition.
Selling, general and administrative expense increased 48.0% to $17.8 million
(19.0% 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 79.6% to $7.3 million (7.8% of total revenues of Core
Cable Television Operations), and depreciation and amortization increased 69.3%
to $29.1 million, primarily as a result of the TCI Exchange and the Sammons
Acquisition.
EBITDA increased 58.2% to $46.5 million (49.7% of total revenues of
Core Cable Television Operations) and operating income increased 42.6% to $17.4
million (18.6% of total revenues of Core Cable Television Operations), as the
increased revenues more than offset the increase in operating expenses, both due
largely to the TCI Exchange and the Sammons Acquisition. Operating income as a
percentage of total revenues of Core Cable Television Operations declined from
20.5% for the comparable period of the previous year primarily from the increase
in depreciation and amortization expenses resulting from the acquisitions.
UNRESTRICTED SUBSIDIARIES
The largest of the Company's unrestricted subsidiaries are MicroNet,
Inc. ("MicroNet"), StarNet, Inc. ("StarNet"), StarNet Development, Inc.
("StarNet Development"), and Lenfest Advertising, Inc. ("Lenfest Advertising").
Revenues increased 51.5% to $11.0 million in the 1996 three-month period as
compared to the 1995 three-month period, primarily as a result of increased
activity in the satellite transmission business of MicroNet and advertising
revenue by Lenfest Advertising.
Selling, general and administrative expense increased 114.3% to $6.5
million; and technical and other expense increased 25.5% to $5.8 million.
Depreciation and amortization increased 5.5% to $2.0 million in the 1996
three-month period as compared to the 1995 three-month period.
EBITDA was negative $1.3 million as compared to negative $0.4 million
and the operating loss was $3.3 million as compared to $2.3 million in the same
period in 1995. The increase in the loss is attributable to losses incurred by
StarNet Development as a result of a decline in the sales of inserter equipment.
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
CONSOLIDATED RESULTS
Revenues for the Company increased 46.9% to $290.6 million in the 1996
nine-month period as compared to the 1995 nine-month period, primarily as a
result of a 48.0% increase in revenues from the Company's Core Cable Television
Operations. The increase was primarily attributable to the TCI Exchange and the
Sammons Acquisition and, to a lesser extent, the realization of the effect of
rate increases which were implemented and internal customer growth.
Operating expenses increased 46.4% to $245.2 million (84.4% of total
revenues) in the 1996 nine-month period. Depreciation and amortization increased
48.7% to $82.5 million (28.4% of total revenues) in the 1996 nine-month period.
All increases were due largely to the TCI Exchange and the Sammons Acquisition.
Interest expense increased 84.1% to $78.0 million in the 1996
nine-month period. The increase was primarily the result of additional
indebtedness associated with the 8 3/8% Senior Notes issued in November 1995,
the 10 1/2% Senior Subordinated Notes issued in June 1996, and borrowings under
the Company's bank credit facility for the purpose of funding acquisitions.
Other income of $3.7 million in the 1995 nine-month period decreased by
$73.2 million in the 1996 nine-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 particularly as offset by a gain of $7.0 million on the
disposition of its partnership interest in Bay Cable Advertising in the TCI
Exchange. In the comparable 1995 nine-month period other income included a $13.2
million gain on the sale of marketable securities.
Loss before income taxes and extraordinary loss increased to $102.1
million in the 1996 nine-month period from a loss of $8.3 million in the 1995
nine-month period primarily due to recognition of losses associated with
Australis of $66.9 million and the increase in interest expense of $35.6
million.
EBITDA increased $42.1 million to $127.9 million in the 1996 nine-month
period as compared to the 1995 nine-month period. The increase was primarily
attributable to the TCI Exchange and the Sammons Acquisition. EBITDA as a
percentage of revenue increased from 43.4% to 44.0% as a combined result of an
increase in the Core Cable Television Operations and a decrease in the
Unrestricted Subsidiaries Operations, as described below.
CORE CABLE TELEVISION OPERATIONS
Revenues increased 48.0% to $255.1 million in the 1996 nine-month
period as compared to the 1995 nine-month period. Premium service revenues grew
by 62.3% to $64.3 million. Pay-per-view revenues increased 44.2% to $6.2
million. Equipment rental revenue increased by 89.4% to $9.1 million. The
increases are primarily attributable to the TCI Exchange and the Sammons
Acquisition and, to a lesser extent, the realization of the effect of rate
increases which were implemented and internal customer growth. Internal growth
of basic customers and homes passed increased by 22,681 and 21,573,
respectively, during the 1996 nine-month period.
<PAGE>
In the 1996 nine-month period, programming expense increased 44.0% to
$58.4 million (22.9% of revenues of Core Cable Television Operations) as a
result of the TCI Exchange and the Sammons Acquisition. Selling, general and
administrative expense increased 40.4% to $47.7 million (18.7% 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 71.6% to $20.1 million (7.9% of total revenues of Core Cable
Television Operations) and depreciation and amortization increased 52.2% to
$76.7 million, primarily as a result of the TCI Exchange and the Sammons
Acquisition.
EBITDA increased 49.6% to $128.8 million (50.5% of total revenues of
Core Cable Television Operations) and operating income increased 45.9% to $52.1
million (20.4% of total revenues of Core Cable Television Operations), as the
increased revenues more than offset the increase in operating expenses, both due
largely to the TCI Exchange and the Sammons Acquisition. Operating income as a
percentage of total revenues of Core Cable Television Operations declined from
20.7% for the comparable period of the previous year primarily from the increase
in depreciation and amortization expenses resulting from the acquisitions.
UNRESTRICTED SUBSIDIARIES
Revenues increased 39.6% to $35.6 million in the 1996 nine-month period
as compared to the 1995 nine-month period, primarily as a result of increased
activity in the satellite transmission business of MicroNet and advertising
revenue by Lenfest Advertising.
Selling, general and administrative expense increased 64.0% to $15.7
million; and technical and other expense increased 28.6% to $20.7 million.
Depreciation and amortization increased 14.1% to $5.8 million in the 1996
nine-month period as compared to the 1995 nine-month period.
EBITDA was negative $0.9 million as compared to negative $0.2 million
and the operating loss was $6.7 million as compared to $5.3 million in the same
period in 1995. The increase in the loss is attributable to losses incurred by
StarNet Development as a result of a decline in the sales of inserter equipment.
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.
<PAGE>
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 September 30, 1996, the
Company had a commitment to purchase a cable television system for an aggregate
cash purchase price of approximately $84.5 million (the "Turnersville
Acquisition"). In addition, on September 30, 1996, the Company (i) contributed
its right to acquire the assets of a cable television system to a newly formed
partnership, which partnership then exchanged such rights for the assets of
another cable television system (the "Clearview Transaction") and (ii) acquired
the assets of a cable advertising business for approximately $4.5 million.
To date, cash requirements have been funded by cash flow from
operations and borrowings. At September 30, 1996, the Company had aggregate
total indebtedness of approximately $1,256.0 million, which includes bank debt
at the subsidiary level of approximately $25.7 million. The Company's senior
indebtedness portion of approximately $937.0 million consisted of (i) three debt
obligations in the amount of approximately $60.0 million, $21.0 million and
$14.2 million (collectively, the "Private Placement Notes"), (ii) $685.7 million
of 8 3/8% Senior Notes (the "8 3/8% Senior Notes"), (iii) $150 million under a
bank credit facility (the "Bank Credit Facility") and (iv) obligations under
capital leases of approximately $6.1 million. The Company issued the Private
Placement Notes from 1988 to 1991 in connection with the refinancing of
revolving bank debt. The Company issued the 8 3/8% Senior Notes on November 14,
1995 pursuant to a registration statement on Form S-1 and used the net proceeds
to retire then-existing debt and to fund acquisitions. The Bank Credit Facility
consists of a $150 million term loan facility and a $300 million revolving
credit facility. At September 30, 1996, the term loan was fully drawn.
At September 30, 1996, the Company had outstanding senior subordinated
indebtedness of approximately $293.2 million, consisting of 10 1/2% Senior
Subordinated Notes Due 2006 (the "Private Placement Subordinated Notes"). The
Company issued the Private Placement Subordinated Notes on June 27, 1996
pursuant to a private offering to certain institutional and other accredited
investors and used the net proceeds to retire then-existing bank debt. On
October 9, 1996, the Company completed its offer to exchange all Private
Placement Subordinated Notes for 10 1/2% Senior Subordinated Notes which were
registered under the Securities Act of 1933 (the "Senior Subordinated Notes").
The form and term of the Senior Subordinated Notes are identical in all material
respects to the form and term of the Private Placement Subordinated Notes. The
Senior Subordinated Notes are general unsecured obligations of the Company
subordinate in right of payment to all present and future senior indebtedness of
the Company. In addition, as described below and in the Notes to the financial
statements of the Company, the Company had a stand-by $75.0 million senior
subordinated credit facility (the "Stand-by Facility") in order to provide any
required funding under the Australis Guaranty (as defined below). At September
30, 1996 no amounts
<PAGE>
had been drawn under such facility and as of October 31, 1996, the Australis
Guaranty and the Stand-By Facility were terminated.
Effective October 28, 1996, the Company and its lenders under the Bank
Credit Facility amended certain of the terms of the Bank Credit Facility as
follows: (i) to permit the Company to apply any distributions received as a
partner of Garden State Cablevision, L.P. to reduce the outstanding amount of
the revolving credit facility, if any, (ii) to permit the Company to invest up
to $80 million in Australis (as defined below), (iii) to permit the issuance of
letters of credit (described below) in an aggregate amount of $33.5 million,
(iv) to prohibit the Company from making certain additional investments in
excess of $50 million as long as the ratio of Total Debt to Annualized Operating
Cash Flow is greater than 6.00:1 for the two most recently completed fiscal
quarters, (v) to prohibit the Company from having a Senior Debt Leverage Ratio
for the most recent quarter end in excess of 5.75:1 through March 30, 1997, and
declining thereafter to 4.50:1 beginning December 31, 1999, and (vi) to prohibit
the Company from 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. Terms capitalized but not defined above have the meanings assigned to them
in the Bank Credit Facility, as amended.
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 Senior Subordinated Notes, the Private Placement Notes, the 8 3/8% Senior
Notes and the Bank Credit Facility when due. There are no restrictions relating
to the payment to the Company of dividends, advances or other payments by the
Restricted Subsidiaries of the Company.
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 $51.6 million for the
nine months ended September 30, 1996 compared to approximately $43.9 million for
the nine months ended September 30, 1995. The increase in cash flow was a result
of the completion of the TCI Exchange and the Sammons Acquisition and, to a
lesser extent, the realization of the effect of rate increases which were
implemented and internal customer growth. During the 1996 nine-month period the
Company was required to make interest payments of approximately $53.2 million on
its outstanding debt, whereas during the 1995 nine-month period, the Company was
required under its then existing debt obligations to make interest payments of
approximately $45.2 million. This increase was primarily attributable to
increased debt incurred by the Company in connection with the TCI Exchange and
the Sammons Acquisition.
On September 30, 1996, the Company, through Lenfest Clearview, Inc.
("Clearview"), a newly formed subsidiary of the Company's Suburban Cable TV Co.
Inc. ("Suburban") subsidiary, completed the acquisition of a 30% partnership
interest in Clearview Partners, a newly formed general partnership (the
"Partnership"). Suburban, through
<PAGE>
Clearview, contributed to the Partnership $500,000 and Suburban's right to
acquire the cable television assets (the "Gettysburg Assets") located in and
about Gettysburg, Pennsylvania from Sammons Communications of Pennsylvania, Inc.
and its right to exchange the Gettysburg Assets for cable television assets
located near Stewartstown, Pennsylvania and owned by GS Communications, Inc.
Suburban also received a payment of $4.5 million from GS Communications, Inc. in
connection with the transactions. On October 11, 1996, Clearview CATV, Inc., an
unaffiliated entity, contributed all of its assets and liabilities to the
Partnership in connection with its acquisition of the remaining 70% interest in
the Partnership. The assets include cable television assets located in Maryland
and Pennsylvania and the liabilities include bank debt in the approximate amount
of $8.5 million. As a result of the series of transactions, Clearview holds a
30% general partnership interest in the Partnership, and the Partnership has
approximately 9,650 basic customers and passes approximately 13,400 homes.
In addition, on September 30, 1996, the Company through Lenfest
Advertising, Inc., a wholly owned subsidiary ("Advertising") acquired the assets
of Metrobase Cable Advertising from a subsidiary of Harron Communications Corp.
for approximately $4.5 million. The Company funded the acquisition from cash on
hand.
On September 11, 1996, the Company, through StarNet, entered into an
agreement with United Video Satellite Group, Inc. ("UVSG"), to form a joint
venture to combine the two companies' pay-per-view promotion services. StarNet
contributed its Barker service to the joint venture and received a 28%
partnership interest. The joint venture is named Sneak Prevue, L.L.C. and is
managed and controlled by UVSG.
The Company expects to complete the Turnersville Acquisition in the
first quarter of 1997 for approximately $84.5 million. The Company expects to
fund the acquisition from borrowings under the Bank Credit Facility.
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. For the nine months ended September 30, 1996,
the Company has expended approximately $33.7 million for capital expenditures
for Core Cable Television Operations.
The Company is obligated to make additional investments of FF49.8
million in 1996 and 1997 (approximately $9.6 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
<PAGE>
provided by the Company's joint venture partner, Tele-Communications, Inc.
("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 is also party to one interest rate swap agreement to convert a portion
of the Company's fixed rate debt to a LIBOR based rate, thereby obtaining the
benefits of long-term funds while paying a rate of interest based on the cost of
short-term funds. The Company does not otherwise ordinarily enter into interest
rate or currency hedge agreements.
LENFEST AUSTRALIA, INC.
At September 30, 1996, the Company, through its Lenfest Australia, Inc.
subsidiary, held an approximately 31.4% aggregate equity investment in Australis
Media Limited ("Australis"), 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. As reported in its
Report on Form 10-Q for the period ended June 30, 1996, as a result of
uncertainties associated with the successful completion by Australis of its
proposed recapitalization, the Company recognized a loss of approximately $66.9
million on the decline of the market value of its equity ownership in Australis
and a provision for potential reduction in value of note receivable and accrued
interest in the amount of $19.7 million in connection with a note receivable and
accrued interest due from Australis.
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 was extended to the earlier of October 31, 1996
or the refinancing by Australis of the Australis Bank Facility (as defined
below). 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 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
<PAGE>
Credit Facility was an unsecured facility which was required to be repaid on the
earlier of repayment of the loans by Australis or October 31, 1996. The full
payment and performance of the Lenfest Australia Credit Facility was guaranteed
by H.F. Lenfest, President and CEO of the Company. As a condition to granting
their consent to the entering into of the Lenfest Australia Credit Facility, the
lenders under the Bank Credit Facility required the Company to agree to reduce
the aggregate principal amount available for advances under the revolving credit
portion of the Bank Credit Facility by $20.0 million so long as any portion of
the Lenfest Australia Credit Facility remained outstanding.
In addition, the Company and certain other investors in Australis
(collectively, the "Australis Guarantors") had 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 Company's several portion (the
"Australis Guaranty") of the guaranty was up to $75.0 million of the Australis
Bank Facility. The Australis Bank Facility required that it be repaid on or
before October 31, 1996.
In connection with the Australis Guaranty, the Company entered into the
Stand-by Facility on May 2, 1996 with The Toronto-Dominion Bank (the
Administrative Agent under the 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 provided 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.
On October 31, 1996, Australis completed its refinancing through the
sale of $150 million in principal amount of its 15% Senior Secured Discount
Notes due 2002 (the "Australis Notes") and the sale of $100 million of shares
and convertible notes (the "Australis Stock"). In connection with the
refinancing, the Company purchased $40 million of the Australis Stock at a price
of A$0.545 per share or convertible note. In addition, the Company purchased $40
million of the Australis Notes. The Australis Notes have warrants to purchase
stock or convertible notes at a price of A$0.20. As a result, at October 31,
1996, the Company, through its Lenfest Australia, Inc. subsidiary, has invested
an aggregate of $131.0 million in the equity securities of Australis and $40
million in debt securities of Australis. At October 31, 1996, the Company held
an approximately 32.9 % economic interest in Australis which had a market value
of approximately $40.5 million.
At the completion of the refinancing, Australis repaid the Australis
Bank Facility. As a result, the Australis Guaranty was terminated. In addition,
Australis repaid Lenfest Australia, Inc. amounts due under the January 19, 1996
Loan Agreement. The principal, interest and fees repaid totaled approximately
$20.3 million. As a result, Lenfest Australia, Inc. repaid the Lenfest Australia
Credit Facility. Further, Australis repurchased from
<PAGE>
Publishing and Broadcasting Limited ("PBL") certain excess equipment which it
had sold PBL on August 20, 1996 to raise short term working capital. The Company
had agreed with PBL to share in the cost of that purchase, and consequently, the
Company was repaid approximately $7.1 million which it had advanced to PBL on
September 18, 1996 as its share of that commitment.
In connection with the refinancing, the Company was to have received
options on shares or convertible notes at a price of A$0.20 per share or note.
In order to attract sufficient equity investors into the Australis refinancing
plan, the Company agreed to transfer all of these options to other parties who
purchased portions of the Australis Stock. In addition, the Company agreed to
give two parties which purchased Australis Stock in the offering an option for
five years for each to purchase 50,000,000 convertible notes of the 173 million
convertible notes obtained by the Company in its original investment in
Australis. The option is exercisable at a price of A$0.20 per note with said
price to escalate at 8% per year commencing November 1, 1997.
Mr. Lenfest has committed to purchase approximately $3.5 million of the
Australis Notes.
Australis and Lenfest Australia Inc. have agreed to terminate the
Technical Services Agreement, pursuant to which Lenfest Australia Inc. was to
provide services to Australis in the period 1994-2005. The agreement provided
for payments to Lenfest Australia in the potential aggregate amount of A$65
million over ten years, commencing in 1996. In return for termination of this
agreement, Australis has agreed to issue 70,238,557 shares and/or convertible
notes at a conversion price of A$0.545 per share or note to Lenfest Australia.
The issuance of such securities requires approval of the shareholders of
Australis which the Company believes will be obtained at the annual general
meeting of Australis' shareholders to be held in December 1996.
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 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. The Company is currently in discussions with
Australis and the beneficiaries under the guaranties with regard to providing
letters of credit in the aggregate amount of $33.5 million with a term of five
years. The Company has arranged for the issuance of the letters of credit under
the Bank Credit Facility. The Company expects Australis to agree to reimburse
the Company for any draws made under the letters of credit as well as certain
fees and expenses of the Company incurred in connection therewith and to secure
its obligations by granting the Company a fourth security position in all of
Australis' assets after the Australian Government, the holders of the Australis
Notes and the holders of Australis' subordinated notes. If the Company provides
such a letter of credit facility, the Company would be directly obligated for
$33.5 million and may remain indirectly obligated for the balance of the program
license payment obligations. Under the terms of the 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 the letters
of credit issued under the Bank Credit Facility with respect to the program
license payment obligation guarantees.
FUTURE CAPITAL REQUIREMENTS
<PAGE>
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 meet operating expenses and pay the
taxes of the Company, to service its indebtedness and to fund its cable plant
capital expenditures. The Company's ability to borrow funds to make non-cable
plant capital expenditures, additional investments in or acquisitions of cable
television systems, and to borrow funds under the Bank 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.
INFLATION
The net impact of inflation on operations has not been material in the
last three years due to the relatively low rates of inflation during this
period. If the rate of inflation increases the Company may increase customer
rates to keep pace with the increase in inflation, although there may be timing
delays.
Part II. Other Information
Item 1. Legal Proceedings
In September 1996 the Company and the News Corporation Limited ('News')
settled their respective suits against the other by agreeing to dismiss all
claims without payment of any damages.
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.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following Exhibits are furnished as part of this Report:
*2.1 Amended and Restated Asset Exchange Agreement, dated September
8, 1995, between LenComm, Inc. and Lenfest West, Inc. and Heritage
Cablevision of Delaware, Inc.
*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 Company.
+++3.2 Amended and Restated Bylaws of the Company.
<PAGE>
*4.1 Form of $700,000,000 8 3/8% Senior Note Due 2005.
**4.2 Indenture between the Company and The Bank of New York, dated as of
November 1, 1995.
+++4.3 Indenture, dated as of June 15, 1996, between the Company and The Bank
of New York.
+++4.4 Form of Certificated Note, dated June 27, 1996, between the Company and
Salomon Brothers Inc (In accordance with Item 601 of Regulation S-K
similar Notes between the Company 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 Company
and Salomon Brothers Inc, Toronto Dominion Securities (USA) Inc., CIBC
Wood Gundy Securities Corp. and NationsBanc Capital Markets, Inc.
*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 ease , dated as of May Marguerite Lenfest and 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.
<PAGE>
*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.
*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 CoreStates 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.
<PAGE>
*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 AdNet 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 MBL 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, N.A., as Arranging Agents, the
Lenders and Toronto-Dominion (Texas), Inc., as Administrative Agent.
+10.26 First Amendment, dated as of February 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.
+10.27 Agreement, dated as of February 29, 1996, in favor of the Company by
H.F. Lenfest.
<PAGE>
+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 MBL Life
Assurance Corp. and Full & Co. have not been filed because they are
identical in all material respects to the filed exhibit.)
++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 Assurance 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.
<PAGE>
+++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, dated August 29, 1996, to Credit Agreement, dated as
of February 29, 1996, by and among Lenfest Australia, Inc., The
Toronto-Dominion Bank, NationsBank of Texas, N.A. and Toronto
Dominion (Texas), Inc.
10.40 Second Amendment, dated September 30, 1996, to Credit Agreement, dated
as of February 29, 1996, by and among Lenfest Australia, Inc., The
Toronto-Dominion Bank, NationsBank of Texas, N.A. and Toronto
Dominion (Texas), Inc.
10.41 Form of First Amendment, dated as of October 28, 1996, to Credit
Agreement, dated as of June 27, 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.
27. Financial Data Schedule.
- ---------------
* Incorporated by reference to the Company's Registration Statement on
Form S-1, No. 33-96804, declared effective by the Securities and
Exchange Commission on November 8, 1995.
** Incorporated by reference to the Company's Report on Form 10-Q, File
No. 33-96804, dated December 22, 1995, for the quarter ended September
30, 1995.
*** Incorporated by reference to the Company's Report on Form 8-K, File
No. 33-96804, dated February 26, 1996.
+ Incorporated by reference to the Company's Report on Form 10-K, File
No. 33-96804, dated March 29, 1996, for the year ended December 31,
1995.
++ Incorporated by reference to the Company's Report on Form I-Q, File
No. 33-96804, for the quarter ended March 31, 1996.
+++ Incorporated by reference to the Company's Registration Statement on
Form S-4, No. 333-09631, dated August 6, 1996.
<PAGE>
(b) Reports on Form 8-K.
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LENFEST COMMUNICATIONS, INC.
November 14, 1996 By: /s/ Harry F. Brooks
- ------------------------- -----------------------------
Date Harry F. Brooks,
Executive Vice President (authorized
officer and Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Title or Description Page Number
- ---------- ------------------------- -----------------
<S> <C> <C>
10.40 Second Amendment, dated August 29, 1996,
to Credit Agreement, dated as of February 29,
1996, by and among Lenfest Australia, Inc., The
Toronto-Dominion Bank, NationsBank of Texas,
N.A. and Toronto Dominion (Texas), Inc.
10.41 Form of First Amendment, dated as of October 28, 1996,
to Credit Agreement, dated as of June 27, 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.
27. Financial Data Schedule.
</TABLE>
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Amendment") dated as of
the 30th day of September, 1996, by and among Lenfest Australia, Inc., a
Delaware corporation (the "Borrower"), The Toronto-Dominion Bank, Nations Bank
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, as
amended by that certain First Amendment to Credit Agreement dated as of August
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) October
31, 1996 or (b) such earlier date as payment of the Loans shall be due (whether
by acceleration or otherwise)."
2. 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>
3. 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.
4. 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 3 hereof;
(ii) receipt by each of the Lenders of an amendment fee in the
amount of $25,000, which fee shall be fully earned when due and non-refundable
when paid; and
(iii) receipt by the Administrative Agent of such documents as
the Administrative Agent shall reasonably request.
-2-
<PAGE>
5. 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.
6. 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.
7. 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
------------------------------------
Harry F. Brooks
[CORPORATE SEAL] Its: Executive Vice President
Attest: /s/ Robert W. Mohollen
---------------------------------
Its: Assistant Secretary
--------------------------
ADMINISTRATIVE AGENT: TORONTO DOMINION (TEXAS), INC.
By:
------------------------------------
Its:
--------------------------
LENDERS: THE TORONTO-DOMINION BANK
By:
------------------------------------
Its:
--------------------------
NATIONS BANK OF TEXAS, N.A.
By:
------------------------------------
Its:
--------------------------
-4-
<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
[CORPORATE SEAL] By:
------------------------------------
Its:
--------------------------
Attest:
------------------------------------
Its:
---------------------------
ADMINISTRATIVE AGENT: TORONTO DOMINION (TEXAS), INC.
By: /s/ Sophia D. Sgarbi
-------------------------------------
Its: Vice President
LENDERS: THE TORONTO-DOMINION BANK
By: /s/ Sophia D. Sgarbi
---------------------------------------
Its: Manager Syndications & Credit
------------------------------
Administration
------------------------------
NATIONS BANK OF TEXAS, N.A.
By:
------------------------------------
Its:
--------------------------
-5-
<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
[CORPORATE SEAL] By:
------------------------------------
Its:
--------------------------
Attest:
---------------------------------
Its:
--------------------------
ADMINISTRATIVE AGENT: TORONTO DOMINION (TEXAS), INC.
By:
------------------------------------
Its:
--------------------------
LENDERS: THE TORONTO-DOMINION BANK
By:
------------------------------------
Its:
--------------------------
NATIONS BANK OF TEXAS, N.A.
By: /s/ Michele Huff
------------------------------------
Its: Vice President
--------------------------
-6-
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "Amendment") dated as of
the 28th day of October, 1996, by and among Lenfest Communications, Inc., a
Delaware corporation (the "Borrower"); The Toronto-Dominion Bank ("T-D"), PNC
Bank, National Association ("PNC"), NationsBank of Texas, N.A. ("NB"), Union
Bank of California, N.A., Bank of Montreal, The Bank of Nova Scotia, Banque
Nationale de Paris, CIBC Inc., CoreStates Bank, N.A., Dresdner Bank AG, New York
and Grand Cayman Branches, The First National Bank of Maryland, First Hawaiian
Bank, LTCB Trust Company, MeesPierson N.V., Merita Bank Ltd, Grand Cayman
Branch, Royal Bank of Canada, The Sumitomo Bank, Ltd., Van Kampen American
Capital Prime Rate Income Trust, Credit Lyonnais New York Branch and The Bank of
New York Company, Inc. (collectively herein referred to as the "Lenders");
Toronto Dominion (Texas), Inc., as administrative agent for the Lenders (the
"Administrative Agent"), T-D, PNC and NB, in their capacities as arranging
agents for the Lenders (the "Arranging Agents"); PNC, in its capacity as
documentation agent (the "Documentation Agent"); and NB, in its capacity as
syndication agent (the "Syndication Agent" and collectively with the
Administrative Agent, the Documentation Agent and the Arranging Agents referred
to herein as the "Agents"),
W I T N E S S E T H:
WHEREAS, the Borrower, the Agents and the Lenders are parties to that
certain Credit Agreement dated as of June 27, 1996 (the "Credit Agreement"); and
WHEREAS, the Borrower, the Agents 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 Section 2.7. Section 2.7 of the Credit Agreement,
Repayment, is hereby amended by adding thereto a new Section 2.7(d) as follows:
"(d) Repayments From Garden State Distributions. The Borrower
shall make a repayment of Loans outstanding under the Revolving Loan
Commitment in an amount equal to the aggregate amount of all
distributions received by the
<PAGE>
Borrower of any of its Subsidiaries in respect of its partnership
interests in Garden State Cablevision, L.P. (together with accrued
interest on such outstanding Loans and any costs incurred on account of
such repayment under Section 2.10 hereof) on the date of any such
receipt. The Revolving Loan Commitment shall not be deemed to be
reduced solely by virtue of such repayments. To the extent that the
aggregate amount of such distributions exceeds the amount of Loans then
outstanding under the Revolving Loan Commitment, such excess amount
shall be used by the Borrower to make a repayment of principal
outstanding under the Term Loan and applied to the next installment
payments of the Term Loan scheduled to occur thereafter, in order of
maturity."
2. Amendment to Section 7.6. Section 7.6 of the Credit Agreement,
Investments, is hereby amended by deleting subsection (e) thereof in its
entirety and by substituting the following therefor:
"(e) make additional investments in Persons engaged in businesses
directly related to the cable television business as set forth on
Schedule 14 attached hereto (i) in an aggregate amount not to exceed
$50,000,000 so long as the Total Leverage Ratio for either or both of
the two (2) most recently completed fiscal quarters for which financial
statements are required to have been provided to the Lenders in
accordance with Section 6.1 or 6.2 hereof, as applicable, is greater
than or equal to 6.0 to 1, and (ii) in any amount so long as the Total
Leverage Ratio for both such fiscal quarters is less than 6.0 to 1,
provided that, in each such case, the Borrower has provided the
Administrative Agent and the Lenders with calculations specifically
demonstrating the Borrower's pro forma compliance with Sections 7.8,
7.9, 7.10, 7.11, 7.16 and 7.17 hereof, both before and after giving
effect to the proposed investment, and (f) during the 1996 calendar
year (i) make equity investments in Australis Media Limited in an
aggregate amount not to exceed $40,000,000 and (ii) purchase 15% senior
subordinated notes due 2002 of Australis Media Limited from Australis
Media Limited in an aggregate principal amount not to exceed
$40,000,000, provided that, in each such case, the Borrower has
provided the Administrative Agent and the Lenders with calculations
specifically demonstrating the Borrower's pro forma compliance with
Sections 7.8, 7.9, 7.10, 7.11, 7.16 and 7.17 hereof, both before and
after giving effect to the proposed investment."
3. Amendment to Section 7.8. Section 7.8 of the Credit Agreement,
Senior Leverage Ratio, is hereby amended by deleting
-2-
<PAGE>
the chart appearing therein in its entirety and substituting the
following therefor:
"Senior
Leverage
Period Ratio
------ -----
From the Agreement Date through
March 30, 1997 5.75:1
From March 31, 1997 through
June 29, 1997 5.50:1
From June 30, 1997 through
December 30, 1997 5.25:1
From December 31, 1997 through
December 30, 1998 5.00:1
From December 31, 1998 through
December 30, 1999 5.00:1
At December 31, 1999 and all
times thereafter 4.50:1"
4. Amendment to Section 7.17. Section 7.17 of the Credit Agreement,
Total Debt to Annualized Operating Cash Flow, is hereby amended by deleting the
chart appearing therein in its entirety and substituting the following therefor:
-3-
<PAGE>
"Total
Leverage
Period Ratio
------ -----
From the Agreement Date through
December 30, 1996 7.50:1
From December 31, 1996 through
March 30, 1997 7.25:1
From March 31, 1997 through
June 29, 1997 7.00:1
From June 30, 1997 through
December 30, 1997 6.75:1
From December 31, 1997 through
March 30, 1998 6.50:1
From March 31, 1998 through
December 30, 1998 6.25:1
From December 31, 1998 and all
times thereafter 6.00:1"
5. Amendment to Schedule 14. Schedule 14 to the Credit Agreement,
Additional Permitted Investments, is hereby amended by deleting the existing
Schedule in its entirety and by substituting the attached Schedule 14 in lieu
thereof.
6. Consent to Issuance of Letters of Credit. Notwithstanding the
requirement contained in Section 2.13(a) of the Credit Agreement that all
Letters of Credit have a maturity of not more than one (1) year from the date of
issuance, but otherwise subject to the terms and conditions of the Credit
Agreement, the Agents and the Lenders hereby consent to the issuance by T-D Bank
of Letters of Credit for the account of the Borrower substantially in the forms
attached hereto as Exhibits A, B and C (the "AML Movie Studio Letters of
Credit,") which AML Movie Studio Letters of Credit shall be deemed to be Letters
of Credit issued under and in accordance with the terms of the Credit Agreement
upon the issuance thereof.
7. No Other Amendment or Waiver. Notwithstanding the agreement of the
Administrative Agent, the Agents 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
-4-
<PAGE>
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, the
Agents 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.
8. Representations and Warranties. The Borrower hereby represents and
warrants in favor of the each of the Agents and each Lender, as follows:
a. 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;
b. 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;
c. 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
d. The execution and delivery of this Amendment, the
Borrower's performance hereunder, the Borrower's incurrence of reimbursement
obligations in respect of the AML Movie Studio Letters of Credit and any
borrowing by the Borrower contemplated in connection with the transactions
contemplated hereby 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,
-5-
<PAGE>
instrument, agreement, or undertaking to which the Borrower is party or by which
the Borrower's assets or properties are or may become bound.
9. Conditions Precedent to Effectiveness of Amendment. The
effectiveness of this Amendment is subject to the following:
a. the truth and accuracy of the representations and
warranties contained in Section 8 hereof;
b. receipt by the Administrative Agent of evidence
satisfactory to it that not less than $150,000,000 of additional subordinated
Indebtedness has been incurred by Australis Media Limited;
c. the cancellation and release of the LCI Guaranty and the
LCI Guaranty Backup Facility pursuant to documentation satisfactory to the
Administrative Agent and the payment, in full, of all obligations of the
Borrower arising in respect thereof;
d. the repayment in full of all obligations outstanding in
respect of the Lenfest Australia Loan pursuant to documentation satisfactory to
the Administrative Agent;
e. receipt by T-D Bank of one or more Requests for Issuance of
Letter of Credit with respect to the AML Movie Studio Letters of Credit in form
and substance satisfactory to T-D Bank;
f. receipt by each Lender of an amendment fee in an amount
equal to the product of 0.005 times the aggregate amount of such Lender's
portion of the Commitments, which fees shall be fully earned when due and
non-refundable when paid; and
g. receipt by the Administrative Agent of all other documents
as the Administrative Agent shall reasonably request.
10. 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.
11. Loan Documents. Each reference in the Credit Agreement or in 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.
12. 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.
-6-
<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 COMMUNICATIONS, INC., a Delaware
corporation
By:_______________________________________
[CORPORATE SEAL]
Its:________________________________
Attest:___________________________________
Its:________________________________
ADMINISTRATIVE AGENT: TORONTO DOMINION (TEXAS), INC.
By:_______________________________________
Its:________________________________
ARRANGING AGENTS: THE TORONTO-DOMINION BANK
By:_______________________________________
Its:________________________________
PNC BANK, NATIONAL ASSOCIATION
By:_______________________________________
Its:________________________________
NATIONSBANK OF TEXAS, N.A.
By:_______________________________________
Its:________________________________
FIRST AMENDMENT TO CREDIT AGREEMENT
LENFEST COMMUNICATIONS, INC.
Signature Page 1
<PAGE>
LENDERS: THE TORONTO-DOMINION BANK
By:_______________________________________
Its:________________________________
PNC BANK, NATIONAL ASSOCIATION
By:_______________________________________
Its:________________________________
NATIONSBANK OF TEXAS, N.A.
By:_______________________________________
Its:________________________________
UNION BANK OF CALIFORNIA, N.A.
By:_______________________________________
Its:________________________________
BANK OF MONTREAL
By:_______________________________________
Its:________________________________
THE BANK OF NOVA SCOTIA
By:_______________________________________
Its:________________________________
FIRST AMENDMENT TO CREDIT AGREEMENT
LENFEST COMMUNICATIONS, INC.
Signature Page 2
<PAGE>
LENDERS:
(continued) BANQUE NATIONALE DE PARIS
By:_______________________________________
Its:________________________________
By:_______________________________________
Its:________________________________
CIBC INC.
By:_______________________________________
Its:________________________________
CORESTATES BANK, N.A.
By:_______________________________________
Its:________________________________
DRESDNER BANK AG, NEW YORK AND GRAND
CAYMAN BRANCHES
By:_______________________________________
Its:________________________________
THE FIRST NATIONAL BANK OF MARYLAND
By:_______________________________________
Its:________________________________
FIRST AMENDMENT TO CREDIT AGREEMENT
LENFEST COMMUNICATIONS, INC.
Signature Page 3
<PAGE>
LENDERS:
(continued) FIRST HAWAIIAN BANK
By:________________________________
Its:_________________________
LTCB TRUST COMPANY
By:________________________________
Its:_________________________
MEESPIERSON N.V.
By:________________________________
Its:_________________________
By:________________________________
Its:_________________________
MERITA BANK LTD, GRAND CAYMAN BRANCH
By:________________________________
Its:_________________________
By:________________________________
Its:_________________________
ROYAL BANK OF CANADA
By:________________________________
Its:_________________________
FIRST AMENDMENT TO CREDIT AGREEMENT
LENFEST COMMUNICATIONS, INC.
Signature Page 4
<PAGE>
LENDERS:
(continued) THE SUMITOMO BANK, LTD.
By:________________________________
Its:_________________________
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST
By:________________________________
Its:_________________________
CREDIT LYONNAIS NEW YORK BRANCH
By:________________________________
Its:_________________________
THE BANK OF NEW YORK COMPANY, INC.
By:________________________________
Its:_________________________
FIRST AMENDMENT TO CREDIT AGREEMENT
LENFEST COMMUNICATIONS, INC.
Signature Page 5
<PAGE>
Schedule 14
(as amended)
Lenfest Communications, Inc. - Investments following
Agreement Date
- --------------------------------------------------------------------------
1996 1997
- --------------------------------------------------------------------------
Videopole $2,760,000 $10,000,000
- --------------------------------------------------------------------------
STARNET 3,000,000 500,000
- --------------------------------------------------------------------------
SDI 3,000,000 1,000,000
CAM SYSTEMS 4,600,000 3,500,000
- --------------------------------------------------------------------------
LPS-NEWS 3,000,000 3,000,000
- --------------------------------------------------------------------------
LENFEST ADVERTISING 6,600,000 8,500,000
- --------------------------------------------------------------------------
TELESTAR MARKETING 100,000 0
- --------------------------------------------------------------------------
Totals: $23,060,000 $26,500,000
==========================================================================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,915
<SECURITIES> 31,819
<RECEIVABLES> 44,675
<ALLOWANCES> 4,551
<INVENTORY> 3,152
<CURRENT-ASSETS> 0
<PP&E> 680,101
<DEPRECIATION> 296,978
<TOTAL-ASSETS> 1,192,184
<CURRENT-LIABILITIES> 0
<BONDS> 1,256,016
0
0
<COMMON> 2
<OTHER-SE> (185,642)
<TOTAL-LIABILITY-AND-EQUITY> 1,192,184
<SALES> 290,636
<TOTAL-REVENUES> 290,636
<CGS> 3,653
<TOTAL-COSTS> 245,182
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,464
<INTEREST-EXPENSE> 78,011
<INCOME-PRETAX> (102,088)
<INCOME-TAX> 9,652
<INCOME-CONTINUING> (92,436)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,484)
<CHANGES> 0
<NET-INCOME> (94,920)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
