<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 33-96804
--------
LENFEST COMMUNICATIONS, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2094942
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1105 North Market St., Suite 1300,
P. O. Box 8985,
Wilmington, Delaware 19899
--------------------------------------
(Address of Principal executive offices) (Zip Code)
(302) 427-8602
--------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the Registrant's
class of common stock, as of May 14, 1997: 158,896 shares of Common Stock, $0.01
par value per share. All shares of the Registrant's Common Stock are privately
held, and there is no market price or bid and asked price for said Common Stock.
<PAGE>
LENFEST COMMUNICATIONS, INC.
Index
Part I. Financial Information Page
----
Item 1. Financial Statements
Report on Review by Independent Certified Public Accountants 4
Condensed Consolidated Balance Sheets as of March 31, 1997
(unaudited) and as of December 31, 1996 5
Consolidated Statements of Operations for the three months ended
March 31, 1997 (unaudited) and March 31, 1996 (unaudited) 7
Consolidated Statements of Cash Flows for the three months ended
March 31, 1997 (unaudited) and March 31, 1996 (unaudited) 8
Notes to Condensed Consolidated Financial Statements (unaudited) 10
Statement of 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 6. Exhibits and Reports on Form 8-K 23
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Lenfest Communications, Inc. and Subsidiaries:
We have reviewed the accompanying condensed consolidated balance sheet of
Lenfest Communications, Inc. and subsidiaries as of March 31, 1997, and the
related consolidated statements of operations for the three months ended March
31, 1997 and 1996, and the consolidated statements of cash flows for the three
months ended March 31, 1997 and 1996, included in the accompanying Securities
and Exchange Commission Form 10-Q for the period ended March 31, 1997. 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, 1996, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the year then ended (not presented herein). In our report
dated March 24, 1997, 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, 1996, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
PRESSMAN CIOCCA SMITH LLP
Hatboro, Pennsylvania
May 9, 1997
4
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------------- --------------
(Unaudited) (*)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,918 $ 20,633
Marketable securities 89,452 79,830
Accounts receivable, trade and other, less allowance for
doubtful accounts of $2,282 in 1997 and $2,055 in 1996 23,510 22,801
Inventories 2,260 2,757
Prepaid expenses 3,698 2,824
Property and equipment, net of accumulated depreciation
of $330,204 in 1997 and $311,190 in 1996 409,709 389,029
Investments, principally in affiliates, and related receivables 60,594 51,743
Goodwill, net of amortization of $27,231 in 1997 and
$26,232 in 1996 77,212 78,524
Deferred franchise costs, net of amortization of $155,700 in
1997 and $144,563 in 1996 542,939 494,568
Other intangible assets, net of amortization of $13,951 in 1997
and $12,620 in 1996 25,933 26,076
Deferred Federal tax asset, net 59,428 55,620
Other assets 7,854 6,612
---------- ----------
$1,310,507 $1,231,017
========== ==========
</TABLE>
(*) Condensed from audited financial statements.
See independent certified public accountants' review report and accompanying
notes.
5
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, (continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------------- --------------
(Unaudited) (*)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Notes payable and obligations under capital leases $ 1,380,069 $ 1,319,863
Accounts payable and accrued expenses - unrelated parties 58,420 40,377
Accounts payable - affiliate 12,364 12,855
Deferred state tax liability 8,765 9,165
Customer service prepayments and deposits 8,777 9,148
Investment in Garden State Cablevision, L.P. 75,281 72,454
----------- -----------
TOTAL LIABILITIES 1,543,676 1,463,862
MINORITY INTEREST in equity of consolidated subsidiaries 663 945
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 (loss) on marketable securities, net of deferred
taxes (447) (9,866)
Accumulated deficit (284,134) (274,673)
----------- -----------
(233,832) (233,790)
----------- -----------
$ 1,310,507 $ 1,231,017
=========== ===========
</TABLE>
(*) Condensed from audited financial statements.
See independent certified public accountants' review report and accompanying
notes.
6
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1997 1996
------------- --------------
<S> <C> <C>
REVENUES $ 112,736 $ 80,367
OPERATING EXPENSES
Service 10,598 6,492
Programming - from affiliate 15,687 11,256
Programming - other cable 7,775 4,881
Selling and marketing 4,203 3,273
General and administrative 19,128 14,878
Direct costs - non-cable 5,452 4,869
Depreciation 19,305 14,066
Amortization 13,729 7,946
--------- ---------
95,877 67,661
--------- ---------
OPERATING INCOME 16,859 12,706
OTHER INCOME (EXPENSE)
Interest expense (32,034) (19,984)
Equity in net income (losses) of unconsolidated
affiliates 1,292 (7,185)
Net gain on sales of securities 73 27
Gain on disposition of partnership interest -- 7,210
Other income and expense (net) 449 3,709
--------- ---------
(30,220) (16,223)
--------- ---------
(LOSS) BEFORE INCOME TAXES (13,361) (3,517)
INCOME TAX BENEFIT 3,900 350
--------- ---------
NET (LOSS) (9,461) (3,167)
BEGINNING ACCUMULATED DEFICIT (274,673) (143,911)
--------- ---------
ENDING ACCUMULATED DEFICIT $(284,134) $(147,078)
========= =========
</TABLE>
See independent certified public accountants' review report and accompanying
notes.
7
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (9,461) $ (3,167)
Adjustments to reconcile net (loss) to net cash provided
by operating activities
Depreciation and amortization 33,034 22,012
Accretion of debt discount 376 154
Accretion of discount on marketable securities (net) (26) --
Net (gains) on sales of marketable securities (73) (27)
(Gain) on disposition of partnership interest -- (7,210)
Deferred income tax (benefit) (4,200) (1,550)
(Gain) on sale of property and equipment (29) (20)
Equity in net (income) losses of unconsolidated affiliates (1,292) 7,185
Minority interest (282) (1,225)
Changes in operating assets and liabilities, net of effects
from acquisitions
Accounts receivable (709) (1,042)
Inventories 497 909
Prepaid expenses (874) 178
Other assets (1,242) (106)
Accounts payable and accrued expenses:
Affiliate (491) 596
Unrelated parties 18,043 12,334
Customer service prepayments and deposits (371) 711
-------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 32,900 29,732
-------- --------
</TABLE>
See independent certified public accountants' review report and accompanying
notes.
8
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (continued)
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1997 1996
-------------- ------------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of cable systems $ (84,500) $(576,132)
Non cable acquisitions -- (1,100)
Purchases of property and equipment (15,131) (8,479)
Purchases of marketable securities (301) (185)
Proceeds from sales of property and equipment 29 20
Proceeds from sales of marketable securities 189 1,374
Loans to Australis Media Limited -- (26,530)
Investments in unconsolidated affiliates (6,592) (2,761)
Distributions from unconsolidated affiliates 75 236
(Increase) in other intangible assets - investing (747) (784)
Loans and advances to unconsolidated affiliates (181) (103)
Loans and advances from unconsolidated affiliates 1,966 729
--------- ---------
NET CASH (USED BY)
INVESTING ACTIVITIES (105,193) (613,715)
CASH FLOWS FROM FINANCING ACTIVITIES
Increases in debt 75,000 438,720
Other debt reduction:
Notes (15,000) --
Obligations under capital leases (170) (13)
(Increase) in other intangible assets - financing (252) (198)
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 59,578 438,509
--------- ---------
NET (DECREASE) IN CASH (12,715) (145,474)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 20,633 164,943
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 7,918 $ 19,469
========= =========
</TABLE>
See independent certified public accountants' review report and accompanying
notes.
9
<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
March 31, 1997, the consolidated results of operations and consolidated cash
flows for the three months ended March 31, 1997 and 1996.
Certain information and note disclosures normally included in the Company's
annual consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Form 10-K dated March 26, 1997. The results of operations for the periods ended
March 31, 1997 and 1996, 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 assembled and sold by the Company's
non-cable wholly owned subsidiaries.
Inventories are summarized as follows:
March 31, December 31,
1997 1996
-------------- --------------
(Dollars in thousands)
Raw materials $ 2,006 $ 2,285
Finished goods and work-in process 254 472
-------------- --------------
$ 2,260 $ 2,757
============== ==============
NOTE 3 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Three Months Ended
March 31,
------------------------------------
1997 1996
-------------- --------------
(Dollars in thousands)
Cash paid during the period for
Interest $ 8,463 $ 3,932
============== ==============
Income taxes $ 1,522 $ -
============== ==============
10
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 3 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION, (continued)
Supplemental Schedule Relating to Acquisitions
1997 1996
-------------- --------------
(Dollars in thousands)
Property and equipment $ 25,350 $ 161,896
Goodwill and other intangible assets - 22,075
Deferred franchise costs 59,150 388,761
Other assets - 4,500
-------------- --------------
$ 84,500 $ 577,232
============== ==============
Noncash Investing and Financing Transactions
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 $33,194,000, its
41.67% partnership interest in Bay Cable Advertising with a book value of
$3,545,000 and a fair market value of $10,755,000, and the right to receive
assets of a cable television system located in Fort Collins, CO, which right was
acquired for $54,385,000, less settlement adjustments of $8,799,000 for the
assets of a cable television system serving Wilmington, Delaware and surrounding
area. 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 $7,210,000,
which represents the excess of the market value of the partnership interest over
its book value has been included in the statements of operations.
NOTE 4 - NEW BUSINESS AND ACQUISITIONS
On January 10, 1997, the Company acquired a cable television system from Cable
TV Fund 14-A, Ltd., an affiliate of Jones Intercable, Inc., for approximately
$84,500,000, subject to certain adjustments. The system, located in
Turnersville, New Jersey, passes approximately 47,000 homes and serves
approximately 36,900 basic customers. For financial reporting purposes, the
Company accounts for the acquisition of these assets under the purchase method.
This acquisition was funded in part by borrowings under the bank credit
facility.
On September 30, 1996, the Company, through its subsidiary, Lenfest Advertising,
Inc. d/b/a Radius Communications, ("Radius"), 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 cash.
On September 30, 1996, the Company through its newly formed subsidiary, Lenfest
Clearview, Inc. ("Clearview") completed the acquisition of a 30% general
partnership interest in a newly formed general partnership, Clearview Partners
(the "Partnership"). The Company contributed $500,000 and its right to receive
the assets of the Gettysburg, PA cable television system (see acquisition from
Sammons Communications, Inc. discussed below) and its right to exchange the
assets of the Gettysburg system for the assets of the Stewartstown, PA cable
television system owned by GS Communications, Inc. The Company received a
payment of $4.5 million from GS Communications, Inc. in connection with these
transactions. No gain or loss was recorded on the exchange. Clearview CATV,
Inc., an unaffiliated company, contributed the assets and certain liabilities of
its cable television system located in Maryland and Pennsylvania to the
Partnership for a 70% general partnership interest. The Partnership's systems
passed approximately 13,400 homes and served approximately 9,650 basic
customers. The Company reports its proportionate share of partnership net income
(loss) on the equity method. The Company's cash contribution was made from
available cash.
11
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 4 - NEW BUSINESS AND ACQUISITIONS, (continued)
On September 11, 1996, StarNet, Inc. ("StarNet"), a wholly owned subsidiary of
the Company, entered into a joint venture with Prevue Networks, Inc. ("Prevue"),
a wholly owned subsidiary of United Video Satellite Group, Inc. (UVSG) to
combine the two companies' pay-per-view promotion services. StarNet contributed
its Barker(R) service to the joint venture and received a 28% partnership
interest. The new joint venture, Sneak Prevue, L.L.C., is based in Tulsa,
Oklahoma and is managed and controlled by UVSG. The Company reports 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, NJ cable television system for
approximately $16,000,000. The system passed approximately 10,600 homes and
served approximately 7,700 basic customers. On the same date, the Company
acquired from Shore Cable Company of New Jersey its Ventnor, NJ cable television
system for approximately $11,000,000. The system passes approximately 6,100
homes and serves approximately 5,000 basic customers. For financial reporting
purposes, the Company accounts for the acquisition of these assets under the
purchase method. These acquisitions were funded in part by borrowings under the
bank credit facility existing at that date.
On February 29, 1996, the Company acquired the assets of four cable television
systems and equity interests in three affiliates from Sammons Communications,
Inc. for approximately $531,000,000. The systems, located in Bensalem and
Harrisburg, PA and in Vineland and Atlantic City/Pleasantville, N.J., passed
approximately 358,000 homes and served approximately 282,000 basic customers.
The equity interests consist of a 50% partnership interest in Hyperion
Telecommunications of Harrisburg, a 50% partnership interest in Atlantic
Communication Enterprises and a 25% partnership interest in Cable Adcom. 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 the assets of a fifth system, located in
Gettysburg, PA, but did not take title. The Company was managing the system from
February 29, 1996, until the assets of the system were transferred to GS
Communications, Inc. on September 30, 1996.
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 $33,194,000, its
41.67% partnership interest in Bay Cable Advertising with a book value of
$3,545,000 and a fair market value of $10,755,000, and the right to receive
assets of a cable television system located in Fort Collins, CO, which right was
acquired for $54,385,000, less settlement adjustments of $8,799,000 for the
assets of a cable television system serving Wilmington, Delaware and surrounding
area. 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 $7,210,000,
which represents the excess of the market value of the partnership interest over
its book value has been included in the statements of operations. The
acquisition of the assets of these cable systems was financed with proceeds from
the Company's public offering of debt in November 1995.
On February 12, 1996, the Company purchased the Philadelphia area assets of
Cable AdNet, Inc., a subsidiary of TCI for approximately $1,100,000.
12
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 5 - MARKETABLE SECURITIES
The Company's investment in the securities of Australis Media Limited
("Australis") consists of 77,982,000 shares of voting common stock and
269,427,000 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 debentures 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. In addition to the above Australis securities, the
Company holds $71,339,000 Senior Secured Discount Notes due October 31,
2002, of Australis Holdings Pty Limited ("Holdings"), a wholly owned subsidiary
of Australis.
The aggregate cost basis and market values of the securities at March 31, 1997
and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Gross
Aggregate Unrealized
Cost Gain Fair
Basis (Loss) Value
-------------- -------------- --------------
<S> <C> <C> <C>
March 31, 1997 (Dollars in thousands)
Australis Media Limited common stock $ 10,885 $ (159) $ 10,726
Australis Media Limited convertible debentures 33,687 (863) 32,824
Australis Holdings Pty Limited senior secured
discount notes 41,052 - 41,052
Other marketable equity securities 3,965 885 4,850
-------------- ------------- --------------
$ 89,589 $ (137) $ 89,452
============== ============= ==============
December 31, 1996
Australis Media Limited common stock $ 10,885 $ (2,505) $ 8,380
Australis Media Limited convertible debentures 33,687 (7,952) 25,735
Australis Holdings Pty Limited senior secured
discount notes 41,026 - 41,026
Other marketable equity securities 3,781 908 4,689
-------------- ------------- --------------
$ 89,379 $ (9,549) $ 79,830
============== ============= ==============
</TABLE>
In December 1993, the Company acquired 11,000,000 shares of the voting stock and
173,000,000 non-voting debentures of Australis Media Limited ("Australis") for
$90,972,000. As of August 12, 1996, the Australis securities held by the Company
had a market value of approximately $24,000,000. Due to uncertainty regarding
the long-term financing of Australis, 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. The write-down established a new cost basis in
the Australis investment.
On October 31, 1996, the Company purchased senior secured discount notes of
Holdings, with a face value of $71,339,000 and 71,339 warrants of Australis for
an aggregate of $40,000,000. The discount notes will mature on October 31,
2002, and cash interest will not accrue on notes prior to November 1, 2000.
Commencing May 1, 2001, cash interest on the notes will be payable on May 1, and
November 1 each year at a rate of 15% per annum. Each warrant entitles the
Company to purchase 57.721 ordinary shares of Australis at A$.20 per share. In
connection with the Australis long-term financing, the Company purchased
43,482,000 shares of voting stock and 49,188,779 non-voting debentures for
$40,000,000. At the time of the transaction, these securities had a fair value
of $13,600,000, and the Company recognized a loss of $26,400,000.
13
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 5 - MARKETABLE SECURITIES, (continued)
On December 23, 1996, the Company received 18,000,000 shares of voting stock and
52,238,547 non-voting debentures of Australis in connection with the termination
of a technical services agreement with Australis and also received 500,000
shares of voting stock for late repayment of a loan to the Company by Australis.
The securities were recorded at the fair value when received, which was
$7,000,000 and the income recognized has been offset against the recognized
losses on the decline in market value. On December 23, 1996, the Company
converted 5,000,000 non-voting debentures of Australis into 5,000,000 shares of
voting stock.
All of the Company's securities are considered to be available for sale. Net
realized gains from the sale of marketable securities, in the amount of $73,000
and $27,000 are included in the accompanying consolidated statements of
operations for 1997 and 1996, respectively. The specific identification method
is used to determine the cost of each security at the time of sale.
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 serving
approximately 204,000 customers in southern New Jersey at March 31, 1997. 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 $75,281,000 and $72,454,000 at March 31, 1997 and
December 31, 1996, respectively.
Summarized statements of operations of Garden State, accounted for under the
equity method for the three months ended March 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
(Dollars in thousands)
<S> <C> <C>
Results of Operations
Revenues $ 26,730 $ 24,179
Operating expenses (11,574) (10,826)
Depreciation and amortization (11,481) (12,076)
-------------- --------------
OPERATING INCOME 3,675 1,277
Interest expense (5,766) (4,313)
Other expense (1,604) (1,451)
-------------- --------------
NET LOSS $ (3,695) $ (4,487)
============== ==============
</TABLE>
14
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 7 - LONG-TERM DEBT
Notes payable and obligations under capital leases consisted of the following at
March 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------------- --------------
(Dollars in thousands)
<C> <C> <C>
8 3/8% senior notes due November 1, 2005 $ 686,238 $ 685,970
10 1/2% senior subordinated notes due June 15, 2006 293,213 293,105
Bank credit facility 290,000 230,000
11.30% senior promissory notes due September 1, 2000 60,000 60,000
11.84% senior promissory notes due May 15, 1998 21,000 21,000
9.93% senior promissory notes due September 30, 2001 13,125 13,125
Note payable to bank due September 30, 2001 7,000 7,000
Obligations under capital leases 9,493 9,663
-------------- --------------
$ 1,380,069 $ 1,319,863
============== ==============
</TABLE>
NOTE 8 - CORPORATE INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes
in accordance with Financial Accounting Standards Board Statement (SFAS) No.
109, "Accounting for Income Taxes". SFAS 109 requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the financial statement or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
differences between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Differences between financial reporting
and tax bases arise most frequently from differences in timing of income and
expense recognition. Deferred income tax expense is measured by the change in
the net deferred income tax asset or liability during the period.
The net income tax benefit differs from amounts expected by applying the U.S.
Federal income tax rate of 35% to loss before income taxes primarily from
nondeductible amortization on goodwill and certain other intangibles and
provision for state income taxes.
15
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Federal Communications Commission ("FCC") has adopted regulations under The
Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act") governing rates charged to subscribers for basic and tier service
and for equipment and installation charges (the "Regulated Services"). The 1992
Cable Act placed the Company's basic service equipment and installation rates
under the jurisdiction of local franchising authorities and its tier service
rates under the jurisdiction of the FCC. The rate regulations do not apply to
services offered on an individual service basis, such as per-channel or
pay-per-view services. The rate regulations adopt a benchmark price cap system
for measuring the reasonableness of existing basic and tier service rates.
Alternatively, cable operators have the opportunity to make cost-of-service
showings which, in some cases, may justify rates above the applicable
benchmarks. The rules also require that charges for cable-related equipment
(e.g., converter boxes and remote control devices) and installation services be
unbundled from the provision of cable service and based upon actual costs plus a
reasonable profit. The regulations also provide that future rate increases may
not exceed an inflation-indexed amount, plus increases in certain costs beyond
the cable operator's control, such as taxes, franchise fees and increased
programming costs. Cost based adjustments to these capped rates can also be made
in the event a cable operator adds or deletes channels. In addition, new product
tiers consisting of services new to the cable system can be created free of rate
regulation as long as certain conditions are met such as not moving services
from existing tiers to the new tier. There is also a streamlined cost-of-service
methodology available to justify a rate increase on basic and regulated nonbasic
tiers for "significant" system rebuilds or upgrades.
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 Cable Programming Services Tier are subject to review by
the FCC, if a complaint has been filed by a franchising authority. The
appropriate franchise authority, if such authority has been certified, may
regulate the Basic Service Tier, equipment charges and installation rates. If,
as a result of the review process, a cable system cannot substantiate its rates,
it could be required to retroactively reduce its rates to the appropriate
benchmark and refund the excess portion of rates received. Any refunds of the
excess portion of tier service rates would be retroactive to the date of
complaint. Any refunds of the excess portion of all other Regulated Service
rates would be retroactive to one year prior to the Refund Order issued by the
applicable franchise authority. The amount of refunds, if any, which could be
payable by the Company in the event that systems rates are successfully
challenged by franchising authorities is not considered to be material.
H.F. Lenfest, on behalf of the Company, and TCI have jointly and severally
guaranteed an aggregate of $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 payments made by Australis under the licenses and
with the provision of one or more letters of credit, which letters of credit may
not exceed $33.5 million. The Company is currently in discussions with Australis
and the beneficiaries under the guarantees 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 by
the Company with respect to the guarantees. Effective March 6, 1997, Mr. Lenfest
released the parent Company and its cable operating subsidiaries from their
indemnity obligation until the last to occur of September 30, 1997, and the last
day of any fiscal quarter during which the Company could incur the indemnity
obligation without violating the terms of its bank credit facility. Certain of
the Company's non-cable subsidiaries have agreed to indemnify Mr. Lenfest for
his obligations under the guarantee. 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 $18.7 million loan was repaid and
the guaranty was terminated in October 1996 with the funds received from
Australis.
16
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, (continued)
(Unaudited)
NOTE 9 - COMMITMENTS AND CONTINGENCIES, (continued)
On January 20, 1995, an individual (the "Plaintiff") filed suit in the Federal
Court of Australia, New South Wales District Registry against the Company and
several other entities and individuals (the "Defendants") including 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. $564
million as of March 31, 1997). The Plaintiff also alleges that Australis and Mr.
Lenfest owed to him a fiduciary duty and that both parties breached this duty.
The Defendants have denied all claims made against them by the Plaintiff and
stated their belief that the Plaintiff's allegations are without merit. They are
defending this action vigorously.
The 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 Videopole stock at a
total of 15.6 million French francs (approximately $2.8 million as of March 31,
1997) in 1997. The Company's future commitment in dollars is subject to change
in the exchange rate.
17
<PAGE>
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
STATEMENT BY MANAGEMENT CONCERNING REVIEW OF
INTERIM FINANCIAL INFORMATION BY
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The March 31, 1997 and March 31, 1996 condensed consolidated financial
statements included in this filing on Form 10-Q have been reviewed by Pressman
Ciocca Smith LLP, Independent Certified Public Accountants, in accordance with
established professional standards and procedures for such a review.
The review report of Pressman Ciocca Smith LLP is included in Part I, Item 1.
18
<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, remote control devices and
installations).
The Company has generated increases in revenues and EBITDA for the
three months ended March 31, 1997 primarily through acquisitions and, to a
lesser extent, increases in monthly revenue per customer and internal customer
growth. As used herein, "EBITDA" represents consolidated net income plus the
provision for income taxes, interest expense, depreciation, amortization, any
other non-cash items reducing consolidated net income and cash actually
distributed by an unconsolidated affiliate, minus all non-cash items increasing
consolidated net income. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt. 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1996
CONSOLIDATED RESULTS
Revenues for the Company increased 40.3% to $112.7 million for the 1997
three-month period as compared to the 1996 three-month period, primarily as a
result of a 44.7% increase in revenues from the Company's Core Cable Television
Operations. The increase in revenue was a result of the realization in the first
quarter of 1997 of the full effect of the TCI Exchange and the Sammons
Acquisition (completed near the end of the first quarter of 1996), the Salem and
Shore Acquisitions (completed at the end of the second quarter of 1996) and the
Turnersville Acquisition completed on January 10, 1997 (collectively, the
"Acquisitions"). The Acquisitions, including revenue growth added after the
completion of the Acquisitions, accounted for $28.0 million, a 34.8% increase.
Internal growth, primarily attributable to rate increases and increased numbers
of customers, accounted for $4.4 million, a 5.5% increase.
Operating expenses increased 41.7% to $95.9 million (85.0% of total
revenues) in the 1997 three-month period as compared to the 1996 three-month
period. The Acquisitions accounted for $23.4 million, a 34.6% increase, while
$4.8 million, a 7.1% increase, resulted from costs associated with internal
growth. The increase was comprised of the following: (i) service expense and
direct costs increase of 41.3% to $16.0 million (14.2% of total revenues),
$2.4 million of which was attributable to the Acquisitions; (ii) cable
programming expense increase of 45.4% to $23.5 million (20.8% of total
revenues), $6.1 million of which was attributable to the Acquisitions;
(iii) selling, general and administrative expense increase of 28.5% to $23.3
million (20.7% of total revenues), $4.0 million of which was attributable to the
Acquisitions; and (iv) depreciation and amortization increase of 50.1% to $33.0
million (29.3% of total revenues), $10.9 million of which was attributable to
the Acquisitions.
Loss before income taxes increased to $13.4 million in the 1997
three-month period from $3.5 million in the 1996 three-month period. The
increase was primarily attributable to the increase in interest expense.
Interest expense increased 60.3% to $32.0 million in the 1997
three-month period as compared to the 1996 three-month period. The increase was
primarily the result of an increase in average indebtedness to $1,382.6 million
for the 1997 three-month period from $967.2 million for the 1996 three-month
period as a result of borrowings in connection with the Acquisitions.
Equity in net income of unconsolidated affiliates increased to $1.3
million from a loss of $7.2 million during the 1996 three-month period. The
Company's unconsolidated affiliates include several
19
<PAGE>
cable television operators which incur high levels of depreciation, amortization
and interest expenses. This increase was primarily due to Raystay Co., which
realized a gain on the sale of cable systems and Videopole, whose loss
decreased $2.4 million to $1.3 million.
EBITDA increased 45.3% to $51.0 million in the 1997 three-month period
as compared to the 1996 three-month period. The Acquisitions accounted for $15.4
million, a 43.9% increase, while $0.5 million, a 1.4% increase, was attributable
to internal customer growth. EBITDA as a percentage of revenue increased to
45.2% from 43.7% as a result of EBITDA from the Core Cable Television
Operations constituting a greater percentage of consolidated EBITDA.
Core Cable Television Operations
Revenues increased 44.7% to $100.0 million in the 1997 three-month
period as compared to the 1996 three-month period. The Acquisitions accounted
for $28.0 million, a 40.5% increase. At March 31, 1997, the Company had
approximately 972,700 basic customers and passed approximately 1,341,200 homes
as compared to approximately 897,200 basic customers and approximately
1,236,200 homes passed at March 31, 1996. Excluding basic customers added in
the Turnersville Acquisition, the systems owned at March 31, 1997 added
approximately 4,300 basic customers during the quarter for an annualized
internal growth rate of 1.8%. The Turnersville Acquisition added approximately
36,900 basic customers. Premium service revenues grew by 17.8% to $18.7 million,
$4.2 million of which was attributable to the Acquisitions. Premium units
increased by 8.8% to approximately 616,600 compared to the same period in the
prior year primarily due to the Acquisitions.
Operating expenses increased 48.1% to $81.4 million (81.4% of Core
Cable Television Operations revenues) in the 1997 three-month period. The
Acquisitions accounted for $23.4 million, a 42.6% increase, while 5.5% resulted
from costs associated with the internal customer growth and increased costs. The
increase was comprised of the following: (i) service expense increase of 73.3%
to $8.7 million (8.7% of Core Cable Television Operations revenues) attributable
to technical salaries and general operating expenses, $2.4 million of which was
attributable to the Acquisitions; (ii) cable programming expense increase of
45.4% to $23.5 million (23.5% of Core Cable Television Operations revenues),
$6.1 million of which was attributable to the Acquisitions; (iii) selling,
general and administrative expense increase of 34.3% to $18.2 million (18.2% of
Core Cable Television Operations revenues), $4.0 million of which was
attributable to the Acquisitions; and (iv) depreciation and amortization
increase of 53.1% to $31.0 million (31.0% of Core Cable Television Operations
revenues), $10.9 million of which was attributable to the Acquisitions.
EBITDA increased 45.9% to $50.6 million in the 1997 three-month period
compared to the 1996 three-month period. Of this increase, 44.4% was
attributable to the Acquisitions. The EBITDA margin increased to 50.6% from
50.2% in the 1996 three-month period.
Unrestricted Subsidiaries
The largest of the Company's Unrestricted Subsidiaries are MicroNet,
Inc. (MicroNet), StarNet Inc. (StarNet) and Radius Communications (Radius).
Revenues increased 13.0% to $12.8 million in the 1997 three-month period as
compared to the 1996 three-month period.
Operating expenses increased 14.2% to $14.5 million (113.7% of
Unrestricted Subsidiaries revenues) in the 1997 three-month period as compared
to the 1996 three-month period. This increase was comprised of the following:
(i) service expense and direct costs increase of 15.6% to $7.3 million (57.2% of
Unrestricted Subsidiaries revenues); (ii) selling, general and administrative
expense increase of 11.6% to $5.1 million (40.2% of Unrestricted Subsidiaries
revenues); and (iii) depreciation and amortization increase of 15.7% to $2.1
million (16.3% of Unrestricted Subsidiaries revenues).
20
<PAGE>
EBITDA was $0.4 million in both the 1997 three-month period and the
1996 three-month period, and the operating loss was $1.7 million as compared to
$1.4 million.
MicroNet revenues increased 44.5% to $5.2 million in the 1997
three-month period as compared to the 1996 three-month period. The growth was
primarily due to increased activity in satellite transmission services and
increased tower rental revenue. Selling, general and administrative expenses
decreased by 9.4% to $0.9 million due to a reduction in marketing and management
salaries. Operating income was $2.4 million in the 1997 three-month period as
compared to $1.2 million for the 1996 three-month period.
StarNet revenues decreased by 37.4% to $1.5 million in the 1997
three-month period as compared to the 1996 three-month period, primarily due to
a decrease in service revenue caused by the contribution of The Barker(R)
service to Sneak PreVue LLC in September, 1996. Direct costs decreased 69.4% to
$1.0 million due primarily to the reduction of operational expenses associated
with The Barker (R) service. Technical expenses increased by 60.9% to $0.2
million due to the development of digital inserter equipment intended to be
produced for Radius. Depreciation expense decreased by 48.1% to $0.2 million as
a result of the contribution of The Barker (R) service's assets. Operating loss
was $0.6 million in the 1997 three-month period as compared to $0.8 million for
the 1996 three-month period.
Radius began operations on February 12, 1996. In addition, it purchased
the assets which contribute a significant portion of its revenues and expenses
on September 30, 1996. For these reasons no meaningful comparison can be made
between the three-month periods ended March 31, 1997 and 1996. For the three-
month period ended March 31, 1997 Radius had revenue of $5.1 million. It had
expenses of $5.5 million, comprised of the following: affiliate fees of $2.4
million, production and programming expenses of $0.6 million, selling, general
and administrative expenses of $2.1 million, and depreciation and amortization
of $0.4 million. Its operating loss was $0.4 million for the period.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued its Statements 125
and 127 on accounting for transfers and servicing of financial assets and
extinguishments of liabilities and Statement 126 which exempts certain nonpublic
entities from certain financial instrument disclosure. These Statements will not
apply to the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's businesses require cash for operations, debt service,
capital expenditures and acquisitions. To date, cash requirements have been
funded by cash flow from operations and borrowings. At March 31, 1997, the
Company had aggregate total indebtedness of approximately $1,380.1 million,
which included bank debt at the subsidiary level of approximately $7.0 million.
The Company's senior indebtedness of approximately $1,079.9 million consisted
of: (i) three debt obligations in the amount of approximately $60.0 million,
$21.0 million and $13.1 million (collectively, the "Private Placement Notes");
(ii) $686.3 million of 8 3/8% Notes; (iii) $290 million under a bank credit
facility dated as of June 27, 1996 (the "Bank Credit Facility"); and (iv)
obligations under capital leases of approximately $9.5 million. The Bank Credit
Facility consists of a $150.0 million term loan facility and a $300.0 million
revolving credit facility. At March 31, 1997, the term loan was fully drawn
and $140.0 million was drawn under the revolving credit facility.
At March 31, 1997, the only outstanding senior subordinated
indebtedness was the Company's Subordinated Notes in the amount of $293.2
million.
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<PAGE>
The 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 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
when due on its indebtedness. There are no restrictions relating to the payment
to the Company of dividends, advances or other payments by any of the Company's
subsidiaries except MicroNet.
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 $18.0 million for the
three-month period ended March 31, 1997 compared to approximately $16.2 million
for the three-month period ended March 31, 1996. The increase was primarily the
net result of increased cash flow from the Acquisitions and increased revenue
per customer offset by increased interest expense incurred as a result of
borrowings made in connection with the Acquisitions and investments in
Australis. During the 1997 three-month period, the Company was required to make
interest payments of approximately $8.5 million on outstanding debt obligations,
whereas in the 1996 three-month period, the Company was required under its then
existing debt obligations to make interest payments of approximately $3.9
million. This increase was primarily attributable to increased debt incurred by
the Company in connection with the Acquisitions and the Australis investments in
1996.
On January 6, 1997, the Company made an investment of approximately
$6.6 million in Videopole. During 1997, the Company is obligated to make an
additional investment of approximately $2.8 million in Videopole.
On January 10, 1997, the Company completed the Turnersville Acquisition
for approximately $84.5 million. The Company funded the acquisition from
borrowings under the Bank Credit Facility ($75.0 million) and available cash
($9.5 million).
Future minimum lease payments under all capital leases and
noncancellable operating leases for each of the years 1997 through 2001 are $9.2
million (of which $890,000 is payable to a principal stockholder), $8.9 million
(of which $938,000 is payable to a principal stockholder), $7.3 million (of
which $988,000 is payable to a principal stockholder), $5.8 million (of which
$1,040,000 is payable to a principal stockholder), and $4.5 million (of which
$1,095,000 is payable to a principal stockholder).
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 2011.
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 party to several interest rate swap agreements (in an
aggregate amount of $300 million) 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.
In connection with the refinancing of Australis Media Ltd.
("Australis") on October 31, 1996, the Company purchased $71,339,000 15% Senior
Secured Discount Notes due 2002 of Australis Holdings Pty. Ltd. and related
warrants for Australis stock (collectively, the "Notes"). For a further
description of the Company's holdings in Australis and the refinancing
transaction, see the Company's financial statements included elsewhere in this
report as well as the Company's report on Form 10-K for the year ended December
31, 1996. The Company paid $40.0 million to purchase the Notes. As of the date
hereof, the Company has sold Notes representing approximately 80% of its
investment and intends to use the proceeds to reduce senior indebtedness.
In November 1994, Mr. Lenfest and TCI International, Inc. jointly and
severally guaranteed $67.0 million in program license obligations of the
distributor of Australis' movie programming. The terms of the guarantees provide
that the amount of the guarantees will be reduced on a dollar-for-dollar basis
with the
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<PAGE>
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 guarantees with regard to providing such letters of
credit in the aggregate amount of $33.5 million with a term of five years. The
Company is permitted to issue the letters of credit under the Bank Credit
Facility subject to compliance with the covenants. If the letters of credit are
issued, the Company will require Australis to agree to reimburse the Company for
any draws made under the letters of credit as well as certain fees and expenses
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. At March 31, 1997, the amount subject to the
guarantee under the license agreements was approximately $57.9 million.
The Company had agreed to indemnify Mr. Lenfest against loss from such
guaranty to the fullest extent permitted under the Company's debt obligations.
Under the terms of the Bank Credit Facility, however, Mr. Lenfest's claims for
indemnification are limited to $33.5 million, which amount will be further
reduced by the aggregate face amount of any letters of credit when and if issued
by the Company with respect to the guarantees. Effective March 6, 1997, however,
Mr. Lenfest released the parent Company and its cable operating subsidiaries
from their indemnity obligation until the last to occur of September 30, 1997,
and the last day of any fiscal quarter during which the Company could incur the
indemnity obligation without violating the terms of the Bank Credit Facility.
Certain of the Company's Unrestricted Subsidiaries have agreed to indemnify Mr.
Lenfest for his obligations under the guarantee.
Management believes that the Company has sufficient funds available
from operating cash flow and from borrowing capacity under the Bank Credit
Facility to fund its operations, capital expenditure plans and debt service
throughout 1997. However, the Company's ability to borrow funds under the Bank
Credit Facility requires that the Company be in compliance with the Senior and
Total Debt Leverage Ratios or obtain the consent of the lenders thereunder to a
waiver or amendment of the applicable Senior or Total Debt Leverage Ratio.
Management believes that the Company will be in compliance with such Debt
Leverage Ratios.
Inflation
The net impact of inflation on operations has not been material in the
last three years due to the relatively low rates of inflation during this
period. If the rate of inflation increases the Company may increase customer
rates to keep pace with the increase in inflation, although there may be timing
delays.
Part II. Other Information
Item 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits.
The following Exhibits are furnished as part of this Report:
Exhibit
Number Title or Description
- ------- --------------------
(a) Exhibits.
The following Exhibits are furnished as part of this Report:
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<TABLE>
<CAPTION>
<S> <C>
*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.
*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
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PNC Bank, National Association as Managing Agents, the Lenders and Toronto-Dominion (Texas), Inc., as
Administrative Agent.
*10.2 Note Agreement, dated as of May 22, 1989, among Lenfest Communications, Inc. and the Prudential Insurance
Company of America with respect to $50,000,000 10.69% Senior Notes due 1998.
*10.3 Note Agreement, dated as of September 14, 1988, among Lenfest Communications, Inc. and certain
Institutions described therein with respect to $125,000,000 10.15% Senior Notes due 2000.
*10.4 Note Agreement, dated as of September 27, 1991, among Lenfest Communications, Inc. and Certain
Institutions described therein with respect to $100,000,000 9.93% Senior Notes due 2001.
*10.5 Programming Supply Agreement, effective as of September 30, 1986, between Satellite Services, Inc.
and Lenfest Communications, Inc.
*10.6 Lease, dated as of May 1, 1990, by and between H.F. Lenfest and Marguerite Lenfest and Suburban Cable TV
Co. Inc.
*10.7 Lease, dated as of May 1, 1990, by and between H.F. Lenfest and Marguerite Lenfest and Suburban Cable TV
Co. Inc.
*10.8 Lease, dated as of May 24, 1990, by and between H.F. Lenfest and Marguerite Lenfest and MicroNet, Inc.
*10.9 Lease, dated as of June 20, 1991, as amended January 1, 1995, by and between H.F. Lenfest and Marguerite
Lenfest and StarNet, Inc. (as successor to NuStar).
*10.10 Supplemental Agreement, dated December 15, 1981, by and between TCI Growth, Inc., H.F. Lenfest, Marguerite
Lenfest and Lenfest Communications, Inc. and Joinder Agreement executed by LMC Lenfest, Inc.
*10.11 Amendment to Supplemental Agreement, dated May 4, 1984 between Lenfest Communications, Inc. and TCI
Growth, Inc.
*10.12 Agreement, dated July 1, 1990, between H.F. Lenfest, Marguerite B. Lenfest, Diane A. Lenfest, H. Chase
Lenfest, Brook J. Lenfest and the Lenfest Foundation, Telecommunications, Inc. and Liberty Media
Corporation.
*10.13 Agreement and Consent, dated as of November 1, 1990, by and among TCI Development Corporation, TCI
Holdings, Inc., TCI Liberty, Inc., Liberty Cable, Inc., H.F. Lenfest, Marguerite B. Lenfest, H. Chase
Lenfest, Brook J. Lenfest, Diane A. Lenfest and Lenfest Communications, Inc.
*10.14 Letter Agreement, dated as of December 18, 1991, among Liberty Media Corporation, Lenfest Communications,
Inc., Marguerite B. Lenfest, Diane A. Lenfest, H. Chase Lenfest, Brook 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.
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*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.
*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.
+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.
</TABLE>
26
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+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.
+++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.
##10.42 Letter, dated March 6, 1997, from H. F. Lenfest to the Company.
+21. Subsidiaries of the Company.
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.
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27
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** Incorporated by reference to the Company's Report on Form 10-Q, dated December 22, 1995,
for the quarter ended September 30, 1995.
*** Incorporated by reference to the Company's Report on Form 8-K, dated February 26, 1996.
+ Incorporated by reference to the Company's Report on Form 10-K, dated March 29, 1996, for the year
ended December 31, 1995.
++ Incorporated by reference to the Company's Report on Form 10-Q, 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.
# Incorporated by reference to the Company's Report on Form 10-Q, dated November 14, 1996, for the
quarter ended September 30, 1996.
## Incorporated by reference to the Company's Report on Form 10-K, dated March 22, 1997, for the year
ended December 31, 1996.
(b) Reports on Form 8-K.
None.
</TABLE>
28
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
LENFEST COMMUNICATIONS, INC.
DATE: May 14, 1997 By: /s/ Harry F. Brooks
----------------------------------------
Harry F. Brooks
Executive Vice President (authorized
officer and Principal Financial Officer)
29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997, AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0001000450
<NAME> Lenfest Communications, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,918
<SECURITIES> 89,452
<RECEIVABLES> 25,792
<ALLOWANCES> 2,282
<INVENTORY> 2,260
<CURRENT-ASSETS> 0
<PP&E> 739,913
<DEPRECIATION> 330,204
<TOTAL-ASSETS> 1,310,507
<CURRENT-LIABILITIES> 0
<BONDS> 1,380,069
0
0
<COMMON> 2
<OTHER-SE> (233,834)
<TOTAL-LIABILITY-AND-EQUITY> 1,310,507
<SALES> 112,736
<TOTAL-REVENUES> 112,736
<CGS> 0
<TOTAL-COSTS> 95,877
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,132
<INTEREST-EXPENSE> 32,034
<INCOME-PRETAX> (13,361)
<INCOME-TAX> 3,900
<INCOME-CONTINUING> (9,461)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,461)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
