UNITED STATES
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:
MARCH 31, 2000
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from ________ to ________.
Commission File Number 33-96804
COMCAST LCI HOLDINGS, INC.
(SUCCESSOR TO LENFEST COMMUNICATIONS, INC.)
(Exact name of registrant as specified in charter)
DELAWARE 51-0394453
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 Market Street, Suite 2201, Wilmington, Delaware 19801
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (302) 594-8700
--------------------------
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during
the preceding twelve 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
----- -----
--------------------------
As of March 31, 2000, there were 100 shares of Common Stock outstanding.
The Registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10-Q and is therefore filing this form with the reduced
disclosure format.
<PAGE>
COMCAST LCI HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
Page
Number
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Condensed Consolidated Balance Sheet as of
March 31, 2000 and December 31, 1999 (Unaudited)................2
Condensed Consolidated Statement of Operations for the
Three Months Ended March 31, 2000 and 1999 (Unaudited)..........3
Condensed Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 (Unaudited)..........4
Condensed Consolidated Statement of Stockholders' Equity
(Deficiency) for the Three Months Ended March 31, 2000
(Unaudited).....................................................5
Notes to Condensed Consolidated Financial Statements
(Unaudited)................................................6 - 10
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................11 - 12
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings..............................................13
ITEM 6 Exhibits and Reports on Form 8-K...............................13
SIGNATURE.............................................................14
-----------------------------------
This Quarterly Report on Form 10-Q is for the three months ended March 31,
2000. This Quarterly Report modifies and supersedes documents filed prior to
this Quarterly Report. The SEC allows us to "incorporate by reference"
information that we file with them, which means that we can disclose important
information to you by referring you directly to those documents. Information
incorporated by reference is considered to be part of this Quarterly Report. In
addition, information that we file with the SEC in the future will automatically
update and supersede information contained in this Quarterly Report. In this
Quarterly Report, "LCI Holdings," the "Company," "we," "us" and "our" refer to
Comcast LCI Holdings, Inc. and its subsidiaries.
You should carefully review the information contained in this Quarterly
Report and in other reports or documents that we file from time to time with the
SEC. In this Quarterly Report, we state our beliefs of future events and of our
future financial performance. In some cases, you can identify those so-called
"forward-looking statements" by words such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue" or the negative of those words and other comparable
words. You should be aware that those statements are only our predictions.
Actual events or results may differ materially. In evaluating those statements,
you should specifically consider various factors, including the risks outlined
below. Those factors may cause our actual results to differ materially from any
of our forward-looking statements.
Factors Affecting Future Operations
We have in the past acquired and we may be acquiring cable communications
systems in new communities in which we do not have established relationships
with the franchising authority, community leaders and cable subscribers.
Further, a substantial number of new employees may be integrated into our
business practices and operations. Our results of operations may be
significantly affected by our ability to efficiently and effectively manage
these changes.
In addition, the cable communications industry may be affected by, among
other things:
o changes in laws and regulations,
o changes in the competitive environment,
o changes in technology,
o franchise related matters,
o market conditions that may adversely affect the availability of debt
and equity financing for working capital, capital expenditures or
other purposes; and
o general economic conditions.
1
<PAGE>
COMCAST LCI HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(Predecessor
Corporation)
March 31, December 31,
2000 1999
------------ ------------
(Dollars in thousands, except share data)
<S> <C> <C>
ASSETS
Cash and cash equivalents....................................................... $11,593 $144,985
Marketable securities........................................................... 24,228 159,003
Accounts receivable, less allowance for doubtful
accounts of $7,159 and $5,091................................................ 41,179 30,902
Prepaid expenses................................................................ 6,850 2,992
Property and equipment, net of accumulated depreciation of $29,917
and $530,587................................................................. 1,214,768 565,671
Investments, principally in affiliates, and related receivables................. 656,702 36,371
Goodwill, net of accumulated amortization of $25,745 and $36,946................ 2,033,860 97,458
Deferred franchise costs, net of accumulated amortization of $115,804
and $271,113................................................................. 5,389,733 487,927
Other intangible assets, net of accumulated amortization of $4,373 and $14,768.. 205,946 18,863
Other assets.................................................................... 514
------------ ------------
$9,584,859 $1,544,686
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Notes payable and obligations under capital leases.............................. $1,336,812 $1,491,552
Accounts payable and accrued expenses - unrelated parties....................... 122,462 112,714
Accounts payable and accrued expenses - related parties......................... 96,242 26,127
Notes payable - related party................................................... 79,501
Customer prepayments and deposits............................................... 7,311 7,460
Deferred gain on terminated interest swaps...................................... 5,911
Deferred tax liability, net..................................................... 1,997,939 23,300
Investment in Garden State Cablevision, L.P..................................... 67,334
------------ ------------
3,640,267 1,734,398
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock, $1 par value, authorized and issued, 100 and zero shares.......
Common stock, $.01 par value - authorized and issued, zero and 158,896 shares 2
Additional capital........................................................... 6,077,230 51,561
Accumulated deficit.......................................................... (120,876) (323,077)
Accumulated other comprehensive (loss) income................................ (11,762) 81,802
------------ ------------
Total stockholders' equity (deficiency).................................. 5,944,592 (189,712)
------------ ------------
$9,584,859 $1,544,686
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
COMCAST LCI HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
(Predecessor
Corporation)
Three Months Ended
March 31,
2000 1999
---------- ----------
(Dollars in thousands)
<S> <C> <C>
REVENUES........................................................................... $132,286 $125,826
---------- ----------
OPERATING EXPENSES
Service......................................................................... 14,338 11,381
Programming..................................................................... 33,048 30,442
Selling, general and administrative............................................. 37,676 27,400
Direct costs - non-cable........................................................ 4,912 5,036
Depreciation.................................................................... 29,917 23,065
Amortization.................................................................... 145,922 11,991
---------- ----------
265,813 109,315
---------- ----------
OPERATING (LOSS) INCOME............................................................ (133,527) 16,511
OTHER (INCOME) EXPENSE
Interest expense................................................................ 30,539 29,458
Interest income on notes receivable from affiliates............................. (419)
Equity in net loss (income) of affiliates....................................... 4,874 (2,270)
Other expense................................................................... 2,083 1,259
---------- ----------
37,077 28,447
---------- ----------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAX AND EXTRAORDINARY ITEMS..................................................... (170,604) (11,936)
INCOME TAX BENEFIT................................................................. (50,701)
---------- ----------
LOSS FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEMS............................................................. (119,903) (11,936)
LOSS FROM DISCONTINUED OPERATIONS.................................................. 1,388
---------- ----------
LOSS BEFORE EXTRAORDINARY ITEMS.................................................... (119,903) (13,324)
EXTRAORDINARY ITEMS, net of income tax benefit of $523 in 2000..................... 973
---------- ----------
NET LOSS........................................................................... ($120,876) ($13,324)
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COMCAST LCI HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Predecessor
Corporation)
Three Months Ended
March 31,
2000 1999
---------- --------
(Dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss......................................................................... ($120,876) ($13,324)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities from continuing operations:
Depreciation and amortization.................................................. 175,839 35,056
Non-cash interest (income) expense, net........................................ (574) 386
Equity in net loss (income) of affiliates...................................... 4,874 (2,270)
Losses on sales of investments, net............................................ 2,257
Loss from discontinued operations.............................................. 1,388
Extraordinary items............................................................ 973
Deferred income taxes and other................................................ (50,701) 2,454
---------- --------
11,792 23,690
Changes in working capital..................................................... (276,680) 340
---------- --------
Net cash (used in) provided by operating activities from continuing operations (264,888) 24,030
---------- --------
FINANCING ACTIVITIES
Proceeds from borrowings......................................................... 55,000 15,479
Retirements and repayments of notes payable and obligations under capital leases. (260,284) (515)
Net transactions with affiliates................................................. 174,743 2,008
---------- --------
Net cash (used in) provided by financing activities from continuing operations (30,541) 16,972
---------- --------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired............................................... (2,071)
Proceeds from sales of marketable securities..................................... 134,775
Investments...................................................................... (850)
Proceeds from sales of investments............................................... 72,440
Capital expenditures............................................................. (42,128) (32,863)
Additions to deferred charges.................................................... (979) (196)
---------- --------
Net cash provided by (used in) investing activities from continuing operations 162,037 (33,909)
---------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS -
CONTINUING OPERATIONS............................................................ (133,392) 7,093
CASH AND CASH EQUIVALENTS, beginning of period...................................... 144,985 9,802
---------- --------
CASH AND CASH EQUIVALENTS, end of period............................................ $11,593 $16,895
========== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
COMCAST LCI HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Common Additional Accumulated Income
Stock Capital Deficit (Loss) Total
---------- ------------ ----------- ------------- ------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Predecessor Corporation
Balance at January 1, 2000................... $2 $51,561 ($323,077) $81,802 ($189,712)
========== ============ =========== ============= ============
The Company
Balance at January 1, 2000................... $ $ $ $ $
Capital contribution to Company.............. 6,120,270 6,120,270
Distribution................................. (43,040) (43,040)
Comprehensive loss:
Net loss................................... (120,876)
Unrealized loss on marketable securities,
net of deferred taxes of $6,333.......... (11,762)
Total comprehensive loss..................... (132,638)
---------- ------------ ----------- ------------- ------------
Balance at March 31, 2000.................... $ $6,077,230 ($120,876) ($11,762) $5,944,592
========== ============ =========== ============= ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
COMCAST LCI HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1999 has been
condensed from the audited consolidated balance sheet as of that date of
Lenfest Communications, Inc. and subsidiaries ("Lenfest" or the
"Predecessor Corporation"), the predecessor to Comcast LCI Holdings, Inc.
and subsidiaries (the "Company") (see "Merger of Lenfest Communications,
Inc." below). The condensed consolidated balance sheet as of March 31,
2000, the condensed consolidated statements of operations and accumulated
deficit and of cash flows for the three months ended March 31, 2000 and
1999, and the condensed consolidated statement of stockholders' equity
(deficiency) for the three months ended March 31, 2000 have been prepared
by the Company and have not been audited by the Company's independent
auditors. In the opinion of management, all adjustments necessary to
present fairly the financial position, results of operations and cash flows
as of March 31, 2000 and for all periods presented have been made.
Certain information and note disclosures normally included in the Company's
annual 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
Lenfest financial statements and notes thereto included in the Company's
December 31, 1999 Annual Report on Form 10-K filed with the Securities and
Exchange Commission. The results of operations for the period ended March
31, 2000 are not necessarily indicative of operating results for the full
year.
Merger of Lenfest Communications, Inc.
In January 2000, Comcast Corporation ("Comcast") contributed approximately
121.4 million shares of its Class A Special Common Stock, subject to
adjustment, with a value of $6.077 billion to the Company which the Company
used to acquire the stock of Lenfest from AT&T Corp. ("AT&T") and Lenfest's
other stockholders. Immediately upon closing of the acquisition, Lenfest
was merged with and into the Company. As a result, the Company is the
successor to Lenfest. The Company is a wholly owned subsidiary of Comcast.
The acquisition of Lenfest was accounted for under the purchase method of
accounting. The allocation of the purchase price is preliminary pending
completion of a final appraisal. As the contribution of Comcast's Class A
Special Common Stock from Comcast to the Company and the exchange of the
Comcast Class A Special Common Stock by the Company for the Lenfest common
stock were non-cash transactions, such transactions had no significant
impact on the Company's condensed consolidated statement of cash flows
during the three months ended March 31, 2000 (see Note 6). As part of the
agreement to acquire Lenfest, the Company, through a series of
transactions, distributed certain of its subsidiaries as additional merger
consideration to: H.F. Lenfest, H. Chase Lenfest, Brook J. Lenfest, and
Diane Lenfest Myer, prior stockholders of Lenfest, which had a book value
of $43.0 million at December 31, 1999.
Costs Related to Acquisition
In connection with the Company's acquisition of Lenfest in January 2000, in
order to facilitate an orderly change in control to the Company, Lenfest
established retention and severance programs for its corporate and field
office employees who were to be terminated due to the change in control.
The programs provide for cash severance payments to employees that have
been or will be terminated due to the change in control. Lenfest incurred
expense relating to the severance of approximately 186 corporate and field
office employees totaling $64.7 million, of which $62.1 million had been
paid and $2.6 million was accrued at March 31, 2000. As the liabilities for
such costs were assumed by the Company, such costs were included in
deferred franchise costs in the Company's condensed consolidated balance
sheet as of March 31, 2000.
Sale of Videopole
In August 1999, Lenfest sold all of the stock of Videopole. The results of
operations of Videopole have been presented as a discontinued operation in
accordance with Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions."
6
<PAGE>
COMCAST LCI HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement
establishes the accounting and reporting standards for derivatives and
hedging activity. Upon the adoption of SFAS No. 133, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In July 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133" deferring the effective date for
implementation of SFAS No. 133 to fiscal years beginning after June 15,
2000. The Company is currently evaluating the impact the adoption of SFAS
No. 133 will have on its financial position and results of operations.
Reclassifications
Certain reclassifications have been made to the prior year condensed
consolidated financial statements to conform to those classifications used
in 2000.
Comprehensive Loss
Total comprehensive loss for the three months ended March 31, 1999 was
$15.0 million. Total comprehensive loss includes net loss and unrealized
gains (losses) on marketable securities for the period presented.
3. MARKETABLE SECURITIES AND INVESTMENTS, PRINCIPALLY IN AFFILIATES
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ -----------
(Dollars in thousands)
<S> <C> <C>
Equity method..................................................... $646,347 $25,961
Fair value method................................................. 24,228 159,003
Cost method....................................................... 10,355 10,410
------------ -----------
Total........................................................ $680,930 $195,374
============ ===========
</TABLE>
Equity Method
The Company, through several subsidiaries, owns non-controlling interests
in several general partnerships and corporations. Any subsidiary of the
Company that is a general partner is liable, as a matter of partnership
law, for all debts of such partnership. Losses in excess of amounts
recorded as investments on the Company's condensed consolidated balance
sheet have been offset against loans and advances to these affiliates to
the extent they exist.
Garden State Cablevision, L.P.
The Company indirectly owns a 10% general partnership interest and a 40%
limited partnership interest in Garden State Cablevision L.P. ("Garden
State"), a cable company serving approximately 216,000 subscribers in
southern New Jersey as of March 31, 2000. The Company is allocated a total
of 50% of Garden State's income or losses. In addition, the Company is
required to make up its partner capital deficits upon the termination or
liquidation of the Garden State partnership. Because of the requirement to
make up capital deficits, the Company's condensed consolidated balance
sheet reflects equity in accumulated losses, net of related receivable, in
excess of the investments in Garden State in the amount of $67.3 million as
of December 31, 1999. Comcast indirectly owns the remaining 50% of Garden
State.
7
<PAGE>
COMCAST LCI HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Summarized financial information for Garden State for the three months
ended March 31, 2000 and 1999 is as follows (dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---------- ----------
<S> <C> <C>
Results of Operations
Revenues, net................................................... $32,162 $30,038
Operating, selling, general and administrative expenses......... 15,895 14,372
Depreciation and amortization................................... 7,359 7,054
Operating income................................................ 8,908 8,612
Net income...................................................... 3,648 3,647
</TABLE>
Radius
In January 1997, the Company, through its subsidiary, Lenfest Philadelphia
Interconnect, Inc., entered into a partnership with a subsidiary of Comcast
for the purpose of representing regional and national cable advertising
sales in the Greater Philadelphia market. Under the agreement, the
percentage interests of the partners is determined on the basis of the
number of cable customers of the Company and Comcast in the designated
market area at the beginning of the year. As of March 31, 2000 and December
31, 1999, the Company's partnership interest was 67% and 70%, respectively.
The partners have equal representation on the Executive Committee. Lenfest
Advertising, Inc. d/b/a Radius Communications ("Radius"), a wholly owned
subsidiary of the Company, has been the managing partner of the partnership
since inception. In addition to its management activities, Radius continues
to provide local cable advertising sales and insertion for the Company and
sixteen other cable television system operators.
The Company's recorded investments exceed its proportionate interests in
the book value of the investees' net assets by $603.2 million as of March
31, 2000. Such excess is being amortized to equity in net income or loss,
primarily over a period of 20 years, which is consistent with the estimated
lives of the underlying assets.
Fair Value Method
All of the Company's marketable securities are considered to be available
for sale. Net realized losses/gains from the sales of marketable securities
are included in other expense in the Company's condensed consolidated
statement of operations. The specific identification method is used to
determine the cost of each security at the time of sale.
Liberty Digital, Inc.
During the three months ended March 31, 2000, the Company sold
approximately 0.6 million shares of its Liberty Digital, Inc. ("Liberty
Digital") common stock for proceeds of $33.5 million and recognized a
pre-tax loss of $1.0 million. Such loss was recorded as a reclassification
from accumulated other comprehensive income to other expense. As of March
31, 2000 and December 31, 1999, the Company has recorded its investment in
Liberty Digital at its estimated fair value of $35.2 million and $111.7
million, respectively.
Adelphia Business Solutions, Inc.
During the three months ended March 31, 2000, the Company sold all of its
shares of Adelphia Business Solutions, Inc. ("Adelphia") for proceeds of
$38.9 million and recognized a pre-tax loss of $1.9 million. Such loss was
recorded as a reclassification from accumulated other comprehensive income
to other expense. As of December 31, 1999, the Company has recorded its
investment in Adelphia at its estimated fair value of $35.1 million.
8
<PAGE>
COMCAST LCI HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
4. NOTES PAYABLE
Bank Credit Facility
During the three months ended March 31, 2000, the Company repaid the
remaining outstanding balance on its credit facility with proceeds from an
advance from Comcast and proceeds from the sale of certain investments (see
Note 3) and terminated the bank credit facility. In connection with the
repayment and termination of the bank credit facility, the Company expensed
unamortized debt issues costs of $1.5 million, which resulted in an
extraordinary loss, net of tax, of $1.0 million.
Interest Rates
As of March 31, 2000 and December 31, 1999, the Company's effective
weighted average interest rate on its notes payable outstanding was 8.77%
and 8.52%, respectively.
5. RELATED PARTY TRANSACTIONS
The Company has an affiliation agreement with QVC, Inc. ("QVC"), an
electronic retailer and a majority-owned and controlled subsidiary of
Comcast, to carry its programming. In return for carrying QVC programming,
the Company receives an allocated portion, based upon market share, of a
percentage of net sales of merchandise sold to QVC customers located in the
Company's service area. For the three months ended March 31, 2000, the
Company's revenues include $0.8 million relating to QVC.
Comcast, through a management agreement, manages the operations of the
Company's subsidiaries, including rebuilds and upgrades. The management
agreement generally provides that Comcast will supervise the management and
operations of the cable systems and arrange for and supervise certain
administrative functions. As compensation for such services, the agreements
provide for Comcast to charge management fees of 6% of gross revenues.
Comcast charged the Company's subsidiaries management fees of $7.7 million
during the three months ended March 31, 2000. These management fees are
included in selling, general and administrative expenses in the Company's
condensed consolidated statement of operations.
The Company purchases certain other services, including insurance and
employee benefits, from Comcast under cost-sharing arrangements on terms
that reflect Comcast's actual cost. The Company reimburses Comcast for
certain other costs (primarily salaries) under cost-reimbursement
arrangements. Under all of these arrangements, the Company incurred total
expenses of $41.7 million during the three months ended March 31, 2000.
Programming expense includes $10.2 million during the three months ended
March 31, 2000, relating to programming purchased by the Company from
suppliers in which Comcast holds an equity interest.
Accounts payable and accrued expenses - related parties in the Company's
condensed consolidated balance sheet as of March 31, 2000 primarily
consists of amounts due to Comcast and its affiliates under the
cost-sharing arrangements described above and amounts payable to Comcast
and its affiliates as reimbursement for payments made, in the ordinary
course of business, by such affiliates on behalf of the Company.
The Company has entered into a custodial account arrangement with Comcast
Financial Agency Corporation ("CFAC"), a wholly owned subsidiary of
Comcast, under which CFAC provides cash management services to the Company.
Under this arrangement, the Company's cash receipts are deposited with and
held by CFAC, as custodian and agent, which invests and disburses such
funds at the direction of the Company. As of March 31, 2000, none of the
Company's cash was held by CFAC.
Garden State
Under a consulting agreement, Lenfest advised Garden State on various
operational and financial matters for a consulting fee of 3% of Garden
State's gross revenues. During the three months ended March 31, 1999,
Garden State obtained its cable television programming from Satellite
Services, Inc. ("SSI"), an affiliate of AT&T, through Lenfest. The
programming services were at a rate which was not more than Garden State
could obtain
9
<PAGE>
COMCAST LCI HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
independently. For the three months ended March 31, 1999, the total
programming obtained by Garden State through Lenfest was approximately $4.8
million.
Satellite Services, Inc.
During the three months ended March 31, 1999, Lenfest was party to an
agreement whereby SSI provided certain cable television programming to
Lenfest and its unconsolidated cable television affiliates with programming
services at a rate which is not more than Lenfest could obtain
independently. For the three months ended March 31, 1999, Lenfest incurred
programming expenses of $19.3 million under this agreement.
6. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
During the three months ended March 31, 2000, the Company acquired all of
the common stock of Lenfest for approximately 121.4 million shares of
Comcast Class A Special Common Stock (see Note 1). The fair values of the
assets and liabilities acquired by the Company during the three months
ended March 31, 2000 are presented as follows (in millions):
Investments, principally in affiliates............. $579.7
Property, plant & equipment........................ 1,200.7
Goodwill, deferred franchise costs and other
intangible assets................................ 7,718.6
Other assets....................................... 329.2
Notes payable and obligations under capital
leases........................................... (1,543.5)
Deferred tax liability............................. (2,059.6)
Other liabilities.................................. (147.9)
----------
Net assets acquired....................... $6,077.2
==========
The Company made cash payments for interest of $16.8 million and $13.1
million during the three months ended March 31, 2000 and 1999,
respectively.
The Company made cash payments for income taxes of $1.6 million and $0.2
million during the three months ended March 31, 2000 and 1999,
respectively.
7. COMMITMENTS AND CONTINGENCIES
Contingencies
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
The Company reached a tentative agreement with a state regulatory agency to
resolve certain outstanding rate disputes. The Company has established
reserves during the fourth quarter of 1999 to satisfy potential liabilities
arising from this proposed settlement.
10
<PAGE>
COMCAST LCI HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information for this item is omitted pursuant to Securities and Exchange
Commission General Instruction H to Form 10-Q, except as noted below.
Results of Operations
Our summarized consolidated financial information for the three months
ended March 31, 2000 and 1999 is as follows (dollars in millions, "NM" denotes
percentage is not meaningful):
<TABLE>
<CAPTION>
Three Months Ended
March 31, Increase / (Decrease)
2000 1999 $ %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues............................................... $132.3 $125.8 $6.5 5.2%
Service, programming, selling, general and
administrative and direct non-cable expenses........ 90.0 74.3 15.7 21.1
-------- -------- --------
Operating income before depreciation and
amortization (1).................................... 42.3 51.5 (9.2) (17.9)
Depreciation and amortization.......................... 175.8 35.0 140.8 NM
-------- -------- -------- --------
Operating (loss) income................................ (133.5) 16.5 (150.0) NM
-------- -------- -------- --------
Interest expense....................................... 30.5 29.5 1.0 3.4
Interest income on notes receivable from affiliate..... (0.4) 0.4 NM
Equity in net loss (income) of affiliates.............. 4.9 (2.3) 7.2 NM
Other expense.......................................... 2.1 1.2 0.9 75.0
Income tax benefit..................................... (50.7) 50.7 NM
-------- -------- -------- --------
Loss from continuing operations before
extraordinary items................................. ($119.9) ($11.9) ($108.0) NM
======== ======== ======== ========
<FN>
- ------------
(1) Operating income before depreciation and amortization is commonly referred
to in the cable communications business as "operating cash flow." Operating
cash flow is a measure of a company's ability to generate cash to service
its obligations, including debt service obligations, and to finance capital
and other expenditures. In part due to the capital intensive nature of the
cable communications business and the resulting significant level of
non-cash depreciation and amortization expense, operating cash flow is
frequently used as one of the bases for comparing businesses in the cable
communications industry, although our measure of operating cash flow may
not be comparable to similarly titled measures of other companies.
Operating cash flow is the primary basis used by our management to measure
the operating performance of our business. Operating cash flow does not
purport to represent net income or net cash provided by operating
activities, as those terms are defined under generally accepted accounting
principles, and should not be considered as an alternative to such
measurements as an indicator of our performance.
</FN>
</TABLE>
Revenues
Of the $6.5 million increase for the three month period from 1999 to 2000,
$3.8 million is due principally to subscriber growth in digital cable and cable
modem Internet access service, $1.9 million is due to subscriber growth in
analog cable service and $2.9 million is related to changes in rates, offset by
the effects of a $1.6 million decrease in pay per view revenue as a result of
fewer events during the three months ended March 31, 2000 and a $0.5 million
decrease related to operations which were sold in January 2000.
Service, Programming, Selling, General & Administrative and Direct
Non-Cable Expenses
Of the $15.7 million increase for the three month period from 1999 to 2000,
$4.6 million is due to increases in the costs of cable programming as a result
of changes in rates, subscriber growth and additional channel offerings, $1.3
million is due principally to subscriber growth in cable modem Internet access
service, and $10.7 million is principally attributable to management fees
charged by Comcast Corporation and Comcast Cable Communications, Inc., offset by
the effects of a $0.7
11
<PAGE>
COMCAST LCI HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
million decrease in pay per view programming costs as a result of fewer events
during the three months ended March 31, 2000 and a $0.2 million decrease in
expenses related to operations which were sold in January 2000. It is
anticipated that our cost of cable programming will increase in the future as
cable programming rates increase and additional sources of cable programming
become available.
Management Agreement
See Note 5 to our condensed consolidated financial statements included in
Item 1.
Depreciation and Amortization Expense
The $140.8 million increase for the three month period from 1999 to 2000 is
primarily a result of the effects of our merger with Lenfest Communications,
Inc. ("Lenfest") in January 2000 and the effects of our capital expenditures.
Interest Expense
The $1.0 million increase for the three month period from 1999 to 2000 is
due to higher outstanding balances on our long-term debt and to increases in the
effective weighted average interest rate on our long-term debt.
Equity in Net Loss (Income) of Affiliates
The $7.2 million increase for the three month period from 1999 to 2000 is
primarily due to the amortization of the excess of the Company's investment in
Garden State Cablevision, L.P. ("Garden State") over the Company's proportionate
interest in the book value of Garden State's net assets during the three months
ended March 31, 2000.
Other Expense
During the three months ended March 31, 2000, we recognized pre-tax losses
of $2.9 million on sales of certain of our fair value method investments. These
losses were recorded as a reclassification from accumulated other comprehensive
income to other expense.
Income Tax Benefit
The $50.7 million income tax benefit for the three months ended March 31,
2000 is primarily a result of the effects of the increase in our loss before
income tax and minority interest.
We believe that our losses will not significantly affect the performance of
our normal business activities because of our existing cash and cash
equivalents, our ability to generate operating income before depreciation and
amortization and our ability to obtain external financing.
We believe that our operations are not materially affected by inflation.
12
<PAGE>
COMCAST LCI HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
We are subject to legal proceedings and claims which arise in the
ordinary course of our business. In the opinion of our management,
the amount of ultimate liability with respect to these actions will
not materially affect our financial position, results of operations
or liquidity.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
10.1 Agreement and Plan of Merger among Lenfest Communications,
Inc., Comcast Corporation and Comcast LCI Holdings, Inc.,
dated as of November 16, 1999 (incorporated by reference to
Exhibit 10.1 to the Comcast Corporation Current Report on
Form 8-K filed on December 13, 1999).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
(i) We filed a Current Report on Form 8-K under Item 1 on
January 21, 2000 relating to Comcast Corporation's
announcement that it had completed its acquisition of
Lenfest Communications, Inc. and merged Lenfest
Communications, Inc. with and into us.
13
<PAGE>
COMCAST LCI HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
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.
COMCAST LCI HOLDINGS, INC.
-------------------------------
/S/ LAWRENCE J. SALVA
-------------------------------
Lawrence J. Salva
Senior Vice President
(Principal Accounting Officer)
Date: May 15, 2000
14
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