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:
SEPTEMBER 30, 1996
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the Transition Period from ________ to ________.
Commission File Number 0-6983
COMCAST CORPORATION
[GRAPHIC OMITTED - LOGO]
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
--------------------------
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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes __X__ No ____
--------------------------
As of September 30, 1996, there were 190,525,452 shares of Class A Special
Common Stock, 34,002,024 shares of Class A Common Stock and 8,786,250 shares of
Class B Common Stock outstanding.
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet as of September 30, 1996 and December 31,
1995 (Unaudited).........................................2
Condensed Consolidated Statement of
Operations and Accumulated Deficit for
the Nine and Three Months Ended September 30,
1996 and 1995 (Unaudited)................................3
Condensed Consolidated Statement of Cash
Flows for the Nine Months Ended September 30,
1996 and 1995 (Unaudited)................................4
Notes to Condensed Consolidated
Financial Statements (Unaudited)....................5 - 13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations.........................................14 - 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................25
Item 6. Exhibits and Reports on Form 8-K........................25
-----------------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Quarterly
Report is forward-looking, such as information relating to future capital
commitments and the effects of competition. Such forward-looking information
involves important risks and uncertainties that could significantly affect
expected results in the future from those expressed in any forward-looking
statements made by, or on behalf of, the Company. These risks and uncertainties
include, but are not limited to, uncertainties relating to economic conditions,
acquisitions and divestitures, government and regulatory policies, the pricing
and availability of equipment, materials, inventories and programming,
technological developments and changes in the competitive environment in which
the Company operates.
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in thousands)
September 30, December 31,
1996 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents.............................................. $426,226 $539,061
Short-term investments, at cost which approximates fair value.......... 100,436 370,982
Accounts receivable, less allowance for doubtful accounts
of $82,899 and $81,273............................................... 350,675 390,698
Inventories, net....................................................... 256,251 243,447
Prepaid charges and other.............................................. 57,990 49,671
Deferred income taxes.................................................. 65,758 59,799
---------- ----------
Total current assets............................................... 1,257,336 1,653,658
---------- ----------
INVESTMENTS, principally in affiliates.................................... 1,278,733 906,383
---------- ----------
PROPERTY AND EQUIPMENT.................................................... 3,143,170 2,575,633
Accumulated depreciation............................................... (1,091,608) (932,031)
---------- ----------
Property and equipment, net............................................ 2,051,562 1,643,602
---------- ----------
DEFERRED CHARGES.......................................................... 6,683,493 6,552,437
Accumulated amortization............................................... (1,441,816) (1,175,772)
---------- ----------
Deferred charges, net.................................................. 5,241,677 5,376,665
---------- ----------
$9,829,308 $9,580,308
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses.................................. $891,057 $963,991
Accrued interest....................................................... 99,357 72,675
Current portion of long-term debt...................................... 150,550 85,403
---------- ----------
Total current liabilities.......................................... 1,140,964 1,122,069
---------- ----------
LONG-TERM DEBT, less current portion...................................... 7,233,745 6,943,766
---------- ----------
DEFERRED INCOME TAXES..................................................... 1,501,820 1,517,995
---------- ----------
MINORITY INTEREST AND OTHER............................................... 821,867 772,004
---------- ----------
COMMITMENTS AND CONTINGENCIES
COMMON EQUITY PUT OPTIONS................................................. 69,625 52,125
---------- ----------
STOCKHOLDERS' DEFICIENCY
Preferred stock, no par value - authorized, 20,000,000 shares; issued
5% series A convertible, 6,370 at redemption value................... 31,850
Class A special common stock, $1 par value - authorized, 500,000,000
shares; issued, 190,525,452 and 192,844,814......................... 190,525 192,845
Class A common stock, $1 par value - authorized, 200,000,000
shares; issued, 34,002,024 and 37,706,517........................... 34,002 37,707
Class B common stock, $1 par value - authorized, 50,000,000
shares; issued, 8,786,250........................................... 8,786 8,786
Additional capital..................................................... 869,911 843,113
Accumulated deficit.................................................... (2,089,358) (1,914,292)
Unrealized gains on marketable securities.............................. 32,716 22,210
Cumulative translation adjustments..................................... (17,145) (18,020)
---------- ----------
Total stockholders' deficiency..................................... (938,713) (827,651)
---------- ----------
$9,829,308 $9,580,308
========== ==========
See notes to condensed consolidated financial statements.
2
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
(Amounts in thousands, except per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
REVENUES
Service income............................................. $1,584,000 $1,381,510 $543,540 $478,758
Net sales from electronic retailing........................ 1,286,869 975,917 431,023 391,491
----------- ----------- ----------- -----------
2,870,869 2,357,427 974,563 870,249
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Operating.................................................. 679,563 576,543 226,090 209,186
Cost of goods sold from electronic retailing............... 774,718 584,615 262,338 234,369
Selling, general and administrative........................ 554,581 451,695 190,325 162,550
Depreciation............................................... 223,718 278,610 78,325 59,244
Amortization............................................... 267,272 256,065 88,393 88,388
----------- ----------- ----------- -----------
2,499,852 2,147,528 845,471 753,737
----------- ----------- ----------- -----------
OPERATING INCOME.............................................. 371,017 209,899 129,092 116,512
INVESTMENT (INCOME) EXPENSE
Interest expense........................................... 403,735 388,367 135,742 137,816
Investment income.......................................... (63,706) (202,307) (16,215) (44,727)
Equity in net losses of affiliates......................... 89,198 63,534 28,877 25,628
Gain from equity offering of affiliate..................... (40,638)
Other...................................................... 22,673 (5,523) (293) (5,891)
----------- ----------- ----------- -----------
411,262 244,071 148,111 112,826
----------- ----------- ----------- -----------
(LOSS) INCOME BEFORE INCOME TAX EXPENSE, MINORITY
INTEREST AND EXTRAORDINARY ITEMS........................... (40,245) (34,172) (19,019) 3,686
INCOME TAX EXPENSE............................................ 33,894 32,470 9,282 18,435
----------- ----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST AND
EXTRAORDINARY ITEMS........................................ (74,139) (66,642) (28,301) (14,749)
MINORITY INTEREST............................................. (47,423) (34,767) (18,329) (12,796)
----------- ----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEMS............................... (26,716) (31,875) (9,972) (1,953)
EXTRAORDINARY ITEMS........................................... (1,013) (5,407) (5,407)
----------- ----------- ----------- -----------
NET LOSS...................................................... (27,729) (37,282) (9,972) (7,360)
ACCUMULATED DEFICIT
Beginning of period ....................................... (1,914,292) (1,827,647) (2,030,633) (1,868,738)
Dividends declared - $.070, $.070, $.023 and
$.023 per common share .................................. (18,918) (16,758) (7,864) (5,589)
Retirement of common stock................................. (128,419) (40,889)
----------- ----------- ----------- -----------
End of period.............................................. ($2,089,358) ($1,881,687) ($2,089,358) ($1,881,687)
=========== =========== =========== ===========
LOSS PER SHARE
Loss before extraordinary items............................ ($.11) ($.13) ($.04) ($.01)
Extraordinary items........................................ (.02) (.02)
----------- ----------- ----------- -----------
Net loss.............................................. ($.11) ($.15) ($.04) ($.03)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE PERIOD............................... 236,189 239,634 233,318 239,819
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
3
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended September 30,
1996 1995
OPERATING ACTIVITIES
Net loss............................................................... ($27,729) ($37,282)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation......................................................... 223,718 278,610
Amortization......................................................... 267,272 256,065
Non-cash interest expense, net....................................... 48,087 41,403
Equity in net losses of affiliates................................... 89,198 63,534
Gains on long-term investments, net.................................. (22,077) (162,682)
Gain from equity offering of affiliate............................... (40,638)
Minority interest.................................................... (47,423) (34,767)
Extraordinary items.................................................. 1,013 5,407
Deferred income taxes and other...................................... 4,474 (14,356)
----------- ----------
495,895 395,932
Decrease (increase) in accounts receivable, net...................... 45,265 (8,282)
Increase in inventories, net......................................... (11,834) (37,978)
Increase in prepaid charges and other................................ (2,705) (16,261)
(Decrease) increase in accounts payable and accrued expenses......... (25,961) 25,666
Increase in accrued interest......................................... 26,666 12,609
----------- ----------
Net cash provided by operating activities........................ 527,326 371,686
----------- ----------
FINANCING ACTIVITIES
Proceeds from borrowings............................................... 660,404 3,111,856
Retirement and repayment of debt....................................... (486,755) (1,160,867)
(Repurchases) issuances of common stock, net........................... (169,662) 2,726
Equity contribution to a subsidiary.................................... 6,556
Dividends.............................................................. (18,918) (16,758)
Other.................................................................. (4,294) (22,146)
----------- ----------
Net cash (used in) provided by financing activities.............. (19,225) 1,921,367
----------- ----------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired..................................... (57,995) (1,371,074)
Proceeds from sales (purchases) of short-term investments, net......... 270,546 (81,809)
Investments, principally in affiliates................................. (447,622) (457,984)
Proceeds from sales of long-term investments........................... 111,263 400,749
Additions to property and equipment.................................... (450,205) (476,571)
Other.................................................................. (46,923) (25,194)
----------- ----------
Net cash used in investing activities............................ (620,936) (2,011,883)
----------- ----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.......................... (112,835) 281,170
CASH AND CASH EQUIVALENTS, beginning of period............................ 539,061 335,320
----------- ----------
CASH AND CASH EQUIVALENTS, end of period.................................. $426,226 $616,490
=========== ==========
See notes to condensed consolidated financial statements.
4
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1995 has been
condensed from the audited balance sheet as of that date. The condensed
consolidated balance sheet as of September 30, 1996, the condensed
consolidated statement of operations and accumulated deficit for the nine
and three months ended September 30, 1996 and 1995 and the condensed
consolidated statement of cash flows for the nine months ended September
30, 1996 and 1995 have been prepared by Comcast Corporation (the "Company")
and have not been audited by the Company's independent auditors. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows as of September 30, 1996 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
financial statements and notes thereto included in the Company's December
31, 1995 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for the periods ended September 30,
1996 are not necessarily indicative of operating results for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New Accounting Pronouncement
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." The Company has elected to continue to measure such
compensation expense using the method prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," as
permitted by SFAS No. 123. Accordingly, there was no impact of the adoption
of SFAS No. 123 on the Company's financial position or results of
operations.
Net Loss Per Share
Net loss per share is based on the weighted average number of common shares
outstanding during the period. For the nine and three months ended
September 30, 1996 and 1995, the Company's common stock equivalents have an
antidilutive effect on net loss per share and, therefore, have not been
used in determining the total weighted average number of common shares
outstanding.
Reclassifications
Certain reclassifications have been made to the prior year condensed
consolidated financial statements to conform to those classifications used
in 1996.
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Regional Sports Venture
In July 1996, the Company completed its acquisition (the "Sports Venture
Acquisition") of an interest of approximately 66% in the Philadelphia
Flyers Limited Partnership, a Pennsylvania limited partnership ("PFLP"),
the assets of which, after giving effect to the Sports Venture Acquisition,
consist of (i) the National Basketball Association ("NBA") franchise to own
and operate the Philadelphia 76ers basketball team and related assets (the
"Sixers"), (ii) the National Hockey League ("NHL") franchise to own and
operate the Philadelphia Flyers hockey team and related assets, and (iii)
two adjacent arenas, leasehold interests in and development rights related
to the land underlying the arenas and other adjacent parcels of land
located in Philadelphia, Pennsylvania (collectively, the "Arenas").
Concurrent with the completion of the Sports Venture Acquisition, PFLP was
renamed Comcast Spectacor, L.P. ("Comcast-Spectacor").
5
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The Sports Venture Acquisition was completed in two steps. In April 1996,
the Company purchased the Sixers for $125.0 million in cash plus assumed
net liabilities of approximately $11.0 million through a partnership
controlled by the Company. To complete the Sports Venture Acquisition, in
July 1996, the Company contributed its interest in the Sixers, exchanged
approximately 3.5 million shares of the Company's Class A Special Common
Stock (the "Class A Special Common Stock") and 6,370 shares of the
Company's newly issued 5% Series A Convertible Preferred Stock (the
"Preferred Stock" - see Note 6) and paid $15.0 million in cash for its
current interest in Comcast-Spectacor. The remaining interest of
approximately 34% in Comcast-Spectacor is owned by a group, including the
former majority owner of PFLP, who also manages Comcast-Spectacor. In
connection with the Sports Venture Acquisition, Comcast-Spectacor assumed
the outstanding liabilities relating to the Sixers and the Arenas,
including a mortgage obligation of approximately $155.0 million. The
Company accounts for its interest in Comcast-Spectacor under the equity
method.
Sprint Spectrum
Effective as of January 1996, the Company, Tele-Communications, Inc.
("TCI"), Cox Communications, Inc. ("Cox") and Sprint Corporation
(collectively, the "Parents"), and certain subsidiaries of the Parents,
entered into a series of agreements relating to their previously announced
joint venture (March 1995) to engage in the communications business. Under
an Amended and Restated Agreement of Limited Partnership of MajorCo, L.P.
(known as "Sprint Spectrum"), the business of Sprint Spectrum is to provide
wireless telecommunications services and will not include the previously
authorized business of providing local wireline communications services to
residences and businesses. A partnership owned entirely by subsidiaries of
the Company owns 15% of Sprint Spectrum. The Company accounts for its
investment in Sprint Spectrum under the equity method (see Note 4).
Scripps Cable
In October 1995, the Company announced its agreement to acquire the cable
television operations ("Scripps Cable") of The E.W. Scripps Company ("E.W.
Scripps") in exchange for shares of the Company's Class A Special Common
Stock worth $1.575 billion, subject to certain closing adjustments (the
"Scripps Transaction"). For purposes of determining the number of shares of
Class A Special Common Stock to be delivered in the Scripps Transaction,
such stock will be valued on the basis of the average closing price of the
Class A Special Common Stock on The Nasdaq Stock Market ("Nasdaq") for 15
trading days randomly selected from the 40 trading day period ending on the
second trading day prior to the closing date (the "Comcast Share Price");
provided that the Comcast Share Price will be no greater than $23.09 and,
except as provided below, no less than $17.06 (the "Minimum Price").
The closing price of the Class A Special Common Stock on Nasdaq on November
4, 1996 was $15.188 per share, which is below the Minimum Price. Since July
10, 1996, when the closing price of the Class A Special Common Stock was
$16.75, the Class A Special Common Stock has traded at closing prices below
the Minimum Price. If the Comcast Share Price is below the Minimum Price,
E.W. Scripps has the right, but not the obligation, to terminate the
agreement, subject to the right of the Company to increase the number of
shares of Class A Special Common Stock to be delivered in the Scripps
Transaction (i) to that number of shares that would have been delivered if
the Comcast Share Price were not subject to the Minimum Price or (ii) by
such lower number as E.W. Scripps and the Company may agree. The Company
has informed E.W. Scripps that if the Comcast Share Price is less than the
Minimum Price and if E.W. Scripps exercises its rights to terminate the
agreement, the Company does not intend to elect to deliver any additional
shares of Class A Special Common Stock. The E.W. Scripps Board of Directors
(the "Scripps Board") has indicated that it will not proceed with the
Scripps Transaction if the Comcast Share Price is below the Minimum Price
and the number of shares of Class A Special Common Stock to be delivered by
the Company is less than the number that would have been delivered if the
Minimum Price were equal to the Comcast Share Price, unless, among other
things, the Scripps Board receives an opinion from its financial advisor as
to the fairness from a financial point of view to E.W. Scripps'
stockholders of the consideration to be paid under such circumstances.
6
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Scripps Cable passes more than 1.2 million homes and serves more than
800,000 subscribers, with over 60% of its subscribers located in
Sacramento, California and Chattanooga and Knoxville, Tennessee. Subject to
the foregoing and certain other conditions, the Scripps Transaction is
scheduled to close in November 1996.
Share Repurchase Program
Concurrent with the announcement of the Scripps Transaction in October
1995, the Company announced that its Board of Directors authorized a market
repurchase program (the "Repurchase Program") pursuant to which the Company
may purchase, at such times and on such terms as it deems appropriate, up
to $500.0 million of its outstanding common stock, subject to certain
restrictions and market conditions. Pursuant to the Repurchase Program, the
Company has repurchased shares of its common stock for aggregate
consideration of $185.8 million through September 30, 1996, including
$173.4 million and $56.8 million during the nine and three months ended
September 30, 1996, respectively.
As part of the Repurchase Program, the Company has sold put options on 4.0
million shares of its Class A Special Common Stock through September 30,
1996, including put options on 1.0 million of such shares sold during the
nine months ended September 30, 1996. The put options give the holder the
right to require the Company to repurchase such shares at specified prices
on specific dates in January through March 1997. The amount the Company
would be obligated to pay to repurchase such shares if all outstanding put
options were exercised is $69.6 million. This amount has been reclassified
to a temporary equity account in the Company's condensed consolidated
balance sheet as of September 30, 1996.
Cellular Rebuild
In 1995, the Company's cellular division purchased approximately $172.0
million of switching and cell site equipment which replaced the existing
switching and cell site equipment (the "Cellular Rebuild"). The Company
substantially completed the Cellular Rebuild during 1995. During the first
quarter of 1995, the Company charged approximately $110.0 million to
depreciation expense which represented the difference between the net book
value of the equipment replaced and the residual value realized upon its
disposal.
QVC
In February 1995, the Company and TCI acquired all of the outstanding stock
of QVC, Inc. and its subsidiaries ("QVC") not previously owned by them
(approximately 65% of such shares on a fully diluted basis) for $46, in
cash, per share (the "QVC Acquisition"), representing a total cost of
approximately $1.4 billion. The QVC Acquisition, including the exercise of
certain warrants held by the Company, was financed with cash contributions
from the Company and TCI of $296.3 million and $6.6 million, respectively,
borrowings of $1.1 billion under a $1.2 billion QVC credit facility and
existing cash and cash equivalents held by QVC. Following the acquisition,
the Company and TCI own, through their respective subsidiaries, 57.45% and
42.55%, respectively, of QVC. The Company has accounted for the QVC
Acquisition under the purchase method and QVC was consolidated with the
Company effective February 1, 1995.
7
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Pro Forma Results
The following pro forma information for the nine months ended September 30,
1995 has been presented as if the QVC Acquisition occurred on January 1,
1995. This unaudited pro forma information is based on historical results
of operations, adjusted for acquisition costs, and is not necessarily
indicative of what the results would have been had the Company operated QVC
since such date.
(Dollars in millions, except per share data)
Nine Months Ended
September 30, 1995 (1)
Revenues ............................ $ 2,487.8
Loss before extraordinary items...... (36.8)
Net loss ............................ (42.2)
Net loss per share .................. (.18)
(1) Effective April 1, 1995, QVC commenced consolidating its United
Kingdom ("UK") operations. Pro forma revenues presented above do not
reflect revenues relating to QVC's UK operations prior to April 1,
1995.
8
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
4. INVESTMENTS
Investments - Equity Method
Summarized financial information for equity method investments is as
follows (dollars in thousands):
Nine Months Ended September 30, 1996 Sprint Spectrum (a) Other Combined
Combined Results of Operations
Revenues, net............................... $ $624,550 $624,550
Depreciation and amortization............... 688 120,281 120,969
Operating loss.............................. (122,655) (104,739) (227,394)
Net loss as reported
by affiliates............................ (243,508) (172,802) (416,310)
Company's Equity in Net Loss
Equity in current period net loss........... ($36,526) ($49,245) ($85,771)
Amortization income (expense) (b)........... 636 (4,063) (3,427)
-------- -------- --------
Total equity in net loss.................. ($35,890) ($53,308) ($89,198)
======== ======== ========
Three Months Ended September 30, 1996 Sprint Spectrum (a) Other Combined
Combined Results of Operations
Revenues, net............................... $ $178,777 $178,777
Depreciation and amortization............... 384 29,199 29,583
Operating loss.............................. (46,898) (31,622) (78,520)
Net loss as reported
by affiliates............................ (90,837) (45,660) (136,497)
Company's Equity in Net Loss
Equity in current period net loss........... ($13,625) ($14,045) ($27,670)
Amortization expense (b).................... (1,207) (1,207)
-------- -------- --------
Total equity in net loss.................. ($13,625) ($15,252) ($28,877)
======== ======== ========
As of September 30, 1996 Sprint Spectrum (a) Other Combined
Combined Financial Position
Current assets.............................. $35,917 $1,807,083 $1,843,000
Noncurrent assets........................... 2,525,411 2,306,286 4,831,697
Current liabilities......................... 71,866 833,410 905,276
Noncurrent liabilities...................... 17,078 2,179,821 2,196,899
- ---------------
(a) See footnote (1) on page 10.
(b) See footnote (3) on page 10.
9
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Three Months Nine Months Three Months
Ended Ended Ended
January 31, 1995 September 30, 1995 September 30, 1995
QVC (2) Other Combined Combined (2)
Combined Results of Operations
Revenues, net............................... $425,921 $450,546 $876,467 $160,893
Depreciation and amortization............... 12,992 109,006 121,998 38,941
Operating income (loss)..................... 58,247 (163,777) (105,530) (64,228)
Net income (loss) as reported
by affiliates............................ 28,333 (238,461) (210,128) (92,587)
Company's Equity in Net Income (Loss)
Equity in current period net income (loss).. $4,286 ($64,071) ($59,785) ($24,101)
Amortization income (expense) (3)........... 1,194 (4,943) (3,749) (1,527)
-------- -------- -------- --------
Total equity in net income (loss)......... $5,480 ($69,014) ($63,534) ($25,628)
======== ======== ======== ========
(1) The Company's equity interest in Sprint Spectrum's net loss is
recorded three months in arrears. Accordingly, the summarized
financial information presented above includes Sprint Spectrum's
results of operations for the nine and three months ended June 30,
1996 and its financial position as of June 30, 1996.
(2) Through January 31, 1995, QVC's fiscal year end was January 31, and
therefore, the Company recorded its equity interest in QVC's net
income two months in arrears. For the nine months ended September 30,
1995, the Company recorded its equity interest in QVC's net income for
the period from November 1, 1994 through January 31, 1995, which was
not previously recorded by the Company. The effect of this one-time
adjustment was not significant to the Company's results of operations.
Effective February 1, 1995, QVC's results of operations were
consolidated with the Company.
(3) The differences between the Company's recorded investments and its
proportionate interests in the book value of the investees' net assets
are being amortized to equity in net income or loss, primarily over a
period of twenty years, which is consistent with the estimated lives
of the underlying assets.
Through June 27, 1996, the Company held investments in Teleport
Communications Group Inc. ("TCGI"), TCG Partners and certain local joint
ventures (the "Joint Ventures") managed by TCGI and TCG Partners. On June
27, 1996, TCGI sold approximately 27 million shares of its Class A Common
Stock (the "TCGI Class A Stock") for $16 per share in an initial public
offering (the "IPO"). In connection with the IPO, TCGI, the Company and
subsidiaries of Cox, TCI and Continental Cablevision ("Continental" and
collectively with Cox, TCI and the Company, the "Cable Stockholders")
entered into a reorganization agreement pursuant to which TCGI was
reorganized (the "Reorganization"). The Reorganization consisted of, among
other things: (i) the acquisition by TCGI of TCG Partners; (ii) the
acquisition by TCGI of additional interests in the Joint Ventures
(including 100% of those interests held by the Company); and (iii) the
contribution to TCGI of $269.0 million aggregate principal amount of
indebtedness, plus accrued interest thereon, owed by TCGI to the Cable
Stockholders (including $53.8 million principal amount and $4.1 million of
accrued interest owed to the Company). In connection with the
Reorganization, the Company received 25.6 million shares of TCGI's Class B
Common Stock (the "TCGI Class B Stock"). Each share of TCGI Class B Stock
is entitled to voting power equivalent to ten shares of TCGI Class A Stock
and is convertible, at the option of the holder, into one share of TCGI
Class A Stock. The Company recorded a $40.6 million increase in its
proportionate share of TCGI's net assets as a gain from equity offering of
affiliate in its condensed consolidated statement of operations and
accumulated deficit for the nine months ended September 30, 1996. After
giving effect to the Reorganization and the IPO, the Company owns 19.5% of
the outstanding TCGI Class B Stock representing a 19.1% voting interest and
a 16.1% equity interest. The Company continues to account for its interest
in TCGI under the equity method. Assuming conversion of the TCGI Class B
Stock held by the Company into TCGI Class A Stock, the Company's investment
would have a fair value of approximately $605.3 million, based on the
quoted market price of the TCGI Class A Stock as of September 30, 1996.
10
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Investments - Public Companies
In February 1996, in connection with certain preemptive rights of the
Company under previously existing agreements with Nextel Communications,
Inc. ("Nextel"), the Company purchased approximately 8.16 million shares,
classified as long-term investments available for sale, of Nextel common
stock at $12.25 per share, for a total cost of $99.9 million.
During the nine and three months ended September 30, 1996, the Company sold
5.6 million shares and 1.2 million shares, respectively, of Nextel common
stock for $105.4 million and $19.9 million, respectively, and recognized
pre-tax gains of $35.4 million and $5.8 million, respectively, as
investment income in its condensed consolidated statement of operations and
accumulated deficit. During the nine and three months ended September 30,
1995, the Company sold 11.3 million shares of Nextel common stock for
$212.6 million and recognized a pre-tax gain of $36.2 million as investment
income in its condensed consolidated statement of operations and
accumulated deficit.
The Company holds unrestricted equity investments in certain publicly
traded companies with an historical cost of $149.2 million and $115.9
million as of September 30, 1996 and December 31, 1995, respectively. The
Company has recorded these investments, which are classified as available
for sale, at their estimated fair values of $199.5 million and $150.1
million as of September 30, 1996 and December 31, 1995, respectively. The
unrealized pre-tax gains as of September 30, 1996 and December 31, 1995 of
$50.3 million and $34.2 million, respectively, have been reported in the
Company's condensed consolidated balance sheet as decreases in
stockholders' deficiency, net of related deferred income taxes of $17.6
million and $12.0 million, respectively.
As a result of the merger of Time Warner, Inc. ("Time Warner") and Turner
Broadcasting System, Inc. ("TBS"), which was consummated on October 10,
1996 (the "Merger Date"), the Company received approximately 1.36 million
shares of Time Warner common stock (the "Time Warner Stock") in exchange
for all of the shares of TBS stock held by the Company as of the Merger
Date. The closing market price of the Time Warner Stock on the Merger Date
was $41.375 per share. The Company's investment in TBS, which was
classified as a long-term investment available for sale, had an historical
cost of approximately $8.9 million.
Investments - Privately Held Companies
In January 1995, the Company exchanged its investments in Heritage
Communications, Inc. with TCI for approximately 13.3 million
publicly-traded Class A common shares of TCI with a fair market value of
approximately $290.0 million. Shortly thereafter, the Company sold
approximately 9.1 million unrestricted TCI shares for total proceeds of
$188.1 million. As a result of these transactions, the Company recognized a
pre-tax gain of $141.0 million as investment income in its condensed
consolidated statement of operations and accumulated deficit in the first
quarter of 1995.
5. LONG-TERM DEBT
In May 1995, the Company issued $250.0 million principal amount of its
9-3/8% senior subordinated debentures due 2005.
In May 1996, the Company expensed unamortized debt acquisition costs of
$1.8 million in connection with the prepayment of a portion of a
subsidiary's outstanding debt, resulting in an extraordinary loss, net of
tax, of $1.0 million.
The Company incurred debt extinguishment costs totaling $8.3 million during
the nine and three months ended September 30, 1995, as a result of
refinancing the indebtedness of certain subsidiaries, resulting in an
extraordinary loss, net of tax, of $5.4 million or $.02 per share.
11
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. PREFERRED STOCK
In July 1996, in connection with the Sports Venture Acquisition (see Note
3), the Company issued 6,370 shares of Preferred Stock. Each holder of
shares of the Preferred Stock is entitled to receive cumulative cash
dividends at the annual rate of $250 per share, payable quarterly in
arrears. The Preferred Stock is redeemable, at the option of the Company,
beginning in July 1999 at a redemption price of $5,000 per share plus
accrued and unpaid dividends, subject to certain conditions and conversion
adjustments. The Preferred Stock is convertible, at the option of the
holder, into shares of the Company's Class A Special Common Stock at a
ratio of 209.1175 shares of Class A Special Common Stock for each share of
Preferred Stock, subject to certain conditions. The holders of the
Preferred Stock are not entitled to any voting rights except as otherwise
provided by the Company's Articles of Incorporation or by applicable law.
7. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made interest payments of $329.0 million, $334.4 million, $99.2
million and $124.3 million during the nine and three months ended September
30, 1996 and 1995, respectively.
The Company made cash payments for income taxes of $77.7 million, $24.4
million, $15.5 million, and $5.3 million during the nine and three months
ended September 30, 1996 and 1995, respectively.
8. CONTINGENCIES
The Company is subject to claims which arise in the ordinary course of its
business and other legal proceedings. 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.
12
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
9. FINANCIAL DATA BY BUSINESS SEGMENT
(Dollars in thousands)
Domestic
Cable Electronic Cellular Corporate
Communications Retailing Communications and Other (1) Total
Nine Months Ended September 30, 1996
Revenues, net............................... $1,170,951 $1,286,869 $317,116 $95,933 $2,870,869
Depreciation and amortization............... 286,438 78,904 84,790 40,858 490,990
Operating income (loss)..................... 292,442 129,742 34,036 (85,203) 371,017
Interest expense............................ 168,144 50,458 68,357 116,776 403,735
Capital expenditures........................ 203,841 38,864 69,026 138,474 450,205
Equity in net (losses) income of
affiliates.............................. (15,565) 159 (73,792) (89,198)
Three Months Ended September 30, 1996
Revenues, net............................... $392,619 $431,023 $110,020 $40,901 $974,563
Depreciation and amortization............... 95,753 27,023 28,017 15,925 166,718
Operating income (loss)..................... 98,122 42,215 19,722 (30,967) 129,092
Interest expense............................ 57,490 15,405 24,384 38,463 135,742
Capital expenditures........................ 67,025 19,317 32,475 52,483 171,300
Equity in net (losses) income of
affiliates.............................. (7,121) 75 (21,831) (28,877)
As of September 30, 1996
Assets...................................... $4,788,713 $2,092,483 $1,361,983 $1,586,129 $9,829,308
Long-term debt, less current portion........ 3,149,912 875,293 1,100,985 2,107,555 7,233,745
Nine Months Ended September 30, 1995
Revenues, net............................... $1,078,033 $975,917 $274,243 $29,234 $2,357,427
Depreciation and amortization............... 278,862 61,810 177,205 16,798 534,675
Operating income (loss)..................... 250,793 93,266 (66,469) (67,691) 209,899
Interest expense............................ 185,371 55,275 54,062 93,659 388,367
Capital expenditures........................ 180,437 15,937 191,983 88,214 476,571
Equity in net (losses) income of
affiliates.............................. (12,143) 428 (51,819) (63,534)
Three Months Ended September 30, 1995
Revenues, net............................... $368,453 $391,491 $97,830 $12,475 $870,249
Depreciation and amortization............... 95,196 24,804 21,981 5,651 147,632
Operating income (loss)..................... 86,759 34,901 17,974 (23,122) 116,512
Interest expense............................ 61,467 20,459 18,485 37,405 137,816
Capital expenditures........................ 69,395 7,465 24,020 36,731 137,611
Equity in net losses of affiliates.......... (5,222) (180) (20,226) (25,628)
- ---------------
(1) Corporate and other includes certain operating businesses and elimination
entries related to the segments presented.
13
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company has experienced significant growth in recent years both through
strategic acquisitions and growth in its existing businesses. The Company has
historically met its cash needs for operations through its cash flows from
operating activities. Cash requirements for acquisitions and capital
expenditures have been provided through the Company's financing activities as
well as its existing cash, cash equivalents and short-term investments.
General Developments of Business
Regional Sports Venture
In July 1996, the Company completed its acquisition (the "Sports Venture
Acquisition") of an interest of approximately 66% in the Philadelphia Flyers
Limited Partnership, a Pennsylvania limited partnership ("PFLP"), the assets of
which, after giving effect to the Sports Venture Acquisition, consist of (i) the
National Basketball Association ("NBA") franchise to own and operate the
Philadelphia 76ers basketball team and related assets (the "Sixers"), (ii) the
National Hockey League ("NHL") franchise to own and operate the Philadelphia
Flyers hockey team and related assets, and (iii) two adjacent arenas, leasehold
interests in and development rights related to the land underlying the arenas
and other adjacent parcels of land located in Philadelphia, Pennsylvania
(collectively, the "Arenas"). Concurrent with the completion of the Sports
Venture Acquisition, PFLP was renamed Comcast-Spectacor, L.P.
("Comcast-Spectacor").
The Sports Venture Acquisition was completed in two steps. In April 1996, the
Company purchased the Sixers for $125.0 million in cash plus assumed net
liabilities of approximately $11.0 million through a partnership controlled by
the Company. To complete the Sports Venture Acquisition, in July 1996, the
Company contributed its interest in the Sixers, exchanged approximately 3.5
million shares of the Company's Class A Special Common Stock (the "Class A
Special Common Stock") and 6,370 shares of the Company's newly issued 5% Series
A Convertible Preferred Stock (the "Preferred Stock"), which is convertible into
approximately 1.3 million shares of Class A Special Common Stock (subject to
certain conversion adjustments) and paid $15.0 million in cash for its current
interest in Comcast-Spectacor. The remaining interest of approximately 34% in
Comcast-Spectacor is owned by a group, including the former majority owner of
PFLP, who also manages Comcast-Spectacor. In connection with the Sports Venture
Acquisition, Comcast-Spectacor assumed the outstanding liabilities relating to
the Sixers and the Arenas, including a mortgage obligation of approximately
$155.0 million. The Company accounts for its interest in Comcast-Spectacor under
the equity method.
Sprint Spectrum
Effective as of January 1996, the Company, Tele-Communications, Inc. ("TCI"),
Cox Communications, Inc. ("Cox") and Sprint Corporation (collectively, the
"Parents"), and certain subsidiaries of the Parents (the "Partner
Subsidiaries"), entered into a series of agreements relating to their previously
announced joint venture (March 1995) to engage in the communications business.
Under an Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement") of MajorCo, L.P. (known as "Sprint Spectrum"), the business of
Sprint Spectrum is to provide wireless telecommunications services and will not
include the previously authorized business of providing local wireline
communications services to residences and businesses. A partnership owned
entirely by subsidiaries of the Company owns 15% of Sprint Spectrum. The Company
accounts for its investment in Sprint Spectrum under the equity method.
14
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
Scripps Cable
In October 1995, the Company announced its agreement to acquire the cable
television operations ("Scripps Cable") of The E.W. Scripps Company ("E.W.
Scripps") in exchange for shares of the Company's Class A Special Common Stock
worth $1.575 billion, subject to certain closing adjustments (the "Scripps
Transaction"). For purposes of determining the number of shares of Class A
Special Common Stock to be delivered in the Scripps Transaction, such stock will
be valued on the basis of the average closing price of the Class A Special
Common Stock on The Nasdaq Stock Market ("Nasdaq") for 15 trading days randomly
selected from the 40 trading day period ending on the second trading day prior
to the closing date (the "Comcast Share Price"); provided that the Comcast Share
Price will be no greater than $23.09 and, except as provided below, no less than
$17.06 (the "Minimum Price").
The closing price of the Class A Special Common Stock on Nasdaq on November 4,
1996 was $15.188 per share, which is below the Minimum Price. Since July 10,
1996, when the closing price of the Class A Special Common Stock was $16.75, the
Class A Special Common Stock has traded at closing prices below the Minimum
Price. If the Comcast Share Price is below the Minimum Price, E.W. Scripps has
the right, but not the obligation, to terminate the agreement, subject to the
right of the Company to increase the number of shares of Class A Special Common
Stock to be delivered in the Scripps Transaction (i) to that number of shares
that would have been delivered if the Comcast Share Price were not subject to
the Minimum Price or (ii) by such lower number as E.W. Scripps and the Company
may agree. The Company has informed E.W. Scripps that if the Comcast Share Price
is less than the Minimum Price and if E.W. Scripps exercises its rights to
terminate the agreement, the Company does not intend to elect to deliver any
additional shares of Class A Special Common Stock. The E.W. Scripps Board of
Directors (the "Scripps Board") has indicated that it will not proceed with the
Scripps Transaction if the Comcast Share Price is below the Minimum Price and
the number of shares of Class A Special Common Stock to be delivered by the
Company is less than the number that would have been delivered if the Minimum
Price were equal to the Comcast Share Price, unless, among other things, the
Scripps Board receives an opinion from its financial advisor as to the fairness
from a financial point of view to E.W. Scripps' stockholders of the
consideration to be paid under such circumstances.
Scripps Cable passes more than 1.2 million homes and serves more than 800,000
subscribers, with over 60% of its subscribers located in Sacramento, California
and Chattanooga and Knoxville, Tennessee. Subject to the foregoing and certain
other conditions, the Scripps Transaction is scheduled to close in November
1996.
Share Repurchase Program
Concurrent with the announcement of the Scripps Transaction in October 1995, the
Company announced that its Board of Directors authorized a market repurchase
program (the "Repurchase Program") pursuant to which the Company may purchase,
at such times and on such terms as it deems appropriate, up to $500.0 million of
its outstanding common stock, subject to certain restrictions and market
conditions. Pursuant to the Repurchase Program, the Company has repurchased
shares of its common stock for aggregate consideration of $185.8 million through
September 30, 1996, including $173.4 million and $56.8 million during the nine
and three months ended September 30, 1996, respectively.
QVC
In February 1995, the Company and TCI acquired all of the outstanding stock of
QVC, Inc. and its subsidiaries ("QVC") not previously owned by them
(approximately 65% of such shares on a fully diluted basis) for $46, in cash,
per share (the "QVC Acquisition"), representing a total cost of approximately
$1.4 billion. The QVC Acquisition, including the exercise of certain warrants
held by the Company, was financed with cash contributions from the Company and
TCI of $296.3 million and $6.6 million, respectively, borrowings of $1.1 billion
under a $1.2 billion QVC credit facility and existing cash and cash equivalents
held by QVC. Following the acquisition, the Company and TCI own, through their
respective subsidiaries, 57.45% and 42.55%, respectively, of QVC. The Company
has accounted for the QVC Acquisition under the purchase method and QVC was
consolidated with the Company effective February 1, 1995.
15
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
Liquidity and Capital Resources
Cash, Cash Equivalents and Short-term Investments
The Company has traditionally maintained significant levels of cash, cash
equivalents and short-term investments to meet its short-term liquidity
requirements. Cash, cash equivalents and short-term investments as of September
30, 1996 were $526.7 million. As of September 30, 1996, approximately $424.3
million of the Company's cash, cash equivalents and short-term investments was
restricted to use by subsidiaries of the Company under contractual or other
arrangements, including approximately $233.0 million which is restricted to use
by Comcast UK Cable Partners Limited ("Comcast UK Cable").
The Company's cash, cash equivalents and short-term investments are recorded at
cost which approximates their fair value. As of September 30, 1996, the
Company's short-term investments of $100.4 million had a weighted average
maturity of approximately 12 months.
Investments
In connection with the Sports Venture Acquisition, the Company has agreed to
lend up to $50.0 million to Comcast-Spectacor, on a subordinated basis, in the
event that Comcast-Spectacor is unable to obtain financing from other sources.
Under the provisions of the Partnership Agreement, the Partner Subsidiaries have
committed to contribute $4.2 billion in cash to Sprint Spectrum through 1999, of
which the Company's share is $630.0 million. Of this funding requirement, the
Company has made total cash contributions to Sprint Spectrum of $446.8 million
through September 30, 1996. The Company expects to fund its remaining share of
the $4.2 billion commitment by the end of 1997. The Company anticipates that
Sprint Spectrum's capital requirements over the next several years will be
significant. Requirements in excess of committed capital are planned to be
funded by Sprint Spectrum through external financing, including, but not limited
to, vendor financing, bank financing and securities offered to the public. In
August 1996, Sprint Spectrum sold $750.0 million principal amount at maturity of
Senior Notes and Senior Discount Notes due in 2006 in a public offering. In
October 1996, Sprint Spectrum closed three credit agreements providing a total
of $5.1 billion in available financing, including $2.0 billion in bank financing
and $3.1 billion in vendor financing. The timing of the Company's remaining
capital contributions to Sprint Spectrum is dependent upon a number of factors,
including Sprint Spectrum's working capital requirements. The Company
anticipates funding its remaining capital commitments to Sprint Spectrum through
its cash flows from operating activities, its existing cash, cash equivalents,
short-term investments and lines of credit or other external financing, or by a
combination of these sources.
In February 1996, in connection with certain preemptive rights of the Company
under previously existing agreements with Nextel Communications, Inc.
("Nextel"), the Company purchased approximately 8.16 million shares, classified
as long-term investments available for sale, of Nextel common stock at $12.25
per share, for a total cost of $99.9 million. The Company continues to hold
options, which expire in September 1997, to acquire an additional 25 million
shares of Nextel common stock at $16 per share.
During the nine and three months ended September 30, 1996, the Company sold 5.6
million shares and 1.2 million shares, respectively, of Nextel common stock for
$105.4 million and $19.9 million, respectively, and recognized pre-tax gains of
$35.4 million and $5.8 million, respectively, as investment income in its
condensed consolidated statement of operations and accumulated deficit (the
"1996 Nextel Gains"). During the nine and three months ended September 30, 1995,
the Company sold 11.3 million shares of Nextel common stock for $212.6 million
and recognized a pre-tax gain of $36.2 million as investment income in its
condensed consolidated statement of operations and accumulated deficit (the
"1995 Nextel Gain").
As a result of the merger of Time Warner, Inc. ("Time Warner") and Turner
Broadcasting System, Inc. ("TBS"), which was consummated on October 10, 1996
(the "Merger Date"), the Company received approximately 1.36 million shares of
Time Warner common stock (the "Time Warner Stock") in exchange for all of the
shares of TBS stock held by the Company as of the Merger Date. The closing
market price of the Time Warner Stock on the Merger Date was $41.375 per share.
The Company's investment in TBS, which was
16
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
classified as a long-term investment available for sale, had an historical cost
of approximately $8.9 million.
The Company does not have any additional significant contractual commitments
with respect to any of its investments. However, to the extent the Company does
not fund its investees' capital calls, it exposes itself to dilution of its
ownership interests.
Financing
As part of the Repurchase Program, the Company has sold put options on 4.0
million shares of its Class A Special Common Stock through September 30, 1996,
including put options on 1.0 million of such shares sold during the nine months
ended September 30, 1996. The put options give the holder the right to require
the Company to repurchase such shares at specified prices on specific dates in
January through March 1997. The amount the Company would be obligated to pay to
repurchase such shares if all outstanding put options were exercised is $69.6
million. This amount has been reclassified to a temporary equity account in the
Company's condensed consolidated balance sheet as of September 30, 1996.
-------------------------
The Company expects to recognize significant losses and to continue to pay
dividends; therefore, it anticipates that it will continue to have a deficiency
in stockholders' equity that will increase through the date of consummation of
the Scripps Transaction. If the Scripps Transaction is consummated, the Company
will no longer have a deficiency in stockholders' equity; however, the Company
expects to recognize losses for the foreseeable future, resulting in decreases
in stockholders' equity. The telecommunications industry, including cable and
cellular communications, and the electronic retailing industry are experiencing
increasing competition and rapid technological changes. The Company's future
results of operations will be affected by its ability to react to changes in the
competitive environment and by its ability to implement new technologies.
However, management believes that competition, technological changes and its
significant losses and deficiency in stockholders' equity will not significantly
affect its ability to obtain financing.
The Company believes that it will be able to meet its current and long-term
liquidity and capital requirements, including fixed charges, through its cash
flows from operating activities, existing cash, cash equivalents, short-term
investments and lines of credit and other external financing.
17
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
Statement of Cash Flows
Cash and cash equivalents decreased $112.8 million as of September 30, 1996 from
December 31, 1995 and increased $281.2 million as of September 30, 1995 from
December 31, 1994. Changes in cash and cash equivalents resulted from cash flows
from operating, financing and investing activities which are explained below.
Net cash provided by operating activities amounted to $527.3 million and $371.7
million for the nine months ended September 30, 1996 and 1995, respectively. The
increase of $155.6 million is due to changes in working capital as a result of
the timing of receipts and disbursements, the increase in the Company's
operating income before depreciation and amortization (see "Results of
Operations") and the effects of the QVC Acquisition.
Net cash (used in) provided by financing activities was ($19.2) million and $1.9
billion for the nine months ended September 30, 1996 and 1995, respectively.
During the nine months ended September 30, 1996, the Company borrowed $660.4
million under its existing lines of credit and repaid $486.8 million, including
the effects of refinancings and $88.9 million of repayments under a vendor
financing arrangement. In addition, the Company repurchased $173.4 million of
its common stock during the nine months ended September 30, 1996. During the
nine months ended September 30, 1995, the Company borrowed $3.1 billion
consisting primarily of $1.1 billion in connection with the QVC Acquisition,
$1.1 billion in connection with the refinancing of certain subsidiaries'
indebtedness, $300.9 million for the funding of Sprint Spectrum and the
Company's $250.0 million principal amount of 9-3/8% senior subordinated
debentures due 2005. In addition, the Company redeemed and retired $1.2 billion
of its long-term debt, including $904.8 million in connection with the
refinancing of certain subsidiaries' indebtedness.
Net cash used in investing activities was $620.9 million and $2.0 billion for
the nine months ended September 30, 1996 and 1995, respectively. During the nine
months ended September 30, 1996, net cash used in investing activities includes
investments in affiliates of $447.6 million, including $159.5 million in
connection with the Sports Venture Acquisition, capital contributions to Sprint
Spectrum of $100.7 million and the purchase of Nextel shares of $99.9 million,
and additions to property and equipment of $450.2 million, offset by proceeds
from the sales of short-term and long-term investments of $381.8 million,
including $105.4 million from the sale of Nextel shares. During the nine months
ended September 30, 1995, net cash used in investing activities includes the QVC
Acquisition, net of cash acquired, of $1.3 billion, investments in affiliates of
$458.0 million, including capital contributions to Sprint Spectrum of $320.7
million, additions to property and equipment of $476.6 million and net purchases
of short-term investments of $81.8 million. Such amounts were offset by proceeds
from sales of long-term investments of $400.7 million.
Results of Operations
The effects of the Company's recent acquisitions were to increase significantly
the Company's revenues and expenses resulting in substantial increases in its
operating income before depreciation and amortization, depreciation expense,
amortization expense and interest expense (see "Operating Results by Business
Segment" following). As a result of the increases in depreciation expense,
amortization expense and interest expense associated with these acquisitions and
their financing, it is expected that the Company will recognize significant
losses for the foreseeable future.
18
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
Summarized consolidated financial information for the Company for the nine and
three months ended September 30, 1996 and 1995 is as follows (dollars in
millions, "NM" denotes percentage is not meaningful):
Nine Months Ended
September 30, Increase / (Decrease)
1996 1995 $ %
Revenues, net............................................. $2,870.9 $2,357.4 $513.5 21.8%
Cost of goods sold from electronic retailing.............. 774.7 584.6 190.1 32.5
Operating, selling, general and administrative expenses... 1,234.2 1,028.2 206.0 20.0
------ ------
Operating income before depreciation and
amortization (1) ...................................... 862.0 744.6 117.4 15.8
Depreciation.............................................. 223.7 278.6 (54.9) (19.7)
Amortization.............................................. 267.3 256.1 11.2 4.4
------ ------
Operating income.......................................... 371.0 209.9 161.1 76.8
------ ------
Interest expense.......................................... 403.7 388.4 15.3 3.9
Investment income......................................... (63.7) (202.3) (138.6) (68.5)
Equity in net losses of affiliates........................ 89.2 63.5 25.7 40.5
Gain from equity offering of affiliate.................... (40.6) 40.6 NM
Other..................................................... 22.6 (5.5) 28.1 NM
Income tax expense........................................ 33.9 32.5 1.4 4.3
Minority interest......................................... (47.4) (34.8) 12.6 36.2
Extraordinary items....................................... 1.0 5.4 (4.4) (81.5)
------ ------
Net loss.................................................. ($27.7) ($37.3) ($9.6) (25.7%)
====== ======
Three Months Ended
September 30, Increase / (Decrease)
1996 1995 $ %
Revenues, net............................................. $974.6 $870.2 $104.4 12.0%
Cost of goods sold from electronic retailing.............. 262.3 234.4 27.9 11.9
Operating, selling, general and administrative expenses... 416.5 371.7 44.8 12.1
------ ------
Operating income before depreciation and
amortization (1) ...................................... 295.8 264.1 31.7 12.0
Depreciation.............................................. 78.3 59.2 19.1 32.3
Amortization.............................................. 88.4 88.4
------ ------
Operating income.......................................... 129.1 116.5 12.6 10.8
------ ------
Interest expense.......................................... 135.7 137.8 (2.1) (1.5)
Investment income......................................... (16.2) (44.7) (28.5) (63.8)
Equity in net losses of affiliates........................ 28.9 25.6 3.3 12.9
Other..................................................... (0.3) (5.9) (5.6) (94.9)
Income tax expense........................................ 9.3 18.4 (9.1) (49.5)
Minority interest......................................... (18.3) (12.8) 5.5 43.0
Extraordinary items....................................... 5.4 (5.4) NM
------ ------
Net loss.................................................. ($10.0) ($7.3) $2.7 37.0%
======= =======
- ------------
(1) Operating income before depreciation and amortization is commonly referred
to in the Company's businesses 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
Company's businesses and the resulting significant level of non-cash
19
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
depreciation expense and amortization expense, operating cash flow is
frequently used as one of the bases for evaluating the Company's
businesses. 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 the Company's
performance. See "Statement of Cash Flows" above for a discussion of net
cash provided by operating activities.
Operating Results by Business Segment
Domestic Cable Communications
The following table sets forth operating results for the Company's domestic
cable communications segment (dollars in millions).
Nine Months Ended
September 30, Increase
1996 1995 $ %
Service income................................. $1,170.9 $1,078.0 $92.9 8.6%
Operating, selling, general and
administrative expenses................... 592.0 548.3 43.7 8.0
-------- -------- -----
Operating income before depreciation
and amortization (a)...................... $578.9 $529.7 $49.2 9.3%
====== ====== =====
Three Months Ended
September 30, Increase
1996 1995 $ %
Service income................................. $392.6 $368.5 $24.1 6.5%
Operating, selling, general and
administrative expenses................... 198.7 186.5 12.2 6.5
-------- -------- -----
Operating income before depreciation
and amortization (a)...................... $193.9 $182.0 $11.9 6.5%
====== ====== =====
- ---------------
(a) See footnote (1) on page 19.
Of the increases in service income of $92.9 million and $24.1 million for the
nine and three month periods from 1995 to 1996, $25.6 million and $8.2 million
are attributable to subscriber growth, $57.5 million and $16.3 million relate to
changes in rates, $4.7 million and $0.3 million are attributable to growth in
advertising sales and $5.1 million and ($0.7) million relate to other product
offerings.
Of the $43.7 million and $12.2 million increases in operating, selling, general
and administrative expenses for the nine and three month periods from 1995 to
1996, $20.9 million and $5.8 million are attributable to increases in the costs
of cable programming as a result of subscriber growth, additional programming
offerings and changes in rates and $22.8 million and $6.4 million result from
increases in the cost of labor and other volume related expenses. It is
anticipated that the Company's cost of cable programming will increase in the
future as cable programming rates increase and additional sources of cable
programming become available.
20
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
Electronic Retailing
As a result of the QVC Acquisition, the Company commenced consolidating the
financial results of QVC effective February 1, 1995. The following table
presents comparative financial information for the nine and three months ended
September 30, 1996 and for the three months ended September 30, 1995 and pro
forma financial information for the nine months ended September 30, 1995. Pro
forma financial information is presented herein for purposes of analysis and may
not reflect what actual operating results would have been had the Company owned
QVC since January 1, 1995 (dollars in millions).
Nine Months Ended
September 30, Increase
1996 1995 $ %
Net sales from electronic retailing............. $1,286.9 $1,107.4 $179.5 16.2%
Cost of goods sold from electronic retailing.... 774.7 662.7 112.0 16.9
Operating, selling, general and administrative
expenses................................... 303.6 266.2 37.4 14.0
------ ------ -----
Operating income before depreciation
and amortization (a)....................... $208.6 $178.5 $30.1 16.9%
====== ====== =====
Gross margin.................................... 39.8% 40.2%
Three Months Ended
September 30, Increase
1996 1995 $ %
Net sales from electronic retailing............. $431.0 $391.5 $39.5 10.1%
Cost of goods sold from electronic retailing.... 262.3 234.4 27.9 11.9
Operating, selling, general and administrative
expenses................................... 99.5 97.4 2.1 2.2
------ ------ -----
Operating income before depreciation
and amortization (a)....................... $69.2 $59.7 $9.5 15.9%
====== ====== =====
Gross margin.................................... 39.1% 40.1%
- ---------------
(a) See footnote (1) on page 19.
The consolidation of QVC's United Kingdom ("UK") operations, effective April 1,
1995, resulted in increases in net sales from electronic retailing of $37.2
million and $7.3 million for the nine and three month periods from 1995 to 1996.
The remaining increases of $142.3 million and $32.2 million are primarily
attributable to the effects of increases of approximately 8.3% and 7.8% in the
average number of QVC homes receiving QVC services in the United States for
these periods, respectively.
The increase in cost of goods sold from electronic retailing is primarily
related to the growth in net sales. The decline in gross margin from 1995 to the
same periods in 1996 is a result of a change in product mix and an increase in
shipping and handling costs.
The consolidation of QVC's UK operations, effective April 1, 1995, resulted in
an increase in operating, selling, general and administrative expenses of $14.4
million and $2.1 million for the nine and three month periods from 1995 to 1996.
The remaining increase of $23.0 million for the nine month period from 1995 to
1996 is attributable to higher sales volume and increases in advertising and
administrative costs.
21
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
Cellular Communications
The following table sets forth the operating results for the Company's cellular
communications segment (dollars in millions).
Nine Months Ended
September 30, Increase
1996 1995 $ %
Service income.................................. $317.1 $274.2 $42.9 15.6%
Operating, selling, general and administrative
expenses................................... 198.3 163.5 34.8 21.3
------ ------ -----
Operating income before depreciation
and amortization (a)....................... $118.8 $110.7 $8.1 7.3%
====== ====== ====
Three Months Ended
September 30, Increase
1996 1995 $ %
Service income.................................. $110.0 $97.8 $12.2 12.5%
Operating, selling, general and administrative
expenses................................... 62.3 57.8 4.5 7.8
------ ------ -----
Operating income before depreciation
and amortization (a)....................... $47.7 $40.0 $7.7 19.3%
====== ====== ====
- ---------------
(a) See footnote (1) on page 19.
Of the $42.9 million and $12.2 million increases in service income for the nine
and three month periods from 1995 to 1996, $58.1 million and $18.0 million are
attributable to the Company's subscriber growth. Offsetting these increases are
decreases of $15.2 million and $5.8 million resulting primarily from a reduction
in the average rate per minute of use from 1995 to the same periods in 1996.
Of the $34.8 million and $4.5 million increases in operating, selling, general
and administrative expenses for the nine and three month periods from 1995 to
1996, $23.5 million and $5.5 million are related to subscriber growth, including
the costs to acquire and service subscribers. The remaining increase of $11.3
million for the nine month period from 1995 to 1996 is due to increases in other
expenses, including subscriber retention costs, administrative costs and theft
of service in 1996. The remaining decrease of $1.0 million for the three month
period from 1995 to 1996 is primarily due to a decrease in costs related to
theft of service.
Consolidated Analysis
The $54.9 million decrease in depreciation expense for the nine month period
from 1995 to 1996 is attributable to the effects of the rebuild of certain of
the Company's cellular equipment in 1995, as described below, partially offset
by the effects of the QVC Acquisition and capital expenditures. The $19.1
million increase in depreciation expense for the three month period from 1995 to
1996 is primarily attributable to the effects of capital expenditures.
In 1995, the Company's cellular division purchased approximately $172.0 million
of switching and cell site equipment which replaced the existing switching and
cell site equipment (the "Cellular Rebuild"). The Company substantially
completed the Cellular Rebuild during 1995. During the first quarter of 1995,
the Company charged approximately $110.0 million to depreciation expense which
represented the difference between the net book value of the equipment replaced
and the residual value realized upon its disposal.
22
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
The $11.2 million increase in amortization expense for the nine month period
from 1995 to 1996 is primarily attributable to the effects of the QVC
Acquisition.
The $15.3 million increase in interest expense for the nine month period from
1995 to 1996 is due to increased levels of debt, offset by interest capitalized
in 1996 and decreases in rates. The $2.1 million decrease in interest expense
for the three month period from 1995 to 1996 is primarily attributable to
interest capitalized in 1996, offset by increased levels of debt. The Company
anticipates that, for the foreseeable future, interest expense will be a
significant cost to the Company and will have a significant adverse effect on
the Company's ability to realize net earnings. The Company believes it will
continue to be able to meet its obligations through its ability both to generate
operating income before depreciation and amortization and to obtain external
financing.
The $138.6 million decrease in investment income for the nine month period from
1995 to 1996 is primarily attributable to the effects of the Heritage
Transaction (as defined below) in 1995. The $28.5 million decrease in investment
income for the three month period from 1995 to 1996 is primarily attributable to
the 1995 Nextel Gain, partially offset by the effects of the 1996 Nextel Gains.
In January 1995, the Company exchanged its investments in Heritage
Communications, Inc. with TCI for approximately 13.3 million publicly-traded
Class A common shares of TCI with a fair market value of approximately $290.0
million. Shortly thereafter, the Company sold approximately 9.1 million
unrestricted TCI shares for total proceeds of $188.1 million (collectively, the
"Heritage Transaction"). As a result of these transactions, the Company
recognized a pre-tax gain of $141.0 million as investment income in its
condensed consolidated statement of operations and accumulated deficit in the
first quarter of 1995.
The $25.7 million and $3.3 million increases in equity in net losses of
affiliates for the nine and three month periods from 1995 to 1996, respectively,
are primarily due to the effects of increased losses incurred by Sprint
Spectrum.
Through June 27, 1996, the Company held investments in Teleport Communications
Group Inc. ("TCGI"), TCG Partners and certain local joint ventures (the "Joint
Ventures") managed by TCGI and TCG Partners. On June 27, 1996, TCGI sold
approximately 27 million shares of its Class A Common Stock (the "TCGI Class A
Stock") for $16 per share in an initial public offering (the "IPO"). In
connection with the IPO, TCGI, the Company and subsidiaries of Cox, TCI and
Continental Cablevision ("Continental" and collectively with Cox, TCI and the
Company, the "Cable Stockholders") entered into a reorganization agreement
pursuant to which TCGI was reorganized (the "Reorganization"). The
Reorganization consisted of, among other things: (i) the acquisition by TCGI of
TCG Partners; (ii) the acquisition by TCGI of additional interests in the Joint
Ventures (including 100% of those interests held by the Company); and (iii) the
contribution to TCGI of $269.0 million aggregate principal amount of
indebtedness, plus accrued interest thereon, owed by TCGI to the Cable
Stockholders (including $53.8 million principal amount and $4.1 million of
accrued interest owed to the Company). In connection with the Reorganization,
the Company received 25.6 million shares of TCGI's Class B Common Stock (the
"TCGI Class B Stock"). Each share of TCGI Class B Stock is entitled to voting
power equivalent to ten shares of TCGI Class A Stock and is convertible, at the
option of the holder, into one share of TCGI Class A Stock. The Company recorded
a $40.6 million increase in its proportionate share of TCGI's net assets as a
gain from equity offering of affiliate in its condensed consolidated statement
of operations and accumulated deficit for the nine months ended September 30,
1996. After giving effect to the Reorganization and the IPO, the Company owns
19.5% of the outstanding TCGI Class B Stock representing a 19.1% voting interest
and a 16.1% equity interest. The Company continues to account for its interest
in TCGI under the equity method.
The increase in other expenses for the nine month period from 1995 to 1996 is
primarily attributable to the settlement of certain litigation during the nine
months ended September 30, 1996.
The $9.1 million decrease in income tax expense for the three month period from
1995 to 1996 is primarily attributable to the tax effects of the 1995 Nextel
Gain.
23
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
The $12.6 million and $5.5 million increases in minority interest for the nine
and three month periods from 1995 to 1996, respectively, are primarily
attributable to the effects of increases in the net losses of Comcast UK Cable.
In May 1996, the Company expensed unamortized debt acquisition costs of $1.8
million in connection with the prepayment of a portion of a subsidiary's
outstanding debt, resulting in an extraordinary loss, net of tax, of $1.0
million.
The Company incurred debt extinguishment costs totaling $8.3 million during the
nine and three months ended September 30, 1995, as a result of refinancing the
indebtedness of certain subsidiaries, resulting in an extraordinary loss, net of
tax, of $5.4 million or $.02 per share.
For the nine and three months ended September 30, 1996 and 1995, the Company's
earnings before extraordinary items, minority interest, income tax expense,
equity in net losses of affiliates and fixed charges (interest expense) were
$452.7 million, $417.7 million, $145.6 million and $167.1 million, respectively.
Excluding the impact of non-recurring net investment gains of $62.7 million,
$162.7 million, $5.8 million and $29.6 million for the nine and three months
ended September 30, 1996 and 1995, respectively, such earnings were not adequate
to cover the Company's fixed charges, including interest capitalized of $23.3
million and $8.6 million for the nine and three months ended September 30, 1996,
respectively, of $427.0 million, $388.4 million, $144.3 million and $137.8
million for the nine and three months ended September 30, 1996 and 1995,
respectively. Fixed charges include non-cash interest, net of interest
capitalized, of $48.1 million, $41.4 million, $15.9 million and $14.0 million
for the nine and three months ended September 30, 1996 and 1995, respectively.
The inadequacy of these earnings to cover fixed charges is primarily due to the
substantial non-cash charges for depreciation expense, including the first
quarter 1995 charge associated with the Cellular Rebuild, and amortization
expense.
The Company believes that its losses and inadequacy of earnings to cover fixed
charges will not significantly affect the performance of its normal business
activities because of its existing cash, cash equivalents and short-term
investments, its ability to generate operating income before depreciation and
amortization and its ability to obtain external financing.
The Company believes that its operations are not materially affected by
inflation.
24
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not party to litigation which, in the opinion of the
Company's management, will have a material adverse effect on the Company's
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:
4.1 Form of Statement of Designations, Preferences and Rights of 5%
Series A Convertible Preferred Stock of the Company (incorporated
by reference to Exhibit 4.1(e) to the Company's Registration
Statement on Form S-3 filed on July 16, 1996).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
(i) The Company filed a Current Report on Form 8-K/A on July 22, 1996
which amended the Current Report on Form 8-K filed on May 28,
1996, relating to its agreement to purchase the cable television
operations of The E.W. Scripps Company.
(ii) The Company filed a Current Report on Form 8-K under Item 5 on
August 21, 1996 relating to its agreement to purchase the cable
television operations of The E.W. Scripps Company, which included
the Company's Unaudited Pro Forma Condensed Consolidated
Financial Statements as of and for the six months ended June 30,
1996 and for the year ended December 31, 1995.
25
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMCAST CORPORATION
-------------------------------------
/s/ JOHN R. ALCHIN
-------------------------------------
John R. Alchin
Senior Vice President and
Treasurer (Principal Financial Officer)
Date: November 5, 1996
26
5
0000022301
COMCAST CORPORATION
1,000
9-MOS
DEC-31-1996
SEP-30-1996
426,226
100,436
433,574
(82,899)
256,251
1,257,336
3,143,170
(1,091,608)
9,829,308
1,140,964
7,233,745
0
31,850
233,313
(1,203,876)
9,829,308
2,870,869
2,870,869
(774,718)
(2,499,852)
(89,198)
0
(403,735)
(40,245)
(33,894)
(26,716)
0
(1,013)
0
(27,729)
(.11)
(.11)
loss before income tax expense and other items excludes the effect of
minority interests, net of tax, of $47,423.
