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FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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.
incorporation or organization) Employer 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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Common Stock, $1.00 par value
Class A Special Common Stock, $1.00 par value
Zero Coupon Convertible Subordinated Notes Due 1995
3-3/8% / 5-1/2% Step-up Convertible Subordinated Debentures Due 2005
1-1/8% Discount Convertible Subordinated Debentures Due 2007
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- --------
--------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
--------------------------
As of February 1, 1995, the aggregate market value of the Class A Common Stock
held by non-affiliates of the Registrant was not less than $540 million.
--------------------------
As of February 1, 1995, there were 191,794,271 shares of Class A Special Common
Stock, 39,019,809 shares of Class A Common Stock and 8,786,250 shares of Class B
Common Stock outstanding.
--------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Part III - The Registrant's definitive Proxy Statement for its Annual Meeting
of Shareholders presently scheduled to be held in June 1995.
COMCAST CORPORATION
1994 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business.......................................................................................1
Item 2 Properties....................................................................................18
Item 3 Legal Proceedings.............................................................................18
Item 4 Submission of Matters to a Vote of Security Holders...........................................19
Item 4A Executive Officers of the Registrant..........................................................19
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters...............................................................21
Item 6 Selected Financial Data.......................................................................22
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................................23
Item 8 Financial Statements and Supplementary Data...................................................30
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure........................................54
PART III
Item 10 Directors and Executive Officers of the Registrant............................................54
Item 11 Executive Compensation........................................................................54
Item 12 Security Ownership of Certain Beneficial
Owners and Management.....................................................................54
Item 13 Certain Relationships and Related Transactions................................................54
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K...............................................................................55
SIGNATURES .............................................................................................64
--------------------------
This Annual Report on Form 10-K for the year ended December 31, 1994, at the
time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Sections 13, 14 and 15(d) of
the Securities Exchange Act of 1934 for purposes of any offers or sales of any
securities after the date of such filing pursuant to any Registration Statement
or Prospectus filed pursuant to the Securities Act of 1933 which incorporates by
reference this Annual Report.
PART I
ITEM 1 BUSINESS
Comcast Corporation and its subsidiaries (the "Company") is engaged in the
development, management and operation of cable and cellular telephone
communications systems and the production and distribution of cable programming
(see "General Developments of Business"). The Company's consolidated domestic
cable operations served more than 3.3 million subscribers and passed more than
5.5 million homes as of December 31, 1994. The Company owns a 50% interest in
Garden State Cablevision L.P. ("Garden State"), a cable communications company
serving approximately 195,000 subscribers and passing approximately 288,000
homes. In the United Kingdom ("UK"), a subsidiary of the Company, Comcast UK
Cable Partners Limited ("Comcast UK Cable"), is constructing a cable
telecommunications network that will pass approximately 229,000 homes and holds
investments in cable television and telecommunications companies which have the
potential to serve an additional 1.2 million homes. The Company provides
cellular telephone communications services pursuant to licenses granted by the
Federal Communications Commission ("FCC") in markets with a population of over
7.9 million, including the area in and around the City of Philadelphia,
Pennsylvania, the State of Delaware and a significant portion of the State of
New Jersey.
The Company was organized in 1969 under the laws of the Commonwealth of
Pennsylvania and has its principal executive offices at 1500 Market Street,
Philadelphia, Pennsylvania, 19102-2148, (215) 665-1700.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Note 12 to the Company's consolidated financial statements for information
about the Company's operations by industry segment.
GENERAL DEVELOPMENTS OF BUSINESS
QVC
In February 1995, the Company and Tele-Communications, Inc. ("TCI") acquired all
of the outstanding stock of QVC, Inc. ("QVC") for $46, in cash, per share. The
total cost of acquiring the outstanding shares of QVC not previously owned by
the Company and TCI (approximately 65% of such shares on a fully diluted basis)
was approximately $1.4 billion. Following the acquisition, the Company and TCI
own, through their respective subsidiaries, 57.45% and 42.55%, respectively, of
QVC. The Company will account for the QVC acquisition under the purchase method
of accounting and QVC will be consolidated with the Company beginning in
February 1995.
The acquisition of QVC, 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.
QVC is a nationwide general merchandise retailer, operating as one of the
leading televised shopping retailers in the United States. Through its
merchandise-focused television programs (the "QVC Service"), QVC sells a wide
variety of products directly to consumers. The QVC Service currently reaches
approximately 50 million cable television subscribers in the United States.
The day to day operations of QVC will, except in certain limited circumstances,
be managed by the Company. With certain exceptions, direct or indirect transfers
to unaffiliated third parties by the Company or TCI of any stock in QVC are
subject to certain restrictions and rights in favor of the other.
Liberty Media Corporation ("Liberty"), a wholly-owned subsidiary of TCI, may, at
certain times following February 9, 2000, trigger the exercise of certain exit
rights. If the exit rights are triggered, the Company has first right to
purchase Liberty's stock in QVC at Liberty's pro rata portion of the fair market
value (on a going concern or liquidation basis, whichever is higher, as
determined by an appraisal process) of QVC. The Company may pay Liberty for such
stock, subject to certain rights of Liberty to consummate the purchase in the
most tax-efficient method available, in cash, the Company's promissory note
maturing not more than three years after issuance, the Company's equity
securities or any combination thereof. If the Company elects not to purchase the
stock of QVC held by Liberty, then Liberty will have a similar right to purchase
the stock of QVC held by the Company. If Liberty elects not to purchase the
stock of QVC held by the Company, then Liberty and the Company will use their
best efforts to sell QVC.
2
Maclean Hunter
On December 22, 1994, the Company, through Comcast MHCP Holdings, L.L.C. (the
"LLC"), acquired the U.S. cable television and alternate access operations of
Maclean Hunter Limited ("Maclean Hunter") from Rogers Communications Inc. and
all of the outstanding shares of Barden Communications, Inc. (collectively, such
acquisitions are referred to as the "Maclean Hunter Acquisition") for
approximately $1.2 billion (subject to certain adjustments) in cash. The Company
and the California Public Employees' Retirement System ("CalPERS") invested
approximately $305.0 million and $250.0 million, respectively, in the LLC, which
is owned 55% by a wholly-owned subsidiary of the Company and 45% by CalPERS, and
is managed by the Company. The Maclean Hunter Acquisition, including certain
transaction costs, was financed with cash contributions from the LLC of $555.0
million and borrowings of $715.0 million under an $850.0 million Maclean Hunter
credit facility. At any time after December 18, 2001, CalPERS may elect to
liquidate its interest in the LLC at a price based upon the fair value of
CalPERS' interest in the LLC, adjusted, under certain circumstances, for certain
performance criteria relating to the fair value of the LLC or to the Company's
common stock. Except in certain limited circumstances, the Company, at its
option, may satisfy this liquidity arrangement by purchasing CalPERS' interest
for cash, through the issuance of the Company's common stock (subject to certain
limitations) or by selling the LLC. The Maclean Hunter Acquisition was accounted
for under the purchase method of accounting and Maclean Hunter is consolidated
with the Company as of December 31, 1994.
Comcast UK Cable
On September 27, 1994, Comcast UK Cable consummated an initial public offering
(the "IPO") of 15 million of its Class A Common Shares for net proceeds of
$209.4 million. Contemporaneously with the IPO, the Company and UK Cable
Partners Limited ("UKCPL"), which is owned by Warburg, Pincus Investors, L.P.
and Bankers Trust Investments PLC, restructured their interests in Comcast UK
Cable and terminated UKCPL's right to exchange its equity interests in Comcast
UK Cable for convertible debt of the Company (the "Exchange Option"). As a
result of the IPO and the restructuring, the Company beneficially owns
approximately 31.2% of the total outstanding Comcast UK Cable common shares.
Because the Class A Common Shares are entitled to one vote per share and the
Class B Common Shares are entitled to ten votes per share, the Company, through
its ownership of the Class B Common Shares, controls approximately 81.9% of the
total voting power of all outstanding Comcast UK Cable common shares and
continues to consolidate Comcast UK Cable. As a result of the termination of the
Exchange Option and consummation of the IPO, the Company recorded an aggregate
minority interest liability in Comcast UK Cable of $261.4 million. The Company
has recorded the increase in its proportionate share of Comcast UK Cable's net
assets as an increase in additional capital of $59.3 million.
Heritage
On January 26, 1995, the Company exchanged its interest in Heritage
Communications, Inc. with TCI for Class A common shares of TCI with a fair
market value of approximately $290 million. Shortly thereafter, the Company sold
certain of these shares for total proceeds of approximately $188 million. As a
result of these transactions, the Company will recognize a pre-tax gain of $141
million in the first quarter of 1995.
Telecommunications Joint Venture
On October 25, 1994, the Company announced a joint venture ("WirelessCo") with
Sprint Corporation ("Sprint"), TCI and Cox Cable Communications, Inc. ("Cox") to
provide wireless communications services. WirelessCo is owned 40% by Sprint, 30%
by TCI and 15% each by the Company and Cox. WirelessCo is participating in the
first of several FCC auctions of blocks of spectrum for licenses to provide
Personal Communications Services ("PCS"), having filed an application to
participate in 39 of 51 Major Trading Area ("MTA") markets nationwide. As of
February 21, 1995, WirelessCo's aggregate bids for 38 licenses covering a total
population of 168 million were $1.975 billion. There can be no assurances that
WirelessCo will be successful in bidding for or otherwise obtaining PCS licenses
for these or other MTAs. The Company has obtained letter of credit commitments
sufficient to cover its 15% share of the cost of PCS licenses for which
WirelessCo is the successful bidder. The Company may have material additional
capital requirements relating to the buildout of PCS systems if WirelessCo is
successful in the PCS bidding process. WirelessCo is accounted for under the
equity method of accounting.
3
The parties have also signed a joint venture formation agreement which provides
the basis upon which they will develop definitive agreements for their local
wireline telecommunications activities. The parties anticipate that the wireline
joint venture will be owned in the same percentages as WirelessCo. The parties'
ability to provide such local services on a nationwide basis, and the timing
thereof, will depend upon, among other things, the removal or modification of
legal barriers to local telephone competition. The parties anticipate that
Teleport Communications Group ("TCG"), which is owned 20% by the Company and by
other cable television operators, including TCI and Cox, will be contributed to
the local telephone venture. TCG is an alternative provider of local telephone
services. The contribution of TCG to the venture is expected to be subject to
certain conditions, including obtaining necessary governmental and other
approvals.
Cable Rate Regulation Developments
On March 30, 1994, the FCC: (i) modified its existing benchmark methodology to
require, absent a successful cost-of-service showing, reductions of
approximately 17% in the rates for regulated cable services in effect on
September 30, 1992, adjusted for inflation, channel modifications, equipment
costs and increases in certain operating costs. The modified benchmarks and
regulations are generally designed to cause an additional 7% reduction in the
rates for regulated cable services on top of the rate reductions implemented by
the Company in September 1993 under the prior FCC benchmarks and regulations;
(ii) adopted interim regulations to govern cost-of-service showings by cable
operators, establishing an industry-wide 11.25% after tax rate of return and a
rebuttable presumption that acquisition costs above original historic book value
of tangible assets should be excluded from the rate base; and (iii)
reconsidered, among other matters, its regulations concerning rates for the
addition of regulated services and the treatment of packages of "a la carte"
channels (see "Legislation and Regulation").
In July 1994, the Company reduced rates for regulated services in the majority
of its cable systems to comply with the modified benchmarks and regulations. In
addition, the Company is currently seeking to justify existing rates in certain
other of its cable systems on the basis of cost-of-service showings; however,
the interim cost-of-service regulations promulgated by the FCC do not support
positions taken by the Company in its cost-of-service filings to date. The
Company's reported cable service income reflects the estimated effects of cable
regulation. The Company is seeking reconsideration by the FCC of the interim
cost-of-service regulations and, if unsuccessful in justifying existing rates
under cost-of-service regulations, intends to seek judicial relief. However, no
assurance can be given that the Company will be able to offset, to any
substantial degree, the adverse impact of rate reductions in compliance with the
modified benchmarks and regulations or that it will be successful in
cost-of-service proceedings. If the Company is not successful in such efforts,
and there is no legislative, administrative or judicial relief in these matters,
the FCC regulations will continue to adversely affect the Company's results of
operations.
On November 10, 1994, the FCC announced modified "Going Forward" rules which,
among other things, permit cable operators to charge an additional $0.20 per
month per channel for channels added to the cable programming services tier, up
to a maximum of six channels, and to recover an additional $0.30 in monthly fees
paid to programmers for such channels. The ruling applies to channels added
between May 15, 1994 and December 31, 1996 and became effective January 1, 1995.
The FCC concurrently announced regulations permitting cable operators to create
new product tiers which would generally not be subject to rate regulation. The
Company is currently reviewing the ruling and is unable to predict the effect on
its future results of operations.
DESCRIPTION OF THE COMPANY'S BUSINESSES
Cable Communications
General
A cable communications system receives signals by means of special antennae,
microwave relay systems and earth stations. The system amplifies such signals,
provides locally originated programs and ancillary services and distributes
programs to subscribers through a fiber optic and coaxial cable system.
Cable communications systems generally offer subscribers the signals of all
national television networks; local and distant independent, specialty and
educational television stations; satellite-delivered non-broadcast channels;
locally originated programs; educational programs; home shopping and public
service announcements. In addition, each of the Company's systems offer, for an
extra monthly charge, one or more special services ("Pay Cable") such as Home
4
Box Office (Registered Trademark), Cinemax (Registered Trademark), Showtime
(Registered Trademark), The Movie Channel (Trademark) and The (Copyright)Disney
Channel, which generally offer, without commercial interruption, feature motion
pictures, live and taped sports events, concerts and other special features. A
majority of the Company's systems offer pay per view services, which permit a
subscriber to order, for a separate fee, movies and individual events.
Cable communications systems are generally constructed and operated under
non-exclusive franchises granted by state or local governmental authorities.
Franchises typically contain many conditions, such as time limitations on
commencement or completion of construction; conditions of service, including
number of channels, types of programming and free service to schools and other
public institutions; and the maintenance of insurance and indemnity bonds. The
provisions of franchises are subject to both the Cable Communications Policy Act
of 1984 (the "1984 Cable Act") and the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act"-and together with the 1984 Cable
Act, the "Cable Acts" -- see "Legislation and Regulation").
The Company's franchises typically provide for periodic payments to the
governmental authority of franchise fees of up to 5% of revenues derived from
the operation of the cable system. Franchises are generally nontransferable
without the consent of the governmental authority. The Company's franchises
generally were granted for an initial term of 15 years. Although franchises
historically have been renewed and, under the Cable Acts, should continue to be
renewed for companies that have provided adequate service and have complied
generally with franchise terms, renewal may be more difficult as a result of the
1992 Cable Act and may include less favorable terms and conditions. Furthermore,
the governmental authority may choose to award additional franchises to
competing companies at any time (see "Competition" and "Legislation and
Regulation").
Company's Systems
The table below sets forth a summary of Homes Passed and Cable Subscriber
information for the Company's domestic cable communications systems for the five
years ended December 31, 1994, including the consolidated systems of Maclean
Hunter as of December 31, 1994. This table does not reflect Homes Passed or
subscriber information for the Company's investment in Garden State.
At December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands)
Homes Passed (1)
Consolidated Systems (2) 5,491 4,211 4,154 4,218 4,127
Managed Systems (3) 34 58 57 57 57
Cable Subscribers (4)
Consolidated Systems (2) 3,307 2,648 2,583 2,474 2,402
Managed Systems (3) 22 37 36 35 34
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(1) A home is deemed "passed" if it can be connected to the distribution
system without further extension of the transmission lines.
(2) Consists of systems whose financial results are consolidated with those
of the Company as well as 50% of the Homes Passed and Cable Subscribers
of Storer Communications, Inc. ("Storer") prior to 1992. Homes Passed
decreased in 1992 due to the difference between 50% of the total of
Storer's Homes Passed as set forth for the years prior to 1992 and those
Homes Passed received in the Storer split-off (see Note 2 to the
Company's consolidated financial statements).
(3) Consists of systems managed by the Company in which the Company has less
than a 50% interest. The decrease from 1993 to 1994 is a result of the
Company's acquisition of a Managed System.
(4) A dwelling with one or more television sets connected to a system is
counted as one Cable Subscriber.
Revenue Sources
The Company's cable communications systems offer varying levels of service,
depending primarily on their respective channel capacities. At December 31,
1994, substantially all of the Company's systems had the capacity to carry in
excess of 35 channels.
5
Monthly service rates and related charges vary in accordance with the type of
service selected by the subscriber. The Company may receive an additional
monthly fee for Pay Cable service, the charge for which varies with the type and
level of service selected by the subscriber. Additional charges are often
imposed for installation services, commercial subscribers, program guides and
other services. The Company also generates revenue from pay per view services
and advertising sales. Subscribers typically pay on a monthly basis and
generally may discontinue services at any time (see "Legislation and
Regulation").
Programming and Suppliers
The Company generally pays either a monthly fee per subscriber or a percentage
of the Company's gross receipts for basic services, cable programming services
and premium programming services. Some of the programming suppliers provide
volume discount pricing structures or offer marketing support to the Company.
National manufacturers are the primary sources of supplies, equipment and
materials utilized in the construction and upgrading of the Company's cable
communications systems. Construction, rebuild and upgrade costs for these
systems have increased during recent years and are expected to continue to
increase as a result of the need to construct increasingly complex systems,
overall demand for labor and other factors.
UK Activities
The Company beneficially owns an approximate 31.2% equity interest and controls
approximately 81.9% of the total voting power of Comcast UK Cable. Comcast UK
Cable owns interests in three operating companies (the "Operating Companies"):
Birmingham Cable Corporation Limited ("Birmingham Cable"), in which Comcast UK
Cable owns a 27.5% interest, Cable London PLC ("Cable London"), in which Comcast
UK Cable owns a 48.9% interest, and Cambridge Holding Company Limited
("Cambridge Cable"), in which Comcast UK Cable owns a 50.0% interest. The
Operating Companies provide integrated cable television, residential telephone
and business telecommunications services to subscribers in their respective
franchise areas. In addition, on June 20, 1994, Comcast UK Cable acquired the
franchises for Darlington and Teesside (collectively, the "Teesside Franchises")
which comprise an area with approximately 229,000 homes. In January 1995,
Cambridge Cable was awarded licenses to provide cable communications services to
an additional 205,000 homes.
6
Operating Companies' Systems
The table below sets forth Homes Passed, Cable Subscriber and Telephony
Subscriber information for the Operating Companies' cable communications systems
for the five years ended December 31, 1994.
At December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands)
Homes Passed (1) (2)
Birmingham Cable 227 156 104 39 2
Cable London 171 121 78 49 10
Cambridge Cable 115 75 36 5
Cable Subscribers (2) (3)
Birmingham Cable 73 55 35 12
Cable London 42 30 20 9 2
Cambridge Cable 30 16 6 1
Telephony Subscribers (2)
Birmingham Cable 59 36 23 3
Cable London 32 18 12 3
Cambridge Cable 34 12
(1) A home is deemed "passed" if it can be connected to the distribution system
without further extension of the transmission lines.
(2) Homes Passed, Cable Subscribers and Telephony Subscribers have not been
adjusted for the Company's proportionate ownership interests in the
respective Operating Companies.
(3) A dwelling with one or more television sets connected to a system is
counted as one Cable Subscriber.
Development and construction of the cable/telephony systems of the Teesside
Franchises commenced in the third quarter of 1994. Based on its December 31,
1994 proportionate ownership interests in the Operating Companies, including the
Teesside Franchises, Comcast UK Cable's interests represent approximately
700,000 homes.
Competition
Cable communications systems face competition from alternative methods of
receiving and distributing television signals and from other sources of news,
information and entertainment such as off-air television broadcast programming,
newspapers, movie theaters, live sporting events, interactive computer programs
and home video products, including videotape cassette recorders. The extent to
which cable service is competitive depends, in part, upon the cable system's
ability to provide, at a reasonable price to consumers, a greater variety of
programming than that available off-air or through other alternative delivery
sources (see "Legislation and Regulation").
Recent FCC and judicial decisions, if upheld by appellate courts, will enable
local telephone companies to provide a wide variety of "video dialtone" services
competitive with services provided by cable systems and to provide cable
services directly to subscribers (see "Legislation and Regulation"). Various
local telephone companies have requested regulatory approval for the initiation
of video programming services. Cable systems could be placed at a competitive
disadvantage if the delivery of video programming services by local telephone
companies becomes widespread since cable systems are required to obtain local
franchises to provide cable service and must comply with a variety of
obligations under such franchises. Issues of cross-subsidization by monopoly
local telephone companies pose strategic disadvantages for cable operators
seeking to compete with local telephone companies who provide video services.
The Company cannot predict at this time the likelihood of success of video
programming ventures by local telephone companies or the impact on the Company
of such competitive ventures.
Cable systems generally operate pursuant to franchises granted on a
non-exclusive basis. The 1992 Cable Act gives local franchising authorities
control over basic cable service rates, prohibits franchising authorities from
unreasonably denying requests for additional franchises and permits franchising
authorities to operate cable systems (see "Legislation and Regulation").
Well-financed businesses from outside the cable industry (such as the public
utilities
7
which own certain of the poles on which cable is attached) may become
competitors for franchises or providers of competing services. The costs of
operating a cable system where a competing service exists (referred to in the
cable industry as an "overbuild") will be substantially greater than if there
were no competition present. Actual and potential overbuilds exist in several of
the Company's systems.
Cable operators face additional competition from private satellite master
antenna television ("SMATV") systems that serve condominiums, apartment
complexes and private residential developments. The operators of these SMATV
systems often enter into exclusive agreements with apartment building owners or
homeowners' associations. While the 1984 Cable Act gives a franchised cable
operator the right to use existing compatible easements within its franchise
area on nondiscriminatory terms and conditions, there have been conflicting
judicial decisions interpreting the scope of the access right granted to serve
such private property. Various states have enacted laws to provide franchised
cable systems access to such private residential complexes. These laws have been
challenged in the courts with varying results. Due to the widespread
availability of reasonably priced earth stations, SMATV systems now can offer
both improved reception of local television stations and many of the same
satellite-delivered program services offered by franchised cable systems. The
ability of the Company to compete for subscribers in communities served by SMATV
operators is uncertain.
The availability of reasonably-priced home satellite dish earth stations ("HSD")
enables individual households to receive many of the satellite-delivered program
services formerly available only to cable subscribers. Furthermore, the 1992
Cable Act contains provisions, which the FCC has implemented with regulations,
to enhance the ability of HSD owners and other cable competitors to purchase
certain satellite-delivered cable programming at competitive costs.
In recent years, the FCC has adopted policies providing a more favorable
operating environment for new and existing technologies that provide, or have
the potential to provide, substantial competition to cable systems. These
technologies include, among others, the direct broadcast satellite ("DBS")
service whereby signals are transmitted by satellite to receiving facilities
located on the premises of subscribers. Programming is currently available to
the owners of HSDs through conventional, medium and high-powered satellites. One
consortium comprised of cable operators, including the Company and a satellite
company, commenced operation in 1990 of a medium-power DBS satellite system
using the Ku portion of the frequency spectrum and currently provides service
consisting of approximately 65 channels of programming, including broadcast
signals and pay-per-view services. Two companies began offering nationwide DBS
service in 1994 accompanied by extensive marketing efforts. Several other
companies are preparing to have high-power DBS systems in place. DBS systems are
expected to use video compression technology to increase the channel capacity of
their systems to provide movies, broadcast stations and other program services
competitive to those of cable systems. The extent to which DBS systems are
competitive to the service provided by cable systems depends, among other
things, on the availability of reception equipment at reasonable prices and on
the ability of DBS operators to provide competitive programming.
Cable communications systems also compete with wireless program distribution
services such as multichannel, multipoint distribution service ("MMDS") which
use low power microwave frequencies to transmit video programming over-the-air
to subscribers. There are MMDS operators who are authorized to provide or are
providing broadcast and satellite programming to subscribers in areas served by
the Company's cable systems. Additionally, the FCC recently initiated a
rulemaking proceeding in which it proposed to allocate frequencies in the 28 GHz
band for a new multichannel wireless video service similar to MMDS. The Company
is unable to predict whether wireless video services will have a material impact
on its operations.
Other new technologies may become competitive with non-entertainment services
that cable communications systems can offer. The FCC has authorized television
broadcast stations to transmit textual and graphic information useful both to
consumers and to businesses. The FCC also permits commercial and non-commercial
FM stations to use their subcarrier frequencies to provide non-broadcast
services including data transmissions. The FCC established an over-the-air
Interactive Video and Data Service that will permit two-way interaction with
commercial and educational programming along with informational and data
services. Telephone companies and other common carriers also provide facilities
for the transmission and distribution of data and other non-video services. The
FCC is currently conducting spectrum auctions for licenses to provide PCS. PCS
could enable license holders, including cable operators, to provide voice and
data services as well as video programming (see "Cellular Telephone
Communications").
8
Advances in communications technology as well as changes in the marketplace and
the regulatory and legislative environment are constantly occurring. Thus, it is
not possible to predict the effect that ongoing or future developments might
have on the cable industry.
Legislation and Regulation
The cable communications industry currently is regulated by the FCC, some state
governments and most local governments. In addition, legislative and regulatory
proposals by the Congress and federal agencies may materially affect the cable
communications industry. The following is a summary of federal laws and
regulations materially affecting the growth and operation of the cable
communications industry and a description of certain state and local laws.
The Cable Acts, both of which amended the Communications Act of 1934 (the
"Communications Act"), establish a national policy to guide the development and
regulation of cable systems. Principal responsibility for implementing the
policies of the Cable Acts is allocated between the FCC and state or local
franchising authorities.
Rate Regulation. Prior to April 1, 1993, virtually all of the Company's cable
systems were free to adjust cable rates without first obtaining governmental
approval. The 1992 Cable Act authorizes rate regulation for cable communications
services and equipment in communities that are not subject to "effective
competition," as defined in the 1992 Cable Act. Virtually all cable
communications systems are now subject to rate regulation for basic cable
service and equipment by local officials under the oversight of the FCC, which
has prescribed detailed criteria for such rate regulation. The 1992 Cable Act
also requires the FCC to resolve complaints about rates for nonbasic cable
programming services (other than programming offered on a per channel or per
program basis, which programming is not subject to rate regulation) and to
reduce any such rates found to be unreasonable. The 1992 Cable Act limits the
ability of cable systems to raise rates for basic cable service and certain
nonbasic cable programming services (collectively, the "Regulated Services").
On April 1, 1993, the FCC adopted regulations in accordance with the 1992 Cable
Act governing rates that may be charged to subscribers for Regulated Services
and ordered an interim freeze on existing rates. The FCC's rate regulations
became effective on September 1, 1993 and the FCC's rate freeze was extended
until the earlier of February 15, 1994 or the date on which a cable system's
basic cable service rate was regulated by a franchising authority.
In implementing the 1992 Cable Act, the FCC adopted a benchmark methodology as
the principal method of regulating rates for Regulated Services. Cable operators
were also permitted to justify rates using a cost-of-service methodology. As of
September 1, 1993, cable operators whose then current rates were above FCC
benchmark levels were required, absent a successful cost-of-service showing, to
reduce such rates to the benchmark level or by up to 10% of those rates in
effect on September 30, 1992, whichever reduction was less, adjusted for
equipment costs, inflation and programming modifications occurring subsequent to
September 30, 1992. Effective May 15, 1994, the FCC modified its benchmark
methodology to require reductions of up to 17% of the rates for Regulated
Services in effect on September 30, 1992, adjusted for inflation, programming
modifications, equipment costs and increases in certain operating costs. The
FCC's modified benchmark regulations were designed to cause an additional 7%
reduction in the rates for Regulated Services on top of any rate reductions
implemented under the FCC's initial benchmark regulations.
The FCC's initial "Going Forward" regulations limited rate increases for
Regulated Services to an inflation-indexed amount plus increases for channel
additions and certain external costs beyond the cable operator's control, such
as franchise fees, taxes and increased programming costs. Under these
regulations, cable operators are entitled to take a 7.5% mark-up on certain
programming cost increases. On November 10, 1994, the FCC modified these
regulations and instituted a three-year flat fee mark-up plan for charges
relating to new channels added to the cable programming service tier. As of
January 1, 1995, cable operators may charge subscribers for channels added to
the cable programming service tier after May 14, 1994, at a monthly rate of up
to 20 cents per added channel, but may not make adjustments to monthly rates
totalling more than $1.20 plus an additional 30 cents for programming license
fees per subscriber over the first two years of the three-year period. Cable
operators may charge an additional 20 cents plus the cost of the programming in
the third year (1997) for one additional channel added in that year. Operators
must make a one-time election to use either the 20 cents per channel adjustment
or the 7.5% mark-up on programming cost increases for all channels added after
December 31, 1994. The FCC is currently considering
9
whether to modify or eliminate the regulation allowing operators to receive the
7.5% mark-up on increases in existing programming license fees.
On November 10, 1994, the FCC adopted regulations permitting cable operators to
create new product tiers ("NPT") that will not be subject to rate regulation if
certain conditions are met. The FCC also revised its previously adopted policy
and concluded that packages of a la carte services are subject to rate
regulation by the FCC as cable programming service tiers. Because of the
uncertainty created by the FCC's prior a la carte package guidelines, the FCC
will allow cable operators, including the Company, under certain circumstances,
to treat previously offered a la carte packages as NPTs.
Franchising authorities are empowered to regulate the rates charged for
additional outlets and for the installation, lease and sale of equipment used by
subscribers to receive the basic cable service tier, such as converter boxes and
remote control units. The FCC's rules require franchising authorities to
regulate these rates on the basis of actual cost plus a reasonable profit, as
defined by the FCC. Cable operators required to reduce rates may also be
required to refund overcharges with interest.
Rate reductions will not be required where a cable operator can demonstrate that
existing rates for Regulated Services are justified and reasonable using
cost-of-service guidelines. On November 24, 1993, the FCC ruled that operators
choosing to justify rates through a cost-of-service submission must do so for
all Regulated Services. On February 22, 1994, the FCC adopted interim
cost-of-service regulations establishing, among other things, an industry-wide
11.25% after tax rate of return on an operator's allowable rate base and a
rebuttable presumption that acquisition costs above original historic book value
of tangible assets should be excluded from the allowable rate base. The FCC is
conducting a further rulemaking to determine whether these interim standards and
regulations should be made permanent.
In July 1994, the Company reduced rates for Regulated Services in the majority
of its cable systems to comply with the FCC's modified benchmarks and
regulations. In addition, the Company is seeking to justify existing rates in
certain of its cable systems in the States of Connecticut and New Jersey on the
basis of cost-of-service showings for both its basic cable service tier (at the
franchising authority) and its cable programming service tier (at the FCC);
however, the FCC's interim cost-of-service regulations do not support positions
taken by the Company in its cost-of-service filings to date. The Company is
seeking FCC reconsideration of the interim cost-of-service regulations, FCC
review of various adverse decisions issued by franchising authorities on its
basic cable service rates and a determination by the FCC of the validity of
cost-of-service rates for cable programming services in various systems. If
unsuccessful in such efforts, the Company intends to seek judicial relief.
However, no assurance can be given that the Company will be able to offset, to
any substantial degree, the adverse impact of rate reductions in compliance with
the FCC's modified benchmarks and regulations, or that it will be successful in
cost-of-service proceedings. If the Company is not successful in such efforts,
and there is no legislative, administrative or judicial relief in these matters,
the FCC regulations will continue to adversely affect the Company's results of
operations.
"Anti-Buy Through" Provisions. The 1992 Cable Act requires cable systems to
permit subscribers to purchase video programming offered by the operator on a
per channel or a per program basis without the necessity of subscribing to any
tier of service, other than the basic cable service tier, unless the system's
lack of addressable converter boxes or other technological limitations does not
permit it to do so. The statutory exemption for cable systems that do not have
the technological capability to offer programming in the manner required by the
statute is available until a system obtains such capability, but not later than
December 2002. The FCC may waive such time periods, if deemed necessary. Most of
the Company's systems do not have the technological capability to offer
programming in the manner required by the statute and thus currently are exempt
from complying with the requirement.
Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast signal
carriage requirements that allow local commercial television broadcast stations
to elect once every three years to require a cable system to carry the station,
subject to certain exceptions, or to negotiate for "retransmission consent" to
carry the station. A cable system generally is required to devote up to
one-third of its activated channel capacity for the mandatory carriage of local
commercial television stations. Local non-commercial television stations are
also given mandatory carriage rights; however, such stations are not given the
option to negotiate retransmission consent for the carriage of their signals by
cable systems. Additionally, cable systems are required to obtain retransmission
consent for all "distant" commercial television stations (except for commercial
satellite-delivered independent "superstations" such as WTBS), commercial radio
stations and certain low power television stations carried by such systems after
October 6, 1993.
10
On April 8, 1993, a special three-judge federal district court issued a decision
upholding the constitutional validity of the mandatory signal carriage
requirements. In June 1994, the United States Supreme Court vacated this
decision and remanded it to the district court to determine, among other
matters, whether the statutory carriage requirements are necessary to preserve
the economic viability of the broadcast industry. The mandatory broadcast signal
carriage requirements remain in effect pending the outcome of the further
proceedings in the district court.
Designated Channels. The 1984 Cable Act permits franchising authorities to
require cable operators to set aside certain channels for public, educational
and governmental access programming. The 1984 Cable Act also requires a cable
system with 36 or more channels to designate a portion of its channel capacity
for commercial leased access by third parties to provide programming that may
compete with services offered by the cable operator. The FCC has adopted rules
regulating: (i) the maximum reasonable rate a cable operator may charge for
commercial use of the designated channel capacity; (ii) the terms and conditions
for commercial use of such channels; and (iii) the procedures for the expedited
resolution of disputes concerning rates or commercial use of the designated
channel capacity.
Franchise Procedures. The 1984 Cable Act affirms the right of franchising
authorities (state or local, depending on the practice in individual states) to
award one or more franchises within their jurisdictions and prohibits
non-grandfathered cable systems from operating without a franchise in such
jurisdictions. The 1992 Cable Act encourages competition with existing cable
systems by (i) allowing municipalities to operate their own cable systems
without franchises; (ii) preventing franchising authorities from granting
exclusive franchises or from unreasonably refusing to award additional
franchises covering an existing cable system's service area; and (iii)
prohibiting (with limited exceptions) the common ownership of cable systems and
co-located MMDS or SMATV systems. The 1984 Cable Act also provides that in
granting or renewing franchises, local authorities may establish requirements
for cable-related facilities and equipment, but not for video programming or
information services other than in broad categories. Among the more significant
provisions of the 1984 Cable Act is a limitation on the payment of franchise
fees to 5% of cable system revenues and the opportunity for the cable operator
to obtain modification of franchise requirements by the franchise authority or
judicial action if warranted by changed circumstances. The Company's franchises
typically provide for payment of fees to franchising authorities of 5% of
"revenues" (as defined by each franchise agreement).
The 1984 Cable Act contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. The 1992 Cable Act makes
several changes to the renewal process which could make it easier for a
franchising authority to deny renewal. Moreover, even if the franchise is
renewed, the franchising authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchising
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for such consent.
Historically, franchises have been renewed for cable operators that have
provided satisfactory services and have complied with the terms of their
franchises. The Company believes that it has generally met the terms of its
franchises and has provided quality levels of service and it anticipates that
its future franchise renewal prospects generally will be favorable.
Various courts have considered whether franchising authorities have the legal
right to limit franchise awards to a single cable operator and to impose certain
substantive franchise requirements (e.g., access channels, universal service and
other technical requirements). These decisions have been somewhat inconsistent
and, until the United States Supreme Court rules definitively on the scope of
cable operators' First Amendment protections, the legality of the franchising
process generally and of various specific franchise requirements is likely to be
in a state of flux.
Ownership Limitations. The 1984 Cable Act and the FCC's regulations prohibit the
common ownership, operation, control or interest in a cable system and a local
television broadcast station whose predicted grade B contour (a measure of
significant signal strength as defined by the FCC's rules) covers any portion of
the community served by the cable system. In June 1992, the FCC revised its
cross-ownership rules to permit national television networks to own cable
systems under certain circumstances. As a part of the same action, the FCC also
voted to recommend to Congress that the broadcast/cable cross-ownership
restrictions contained in the 1984 Cable Act be repealed. Pursuant to the 1992
Cable Act, the FCC adopted rules prescribing national subscriber limits and
limits on the number of channels that can be occupied on a cable system by a
video programmer in which the operator has an attributable interest. The
effectiveness of these FCC horizontal ownership limits has been stayed because a
federal district court found the statutory limitation to be unconstitutional.
11
Telephone Company Ownership of Cable Systems. The 1984 Cable Act, FCC
regulations, and the 1982 federal court consent decree (the "MFJ") that settled
the antitrust suit against AT&T regulate the provision of video programming and
other information services by telephone companies. The 1984 Cable Act codified
FCC cross-ownership regulations that, in part, prohibit local exchange telephone
companies, including the seven Bell Operating Companies ("BOCs"), from providing
video programming directly to subscribers within their local exchange service
areas, except in rural areas or by specific waiver of FCC rules. The statutory
provision and corresponding FCC regulations are of particular competitive
importance because telephone companies already own much of the plant necessary
for cable communications operations, such as poles, underground conduit and
associated rights-of-way. Many of the BOCs have initiated federal court actions
challenging the statutory "telco-cable" cross-ownership restriction of the 1984
Cable Act and various federal district and appellate courts have concluded that
the cross-ownership restriction violates local telephone companies'
constitutional rights. Further judicial review of these decisions can be
anticipated.
In 1992, the FCC modified its regulations to enable local telephone companies to
provide a "video dialtone" service that would provide access for consumers to a
wide variety of services now provided by cable systems, as well as new services
that may develop. The FCC determined that local telephone companies must provide
consumers access to video dialtone services of others on a common carrier basis
and may provide directly to their telephone customers their own non-video
dialtone and non-video services, subject to certain cross-subsidization
safeguards. The FCC also decided to recommend to Congress that the statutory
telco-cable cross-ownership restriction should be repealed and that local
telephone companies should be permitted to provide video programming directly to
subscribers subject to appropriate safeguards. Various parties have appealed the
FCC's decision.
In its video dialtone proceeding the FCC also determined that the 1984 Cable Act
and the FCC's regulatory cross-ownership restrictions do not prohibit
interexchange carriers (i.e., long distance telephone companies) from entering
into joint ventures with cable operators or from acquiring cable communications
systems in areas where such interexchange carriers provide long distance
telephone services. The FCC also concluded that local telephone companies
offering broadband common carrier services to distribute video programming to
subscribers and the third party programmers using such common carrier services
are not required by federal law to obtain franchises from local franchising
authorities in order to provide such video programming services to the public.
The ultimate outcome of the FCC's video dialtone proceeding, the BOC litigation,
the FCC decisions on the video dialtone proposals of various BOCs and other
local telephone companies or the appeals of the FCC's decisions described above,
or the ultimate impact on the Company or its business of these judicial and
administrative proceedings cannot be determined at this time.
In July 1991, the U.S. District Court responsible for the MFJ issued an opinion
lifting the MFJ prohibition on the provision of information services by the
BOCs. This decision was upheld on appeal and enables the BOCs to acquire or
construct cable communications systems outside of their own service areas.
Independent telephone companies currently may provide cable communications
service outside of their service areas under the 1984 Cable Act.
The telephone industry continues to lobby Congress for legislation that will
permit local telephone companies to provide video programming directly to
consumers, and legislation has been introduced in Congress that would permit
local telephone companies, among other things, to provide such services under
certain conditions. The outcome of these FCC, legislative or judicial
proceedings and proposals or the effect of such outcome on cable system
operations cannot be predicted.
Pole Attachment. The Communications Act requires the FCC to regulate the rates,
terms and conditions imposed by public utilities for cable systems' use of
utility pole and conduit space unless state authorities can demonstrate that
they adequately regulate pole attachment rates, as is the case in certain states
in which the Company operates. In the absence of state regulation, the FCC
administers pole attachment rates on a formula basis. In some cases, utility
companies have increased pole attachment fees for cable systems that have
installed fiber optic cables and that are using such cables for the distribution
of non-video services. The FCC concluded that, in the absence of state
regulation, it has jurisdiction to determine whether utility companies have
justified their demand for additional rental fees and that the Communications
Act does not permit disparate rates based on the type of service provided over
the equipment attached to the utility's pole.
Other Statutory Provisions. The 1992 Cable Act precludes video programmers
affiliated with cable companies from favoring cable operators over competitors
and requires such programmers to sell their programming to other
12
multichannel video distributors. This provision limits the ability of cable
program suppliers affiliated with cable companies to offer exclusive programming
arrangements to cable companies. The Communications Act also includes
provisions, among others, concerning horizontal and vertical ownership of cable
systems, customer service, subscriber privacy, commercial leased access
channels, marketing practices, equal employment opportunity, franchise renewal
and transfer, award of franchises, obscene or indecent programming, regulation
of technical standards and equipment compatibility. The FCC has adopted
regulations implementing many of these statutory provisions and it has received
numerous petitions requesting reconsideration of various aspects of its
rulemaking proceedings.
Other FCC Regulations. In addition to the FCC regulations noted above, there are
other FCC regulations covering such areas as equal employment opportunity,
syndicated program exclusivity, network program non-duplication, registration of
cable systems, maintenance of various records and public inspection files,
microwave frequency usage, lockbox availability, origination cablecasting and
sponsorship identification, antenna structure notification, marking and
lighting, carriage of local sports programming, application of the fairness
doctrine and rules governing political broadcasts, limitations on advertising
contained in non-broadcast children's programming, consumer protection and
customer service, leased commercial access, ownership of home wiring, indecent
programming, programmer access to cable systems, programming agreements,
technical standards, consumer electronics equipment compatibility and DBS
implementation. The FCC has the authority to enforce its regulations through the
imposition of substantial fines, the issuance of cease and desist orders and/or
the imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities often used in
connection with cable operations.
Other bills and administrative proposals pertaining to cable television have
previously been introduced in Congress or considered by other governmental
bodies over the past several years on matters such as rate regulation, customer
service standards, sports programming, franchising, copyright and telephone
company provision of cable services. It is probable that further attempts will
be made by Congress and other governmental bodies relating to the delivery of
communications services.
Copyright. Cable communications systems are subject to federal copyright
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool, cable operators can obtain blanket
permission to retransmit copyrighted material on broadcast signals. The nature
and amount of future payments for broadcast signal carriage cannot be predicted
at this time. The possible simplification, modification or elimination of the
compulsory copyright license is the subject of continuing legislative review.
The elimination or substantial modification of the cable compulsory license
could adversely affect the Company's ability to obtain suitable programming and
could substantially increase the cost of programming that remained available for
distribution to the Company's subscribers. The Company cannot predict the
outcome of this legislative activity.
In October 1989, the special rate court of the U.S. District Court for the
Southern District of New York imposed interim rates on the cable industry's use
of ASCAP-controlled music. Payment of these rates by cable programmers secures
licenses that cover the use of the music licensed by ASCAP by both the cable
programmers and their cable operator affiliates. The other major music
performing rights society, BMI, is not subject to rate-setting procedures in the
rate court. Both ASCAP and BMI historically have maintained that the
transmission of programming by cable programmers to cable operators and by cable
operators to their subscribers are separate public performances and should
therefore be subject to separate license agreements. Two federal court
decisions, however, have held that ASCAP and BMI cannot insist on separate
licenses for programmers and operators for cable network programming. Under
these decisions, ASCAP and BMI must make available to cable programming networks
licenses that cover the transmission of music all the way to the cable
subscriber. BMI has petitioned the Department of Justice to grant BMI the right
to come under a special rate court, like the one for ASCAP, for rate setting
purposes. Negotiations are in process concerning the obligation, if any, for
cable operators to compensate the music industry for the use of music in local
origination and pay-per-view programs.
State and Local Regulation
Because a cable communications system uses local streets and rights-of-way,
cable systems are subject to state and local regulation, typically imposed
through the franchising process. Cable communications systems generally are
operated pursuant to nonexclusive franchises, permits or licenses granted by a
municipality or other state or local government entity. Franchises generally are
granted for fixed terms and in many cases are terminable if the franchisee fails
to comply with material provisions. The terms and conditions of franchises vary
materially from
13
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable service rates, franchise fees, franchise term, system
construction and maintenance obligations, system channel capacity, design and
technical performance, customer service standards, franchise renewal, sale or
transfer of the franchise, territory of the franchisee, indemnification of the
franchising authority, use and occupancy of public streets and types of cable
services provided. A number of states subject cable communications systems to
the jurisdiction of centralized state governmental agencies, some of which
impose regulation of a character similar to that of a public utility. Attempts
in other states to regulate cable communications systems are continuing and can
be expected to increase. To date, those states in which the Company operates
that have enacted such state level regulation are Connecticut, New Jersey and
Delaware. State and local franchising jurisdiction is not unlimited, however,
and must be exercised consistently with federal law. The 1992 Cable Act
immunizes franchising authorities from monetary damage awards arising from
regulation of cable systems or decisions made on franchise grants, renewals,
transfers and amendments.
The foregoing does not purport to describe all present and proposed federal,
state, and local regulations and legislation affecting the cable industry. Other
existing federal regulations, copyright licensing, and, in many jurisdictions,
state and local franchise requirements, are currently the subject of judicial
proceedings, legislative hearings and administrative proposals which could
change, in varying degrees, the manner in which cable communications systems
operate. Neither the outcome of these proceedings nor their impact upon the
cable communications industry or the Company can be predicted at this time.
UK Regulation
The operation of a cable television/telephony system in the UK is regulated
under both the Broadcasting Act 1990 (the "Broadcasting Act") (which replaced
the Cable and Broadcasting Act 1984 (the "UK Cable Act")) and the
Telecommunications Act 1984 (the "Telecommunications Act"). The operator of a
cable/telephony franchise covering over 1,000 homes must hold two principal
licenses: (i) a license (a "cable television license") issued in the past under
the UK Cable Act or since 1990 under the Broadcasting Act, which allows the
operator to provide cable television services in the franchise area, and (ii) a
telecommunications license issued under the Telecommunications Act, which allows
the operator to operate and use the physical network necessary to provide cable
television and telecommunications services. The Independent Television
Commission ("ITC") is responsible for the licensing and regulation of cable
television. The Department of Trade and Industry ("DTI") is responsible for
issuing, and the Office of Telecommunications ("OFTEL") is responsible for
regulating the holders of, the telecommunications licenses. In addition, an
operator is required to hold a license under the Wireless Telegraphy Acts of
1949-67 for the use of microwave distribution systems.
The cable television licenses held by the relevant subsidiaries of the Operating
Companies were issued under the UK Cable Act for 15-year periods and are
scheduled to expire beginning in late 2004. The telecommunications licenses held
by these subsidiaries of the Operating Companies are, in general, for 23-year
periods and are scheduled to expire beginning in late 2012. The cable television
licenses held by the Teesside Franchises were issued under the UK Cable Act for
15-year periods and are scheduled to expire in late 2005. The telecommunications
licenses held by the Teesside Franchises are for 15-year periods which can be
extended to 23-year periods in certain circumstances.
Cellular Telephone Communications
General
The Company is engaged in the development, management and operation of cellular
telephone communications systems in various service areas pursuant to licenses
granted by the FCC. Each service area is divided into segments referred to as
"cells" equipped with a receiver, signaling equipment and a low power
transmitter. The use of low power transmitters and the placement of cells close
to one another permits re-use of frequencies, thus substantially increasing the
volume of calls capable of being handled simultaneously over the number handled
by conventional mobile telephone systems. Each cell has a coverage area
generally ranging from two to more than 25 miles. A cellular telephone system
includes a computerized central switching facility known as the mobile telephone
switching office ("MTSO") which controls the automatic transfer of calls,
coordinates calls to and from cellular telephones and connects calls to the
local exchange carrier or to an interexchange carrier. The MTSO also records
information on system usage and subscriber statistics.
14
Each cell's facilities monitor the strength of the signal returned from the
subscriber's cellular telephone. When the signal strength declines to a
predetermined level and the transmission strength is greater at another cell in
or interconnected with the system, the MTSO automatically and instantaneously
passes the mobile user's call in progress to the other cell without
disconnecting the call ("hand off"). Interconnection agreements between cellular
telephone system operators and various local exchange carriers and interexchange
carriers establish the manner in which the cellular telephone system integrates
with other telecommunications systems.
As required by the FCC, all cellular telephones are designed for compatibility
with cellular systems in all markets within the United States so that a cellular
telephone may be used wherever cellular service is available. Each cellular
telephone system in the United States uses one of two groups of channels, termed
"Block A" and "Block B," which the FCC has allotted for cellular service. Minor
adjustments to cellular telephones may be required to enable the subscriber to
change from a cellular system on one frequency block to a cellular system on the
other frequency block.
While most MTSOs process information digitally, most radio transmission of
cellular telephone calls is done on an analog basis. Digital transmission of
cellular telephone calls offers advantages, including improved voice quality
under certain conditions, larger system capacity and the potential for lower
incremental costs for additional subscribers. The FCC allows carriers to provide
digital service and requires cellular carriers to provide analog service. The
conversion from analog to digital radio technology is expected to take a number
of years.
The Company provides services to its cellular telephone subscribers similar to
those provided by conventional landline telephone systems, including custom
calling features such as call forwarding, call waiting, conference calling,
directory assistance and voice mail. The Company is responsible for the quality,
pricing and packaging of cellular telephone service for each of the systems it
owns and controls.
Reciprocal agreements among cellular telephone system operators allow their
respective subscribers ("roamers") to place and receive calls in most service
areas throughout the country. Roamers are charged rates which are generally at a
premium to the regular service rate. In recent years, cellular carriers have
experienced increased fraud associated with roamer service, including Electronic
Serial Number ("ESN") cloning. The Company and other carriers have taken steps
to combat roamer fraud, but it is uncertain to what extent roamer fraud will
continue.
Allegations of harmful effects from the use of hand-held cellular phones have
caused the cellular industry to fund additional research to review and update
previous studies concerning the safety of the emissions of electromagnetic
energy from cellular phones. In August 1993, the FCC adopted a notice of
proposed rulemaking to consider the incorporation of the new standard for
radiofrequency exposure adopted by the American National Standards Institute in
association with the Institute of Electrical and Electronic Engineers, Inc. The
FCC is considering the application of the new standard to low power devices such
as hand-held mobile transceivers. In addition, the FCC is considering how the
new standard should apply to cellular transmitter sites.
15
Company's Systems
The table below sets forth summary information regarding the total population
("Pops") in the markets served by the Company's systems by Metropolitan
Statistical Area ("MSAs") and Rural Service Area ("RSAs") and aggregate
subscriber information as of December 31, 1994.
Approximate Approximate Approximate
Market Ownership Pops Net Pops
MSAs:
Atlantic City, NJ 37% 336,000 124,000
Aurora-Elgin, IL 69% 43,000 30,000
Joliet, IL 70% 35,000 25,000
Long Branch, NJ 100% 583,000 583,000
New Brunswick, NJ 100% 698,000 698,000
Philadelphia, PA 100% 4,959,000 4,959,000
Trenton, NJ 79% 334,000 264,000
Wilmington, DE 100% 611,000 611,000
------- -------
7,599,000 7,294,000
--------- ---------
RSAs:
Hunterdon County, NJ (1) 100% 115,000 115,000
Kent & Sussex, DE 50% 243,000 122,000
------- -------
358,000 237,000
------- -------
7,957,000 7,531,000
========= =========
(1) In June 1994, the Company entered into an Exchange Agreement with McCaw
Cellular Communications, Inc. to acquire the entity that holds the Ocean
County, NJ RSA cellular license (450,000 Pops) in exchange for the
Company's Hunterdon County, NJ RSA license and approximately $52.5 million
in cash. The transaction is expected to close in 1995.
At December 31, 1994, the Company's cellular telephone business had
approximately 465,000 net subscribers in the markets listed above.
- -----------
Source: 1995 Rand McNally Commercial Atlas & Marketing Guide
Competition
The cellular telephone business is currently a regulated duopoly. The FCC has
divided the United States into 734 separate markets and generally grants two
licenses to operate cellular telephone systems in each market. One of the two
licenses was initially awarded to a company or group affiliated with the local
landline telephone carriers in the market (the "Wireline" license), and the
other license was initially awarded to a company, individual, or group not
affiliated with any landline telephone carrier (the "Non-Wireline" license).
The Company's systems are all Non-Wireline systems and compete directly with the
Wireline licensee in each market in attracting and retaining cellular telephone
customers and dealers. Competition between the two licensees in each market is
principally on the basis of services and enhancements offered, technical quality
of the system, quality and responsiveness of customer service, price and
coverage area. The Wireline licensees in the Company's principal markets are
Bell Atlantic Mobile Systems, Inc., a subsidiary of Bell Atlantic Corp., and
NYNEX Mobile Communications Co., a subsidiary of NYNEX Corp. The Company's
principal Wireline competitors are significantly larger and may have access to
more substantial financial resources than the Company. Also, Bell Atlantic Corp.
and NYNEX Corp. have sought FCC approval to consolidate their cellular holdings
and to create a fully integrated wireless system with their landline systems.
The request for FCC approval is pending. FCC approval may increase competition
in the Company's markets.
16
The FCC requires cellular licensees to provide service to resellers of cellular
service which purchase cellular service from licensees, usually in the form of
blocks of numbers, then resell the service to the public. Thus, a reseller may
be both a customer and a competitor of a licensed cellular operator. The FCC is
currently considering a proposal to permit resellers to install separate
switching facilities in cellular systems and receive direct assignments of
telephone numbers from local exchange carriers.
Cellular telephone systems, including the Company's systems, also face actual or
potential competition from other current and developing technologies.
Specialized Mobile Radio ("SMR") systems, such as those used by taxicabs, as
well as other forms of mobile communications service, may provide competition in
certain markets. SMR systems are permitted by FCC rules to be interconnected to
the public switched telephone network and are significantly less expensive to
build and operate than cellular telephone systems. SMR systems are, however,
licensed to operate on substantially fewer channels per system than cellular
telephone systems and generally lack cellular's ability to expand capacity
through frequency reuse by using many low-power transmitters and to hand-off
calls. The Company holds an equity interest in and is represented on the Board
of Directors of Nextel Communications, Inc. ("Nextel"), which has begun to
implement its proposal to use its available SMR spectrum in various metropolitan
areas more efficiently to increase capacity and to provide a broad range of
mobile radio communications services. This proposal, known as ESMR service,
could provide additional competition to existing cellular carriers, including
the Company. In 1994, the FCC decided to license SMR systems in the 800 MHz
bands for wide-area use, thus increasing potential competition with cellular.
The FCC is currently considering consolidation of the SMR spectrum into
contiguous blocks, which action would further the competitive potential of SMR
services.
One-way paging or beeper services that feature voice message, data services and
tones are also available in the Company's markets. These services may provide
adequate capacity and sufficient mobile capabilities for some potential cellular
subscribers.
Certain new technologies and regulatory proposals potentially could affect the
competitive position of cellular. The most prominent is PCS, which includes a
variety of digital, wireless communications systems currently primarily suited
for use in densely populated areas. At the power levels that the FCC's rules now
provide, each cell of a PCS system would have more limited coverage than a cell
in a cellular telephone system. Current proposals for PCS include advanced
cordless telephones, or CT-2, mobile data networks, and personal communications
networks that might provide services similar to those provided by cellular at
costs lower than those currently charged by cellular system operators. The FCC
has allocated spectrum and adopted rules for both narrow and broadband PCS
services. In 1994, the FCC completed a spectrum auction for nationwide
narrowband PCS licenses, undertook the first regional narrowband PCS auction,
and began the first auction of broadband PCS spectrum (see "General Developments
of Business - Telecommunications Joint Venture"). Broadband PCS service likely
will become a direct competitor to cellular service.
Applicants have received and others are seeking FCC authorization to construct
and operate global satellite networks to provide domestic and international
mobile communications services from geostationary and low earth orbit
satellites. In addition, the Omnibus Budget Reconciliation Act of 1993 ("1993
Budget Act") provided, among other things, for the release of 200 MHz of Federal
government spectrum for commercial use over a fifteen year period. The 1993
Budget Act also authorized the FCC to conduct competitive bidding for certain
radio spectrum licenses and required the FCC to adopt new rules that eliminate
the regulatory distinctions between common and private carriers for those
private carriers who interconnect with the public switched telephone network and
make their services available to a substantial portion of the public for profit.
These developments and further technological advances may make available other
alternatives to cellular service thereby creating additional sources of
competition.
Regulation
FCC Regulation
The FCC regulates the licensing, construction, operation and acquisition of
cellular telephone systems pursuant to the Communications Act. For licensing
purposes, the FCC divided the United States into separate markets: 306 MSAs and
428 RSAs. In each market, the allocated cellular frequencies are divided into
two blocks: Block A, initially awarded for utilization by Non-Wireline entities
such as the Company, and Block B, initially awarded for utilization by
affiliates of local Wireline telephone companies. There is no technical or
operational difference between Wireline and Non-Wireline systems other than
different frequencies.
17
Under the Communications Act, no party may transfer control of or assign a
cellular license without first obtaining FCC consent. FCC rules (i) prohibit an
entity controlling one system in a market from holding any interest in the
competing system in the market and (ii) prohibit an entity from holding
non-controlling interests in more than one system in any market, if the common
ownership interests present anticompetitive concerns under FCC policies.
Cellular radio licenses generally expire on October 1 of the tenth year
following grant of the license in the particular market and are renewable for
periods of ten years upon application to the FCC. The Company's first license
expiration date is October 1, 1995, which includes the license for the
Philadelphia MSA. Licenses may be revoked for cause and license renewal
applications denied if the FCC determines that a renewal would not serve the
public interest. Current FCC rules provide that competing renewal applications
for cellular licenses will be considered in comparative hearings, and establish
the qualifications for competing applications and the standards to be applied in
such hearings. Under current policies, the FCC will grant incumbent cellular
licensees a "renewal expectancy" if the licensee has provided substantial
service to the public, substantially complied with applicable FCC rules and
policies and the Communications Act and is otherwise qualified to hold an FCC
license. The Company believes that it will receive such a "renewal expectancy"
for the Philadelphia MSA.
The FCC requires landline telephone companies in each market to offer reasonable
terms and facilities for the interconnection of both cellular telephone systems
in that market to the landline telephone company's network. Cellular telephone
companies affiliated with the local exchange company are required to disclose
how their systems will interconnect with the landline network. The licensee not
affiliated with the local exchange company has the right to interconnect with
the landline network in a manner no less favorable than that of the licensee
affiliated with the local exchange company; and it may, at its discretion,
request reasonable interconnection arrangements that are different than those
provided to the affiliated licensee in that market, and the landline telephone
company must negotiate such requests in good faith. The FCC reiterated its
position on interconnection issues in a declaratory ruling which clarified that
landline operators are expected to provide within a reasonable time the
agreed-upon form of interconnection.
The FCC regulates the ability of cellular operators to bundle the provision of
service with hardware, the resale of cellular service by third parties and the
coordination of frequency usage with other cellular licensees. The FCC also
regulates the height and power of base station transmitting facilities and
signal emissions in the cellular system. Cellular systems also are subject to
Federal Aviation Administration and FCC regulations concerning the siting,
construction, marking and lighting of cellular transmitter towers and antennae.
In addition, the FCC also regulates the employment practices of cellular
operators.
The Communications Act currently restricts foreign ownership or control over
commercial mobile radio licenses, which include cellular radio service licenses.
The FCC recently has proposed to consider the opportunities that other nations
provide to United States companies in their communications industries as a
factor in deciding whether to permit higher levels of indirect foreign ownership
in companies controlling common carrier and certain other radio licenses.
On February 3, 1994, the FCC adopted rules implementing the 1993 Budget Act and
creating the Commercial Mobile Radio Services ("CMRS") category. Under the new
rules, almost all current common carrier mobile radio services, including
cellular radio, and many current private mobile radio services will be subject
to similar regulatory burdens as CMRS. The FCC decided not to require tariffs
from cellular licensees or other CMRS providers.
The FCC has proposed new rules that would impose requirements that cellular
carriers provide equal access to all interexchange carriers. At present, only
cellular systems affiliated with AT&T or BOCs have to provide equal access. The
FCC also is proposing that all CMRS providers provide interconnection to all
other CMRS providers.
State Regulation and Local Approvals
Except for the State of Illinois, the states in which the Company presently
operates currently do not regulate cellular telephone service. In the 1993
Budget Act, Congress gave the FCC the authority to preempt states from
regulating rates or entry into CMRS, including cellular. In the CMRS order,
described above, the FCC preempted the states and established a procedure for
states to petition the FCC for authority to regulate rates and entry into CMRS.
The scope of the allowable level of state regulation under the CMRS order is
unclear.
18
EMPLOYEES
As of December 31, 1994, the Company had 6,700 employees, excluding employees in
managed operations. Of these employees, 5,600 were associated with cable
communications and 800 were associated with cellular telephone communications.
The Company believes that its relationships with its employees are good.
As of December 31, 1994, QVC had 4,700 employees. The Company believes that
QVC's relationships with its employees are good.
ITEM 2 PROPERTIES
The principal physical assets of a cable communications system consist of a
central receiving apparatus, distribution cables, converters and local business
offices. The Company owns or leases the receiving and distribution equipment of
each system and owns or leases parcels of real property for the receiving sites
and local business offices. The physical components of cable communications
systems require maintenance and require periodic upgrading and rebuilding to
keep pace with technological advances. It is anticipated that a significant
number of the Company's systems will be upgraded or rebuilt over the next
several years.
The principal physical assets of a cellular telephone system include cell sites
and central switching equipment. The Company primarily leases its sites used for
its transmission facilities and its administrative offices. The physical
components of a cellular telephone system require maintenance and upgrading to
keep pace with technological advances. It is anticipated that the Company's
systems will be upgraded or rebuilt to digital technology over the next several
years.
The Company's management believes that substantially all of its physical assets
are in good operating condition.
ITEM 3 LEGAL PROCEEDINGS
1. In May 1994, the Company filed an appeal with the U.S. Court of Appeals for
the District of Columbia Circuit challenging the legality of various FCC
rate regulation Orders. The Company has also intervened in similar pending
actions. The Company intends to continue to assess the impact of the FCC's
rate regulations and to develop additional strategies to minimize the
adverse impact of such regulations and the other provisions of the 1992
Cable Act on the Company's business.
2. In June 1994, eight state attorneys general each filed similar civil
actions in state courts challenging the processes used by the Company to
implement changes in rates for services on September 1, 1993. Each of these
actions contends that the Company used improper "negative option" billing
practices, notwithstanding the Company's belief that it had complied with
federal policy and that the FCC had exclusive jurisdiction over such issues
at that time. The Company sued in federal court to enjoin the actions of
the state attorney general that coordinated the state proceedings. While
the FCC has subsequently issued determinations supportive of the Company's
position, no assurance can be given that the Company will succeed in each
of these cases. If the Company is not successful in such efforts, the
Company may be instructed to adjust certain of its cable rates and may be
liable for additional damages in a manner that may have an adverse impact
on the Company's operations.
3. In June 1994, Bell Atlantic Corp. filed applications before the FCC seeking
authority to construct, and to amend a prior application to construct,
video dialtone facilities throughout substantial areas of their telephone
service area. The Company now provides cable television service in certain
areas encompassed by those applications. In July 1994, the Company opposed
grant of the applications on grounds they fail to comply with FCC rules. No
assurance can be given that the Company will succeed in this matter. Grant
of the applications as currently proposed and the construction and
operation of such video dialtone facilities may have an adverse impact on
the Company's operations in the affected areas.
4. The Company is involved in lawsuits and administrative proceedings
regarding the ownership, operation and the transfer of the license for the
cellular telephone system in the Atlantic City, New Jersey MSA ("Atlantic
City MSA"). Although the Company cannot predict the ultimate outcome of
these proceedings, management of the Company, based upon its investigation
to date, believes that it has meritorious defenses in these proceedings,
19
and that the amount of ultimate liability, if any, will not materially
affect the financial position of the Company. Such proceedings include: (i)
a hearing at the FCC to determine the conduct and the qualifications of the
current Atlantic City MSA licensee and the Company; (ii) litigation in
state court in Oregon to determine, among other matters, contractual rights
of the Atlantic City MSA licensee and various claims against the Company,
including claims seeking punitive damages; and (iii) litigation in the
United States District Court for the District of Columbia based primarily
upon claims against the Company for tortious interference with prospective
business advantage involving the Atlantic City MSA.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through a solicitation
of proxies or otherwise, during the fourth quarter of the year ended December
31, 1994.
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT
The current term of office of each of the officers expires at the first meeting
of the Board of Directors of the Company following the next Annual Meeting of
Shareholders, presently scheduled to be held in June 1995, or as soon thereafter
as each of their successors is duly elected and qualified.
The following table sets forth certain information concerning the principal
executive officers of the Company, including their ages, positions and tenure as
of February 22, 1995.
Officer
Name Age Since Position with the Company
Ralph J. Roberts 74 1969 Chairman of the Board of Directors;
Director
Julian A. Brodsky 61 1969 Vice Chairman of the Board of
Directors; Director
Brian L. Roberts 35 1986 President; Director
John R. Alchin 46 1990 Senior Vice President; Treasurer
Lawrence S. Smith 47 1988 Senior Vice President - Accounting
and Administration
Stanley L. Wang 54 1981 Senior Vice President; General
Counsel; Secretary
Ralph J. Roberts has served as a Director and Chairman of the Board of Directors
of the Company for more than five years. Mr. Roberts has been the President and
a Director of Sural Corporation, a privately-held investment company ("Sural"),
the Company's largest shareholder, for more than five years. Mr. Roberts devotes
a major portion of his time to the business and affairs of the Company. The
shares of the Company owned by Sural constitute approximately 78% of the voting
power of the two classes of the Company's voting common stock combined. Mr.
Roberts has voting control of Sural. Mr. Roberts is also a Director of Comcast
UK Cable Partners Limited, Cablevision Investment of Detroit, Inc. and Storer
Communications, Inc.
Julian A. Brodsky has served as Vice Chairman of the Board of Directors for more
than five years. Mr. Brodsky presently serves as the Treasurer and a Director of
Sural. Mr. Brodsky devotes a major portion of his time to the business and
affairs of the Company. Mr. Brodsky is a Director of Comcast UK Cable Partners
Limited, Cablevision Investment of Detroit, Inc., Storer Communications, Inc.,
RBB Fund, Inc. and Nextel Communications, Inc.
Brian L. Roberts has served as President of the Company and as a Director for
more than five years. Mr. Roberts presently serves as Vice President and a
Director of Sural. Mr. Roberts devotes a major portion of his time to the
affairs of the Company. Mr. Roberts is also a Director of Turner Broadcasting
System, Inc., Comcast UK Cable Partners Limited, Cablevision Investment of
Detroit, Inc. and Storer Communications, Inc. He is a son of Ralph J. Roberts.
20
John R. Alchin has served as Treasurer and Senior Vice President of the Company
for more than five years. Mr. Alchin is a Director of Comcast UK Cable Partners
Limited.
Lawrence S. Smith has served as Senior Vice President of the Company for more
than five years. Mr. Smith is the Principal Accounting Officer of the Company.
Mr. Smith is a Director of Comcast UK Cable Partners Limited.
Stanley L. Wang has served as Senior Vice President, Secretary and General
Counsel of the Company for more than five years. Mr. Wang is a Director of
Cablevision Investment of Detroit, Inc. and Storer Communications, Inc.
21
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Class A Special Common Stock and Class A Common Stock of the Company are
traded in the over-the-counter market and are included on the Nasdaq National
Market ("Nasdaq") under the symbols CMCSK and CMCSA, respectively. There is no
established public trading market for the Class B Common Stock of the Company.
The Class B Common Stock is convertible, on a share for share basis, into Class
A Special or Class A Common Stock. The following table sets forth, for the
indicated periods, the closing price range of the Class A Special and Class A
Common Stock as furnished by Nasdaq. Such price ranges have been adjusted for
the Company's three-for-two stock split effective February 2, 1994 and rounded
to the nearest one-eighth.
Class A
Special Class A
High Low High Low
1994
First Quarter.................. $23 1/8 $17 5/8 $23 1/8 $18 1/8
Second Quarter................. 18 3/4 15 19 1/8 15 1/8
Third Quarter.................. 17 3/4 15 18 15 1/8
Fourth Quarter................. 17 5/8 14 5/8 17 3/4 14 1/4
1993
First Quarter.................. $15 1/8 $12 1/8 $16 5/8 $12 7/8
Second Quarter................. 14 5/8 10 5/8 15 3/4 11 7/8
Third Quarter.................. 20 1/8 14 1/8 21 5/8 15
Fourth Quarter................. 25 7/8 19 5/8 27 7/8 20 7/8
The Company began paying quarterly cash dividends on its Class A Common Stock in
1977. Since 1978, the Company has paid equal dividends on shares of both the
Class A Common Stock and the Class B Common Stock. Since December 1986, when the
Class A Special Common Stock was issued, the Company has paid equal dividends on
shares of the Class A Special, Class A and Class B Common Stock. The Company
declared dividends of $.0933 for each of the years ended December 31, 1994 and
1993 on shares of Class A Special, Class A and Class B Common Stock (as adjusted
for the Company's three-for-two stock split effective February 2, 1994).
It is the intention of the Board of Directors to continue to pay regular
quarterly cash dividends on all classes of the Company's stock; however, the
declaration and payment of future dividends and their amount depend upon the
results of operations, financial condition and capital needs of the Company,
contractual restrictions of the Company and its subsidiaries and other factors.
As of February 1, 1995, there were 2,407 record holders of the Company's Class A
Special Common Stock and 1,854 record holders of the Company's Class A Common
Stock. Sural Corporation is the sole record holder of the Company's Class B
Common Stock.
22
ITEM 6 SELECTED FINANCIAL DATA
Year Ended December 31,
1994 (1) 1993 (1) 1992 (1) 1991 1990
-------- -------- -------- ---- ----
(Dollars in thousands, except per share data)
Statement of Operations Data:
Service income........................ $1,375,304 $1,338,228 $900,345 $721,000 $650,941
Operating income...................... 239,794 264,896 165,106 144,951 109,949
Equity in net losses
of affiliates....................... (40,884) (28,872) (104,306) (83,366) (79,765)
Loss before extraordinary items
and cumulative effect of
accounting changes.................. (75,325) (98,871) (217,935) (155,572) (178,406)
Extraordinary items................... (11,703) (17,620) (52,297)
Cumulative effect of accounting
changes............................. (742,734)
Net loss.............................. (87,028) (859,225) (270,232) (155,572) (178,406)
Loss per share before extraordinary
items and cumulative effect of
accounting changes (2).............. (.32) (.46) (1.08) (.87) (1.05)
Extraordinary items per share (2)..... (.05) (.08) (.26)
Cumulative effect of accounting
changes per share (2)............... (3.47)
Net loss per share (2)................ (.37) (4.01) (1.34) (.87) (1.05)
Cash dividends
declared per share (2).............. .0933 .0933 .0933 .0933 .08
Balance Sheet Data:
At year end:
Total assets........................ 6,762,984 4,948,276 4,271,898 2,793,584 2,456,573
Working capital (deficit)........... (52,132) 176,569 36,886 381,183 64,474
Long-term debt...................... 4,810,541 4,154,830 3,973,514 2,452,912 2,248,164
Stockholders'
equity (deficiency)............... (726,789) (870,531) (181,641) 19,480 (21,689)
Supplementary Financial Data:
Operating income
before depreciation
and amortization (3)................ 576,256 606,396 397,153 309,250 271,167
Net cash provided by
operating activities (4)............ 368,994 345,892 252,297 176,228 97,599
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of events which affect the
comparability of the information reflected in the above selected financial
data.
(2) As adjusted for the Company's three-for-two stock split effective February
2, 1994.
(3) "Operating income before depreciation and amortization" (commonly referred
to in the Company's businesses as "operating cash flow") is presented as a
measure of the 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
telecommunications industry and the significant level of non-cash
depreciation and amortization expense, operating cash flow is frequently
used as one of the bases for comparing companies in the industry. 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.
(4) Represents net cash provided by operating activities as presented in the
Company's Consolidated Statement of Cash Flows.
23
ITEM 7 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 and cash equivalents and short-term investments.
General Developments of Business
QVC
In February 1995, the Company and Tele-Communications, Inc. ("TCI") acquired all
of the outstanding stock of QVC, Inc. ("QVC") for $46, in cash, per share. The
total cost of acquiring the outstanding shares of QVC not previously owned by
the Company and TCI (approximately 65% of such shares on a fully diluted basis)
was approximately $1.4 billion. Following the acquisition, the Company and TCI
own, through their respective subsidiaries, 57.45% and 42.55%, respectively, of
QVC. The Company will account for the QVC acquisition under the purchase method
of accounting and QVC will be consolidated with the Company beginning in
February 1995.
The acquisition of QVC, 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.
QVC is a nationwide general merchandise retailer, operating as one of the
leading televised shopping retailers in the United States. Through its
merchandise-focused television programs (the "QVC Service"), QVC sells a wide
variety of products directly to consumers. The QVC Service currently reaches
approximately 50 million cable television subscribers in the United States.
The day to day operations of QVC will, except in certain limited circumstances,
be managed by the Company. With certain exceptions, direct or indirect transfers
to unaffiliated third parties by the Company or TCI of any stock in QVC are
subject to certain restrictions and rights in favor of the other.
Maclean Hunter
On December 22, 1994, the Company, through Comcast MHCP Holdings, L.L.C. (the
"LLC"), acquired the U.S. cable television and alternate access operations of
Maclean Hunter Limited ("Maclean Hunter") from Rogers Communications Inc. and
all of the outstanding shares of Barden Communications, Inc. (collectively, such
acquisitions are referred to as the "Maclean Hunter Acquisition") for
approximately $1.2 billion (subject to certain adjustments) in cash. The Company
and the California Public Employees' Retirement System ("CalPERS") invested
approximately $305.0 million and $250.0 million, respectively, in the LLC, which
is owned 55% by a wholly-owned subsidiary of the Company and 45% by CalPERS, and
is managed by the Company. The Maclean Hunter Acquisition, including certain
transaction costs, was financed with cash contributions from the LLC of $555.0
million and borrowings of $715.0 million under an $850.0 million Maclean Hunter
credit facility. At any time after December 18, 2001, CalPERS may elect to
liquidate its interest in the LLC at a price based upon the fair value of
CalPERS' interest in the LLC, adjusted, under certain circumstances, for certain
performance criteria relating to the fair value of the LLC or to the Company's
common stock. Except in certain limited circumstances, the Company, at its
option, may satisfy this liquidity arrangement by purchasing CalPERS' interest
for cash, through the issuance of the Company's common stock (subject to certain
limitations) or by selling the LLC. The Maclean Hunter Acquisition was accounted
for under the purchase method of accounting and Maclean Hunter is consolidated
with the Company as of December 31, 1994.
Telecommunications Joint Venture
On October 25, 1994, the Company announced a joint venture ("WirelessCo") with
Sprint Corporation ("Sprint"), TCI and Cox Cable Communications, Inc. ("Cox") to
provide wireless communications services. WirelessCo is owned 40% by Sprint, 30%
by TCI and 15% each by the Company and Cox. WirelessCo is participating in the
first of several Federal Communications Commission ("FCC") auctions of blocks of
spectrum for licenses to provide Personal Communications Services ("PCS"),
having filed an application to participate in 39 of 51 Major Trading Area
24
("MTA") markets nationwide. As of February 21, 1995, WirelessCo's aggregate bids
for 38 licenses covering a total population of 168 million were $1.975 billion.
There can be no assurances that WirelessCo will be successful in bidding for or
otherwise obtaining PCS licenses for these or other MTAs. The Company has
obtained letter of credit commitments sufficient to cover its 15% share of the
cost of PCS licenses for which WirelessCo is the successful bidder. The Company
may have material additional capital requirements relating to the buildout of
PCS systems if WirelessCo is successful in the PCS bidding process. WirelessCo
is accounted for under the equity method of accounting.
The parties have also signed a joint venture formation agreement which provides
the basis upon which they will develop definitive agreements for their local
wireline telecommunications activities. The parties anticipate that the wireline
joint venture will be owned in the same percentages as WirelessCo. The parties'
ability to provide such local services on a nationwide basis, and the timing
thereof, will depend upon, among other things, the removal or modification of
legal barriers to local telephone competition. The parties anticipate that
Teleport Communications Group ("TCG"), which is owned 20% by the Company and by
other cable television operators, including TCI and Cox, will be contributed to
the local telephone venture. TCG is an alternative provider of local telephone
services. The contribution of TCG to the venture is expected to be subject to
certain conditions, including obtaining necessary governmental and other
approvals.
Storer
Prior to December 2, 1992, the Company held a 50% ownership interest in SCI
Holdings, Inc. ("SCI"), the parent company of Storer Communications, Inc.
("Storer"). On December 2, 1992, the Company completed certain transactions
pursuant to which (i) the value of SCI was divided proportionately between its
two 50% shareholders (the "Split-off") and (ii) SCI refinanced its indebtedness
(the "Refinancing Plan"). In connection with the Split-off, SCI was merged into
Storer and the Company became the sole shareholder of Storer.
AWACS
On March 5, 1992, the Company acquired from Metromedia Company ("Metromedia") a
50.01% direct and a 49.99% indirect interest in AWACS, Inc. ("AWACS"), the
non-wireline cellular telephone system serving the Philadelphia Metropolitan
Statistical Area, which includes eight counties in Pennsylvania and New Jersey
and contained a population of approximately 4.9 million people at that date.
Concurrently, the Company also acquired from Metromedia the outstanding
interests not owned by the Company in two New Jersey cellular telephone systems
which served a total population of approximately 1.3 million people at that
date.
-------------------------
Liquidity and Capital Resources
The Company has traditionally maintained significant levels of cash and cash
equivalents and short-term investments to meet its short-term needs. Cash and
cash equivalents and short-term investments as of December 31, 1994 and 1993
were $465.5 million and $679.8 million, respectively.
The Company's cash and cash equivalents and short-term investments are recorded
at cost which approximates their fair value. At December 31, 1994, the Company's
short-term investments of $130.1 million had a weighted average maturity of
approximately 16 months. However, due to the high degree of liquidity and the
intent of management to use these investments as needed to fund its commitments,
the Company considers these as current assets.
It is anticipated that during 1995 the domestic operations of the Company will
incur approximately $500 million of capital expenditures, including $250 million
for the upgrading and rebuilding of certain of the Company's cable
communications systems and $200 million for the upgrading of the Company's
cellular communications systems. The amount of such capital expenditures for
years subsequent to 1995 will depend on numerous factors, many of which are
beyond the Company's control. These factors include whether competition in a
particular market necessitates a system upgrade, whether a particular system has
sufficient capacity to handle new product offerings including the offering of
cable telephony and telecommunications services, whether and to what extent the
Company will be able to recover its investment under FCC rate guidelines and
whether the Company acquires additional systems in need of upgrading or
rebuilding. The Company, however, anticipates capital expenditures for years
subsequent to 1995 will continue to be significant.
25
The Company has historically utilized a strategy of financing its acquisitions
through senior debt at the acquired operating subsidiary level. Additional
financing has also been obtained by the Company through the issuance of
subordinated debt at the intermediate holding company and parent company levels.
At December 31, 1994 and 1993, the Company's long-term debt was $4.811 billion
and $4.155 billion, respectively. Maturities of long-term debt for the five
years commencing in 1995 are $182.9 million, $309.5 million, $388.1 million,
$802.4 million and $518.8 million. As of December 31, 1994, certain subsidiaries
of the Company had unused lines of credit of $553.0 million. The Company used
$100.0 million of such available funds through February 21, 1995, principally to
fund the acquisition of QVC.
On September 27, 1994, Comcast UK Cable Partners Limited ("Comcast UK Cable"), a
subsidiary of the Company, consummated an initial public offering (the "IPO") of
15 million of its Class A Common Shares for net proceeds of $209.4 million.
Comcast UK Cable converted $109.4 million of these proceeds to its functional
currency and the remaining $100.0 million was protected from currency risk
through the purchase of foreign exchange forward contracts. The net proceeds
from the IPO will be utilized by Comcast UK Cable for future advances and
capital contributions to its equity investees and subsidiary primarily relating
to the buildout of their telecommunications networks in the United Kingdom.
On January 26, 1995, the Company exchanged its interest in Heritage
Communications, Inc. with TCI for Class A common shares of TCI with a fair
market value of approximately $290 million. Shortly thereafter, the Company sold
certain of these shares for total proceeds of approximately $188 million. As a
result of these transactions, the Company will recognize a pre-tax gain of $141
million in the first quarter of 1995.
In June 1994, the Company entered into an Exchange Agreement with McCaw Cellular
Communications, Inc. to acquire the entity that holds the Ocean County, NJ RSA
cellular license (450,000 Pops) in exchange for the Company's Hunterdon County,
NJ RSA license and approximately $52.5 million in cash. The transaction is
expected to close in 1995.
The Company expects to continue 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 for the foreseeable
future. The telecommunications industry, including cable and cellular
communications, is 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 deficiency in stockholders' equity will not
significantly affect its ability to obtain financing.
The Company has entered into certain foreign exchange forward contracts and
interest rate swap and cap agreements as a normal part of its risk and interest
rate management efforts.
Foreign exchange forward contracts, which mature at various times through 1996,
are used by Comcast UK Cable to hedge against the risk that monetary assets held
or denominated in currencies other than its functional currency are devalued as
a result of changes in exchange rates. The amount of these contracts was $100.0
million as of December 31, 1994. Foreign exchange contracts provide an effective
hedge against such monetary assets held since gains and losses realized on the
contracts are offset against gains or losses realized on the underlying hedged
assets.
The Company has entered into interest rate swap and cap agreements to limit the
Company's exposure to loss from adverse fluctuations in interest rates. At
December 31, 1994 and 1993, $415.0 million and $635.0 million, respectively, of
the Company's variable rate debt was protected by these products. Such
agreements mature on various dates in 1995 and the related differentials to be
paid or received are recognized over the terms of the agreements. The estimated
fair value of such instruments, based on discounted future cash flows of the
differentials, was not significant to the Company as of December 31, 1994 and
1993.
During 1994, the Company entered into other interest rate swap agreements to
manage its overall interest expense. At December 31, 1994, the Company had
swapped $400.0 million notional amount of fixed rate debt for variable rate
products (effective rates of 4.13% through 6.93% at December 31, 1994) which
mature between 2000 and 2004. Since these products are designated as matched
with certain of the Company's fixed rate debt, the differentials paid or
received are recognized as a component of interest expense over the terms of the
related agreements. Certain of these agreements have extensions, at the option
of the counterparty, or indexed amortization provisions which may extend the
lives of the agreements from three to five years. The estimated liability to
settle these instruments was
26
$39 million as of December 31, 1994. The estimated liability to settle the
extension and indexed amortization features for certain of these instruments is
not significant to the Company.
The credit risks associated with the Company's derivative financial instruments
are controlled through the evaluation and continual monitoring of the
creditworthiness of the counterparties. Although the Company may be exposed to
losses in the event of nonperformance by the counterparties, the Company does
not expect such losses, if any, to be significant.
The Company's long-term debt had a carrying amount of $4.993 billion and an
estimated fair value of $4.768 billion as of December 31, 1994. The difference
between the carrying value and estimated fair value of the Company's long-term
debt was not significant as of December 31, 1993. The Company's weighted average
interest rate was approximately 7.75%, 8.45% and 9% for the years ended December
31, 1994, 1993 and 1992, respectively. The Company continually evaluates its
debt structure with the intention of reducing its debt service requirements when
desirable.
The Company believes that it will be able to meet its current and long-term
liquidity and capital requirements, including its fixed charges, through its
cash flows from operating activities, existing cash and cash equivalents,
short-term investments, lines of credit and other external financing.
Statement of Cash Flows
Cash and cash equivalents increased $174.9 million at December 31, 1994 from
December 31, 1993 and decreased $53.0 million at December 31, 1993 from December
31, 1992. 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 $369.0 million, $345.9
million and $252.3 million for the years ended December 31, 1994, 1993 and 1992,
respectively. The increase of $23.1 million in net cash provided by operating
activities from 1993 to 1994 was principally due to a decrease in the Company's
net cash interest expense primarily from the effects of lower levels of debt
outstanding and a lower average cost of debt and changes in working capital as a
result of the timing of receipts and disbursements. The $93.6 million increase
in net cash provided by operating activities from 1992 to 1993 includes $99.1
million from the Split-off.
Net cash provided by financing activities, which includes the issuances of
securities as well as borrowings, was $1.115 billion, $437.2 million and $1.730
billion for the years ended December 31, 1994, 1993 and 1992, respectively.
Proceeds of borrowings of $1.201 billion in 1994 included $1.015 billion
relating to the Maclean Hunter Acquisition. During 1994, the Company repurchased
or redeemed and retired $509.0 million of its long-term debt including the
Company's $150.0 million, 11-7/8% Senior subordinated debentures due 2004.
Additionally, net cash provided by financing activities excludes the conversion
of $186.2 million of long-term debt into 16.8 million shares of Class A Special
Common Stock of the Company. In 1994, the Company received an equity
contribution to a subsidiary of $250.0 million in connection with the Maclean
Hunter Acquisition and received proceeds from the issuance of common stock of
Comcast UK Cable of $209.4 million. During 1993, proceeds from borrowings of
$954.0 million included $200 million principal amount of 9-1/2% Senior
subordinated debentures due 2008, $250 million principal amount of 3-3/8% /
5-1/2% Step-up convertible subordinated debentures due 2005 and net proceeds of
$300 million from the issuance of $541.9 million principal amount of its 1-1/8%
Discount convertible subordinated debentures due 2007. During 1993, the Company
retired $493.0 million of long-term debt. Additionally, net cash provided by
financing activities excludes the conversion of $185.4 million of long-term debt
into 17.3 million shares of Class A Special Common Stock of the Company. During
1992, the Company sold 6.0 million shares of its Class A Special Common Stock
resulting in net proceeds of $101.3 million, issued $300.0 million principal
amount of 10-5/8% Senior subordinated debentures due 2012 and obtained $1.720
billion in borrowings relating to the AWACS acquisition and the Split-off. The
Company repaid $386.1 million of its long-term debt in 1992.
Net cash used in investing activities was $1.309 billion, $836.1 million and
$1.894 billion for the years ended December 31, 1994, 1993 and 1992,
respectively. Acquisitions in 1994 consisted principally of $1.2 billion paid,
including certain transaction costs, in connection with the Maclean Hunter
Acquisition. Net proceeds of $389.3 million from the sale of short-term
investments during 1994 were used principally to redeem and retire long-term
debt. In addition, during 1994, the Company made capital expenditures of $269.9
million and made additional cash investments in affiliates of $125.0 million.
During 1993, the Company purchased $384.9 million of short-term investments,
made $158.4 million of capital expenditures and made long-term investments of
$272.5 million. Investments in 1993 included the purchase of an interest in and
loans made to TCG of $77.8 million, the purchase
27
of additional interests in Nextel Communications, Inc. ("Nextel") totalling
$118.2 million and the purchase of additional shares of QVC totalling $32.1
million. Cash flows used in investing activities in 1992 included the AWACS
acquisition of $567 million and the Split-off of $1.4 billion.
Results of Operations
The effects of the QVC and Maclean Hunter acquisitions will be, and the effects
of the Split-off, AWACS acquisition and other acquisitions made in prior years
have been, to increase significantly the Company's service income and expenses
resulting in substantial increases in its operating income before depreciation
and amortization, depreciation and amortization expense and net interest
expense. The Split-off has the effect of reducing the Company's net losses for
years after 1992 primarily because Storer's interest expense and preferred stock
dividend requirements were reduced as a result of the Refinancing Plan. However,
it is expected that because of the depreciation and amortization and interest
expense associated with these acquisitions and their financing, the Company will
continue to realize substantial losses for the foreseeable future.
For the years ended December 31, 1994, 1993 and 1992, the Company realized
operating income before depreciation and amortization (commonly referred to in
the Company's businesses as "operating cash flow") of $576.3 million, $606.4
million and $397.2 million, respectively, representing a decrease of $30.1
million or 5% from 1993 to 1994 and an increase of $209.2 million or 53% from
1992 to 1993. These changes are a result of the items discussed below. 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 depreciation and
amortization expense, operating cash flow is frequently used as one of the bases
for comparing cable and cellular 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.
The Company realized service income of $1.375 billion, $1.338 billion and $900.3
million for the years ended December 31, 1994, 1993 and 1992, respectively,
representing increases of $37.1 million or 3% from 1993 to 1994 and $437.9
million or 49% from 1992 to 1993. For the years ended December 31, 1994, 1993
and 1992, approximately 77%, 82% and 81%, respectively, of the Company's service
income related to its cable division and 21%, 15% and 16%, respectively, related
to its cellular division.
Operating, selling, general and administrative expenses were $799.0 million,
$731.8 million and $503.2 million for the years ended December 31, 1994, 1993
and 1992, respectively, representing increases of $67.2 million or 9% from 1993
to 1994 and $228.6 million or 45% from 1992 to 1993. For the years ended
December 31, 1994, 1993 and 1992, approximately 69%, 74% and 73%, respectively,
of the Company's operating, selling, general and administrative expenses related
to its cable division and 21%, 15% and 16%, respectively, related to its
cellular division.
Depreciation and amortization expense was $336.5 million, $341.5 million and
$232.0 million for the years ended December 31, 1994, 1993 and 1992,
respectively, representing a decrease of $5.0 million or 1% from 1993 to 1994
and an increase of $109.5 million or 47% in 1993 from 1992. The decrease from
1993 to 1994 is due to certain of the Company's assets becoming fully
depreciated in 1993, partially offset by the effects of capital expenditures.
The increase in 1993 from 1992 is primarily due to the effects of the Split-off
and the effects of capital expenditures.
Interest expense to third parties was $313.5 million, $347.4 million and $231.3
million for the years ended December 31, 1994, 1993 and 1992, respectively,
representing a decrease of $33.9 million or 10% from 1993 to 1994 and an
increase of $116.1 million or 50% from 1992 to 1993. The decrease from 1993 to
1994 is due to the effects of lower levels of debt outstanding and a lower
average cost of debt. The increase in 1993 was due to a higher level of debt
outstanding primarily associated with the Split-off and the AWACS acquisition.
At December 31, 1994, the Company had approximately $3.070 billion or 61% of its
debt at variable rates.
For the years ended December 31, 1994, 1993 and 1992, the Company's earnings
before cumulative effect of accounting changes, extraordinary items, income
taxes (benefit), equity in net losses of affiliates and fixed charges (interest
expense and interest expense and preferred stock dividend requirement of a
subsidiary to an affiliate) were $269.8 million, $292.7 million and $212.7
million, respectively. These earnings were not adequate to cover the Company's
fixed charges of $313.5 million, $347.4 million and $312.3 million for the years
ended December 31,
28
1994, 1993 and 1992, respectively. These fixed charges include non-cash interest
and non-cash dividends (1992 only) of $53.5 million, $62.3 million and $98.0
million for the years ended December 31, 1994, 1993 and 1992, respectively. The
inadequacy of these earnings to cover fixed charges is primarily due to the
substantial non-cash charges for depreciation and amortization expense of $336.5
million, $341.5 million and $232.0 million for the years ended December 31,
1994, 1993 and 1992, respectively.
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 and cash equivalents, short-term
investments, its ability to generate operating income before depreciation and
amortization and its ability to obtain external financing.
The Company recognized income taxes (benefit) of ($9.2) million, $15.2 million
and $14.0 million for the years ended December 31, 1994, 1993 and 1992,
respectively. Effective January 1, 1993, the Company changed its method of
accounting for income taxes to Statement of Financial Accounting Standards
("SFAS") No. 109 from Accounting Principles Board Opinion No. 11 (see Note 6 to
the Company's consolidated financial statements). The tax provision for 1993
includes an increase in income tax expense of approximately $21 million relating
to the federal income tax rate change from 34% to 35%.
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 Company recognized losses before extraordinary items and cumulative effect
of accounting changes of $75.3 million, $98.9 million and $217.9 million for the
years ended December 31, 1994, 1993 and 1992, respectively. These results of
operations include equity in net losses of affiliates of $40.9 million, $28.9
million and $104.3 million, respectively, for those years. The Company's 1992
equity in net loss includes $27.5 million as its portion of Storer's redemption
premium on preferred stock redeemed in connection with the Refinancing Plan.
The Company paid premiums and expensed unamortized debt acquisition costs
totalling $18.0 million during 1994, primarily as a result of the redemption of
its $150.0 million, 11-7/8% Senior subordinated debentures due 2004, resulting
in the Company recording an extraordinary loss, net of tax, of $11.7 million or
$.05 per share. The Company paid similar premiums of $27.1 million during 1993
in connection with the redemption of certain of its debt resulting in the
Company recording an extraordinary loss, net of tax, of $17.6 million or $.08
per share. On January 1, 1993, the Company recorded a one time non-cash charge
resulting from the adoption of SFAS No. 109, SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," totalling $742.7 million or
$3.47 per share, net of tax. In 1992, the Company recorded an extraordinary loss
of $52.3 million or $.26 per share as its portion of Storer's loss from its
early extinguishment of debt.
The Company believes that its operations are not materially affected by
inflation.
Cable Communications
The Company's cable division realized service income of $1.065 billion, $1.093
billion and $725.7 million for the years ended December 31, 1994, 1993 and 1992,
respectively, representing a decrease of $27.4 million or 3% from 1993 to 1994
and an increase of $367.1 million or 51% from 1992 to 1993. The cable division's
reduction in service income from 1993 to 1994 includes the estimated effects on
regulated rates as a result of cable rate regulation of $82.0 million in 1994
offset, in part, by the effects of subscriber growth and new product offerings
of $54.6 million. The increase in the cable division's service income from 1992
to 1993 includes $326.2 million resulting from the Split-off. The remaining
increase of $40.9 million is attributable to the net effects of increased rates
of $15.9 million and additional subscribers and new product offerings of $25.0
million.
Operating, selling, general and administrative expenses for the Company's cable
division were $547.8 million, $540.8 million and $369.4 million for the years
ended December 31, 1994, 1993 and 1992, respectively, representing increases of
$7.0 million or 1% from 1993 to 1994 and $171.4 million or 46% from 1992 to
1993. The Split-off accounted for $157.9 million or 92% of the increase from
1992 to 1993. The increase from 1993 to 1994 and the remaining increase from
1992 to 1993 is attributable to increases in the costs of labor, billing and
cable programming as a result of subscriber growth, partially offset by a
reduction of franchise fee expense. Franchise fees were reported
29
by the Company as a component of operating expenses prior to the implementation
of the Cable Television Consumer Protection and Competition Act of 1992 ("1992
Cable Act"). Effective September 1, 1993, the Company commenced charging
subscribers directly for such fees as permitted under the 1992 Cable Act and
recording amounts charged as an offset to operating expenses resulting in a
decrease in franchise fee expense of $15.9 million and $6.5 million from 1993 to
1994 and from 1992 to 1993, respectively. 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.
Cellular Communications
The Company's cellular division realized service income of $286.1 million,
$202.0 million and $142.9 million for the years ended December 31, 1994, 1993
and 1992, respectively, representing increases of $84.1 million or 42% from 1993
to 1994 and $59.1 million or 41% from 1992 to 1993. The increase from 1992 to
1993 includes $13.7 million due to increased service income from AWACS. The
increase from 1993 to 1994 and the remaining increase from 1992 to 1993 is
attributable to subscriber growth partially offset by the effects of a decrease
in the average minutes-of-use per cellular subscriber in both years. The Company
expects the decrease in average minutes-of-use per cellular subscriber to
continue in the future.
Operating, selling, general and administrative expenses for the Company's
cellular division were $169.8 million, $109.9 million and $80.8 million for the
years ended December 31, 1994, 1993 and 1992, respectively, representing
increases of $59.9 million or 55% from 1993 to 1994 and $29.1 million or 36%
from 1992 to 1993. These increases are primarily due to increases in marketing
and commissions as a result of subscriber growth.
Cable Rate Regulation Developments
On March 30, 1994, the FCC: (i) modified its existing benchmark methodology to
require, absent a successful cost-of-service showing, reductions of
approximately 17% in the rates for regulated cable services in effect on
September 30, 1992, adjusted for inflation, channel modifications, equipment
costs and increases in certain operating costs. The modified benchmarks and
regulations are generally designed to cause an additional 7% reduction in the
rates for regulated cable services on top of the rate reductions implemented by
the Company in September 1993 under the prior FCC benchmarks and regulations;
(ii) adopted interim regulations to govern cost-of-service showings by cable
operators, establishing an industry-wide 11.25% after tax rate of return and a
rebuttable presumption that acquisition costs above original historic book value
of tangible assets should be excluded from the rate base; and (iii)
reconsidered, among other matters, its regulations concerning rates for the
addition of regulated services and the treatment of packages of "a la carte"
channels.
In July 1994, the Company reduced rates for regulated services in the majority
of its cable systems to comply with the modified benchmarks and regulations. In
addition, the Company is currently seeking to justify existing rates in certain
other of its cable systems on the basis of cost-of-service showings; however,
the interim cost-of-service regulations promulgated by the FCC do not support
positions taken by the Company in its cost-of-service filings to date. The
Company's reported cable service income reflects the estimated effects of cable
regulation. The Company is seeking reconsideration by the FCC of the interim
cost-of-service regulations and, if unsuccessful in justifying existing rates
under cost-of-service regulations, intends to seek judicial relief. However, no
assurance can be given that the Company will be able to offset, to any
substantial degree, the adverse impact of rate reductions in compliance with the
modified benchmarks and regulations or that it will be successful in
cost-of-service proceedings. If the Company is not successful in such efforts,
and there is no legislative, administrative or judicial relief in these matters,
the FCC regulations will continue to adversely affect the Company's results of
operations.
On November 10, 1994, the FCC announced modified "Going Forward" rules which,
among other things, permit cable operators to charge an additional $0.20 per
month per channel for channels added to the cable programming services tier, up
to a maximum of six channels, and to recover an additional $0.30 in monthly fees
paid to programmers for such channels. The ruling applies to channels added
between May 15, 1994 and December 31, 1996 and became effective January 1, 1995.
The FCC concurrently announced regulations permitting cable operators to create
new product tiers which would generally not be subject to rate regulation. The
Company is currently reviewing the ruling and is unable to predict the effect on
its future results of operations.
30
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Comcast Corporation
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheet of Comcast
Corporation and its subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity (deficiency)
and of cash flows for each of the three years in the period ended December 31,
1994. Our audits also included the financial statement schedule listed in the
Index at Item 14(b)(i). These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits. We did not audit the consolidated
financial statements of Storer Communications, Inc. ("Storer") as of and for the
year ended December 31, 1992, the consolidated financial statements of Comcast
International Holdings, Inc. ("International") as of and for each of the two
years in the period ended December 31, 1994 and the financial statements of
Garden State Cablevision L.P. ("Garden State") as of December 31, 1994 and 1993
and for each of the three years in the period ended December 31, 1994.
International is consolidated with the Company. The Company's investments in
Storer and Garden State have been accounted for under the equity method, except
that subsequent to December 2, 1992, Storer was consolidated with the Company.
The Company's combined equity in the net assets of International and Garden
State of $111.1 million and $43.8 million at December 31, 1994 and 1993,
respectively, and the Company's combined equity in the net losses of Storer
(through December 31, 1992), International (for the years ended December 31,
1994 and 1993) and Garden State for the years ended December 31, 1994, 1993 and
1992, of $38.7 million, $32.8 million and $145.1 million, respectively, are
included in the Company's consolidated financial statements. The financial
statements of Storer, International and Garden State were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to the amounts included in the Company's consolidated financial
statements for Storer (through December 31, 1992), International (as of and for
each of the two years in the period ended December 31, 1994) and Garden State,
is based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Comcast Corporation and its subsidiaries as of December
31, 1994 and 1993, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles. Also, in our opinion, the financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in the notes to consolidated financial statements, the Company
changed its method of accounting for income taxes effective January 1, 1993 to
conform with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 21, 1995
31
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994 AND 1993
(Dollars in thousands)
1994 1993
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................ $335,320 $160,434
Short-term investments, at cost which
approximates fair value.......................................... 130,134 519,386
Accounts receivable, less allowance for doubtful
accounts of $11,272 and $11,792 ................................. 108,245 72,182
Prepaid charges and other............................................ 34,807 18,491
------ ------
Total Current Assets......................................... 608,506 770,493
------- -------
INVESTMENTS, principally in affiliates................................... 797,075 665,208
------- -------
PROPERTY AND EQUIPMENT................................................... 2,081,256 1,722,578
Accumulated depreciation............................................. (823,570) (701,591)
-------- --------
Property and equipment, Net.......................................... 1,257,686 1,020,987
--------- ---------
DEFERRED CHARGES
Franchise and license acquisition costs.............................. 3,569,745 2,314,736
Excess of cost over net assets acquired and other.................... 1,375,868 879,882
--------- -------
4,945,613 3,194,618
Accumulated amortization............................................. (845,896) (703,030)
-------- --------
Deferred charges, Net................................................ 4,099,717 2,491,588
--------- ---------
$6,762,984 $4,948,276
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses................................ $402,869 $255,759
Accrued interest..................................................... 60,219 61,808
Subscribers' advance payments and other.............................. 14,637 12,484
Current portion of long-term debt.................................... 182,913 263,873
------- -------
Total Current Liabilities.................................... 660,638 593,924
------- -------
LONG-TERM DEBT, Less current portion..................................... 4,810,541 4,154,830
--------- ---------
DEFERRED INCOME TAXES.................................................... 1,390,849 929,916
--------- -------
MINORITY INTEREST AND OTHER.............................................. 627,745 140,137
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Preferred Stock, no par value - authorized, 20,000,000
shares; issued, none.............................................
Class A Special Common Stock, $1 par value - authorized,
500,000,000 shares; issued, 191,230,684 and 173,952,952.......... 191,231 173,953
Class A Common Stock, $1 par value - authorized,
200,000,000 shares; issued, 39,019,809 and 38,946,754............ 39,020 38,947
Class B Common Stock, $1 par value - authorized,
50,000,000 shares; issued, 8,786,250 ............................ 8,786 8,786
Additional capital................................................... 875,501 647,242
Accumulated deficit..................................................(1,827,647) (1,717,931)
Unrealized gains on marketable securities............................ 3,862
Cumulative translation adjustments................................... (17,542) (21,528)
------- -------
Total Stockholders' Deficiency............................... (726,789) (870,531)
-------- --------
$6,762,984 $4,948,276
========== ==========
See notes to consolidated financial statements.
32
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Amounts in thousands, except per share data)
1994 1993 1992
SERVICE INCOME................................................ $1,375,304 $1,338,228 $900,345
---------- ---------- --------
COSTS AND EXPENSES
Operating................................................. 409,841 407,846 275,510
Selling, general and administrative....................... 389,207 323,986 227,682
Depreciation and amortization............................. 336,462 341,500 232,047
------- ------- -------
1,135,510 1,073,332 735,239
--------- --------- -------
OPERATING INCOME.............................................. 239,794 264,896 165,106
INVESTMENT (INCOME) EXPENSE
Interest expense.......................................... 313,477 347,448 231,318
Investment income......................................... (24,606) (29,249) (49,309)
Interest expense and preferred stock dividend
requirement of a subsidiary to an affiliate........... 80,970
Equity in net losses of affiliates........................ 40,884 28,872 104,306
Other..................................................... (5,402) 1,467 1,756
------ ----- -----
324,353 348,538 369,041
------- ------- -------
LOSS BEFORE INCOME TAXES (BENEFIT), EXTRAORDINARY
ITEMS AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGES................................................... (84,559) (83,642) (203,935)
INCOME TAXES (BENEFIT)........................................ (9,234) 15,229 14,000
------ ------ ------
LOSS BEFORE EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES................... (75,325) (98,871) (217,935)
EXTRAORDINARY ITEMS .......................................... (11,703) (17,620) (52,297)
CUMULATIVE EFFECT OF ACCOUNTING CHANGES....................... (742,734)
------ -------- -------
NET LOSS ($87,028) ($859,225) ($270,232)
======== ========= =========
LOSS PER SHARE
Loss before extraordinary items and cumulative effect
of accounting changes................................. ($.32) ($.46) ($1.08)
Extraordinary items....................................... (.05) (.08) (.26)
Cumulative effect of accounting changes................... (3.47)
------ ------ ------
Net Loss ............................................. ($.37) ($4.01) ($1.34)
===== ====== ======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING .............................................. 236,262 213,939 201,815
======= ======= =======
See notes to consolidated financial statements.
33
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in thousands)
1994 1993 1992
OPERATING ACTIVITIES
Net loss.................................................. ($87,028) ($859,225) ($270,232)
Noncash items included in net loss:
Depreciation and amortization......................... 336,462 341,500 232,047
Interest expense...................................... 53,490 62,316 53,628
Preferred stock dividend requirement of a
subsidiary to an affiliate........................ 44,393
Equity in net losses of affiliates.................... 40,884 28,872 104,306
Gain on sale of division.............................. (5,825)
Extraordinary items................................... 11,703 17,620 52,297
Cumulative effect of accounting changes............... 742,734
Deferred income taxes and other....................... 4,271 456 2,400
----- --- -----
353,957 334,273 218,839
Increase in accounts receivable and
prepaid charges and other............................. (40,877) (16,062) (4,514)
(Decrease) increase in accrued interest.................... (1,589) 6,548 16,100
Increase in accounts payable and accrued expenses
and subscribers' advance payments and other........... 57,503 21,133 21,872
------ ------ ------
Net cash provided by operating activities......... 368,994 345,892 252,297
------- ------- -------
FINANCING ACTIVITIES
Proceeds from borrowings.................................. 1,201,084 953,952 2,586,360
Debt issued and assumed directly in connection
with acquisitions..................................... (574,690)
Retirement and repayment of debt.......................... (508,986) (493,047) (386,056)
Issuance of common stock, net............................. 2,893 6,652 107,399
Issuance of common stock of a subsidiary, net............. 209,394
Equity contribution to a subsidiary....................... 250,000
Dividends................................................. (22,688) (20,739) (19,164)
Other..................................................... (16,492) (9,620) 16,021
------- ------ ------
Net cash provided by financing activities......... 1,115,205 437,198 1,729,870
--------- ------- ---------
INVESTING ACTIVITIES
Acquisitions.............................................. 1,292,589 9,315 2,544,953
Noncash portions of acquisitions.......................... (574,690)
(Sales) purchases of short-term investments, net.......... (389,252) 384,948 (335,641)
Increase in investments, principally in affiliates........ 125,034 272,529 150,334
Additions to property and equipment....................... 269,943 158,396 109,435
Proceeds from sale of division............................ (28,183)
Other..................................................... 39,182 10,902
------ ------ ---------
Net cash used in investing activities............. 1,309,313 836,090 1,894,391
--------- ------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.......................................... 174,886 (53,000) 87,776
Cash and Cash Equivalents, Beginning of Year.............. 160,434 213,434 125,658
------- ------- -------
CASH AND CASH EQUIVALENTS, End of Year........................ $335,320 $160,434 $213,434
======== ======== ========
See notes to consolidated financial statements.
34
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in thousands)
Cumulative
Unrealized Trans-
Common Stock Add- Accum- Gains on lation
Class A itional ulated Marketable Adjust-
Special Class A Class B Capital Deficit Securities ments Total
BALANCE, JANUARY 1, 1992 $81,153 $39,409 $8,213 $439,741 ($548,571) $ ($465) $19,480
Net loss (270,232) (270,232)
Issuance of Common Stock 6,075 95,679 101,754
Exercise of options 657 192 573 15,082 16,504
Retirement of Common Stock (39) (627) (10,193) (10,859)
Cash dividends, $.0933 per share (19,164) (19,164)
Cumulative translation
adjustments (19,124) (19,124)
-------- ------- ------ -------- ----------- ------ -------- ---------
BALANCE, DECEMBER 31, 1992 87,846 38,974 8,786 540,309 (837,967) (19,589) (181,641)
Net loss (859,225) (859,225)
Issuance of Common Stock 145 1,756 1,901
Conversion of convertible subordinated
debt to Common Stock 11,537 174,824 186,361
Exercise of options 624 131 10,878 11,633
Retirement of Common Stock (94) (158) (6,630) (6,882)
Cash dividends, $.0933 per share (20,739) (20,739)
Stock dividend, 50%, effective
February 2, 1994 73,895 (73,895)
Cumulative translation
adjustments (1,939) (1,939)
-------- ------- ------ -------- ----------- ------ -------- ---------
BALANCE, DECEMBER 31, 1993 173,953 38,947 8,786 647,242 (1,717,931) (21,528) (870,531)
Net loss (87,028) (87,028)
Issuance of Common Stock 265 2,205 2,470
Conversion of convertible
subordinated
debt to Common Stock 16,765 166,690 183,455
Exercise of options 527 81 6,000 6,608
Retirement of Common Stock (279) (8) (5,898) (6,185)
Cash dividends, $.0933 per share (22,688) (22,688)
Unrecognized gain on issuance of
common stock of a subsidiary 59,262 59,262
Unrealized gains on marketable
securities 3,862 3,862
Cumulative translation
adjustments 3,986 3,986
-------- ------- ------ -------- ----------- ------ -------- ---------
BALANCE, DECEMBER 31, 1994 $191,231 $39,020 $8,786 $875,501 ($1,827,647) $3,862 ($17,542) ($726,789)
======== ======= ====== ======== =========== ====== ======== =========
See notes to consolidated financial statements.
35
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of Comcast
Corporation and all wholly owned, majority-owned and controlled
subsidiaries (the "Company"). The Company is engaged in the development,
management and operation of cable and cellular telephone communications
systems and the production and distribution of cable programming. All
significant intercompany accounts and transactions among the consolidated
entities have been eliminated.
Cash Equivalents and Short-term Investments
Cash equivalents consist principally of U.S. Government obligations,
commercial paper, repurchase agreements and certificates of deposit with a
maturity of three months or less when purchased. Short-term investments
consist principally of U.S. Government obligations, commercial paper,
repurchase agreements and certificates of deposit with a maturity greater
than three months when purchased. The carrying amounts of the Company's
cash equivalents and short-term investments, classified as trading
securities, approximates their fair values, which are based on quoted
market prices, at December 31, 1994 and 1993.
Investments, Principally in Affiliates
Investments are accounted for on the equity method based on the Company's
ability to exercise significant influence over the operating and financial
policies of the investee. Equity method investments are recorded at
original cost and adjusted periodically to recognize the Company's
proportionate share of the investees' income or losses after the date of
investment, and additional contributions made and dividends received.
Unrestricted publicly traded investments, classified as available for sale,
are recorded at their fair value as of December 31, 1994 and at cost as of
December 31, 1993. Restricted publicly traded investments and investments
in privately held companies are stated at cost adjusted for any known
diminution in value.
Investment Income
Investment income includes interest income and gains, net of losses, on the
sales of marketable securities. Gross realized gains and losses are
recognized using the specific identification method and are not significant
to the Company's results of operations.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided by the
straight-line method over estimated useful lives as follows:
Buildings 15-40 years
Operating facilities 5-20 years
Other equipment 2-10 years
Deferred Charges
Franchise and license acquisition costs are being amortized on a
straight-line basis over their legal or estimated useful lives up to 40
years. The costs of acquired businesses in excess of amounts allocated to
specific assets, based on their fair market values, are being amortized
over their estimated useful lives of up to 40 years. The Company
periodically evaluates the recoverability of its deferred charges using
objective methodologies. Such methodologies may include evaluations based
on the cash flows generated by the underlying assets or other determinants
of fair value.
Loss per Share
For the years ended December 31, 1994, 1993 and 1992, the Company's common
stock equivalents have an antidilutive effect on the loss per share and
therefore, have not been used in determining the total weighted average
number of common shares outstanding. Fully diluted loss per share for 1994,
1993 and 1992 is antidilutive and, therefore, has not been presented.
36
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
Stock Split
On December 21, 1993, the Company's board of directors authorized a
three-for-two stock split in the form of a 50% stock dividend payable on
February 2, 1994 to shareholders of record on January 12, 1994. The
dividend was paid in Class A Special Common Stock to the holders of Class A
Common, Class A Special Common and Class B Common Stock. Average number of
shares outstanding and related prices, per share amounts, share conversion
and stock option data have been retroactively restated to reflect the stock
split. In addition, the December 31, 1993 Stockholders' Deficiency section
of the Balance Sheet has been adjusted to reflect the stock split.
Fair Values
The estimated fair value amounts presented in these notes to consolidated
financial statements have been determined by the Company using available
market information and appropriate methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates
of fair value. The estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts. Such fair value estimates are based on pertinent information
available to management as of December 31, 1994 and 1993, and have not been
comprehensively revalued for purposes of these consolidated financial
statements since such dates. Current estimates of fair value may differ
significantly from the amounts presented herein.
New Accounting Pronouncements
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" (see Note 6), SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" (see Note 7) and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits" (see Note 8).
Effective January 1, 1994, the Company adopted the provisions of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
(see Note 3).
Reclassifications
Certain reclassifications have been made to the prior years consolidated
financial statements to conform to those classifications used in 1994.
2. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
QVC
In February 1995, the Company and Tele-Communications, Inc. ("TCI")
acquired all of the outstanding stock of QVC, Inc. ("QVC") for $46, in
cash, per share. The total cost of acquiring the outstanding shares of QVC
not previously owned by the Company and TCI (approximately 65% of such
shares on a fully diluted basis) was approximately $1.4 billion. Following
the acquisition, the Company and TCI own, through their respective
subsidiaries, 57.45% and 42.55%, respectively, of QVC. The Company will
account for the QVC acquisition under the purchase method of accounting and
QVC will be consolidated with the Company beginning in February 1995.
The acquisition of QVC, 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.
QVC is a nationwide general merchandise retailer, operating as one of the
leading televised shopping retailers in the United States. Through its
merchandise-focused television programs (the "QVC Service"), QVC sells a
wide variety of products directly to consumers. The QVC Service currently
reaches approximately 50 million cable television subscribers in the United
States.
37
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
The day to day operations of QVC will, except in certain limited
circumstances, be managed by the Company. With certain exceptions, direct
or indirect transfers to unaffiliated third parties by the Company or TCI
of any stock in QVC are subject to certain restrictions and rights in favor
of the other.
Liberty Media Corporation ("Liberty"), a wholly-owned subsidiary of TCI,
may, at certain times following February 9, 2000, trigger the exercise of
certain exit rights. If the exit rights are triggered, the Company has
first right to purchase Liberty's stock in QVC at Liberty's pro rata
portion of the fair market value (on a going concern or liquidation basis,
whichever is higher, as determined by an appraisal process) of QVC. The
Company may pay Liberty for such stock, subject to certain rights of
Liberty to consummate the purchase in the most tax-efficient method
available, in cash, the Company's promissory note maturing not more than
three years after issuance, the Company's equity securities or any
combination thereof. If the Company elects not to purchase the stock of QVC
held by Liberty, then Liberty will have a similar right to purchase the
stock of QVC held by the Company. If Liberty elects not to purchase the
stock of QVC held by the Company, then Liberty and the Company will use
their best efforts to sell QVC.
Maclean Hunter
On December 22, 1994, the Company, through Comcast MHCP Holdings, L.L.C.
(the "LLC"), acquired the U.S. cable television and alternate access
operations of Maclean Hunter Limited ("Maclean Hunter") from Rogers
Communications Inc. ("RCI") and all of the outstanding shares of Barden
Communications, Inc. ("BCI," and collectively, such acquisitions are
referred to as the "Maclean Hunter Acquisition") for approximately $1.2
billion (subject to certain adjustments) in cash. The Company and the
California Public Employees' Retirement System ("CalPERS") invested
approximately $305.0 million and $250.0 million, respectively, in the LLC,
which is owned 55% by a wholly-owned subsidiary of the Company and 45% by
CalPERS, and is managed by the Company. The Maclean Hunter Acquisition,
including certain transaction costs, was financed with cash contributions
from the LLC of $555.0 million and borrowings of $715.0 million under an
$850.0 million Maclean Hunter credit facility. At any time after December
18, 2001, CalPERS may elect to liquidate its interest in the LLC at a price
based upon the fair value of CalPERS' interest in the LLC, adjusted, under
certain circumstances, for certain performance criteria relating to the
fair value of the LLC or to the Company's common stock. Except in certain
limited circumstances, the Company, at its option, may satisfy this
liquidity arrangement by purchasing CalPERS' interest for cash, through the
issuance of the Company's common stock (subject to certain limitations) or
by selling the LLC. The Maclean Hunter Acquisition was accounted for under
the purchase method of accounting and Maclean Hunter is consolidated with
the Company as of December 31, 1994.
The allocation of the purchase price to the assets and liabilities of
Maclean Hunter is preliminary pending, among other things, the final
purchase price adjustment between the Company and RCI. The terms of the
Maclean Hunter Acquisition provide for, among other things, the
indemnification of the Company by RCI for certain liabilities, including
tax liabilities, relating to Maclean Hunter prior to the acquisition date.
Telecommunications Joint Venture
On October 25, 1994, the Company announced a joint venture ("WirelessCo")
with Sprint Corporation ("Sprint"), TCI and Cox Cable Communications, Inc.
("Cox") to provide wireless communications services. WirelessCo is owned
40% by Sprint, 30% by TCI and 15% each by the Company and Cox. WirelessCo
is participating in the first of several Federal Communications Commission
("FCC") auctions of blocks of spectrum for licenses to provide Personal
Communications Services ("PCS"), having filed an application to participate
in 39 of 51 Major Trading Area ("MTA") markets nationwide. As of February
21, 1995, WirelessCo's aggregate bids for 38 licenses covering a total
population of 168 million were $1.975 billion. There can be no assurances
that WirelessCo will be successful in bidding for or otherwise obtaining
PCS licenses for these or other MTAs. The Company has obtained letter of
credit commitments sufficient to cover its 15% share of the cost of PCS
licenses for which WirelessCo is the successful bidder. The Company may
have material additional capital requirements
38
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
relating to the buildout of PCS systems if WirelessCo is successful in the
PCS bidding process. WirelessCo is accounted for under the equity method of
accounting.
The parties have also signed a joint venture formation agreement which
provides the basis upon which they will develop definitive agreements for
their local wireline telecommunications activities. The parties anticipate
that the wireline joint venture will be owned in the same percentages as
WirelessCo. The parties' ability to provide such local services on a
nationwide basis, and the timing thereof, will depend upon, among other
things, the removal or modification of legal barriers to local telephone
competition. The parties anticipate that Teleport Communications Group
("TCG"), which is owned 20% by the Company and by other cable television
operators, including TCI and Cox, will be contributed to the local
telephone venture. TCG is an alternative provider of local telephone
services. The contribution of TCG to the venture is expected to be subject
to certain conditions, including obtaining necessary governmental and other
approvals.
Storer
Prior to December 2, 1992, the Company held a 50% ownership interest in SCI
Holdings, Inc. ("SCI"), the parent company of Storer Communications, Inc.
("Storer"). On December 2, 1992, the Company completed certain transactions
pursuant to which (i) the value of SCI was divided proportionately between
its two 50% shareholders (the "Split-off") and (ii) SCI refinanced its
indebtedness (the "Refinancing Plan"). In connection with the Split-off,
SCI was merged into Storer and the Company became the sole shareholder of
Storer.
To effect the Split-off and Refinancing Plan, the Company and SCI's other
50% shareholder each made capital contributions to SCI of $1.1 billion. In
addition, the Company redeemed $275 million of its long-term debt held by
Storer (the "Finance Sub Securities") and assumed $119 million of Storer's
outstanding debt. Effective December 2, 1992, the remaining Finance Sub
Securities became intercompany securities and have been eliminated in
consolidation. The other 50% shareholder redeemed all of its outstanding
Finance Sub Debt Securities. Storer used these proceeds to pay off its
outstanding bank debt, 15% twelve year Senior subordinated debentures, and
a majority of its Serial Zero Coupon Senior Notes. In connection with these
redemptions, the Company recognized as an extraordinary item its 50% share
of the premiums paid (net of tax) of $52.3 million.
In addition, on December 2, 1992, holders of the Storer preferred stock
were given the required thirty days notice of intent to redeem. The cash
required to fund the redemption was part of the capital contributions
discussed above. On January 4, 1993, $746.9 million was paid to redeem the
preferred stock, which included a redemption premium and accrued dividends.
The redemption of the preferred stock was presented as if it had been
consummated on December 31, 1992. Management believes such presentation
more accurately reflected the Company's financial position and capital
structure at December 31, 1992. The Company's equity in Storer's net loss
before extraordinary item for 1992 includes $27.5 million for its portion
of Storer's redemption premium on its preferred stock.
In connection with the Split-off, the Company and the former 50%
shareholder of Storer entered into various agreements providing for, among
other things, the sharing and cross indemnification of certain liabilities,
including tax liabilities and benefits relating to the pre-Split-off
period.
AWACS
On March 5, 1992, the Company acquired from Metromedia Company
("Metromedia") a 50.01% direct and a 49.99% indirect interest in AWACS,
Inc. ("AWACS"), the non-wireline cellular telephone system serving the
Philadelphia Metropolitan Statistical Area, which includes eight counties
in Pennsylvania and New Jersey containing a population of approximately 4.9
million people at that date (the "AWACS Acquisition"). The Company also
acquired the minority interests in two New Jersey cellular telephone
systems serving a total population of approximately 1.3 million people at
that date, the balance of which systems were owned by the Company. The
Company acquired these interests in exchange for (i) zero coupon notes
issued by a subsidiary of the Company, which are due March 5, 2000, and
have an aggregate face amount payable at maturity of
39
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
approximately $1 billion, accreting from $425 million at 11% per annum (if
at maturity or an earlier redemption date 35%, subject to reduction in
certain circumstances, of the private market value, as determined by
applicable procedures, of the Company's cellular subsidiaries is greater
than the accreted value plus certain premiums, then such greater amount
will constitute the redemption price), (ii) approximately $567 million in
cash and (iii) participating preferred stock issued by a subsidiary of the
Company (described below).
The 49.99% indirect interest was obtained through the purchase of the Class
A Redeemable Preferred Stock ("LCH Preferred Stock") of LCH Communications,
Inc. ("LCH"), an indirect subsidiary of LIN Broadcasting Corporation. The
49.99% of the AWACS Common Stock was owned by LIN Cellular Communications
Corporation ("LIN-Penn"), a wholly-owned subsidiary of LCH. LCH, through
LIN-Penn, indirectly owned the remaining 49.99% of the common stock of
AWACS. LCH was required to redeem the LCH Preferred Stock (which redemption
was not expected to occur before 1996) for either, at its option, (a) an
amount in cash (the "Cash Redemption Price") equal to the sum of (i) all
accrued and unpaid dividends and (ii) the greater of (A) $850 million and
(B) the fair market value of the capital stock of LIN-Penn and 15% of the
value of LCH's operating business (the "Operating Business Portion"), or
(b) the capital stock of LIN-Penn and an amount in cash equal to the
Operating Business Portion.
On June 24, 1994, in connection with the settlement of certain disputes
between LCH and the Company, LCH redeemed the LCH Preferred Stock through
the transfer to the Company of 100% of the capital stock of LIN-Penn. As a
result of such redemption, the Company owns 100% of the common stock of
AWACS. Since the Company has historically accounted for the purchase of
AWACS as if it acquired a 100% direct interest, the redemption of the LCH
Preferred Stock has no effect on the Company's accounting for AWACS.
In addition to the interest in AWACS, the redemption of the LCH Preferred
Stock entitles the Company to an interest in certain publishing and
broadcasting operations. A subsidiary of the Company has issued to
Metromedia participating preferred stock which has economic attributes
based on the performance and ultimate value of the publishing and
broadcasting operations. Accordingly, these operations are excluded from
the Company's consolidated financial statements.
Pro forma Results
The Company would have reported unaudited revenues of $1.634 billion and
$1.597 billion, unaudited loss before extraordinary items and cumulative
effect of accounting changes of $123.3 million and $143.6 million,
unaudited net loss of $135.0 million and $898.9 million and unaudited net
loss per share of $.57 and $4.20 for the years ended December 31, 1994 and
1993, respectively, had the Maclean Hunter Acquisition occurred at the
beginning of each period. This unaudited pro forma information is based on
historical results of operations adjusted for acquisition costs, and in the
opinion of management, is not necessarily indicative of what the results
would have been had the Company operated the acquired entities since the
beginning of 1993.
3. INVESTMENTS
Investments consist of the following components:
December 31,
1994 1993
(Dollars in thousands)
Investments - Equity method............................... $389,851 $111,050
Investments - Public companies............................ 216,002 275,684
Investments - Privately held companies.................... 191,222 278,474
------- -------
$797,075 $665,208
======== ========
40
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
Investments - Equity Method
Summarized financial information for equity method investments, excluding
the operations of Storer as described below, for 1994, 1993 and 1992 is as
follows (Dollars in thousands):
Twelve Months Year Ended
Ended December 31, Year Ended Year Ended
October 31,1994 1994 December 31, December 31,
QVC Other Combined 1993 1992
Combined Results of Operations
Revenues, net.........................$1,336,674 $362,132 $1,698,806 $165,688 $129,274
Depreciation and amortization......... 44,862 109,512 154,374 70,501 62,957
Operating income (loss)............... 153,568 (133,534) 20,034 (38,519) (29,443)
Net income (loss) as reported
by affiliates.................. $41,103 ($178,070) ($136,967) ($66,587) ($54,216)
Company's Equity in Net Income (Loss)
Equity in current period net income
(loss)........................... $6,286 ($46,540) ($40,254) ($28,872) ($26,288)
Amortization income (expense)......... 4,901 (5,531) (630)
------- -------- -------- -------- --------
Total equity in net income (loss)..... $11,187 ($52,071) ($40,884) ($28,872) ($26,288)
======= ======== ======== ======== ========
October 31, 1994 December 31, 1994 December 31,
QVC Other Combined 1993
Combined Financial Position
Current assets........................... $537,328 $214,586 $751,914 $58,255
Noncurrent assets........................ 472,029 1,587,256 2,059,285 628,116
Current liabilities...................... 398,245 239,964 638,209 72,917
Noncurrent liabilities................... 6,599 968,216 974,815 368,096
As of December 31, 1994 and 1993, equity method investments include the
Company's interest in Garden State Cablevision L.P. ("Garden State") and
interests in its United Kingdom ("UK") cable television and
telecommunications businesses. In addition, effective January 1, 1994, the
Company commenced accounting for QVC (see Note 2-QVC), TCG (see Note
2-Telecommunications Joint Venture) and certain other investments under the
equity method of accounting due to changes in the nature of the
relationships between the Company and the investees which allow the Company
to exercise significant influence over their operating and financial
policies. The Company's prior year financial statements have not been
restated due to the insignificance of the Company's proportionate ownership
interests in the net income or loss of the investees for those periods. 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. In addition, QVC's fiscal year end is January 31 and
therefore, the Company records its equity in QVC's net income or loss two
months in arrears.
The original cost of investments accounted for under the equity method of
accounting totalled approximately $565.4 million and $253.4 million at
December 31, 1994 and 1993, respectively.
As of December 31, 1994 and 1993, the Company held 6.2 million shares and
5.9 million shares, respectively, of QVC Class A Common Stock representing
a 15.1% and 14.8% interest in QVC's then outstanding common stock. In
addition, the Company held 72,050 shares of QVC Class C Preferred Stock as
of December 31, 1994 and 1993. The historical cost of the Class A Common
Stock and Class C Preferred Stock held by the Company as of December 31,
1994 and 1993 was $69.6 million and $66.5 million, respectively, with an
estimated fair value of $291.8 million and $259.8 million, respectively. In
addition, as of December 31, 1994 and 1993, the Company held
41
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
warrants to purchase 1.7 million and 2.0 million shares of QVC Class A
Common Stock, respectively, at prices ranging from $9.64 to $17.49 with
estimated fair values of $44.0 million and $49.6 million at such dates.
On December 11, 1992, the Company contributed its interests in certain UK
cable television and telecommunications businesses to a majority owned
subsidiary ("Comcast UK Cable"). Comcast UK Cable holds, among other
things, the Company's investments in UK affiliates: Birmingham Cable
Corporation Limited, Cable London PLC, Cambridge Holding Company Limited
and Cable Programme Partners-1 Limited Partnership. On that date, Comcast
UK Cable's other shareholder, UK Cable Partners Limited ("UKCPL"), which is
owned by Warburg, Pincus Investors L.P. and Bankers Trust Investments PLC,
committed to invest an aggregate of up to UK (pound)70.0 million in Comcast
UK Cable, of which approximately UK (pound)57.2 million was invested
through September 27, 1994. The Company made equal investments, including
the cost of its investments previously contributed to Comcast UK Cable. On
September 27, 1994, Comcast UK Cable consummated an initial public offering
(the "IPO") of 15.0 million of its Class A Common Shares for net proceeds
of $209.4 million. Contemporaneously with the IPO, the Company and UKCPL
restructured their interests in Comcast UK Cable and terminated UKCPL's
right to exchange its equity interests in Comcast UK Cable for convertible
debt of the Company (the "Exchange Option"). As a result of the IPO and the
restructuring, the Company beneficially owns approximately 31.2% of the
total outstanding Comcast UK Cable common shares. Because the Class A
Common Shares are entitled to one vote per share and the Class B Common
Shares are entitled to ten votes per share, the Company, through its
ownership of the Class B Common Shares, controls approximately 81.9% of the
total voting power of all outstanding Comcast UK Cable common shares and
continues to consolidate Comcast UK Cable. As a result of the termination
of the Exchange Option and consummation of the IPO, the Company recorded an
aggregate minority interest liability in Comcast UK Cable of $261.4
million. The Company has recorded the increase in its proportionate share
of Comcast UK Cable's net assets as an increase in additional capital of
$59.3 million.
The Company holds a 20% interest in TCG with an original cost of $66.2
million and $66.1 million at December 31, 1994 and 1993, respectively. The
Company also had loans to TCG totaling $39.5 million and $11.7 million at
December 31, 1994 and 1993, respectively. TCG operates fiber optic networks
serving communities across the United States providing point-to-point
digital communication links to telecommunication-intensive businesses and
long-distance carriers. The Company accounted for its investment in TCG
under the cost method of accounting prior to 1994.
Through December 2, 1992, the Company recorded its 50% investment in Storer
under the equity method of accounting. Subsequent to December 2, 1992, the
Company consolidates the financial position and results of operations of
Storer.
The results of operations of Storer for 1992 (through December 2, 1992) are
as follows (Dollars in thousands):
Service income........................................ $595,668
Depreciation and amortization......................... 182,325
Operating income...................................... 106,178
Net loss as reported by Storer........................ ($324,341)
Interest and dividends not recognized
as income by Storer, net of taxes................. 63,711
------
($260,630)
=========
Equity in net loss.................................... ($78,018)
Equity in net loss from early extinguishment
of debt by Storer................................. (52,297)
-------
($130,315)
=========
42
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
The net loss of $324.3 million for 1992 (through December 2, 1992)
separately reported by Storer differs from the net loss of $260.6 million
for 1992 utilized by the Company to record its equity in the net loss of
Storer. This difference is due to Storer not recognizing interest and
dividend income from securities issued by the Company and the other 50%
investor to Storer due to the related party nature of the securities.
However, the Company has recorded the interest and dividend requirements as
an expense in its consolidated statement of operations. Therefore, this
method of reporting presents the Company's equity in the net loss of Storer
as if it were consolidated with the Company.
Through December 2, 1992, the Company, pursuant to a consulting agreement,
had oversight responsibility for Storer systems serving approximately
one-half of the Storer subscribers. For its consulting services, the
Company received a fee of 3-1/2% of revenues of the systems it managed. For
the year ended December 31, 1992, the fee under the consulting agreement
was $10.8 million.
Investments - Public Companies
As of December 31, 1994 and 1993, the Company held 11.3 million shares of
common stock of Nextel Communications, Inc. ("Nextel") representing a 10.7%
and 12.9% interest in Nextel's then outstanding common stock. Nextel is a
Specialized Mobile Radio ("SMR") licensee developing an enhanced service
capability ("ESMR"). Assuming satisfactory technical performance of
Nextel's systems in Los Angeles and San Francisco and satisfaction of
certain other conditions, an additional $35 million investment will be made
on June 30, 1995 at a per share price of 90% of the then market price for
Nextel common stock. Effective September 30, 1994, certain restrictions
under prior agreements with Nextel relating to the Company's ability to
sell or otherwise transfer its investment in Nextel were removed. As a
result of the removal of such restrictions, the Company has recorded its
investment in Nextel common stock, with an historical cost of $175.9
million at December 31, 1994, at its estimated fair value, resulting in an
unrealized pre-tax loss of $14.0 million as of December 31, 1994. As of
December 31, 1993, the Company's investment in Nextel common stock had an
estimated fair value of $419.7 million and was reported at its historical
cost of $174.2 million. As of December 31, 1994 and 1993, the Company owns
options to acquire approximately 25.2 million shares of Nextel common
stock, principally at $16 per share, with an estimated fair value of $149.2
million and $660.0 million, respectively, which are recorded at their
historical cost of $23.5 million. Investments in options have been valued
using the Black-Scholes Option Pricing method.
The Company holds unrestricted equity investments in certain other publicly
traded companies with an historical cost of $10.7 million at December 31,
1994 and 1993. As of December 31, 1994, the Company has recorded these
investments at their estimated fair value of $30.6 million, resulting in an
unrealized pre-tax gain of $19.9 million. As of December 31, 1993, such
investments, with an estimated fair value of $50.1 million at that date,
were reported at their historical cost.
Investments - Privately Held Companies
On January 26, 1995, the Company exchanged its interest in Heritage
Communications, Inc. ("Heritage") with TCI for Class A common shares of TCI
with a fair market value of approximately $290.0 million. Shortly
thereafter, the Company sold certain of these shares for total proceeds of
approximately $188.0 million. As a result of these transactions, the
Company will recognize a pre-tax gain of $141.0 million in the first
quarter of 1995.
It is not practicable to estimate the fair value of the Company's other
investments in privately held companies with a recorded cost, excluding
Heritage, of $50.3 million and $141.5 million at December 31, 1994 and
1993, respectively, due to a lack of quoted market prices and excessive
costs involved in determining such fair value.
43
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
4. LONG-TERM DEBT
December 31,
1994 1993
(Dollars in thousands)
Notes payable to banks and insurance companies, due
in installments through 2003....................................... $3,280,035 $2,387,169
Senior participating redeemable zero coupon notes, due 2000............ 361,538 361,984
10% Subordinated debentures, due 2003.................................. 122,858 121,309
10-1/4% Senior subordinated debentures, due 2001....................... 125,000 125,000
11-7/8% Senior subordinated debentures................................. 150,000
9-1/2% Senior subordinated debentures, due 2008........................ 200,000 200,000
10-5/8% Senior subordinated debentures, due 2012....................... 300,000 300,000
Convertible subordinated debt:
Zero coupon convertible subordinated notes, due 1995............... 4,345 37,931
3-3/8% / 5-1/2% Step-up convertible subordinated
debentures, due 2005........................................... 250,000 250,000
1-1/8% Discount convertible subordinated debentures, due 2007...... 314,546 302,474
7% Convertible subordinated debentures............................. 151,882
Other debt, due in installments principally through 1997............... 35,132 30,954
------ ------
4,993,454 4,418,703
Less current portion................................................... 182,913 263,873
------- -------
$4,810,541 $4,154,830
========== ==========
The maturities of long-term debt outstanding as of December 31, 1994 for
the four years after 1995 are as follows:
(Dollars in thousands)
1996............................. $309,530
1997............................. 388,074
1998............................. 802,428
1999............................. 518,848
The holders of the Senior participating redeemable zero coupon notes due
2000 have the right, upon request of the holders of the majority of the
notes, to require the Company to redeem such notes at any time on or after
March 5, 1998. The accreted value of such notes, without giving effect to
the alternative formula based on the private market value of the cellular
business (see Note 2 - AWACS), of $361.5 million has been presented above
as a 1998 maturity. Approximately $169.3 million accreted value of Series A
notes is payable, at the Company's option, either in cash or the Company's
Class A Special Common Stock.
The following is a summary of the Company's convertible subordinated debt:
(1) The Zero coupon convertible subordinated notes due 1995 are
convertible, at the option of the holder, into Class A Special Common
Stock of the Company at a conversion price of $11.02 per share, based
on the face value of the debentures converted. The notes were issued at
a 39% discount, resulting in an effective annual yield to maturity of
7.2%. During 1994 and 1993, $34.1 million and $48.6 million,
respectively, of notes were converted into approximately 3.3 million
and 4.8 million shares of Class A Special Common Stock of the Company.
In January 1995, the remaining principal amount of the notes were
converted by the holders into 396,000 shares of Class A Special Common
Stock of the Company.
44
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
(2) The 3-3/8% / 5-1/2% Step-up convertible subordinated debentures due
2005 are convertible into Class A Special Common Stock of the Company
at a conversion price of $24.50 per share. Interest on the debentures
accrues at a rate per annum of 3-3/8% from and including the date of
issuance to and including September 8, 1997, from and after such time
the Company will have the right to redeem the debentures for cash.
Interest will accrue at a rate per annum of 5-1/2% from and including
September 9, 1997 to maturity, or earlier redemption.
(3) The 1-1/8% Discount convertible subordinated debentures due 2007 are
convertible into Class A Special Common Stock of the Company at a
conversion rate equal to 19.3125 shares per $1,000 principal amount at
maturity. The conversion price will not be adjusted for accrued
interest or original issue discount. The debentures were issued at
55.363% of their principal amount of $541.9 million at maturity
resulting in a 6% effective annual yield to maturity. At any time on or
after October 15, 1997, the Company may redeem such debentures for
cash.
(4) The 7% Convertible subordinated debentures due 2001 were redeemed on
February 27, 1994. In connection with such redemption, substantially
all of the debentures were converted into approximately 13.5 million
shares of Class A Special Common Stock of the Company.
On March 1, 1994, the Company redeemed for cash its 11-7/8% Senior
subordinated debentures at a redemption price of 105.0% of their principal
amount.
The Company paid premiums and expensed unamortized debt acquisition costs
totalling $18.0 million during 1994, primarily as a result of the
redemption of its $150 million, 11-7/8% Senior subordinated debentures due
2004, resulting in the Company recording an extraordinary loss, net of tax,
of $11.7 million or $.05 per share. The Company paid similar premiums of
$27.1 million during 1993 in connection with the redemption of certain of
its debt resulting in the Company recording an extraordinary loss, net of
tax, of $17.6 million or $.08 per share.
Fixed interest rates on notes payable to banks and insurance companies
range from 8.6% to 10.57%. Bank debt interest rates vary based upon one or
more of the following rates at the option of the Company:
Prime rate to prime plus 1%;
London Interbank Offered Rate (LIBOR) plus 3/4% to 2%; and
Certificate of deposit rate plus 7/8% to 2-1/8%.
As of December 31, 1994 and 1993, the Company's effective weighted average
interest rate on its variable rate bank and insurance company debt
outstanding was 7.63% and 4.73%, respectively.
The Company has entered into interest rate swap and cap agreements to limit
the Company's exposure to loss from adverse fluctuations in interest rates.
At December 31, 1994 and 1993, $415.0 million and $635.0 million,
respectively, of the Company's variable rate debt was protected by these
products. Such agreements mature on various dates in 1995 and the related
differentials to be paid or received are recognized over the terms of the
agreements.
During 1994, the Company entered into other interest rate swap agreements
to manage its overall interest expense. At December 31, 1994, the Company
had swapped $400.0 million notional amount of fixed rate debt for variable
rate products (effective rates of 4.13% through 6.93% at December 31, 1994)
which mature between 2000 and 2004. Since these products are designated as
matched with certain of the Company's fixed rate debt, the differentials
paid or received are recognized as a component of interest expense over the
terms of the related agreements. Certain of these agreements have
extensions, at the option of the counterparty, or indexed amortization
provisions which may extend the lives of the agreements from three to five
years.
The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and continual monitoring
of the creditworthiness of the counterparties. Although the Company may
45
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
be exposed to losses in the event of nonperformance by the counterparties,
the Company does not expect such losses, if any, to be significant.
Certain of the Company's subsidiaries' loan agreements contain restrictive
covenants which limit the subsidiaries' ability to enter into arrangements
for the acquisition of property and equipment, investments, mergers and the
incurrence of additional debt. Certain of these agreements require that
certain ratios and cash flow levels be maintained and contain certain
restrictions on dividend payments and advances of funds to the Company. The
Company and its subsidiaries were in compliance with such restrictive
covenants for all periods presented. In addition, the stock of certain
subsidiary companies is pledged as collateral for the notes payable to
banks and insurance companies.
As of December 31, 1994, certain subsidiaries of the Company had unused
lines of credit of $553.0 million, of which $100.0 million was used through
February 21, 1995, principally to fund the acquisition of QVC.
As of December 31, 1994, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totalling $401.9 million to
cover potential fundings associated with several projects.
5. STOCKHOLDERS' EQUITY (DEFICIENCY)
The Company is authorized to issue, in one or more series, up to a maximum
of 20.0 million shares of preferred stock without par value. The shares can
be issued with such designations, preferences, qualifications, privileges,
limitations, restrictions, options, conversion rights and other special or
related rights as the Board of Directors shall from time to time fix by
resolution.
Class A Special Common Stock is nonvoting and each share of Class A Common
Stock is entitled to one vote. Each share of Class B Common Stock is
entitled to fifteen votes and is convertible, share for share, into Class A
or Class A Special Common Stock, subject to certain restrictions.
As of December 31, 1994, 21.1 million shares of Class A Special Common
Stock were reserved for issuance upon conversion of the Company's
convertible debentures.
The Company maintains qualified and nonqualified stock option plans for
employees, directors and other persons under which the option prices are
not less than the fair market value of the shares at the date of grant.
Under these plans, 16.5 million shares of Class A Special Common Stock,
362,000 shares of Class A Common Stock and 658,000 shares of Class B Common
Stock were reserved as of December 31, 1994. Option terms are from five to
ten years with options becoming exercisable at various dates.
46
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
Changes in the number of shares subject to outstanding but unexercised
options under the Company's option plans for the years ended December 31,
1994, 1993 and 1992 were as follows:
Common Stock
Class A
Special Class A Class B
BALANCE, JANUARY 1, 1992........................................ 7,276,785 959,144 1,518,750
Options granted at prices of $9.92 to $11.92 per share...... 1,179,375
Options exercised at prices of $.94 to $10.83 per share..... (985,802) (287,595) (860,625)
Options cancelled and terminated............................ (128,340) (4,086)
---------- ------- -------
BALANCE, DECEMBER 31, 1992...................................... 7,342,018 667,463 658,125
Options granted at prices of $12.00 to $22.08 per share..... 1,186,350
Options exercised at prices of $1.57 to $12.58 per share.... (935,515) (196,968)
Options cancelled and terminated............................ (80,125) (2,525)
---------- ------- -------
BALANCE, DECEMBER 31, 1993...................................... 7,512,728 467,970 658,125
Options granted at prices of $16.13 to $23.28 per share..... 5,165,216
Options exercised at prices of $1.73 to $11.92 per share.... (526,857) (81,472)
Options cancelled and terminated............................ (282,236) (24,935)
---------- ------- -------
BALANCE, DECEMBER 31, 1994...................................... 11,868,851 361,563 658,125
========== ======= =======
Average price of options outstanding at
December 31, 1994........................................... $13.73 $4.74 $5.70
====== ===== =====
As of December 31, 1994, options to purchase 5.0 million shares of Class A
Special Common Stock, 206,000 shares of Class A Common Stock and 304,000
shares of Class B Common Stock were exercisable.
The Company has a restricted stock program whereby management employees may
be granted restricted shares of the Company's Class A Special Common Stock.
Shares are subject to certain vesting provisions. The shares awarded do not
have voting or dividend rights until vesting occurs. Restrictions on the
award expire annually, over a period not to exceed five years from the date
of the award. The Company recognizes compensation expense over the vesting
period. As of December 31, 1994, there were 1.3 million unvested shares
granted under the program of which 284,000 vested in January 1995. Total
compensation expense recognized in 1994, 1993 and 1992 under this program
was $4.4 million, $3.4 million and $2.6 million, respectively.
6. INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS No. 109 which generally
provides that deferred tax assets and liabilities be recognized for
temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities and expected benefits of
utilizing net operating loss carryforwards. The impact on deferred taxes of
changes in tax rates and laws, if any, applied to the years during which
temporary differences are expected to be settled are reflected in the
financial statements in the period of enactment.
Pursuant to the deferred method under Accounting Principles Board Opinion
No. 11, which was applied in 1992 and prior years, deferred income taxes
were recognized for income and expense items that are reported in different
years for financial reporting purposes and income tax purposes using the
tax rate applicable for the year of the calculation. Under the deferred
method, deferred taxes are not adjusted for subsequent changes in tax
rates.
The cumulative effect of the adoption of SFAS No. 109 increased the net
loss for the year ended December 31, 1993 by $731.8 million, or $3.42 per
share, and is reported as part of the cumulative effect of accounting
changes in the Company's Consolidated Statement of Operations for the year
ended December 31, 1993.
47
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
Property and equipment and deferred charges were increased by $171.1
million in order to adjust prior business combinations from net-of-tax to
pre-tax amounts as required by SFAS No. 109. As a result of the adoption of
SFAS No. 109, depreciation and amortization expense increased in 1993 from
1992 by approximately $13.6 million or $.06 per share and income tax
expense decreased by approximately $35.0 million or $.16 per share,
resulting in a net decrease in the loss before extraordinary items and
cumulative effect of accounting changes of approximately $21.4 million or
$.10 per share. Prior year financial statements were not restated to apply
the provisions of SFAS No. 109.
As a result of the Maclean Hunter Acquisition, the Company's deferred
income tax liability was increased by approximately $488.0 million for
temporary differences between the financial reporting basis and the income
tax reporting basis of the assets of Maclean Hunter and BCI at the date of
acquisition. Deferred charges were increased by the same amount as
prescribed by SFAS No. 109.
The redemption of the LCH Preferred Stock by LCH caused the Company's
direct ownership of the common stock of AWACS to increase from 50.01% to
100%. As of the date of the redemption, AWACS will join with the Company in
filing consolidated federal income tax returns.
Income tax expense (benefit) consists of the following components:
Year Ended December 31,
1994 1993 1992
(Dollars in thousands)
Current expense
Federal................................................. $8,098 $5,099 $3,500
State................................................... 12,408 9,320 5,100
------ ----- -----
20,506 14,419 8,600
------ ------ -----
Deferred expense (benefit)
Federal................................................. (27,912) (216) 4,500
State................................................... (1,828) 1,026 900
------ ----- ---
(29,740) 810 5,400
------- --- -----
Income tax expense (benefit)............................ ($9,234) $15,229 $14,000
======= ======= =======
48
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
The effective income tax expense (benefit) of the Company differs from the
statutory amount because of the effect of the following items:
Year Ended December 31,
1994 1993 1992
(Dollars in thousands)
Federal tax at statutory rate........................... ($29,596) ($29,275) ($87,119)
Non-deductible depreciation and amortization............ 3,235 3,153 40,627
Non-taxable investment income........................... (7,054)
State income taxes, net of federal benefit.............. 6,877 6,725 3,960
Non-deductible preferred stock dividends of
a subsidiary........................................ 15,094
Non-deductible equity in net losses of affiliates....... 10,550 4,838 48,492
Deductible permanent differences associated
with redemption of securities....................... (37,694)
Increase in corporate federal income tax rate........... 20,589
Increase in valuation allowance......................... 605 47,494
Other................................................... (905) (601)
---- ---- -------
Income tax expense (benefit)............................ ($9,234) $15,229 $14,000
======= ======= =======
Deferred income tax expense (benefit) resulted from the following
differences between financial and income tax reporting:
Year Ended December 31,
1994 1993 1992
(Dollars in thousands)
Depreciation and amortization...................... ($36,357) ($34,694) $20,151
Accrued expenses not currently deductible.......... (22,287)
Deductible temporary differences associated
with redemption of securities.................. 7,031 10,078
Taxable gain on sale of investment to
affiliate...................................... (29,558)
Utilization of net operating loss carryforwards.... 28,299 4,729
Deferred tax assets arising from current
period losses ................................. (39,610)
Increase in corporate federal income tax rate
from 34% to 35%................................ 20,589
Increase in valuation allowance.................... 605 47,494
--- ------ -----
Deferred income tax expense (benefit).............. ($29,740) $810 $5,400
======== ==== ======
49
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
Significant components of the Company's net deferred tax liability are as
follows:
December 31, December 31,
1994 1993
(Dollars in thousands)
Deferred tax assets:
Net operating loss carryforwards............... $288,812 $317,111
Differences between book and
tax basis of property and equipment
and deferred charges....................... 29,330 30,858
Other.......................................... 40,636 18,349
Less: Valuation allowance...................... (274,736) (274,131)
-------- --------
84,042 92,187
------ ------
Deferred tax liabilities:
Differences between book and tax
basis of property and equipment and
deferred charges........................... 1,431,742 979,841
Other.......................................... 43,149 42,262
------ ------
1,474,891 1,022,103
--------- ---------
Net deferred tax liability......................... $1,390,849 $929,916
========== ========
The Company's valuation allowance against deferred tax assets includes
approximately $120.0 million for which any subsequent tax benefits
recognized will be allocated to reduce goodwill and other noncurrent
intangible assets. For income tax reporting purposes, the Company has net
operating loss carryforwards of approximately $30.0 million for which a
deferred tax asset has been recorded, which expire primarily between 2001
and 2007.
7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1993, the Company adopted SFAS No. 106. This statement
requires the Company to accrue the estimated cost of retiree benefits
earned during the years the employee provides services. The Company
previously expensed the cost of these benefits as claims were incurred. The
Company recorded the cumulative effect of the obligation, which is
unfunded, as of January 1, 1993, resulting in an increase in the Company's
accrued postretirement health care liability of approximately $13.5 million
and net loss of approximately $8.9 million or $.04 per share, net of tax.
The effect of SFAS No. 106 on loss before extraordinary items and the
cumulative effect of accounting changes was not significant to the
Company's results of operations.
8. POSTEMPLOYMENT BENEFITS
Effective January 1, 1993, the Company adopted SFAS No. 112. This statement
requires the Company to accrue the estimated costs of benefits for former
or inactive employees after employment but before retirement. The effect of
SFAS No. 112 on loss before extraordinary items and the cumulative effect
of accounting changes was not significant to the Company's results of
operations.
9. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of approximately $261.6
million, $278.6 million and $198.2 million during the years ended December
31, 1994, 1993 and 1992, respectively.
50
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
10. COMMITMENTS AND CONTINGENCIES
Commitments
During 1994, a subsidiary of the Company, Comcast UK Cable, entered into
certain foreign exchange forward contracts as a normal part of its risk
management efforts. Foreign exchange contracts, which mature at various
times through 1996, are used to protect Comcast UK Cable from the risk that
monetary assets held or denominated in currencies other than its functional
currency are devalued as a result of changes in exchange rates. The amount
of these contracts was $100.0 million as of December 31, 1994. Foreign
exchange contracts provide an effective hedge against such monetary assets
held since gains and losses realized on the contracts are offset against
gains or losses realized on the underlying hedged assets.
Minimum annual rental commitments for office space and equipment under
noncancellable operating leases are as follows:
(Dollars
in thousands)
1995 $12,217
1996 10,385
1997 9,661
1998 8,759
1999 7,782
Thereafter 31,967
Rental expense of $21.9 million, $19.3 million and $13.2 million for 1994,
1993 and 1992, respectively, has been charged to operations.
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 or results of operations of the
Company.
The Company is currently seeking to justify existing rates in certain of
its cable systems on the basis of cost-of-service showings; however, the
interim cost-of-service regulations promulgated by the FCC do not support
positions taken by the Company in its cost-of-service filings to date. The
Company's reported cable service income reflects the estimated effects of
cable regulation. The Company is seeking reconsideration by the FCC of the
interim cost-of-service regulations and, if unsuccessful in justifying
existing rates under cost-of-service regulations, intends to seek judicial
relief. However, no assurance can be given that the Company will be
successful in cost-of-service proceedings. If the Company is not successful
in such efforts, and there is no legislative, administrative or judicial
relief in these matters, the FCC regulations will continue to adversely
affect the Company's results of operations.
Garden State's auditors' report discloses a material uncertainty with
respect to the Cable Television Consumer Protection and Competition Act of
1992. Management believes that the ultimate resolution of this uncertainty
will not have a material impact on the Company's financial position or
results of operations.
51
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summary table of the estimated fair value of the Company's
financial instruments is made in accordance with the provisions of SFAS No.
107, "Disclosures About Fair Value of Financial Instruments." See Note 1
for a description of methodologies used for such disclosures.
December 31, 1994 December 31, 1993
(Dollars in thousands)
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Investments - Public
companies - (see Note 3)........... $216,002 (1) $341,785 (1) $275,684 $1,439,076
(1) Excludes publicly traded investments accounted for under the equity method.
The Company's long-term debt had a carrying amount of $4.993 billion and an
estimated fair value of $4.768 billion as of December 31, 1994. The
difference between the carrying value and estimated fair value of the
Company's long-term debt was not significant as of December 31, 1993. The
estimated fair value of the Company's publicly traded debt is based on
quoted market prices for that debt. Interest rates that are currently
available to the Company for issuance of the debt with similar terms and
remaining maturities are used to estimate fair value for debt issues for
which quoted market prices are not available.
The estimated liability to settle the Company's interest rate swap and cap
agreements was $39 million as of December 31, 1994. The estimated liability
to settle the extension and indexed amortization features for certain of
these instruments is not significant to the Company. The estimated
liability to settle the Company's interest rate swap and cap agreements as
of December 31, 1993 was not significant to the Company.
The difference between the carrying amount and the estimated fair value of
the Company's foreign exchange forward contracts is not significant at
December 31, 1994.
52
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
12. FINANCIAL DATA BY BUSINESS SEGMENT
(Dollars in thousands)
Domestic Cable Cellular Corporate
Communications Communications and Other Total
1994
Service income................................... $1,065,316 $286,137 $23,851 $1,375,304
Depreciation and amortization.................... 229,534 89,916 17,012 336,462
Operating income (loss).......................... 287,960 26,413 (74,579) 239,794
Interest expense................................. 151,128 58,556 103,793 313,477
Assets........................................... 4,588,886 1,205,047 969,051 6,762,984
Long-term debt................................... 2,852,877 744,538 1,213,126 4,810,541
Capital expenditures and acquisitions............ 1,456,497 79,719 26,316 1,562,532
Equity in net income (losses) of
affiliates................................... 2,928 (43,812) (40,884)
1993
Service income................................... $1,092,746 $202,032 $43,450 $1,338,228
Depreciation and amortization.................... 240,523 84,740 16,237 341,500
Operating income (loss).......................... 311,448 7,403 (53,955) 264,896
Interest expense................................. 152,508 74,421 120,519 347,448
Assets........................................... 2,506,066 1,277,619 1,164,591 4,948,276
Long-term debt................................... 2,049,332 689,984 1,415,514 4,154,830
Capital expenditures and acquisitions............ 100,518 49,531 17,662 167,711
Equity in net losses of affiliates............... (9,197) (19,675) (28,872)
1992
Service income................................... $725,659 $142,926 $31,760 $900,345
Depreciation and amortization.................... 155,425 66,785 9,837 232,047
Operating income (loss).......................... 200,836 (4,707) (31,023) 165,106
Interest expense and preferred
stock dividend requirements.................. 158,010 58,534 95,744 312,288
Assets........................................... 2,433,875 1,293,364 544,659 4,271,898
Long-term debt................................... 2,097,890 789,585 1,086,039 3,973,514
Capital expenditures and acquisitions............ 1,589,967 1,022,552 41,869 2,654,388
Equity in net losses of affiliates............... (91,797) (12,509) (104,306)
53
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Concluded)
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth Total
Quarter (1)(2) Quarter Quarter Quarter (2) Year
(Dollars in thousands, except per share data)
1994
Service income.......................... $328,703 $340,640 $345,744 $360,217 $1,375,304
Operating income before
depreciation and amortization....... 141,520 148,553 146,125 140,058 576,256
Operating income........................ 64,275 65,304 63,310 46,905 239,794
Loss before extraordinary items......... (15,777) (12,756) (17,246) (29,546) (75,325)
Extraordinary items..................... (11,580) (123) (11,703)
Net loss................................ (27,357) (12,879) (17,246) (29,546) (87,028)
Loss per share before
extraordinary items................. (.07) (.05) (.07) (.13) (.32)
Extraordinary items per share........... (.05) (.05)
Net loss per share...................... (.12) (.05) (.07) (.13) (.37)
Cash dividends per share................ .0233 .0233 .0233 .0233 .0933
1993
Service income.......................... $325,225 $340,083 $335,405 $337,515 $1,338,228
Operating income before
depreciation and amortization....... 146,330 159,605 154,311 146,150 606,396
Operating income........................ 58,657 71,106 69,828 65,305 264,896
Loss before extraordinary items and
cumulative effect of accounting
changes............................. (23,856) (17,129) (35,655) (22,231) (98,871)
Extraordinary items..................... (17,620) (17,620)
Cumulative effect of accounting
changes............................. (742,734) (742,734)
Net loss................................ (766,590) (17,129) (35,655) (39,851) (859,225)
Loss per share before
extraordinary items and cumulative
effect of accounting changes........ (.11) (.08) (.17) (.10) (.46)
Extraordinary items per share........... (.08) (.08)
Cumulative effect of accounting
changes per share................... (3.47) (3.47)
Net loss per share...................... (3.58) (.08) (.17) (.18) (4.01)
Cash dividends per share................ .0233 .0233 .0233 .0233 .0933
- ---------------
(1) Results of operations for the first quarter of 1993 were affected by the
cumulative effect of the adoption of SFAS No. 106, SFAS No. 109 and SFAS
No. 112.
(2) Results of operations for the first quarter of 1994 and fourth quarter of
1993 were affected by premiums paid in connection with the redemption of
certain of the Company's debt, shown as extraordinary items in the
Company's consolidated financial statements.
54
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Item 10, Directors and Executive Officers of the
Registrant (except for the information regarding executive officers called for
by Item 401 of Regulation S-K which is included in Part I hereof as Item 4A in
accordance with General Instruction G(3)), Item 11, Executive Compensation, Item
12, Security Ownership of Certain Beneficial Owners and Management, and Item 13,
Certain Relationships and Related Transactions, is hereby incorporated by
reference to the Registrant's definitive Proxy Statement for its Annual Meeting
of Shareholders presently scheduled to be held in June 1995, which shall be
filed with the Securities and Exchange Commission within 120 days of the end of
the Registrant's latest fiscal year.
55
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following Consolidated Financial Statements of the Company are
included in Part II, Item 8:
Independent Auditors' Report..............................................................30
Consolidated Balance Sheet--December 31, 1994 and 1993....................................31
Consolidated Statement of Operations--Years
Ended December 31, 1994, 1993 and 1992..................................................32
Consolidated Statement of Cash Flows--Years
Ended December 31, 1994, 1993 and 1992..................................................33
Consolidated Statement of Stockholders'
Equity (Deficiency)--Years Ended December 31, 1994, 1993 and 1992.......................34
Notes to Consolidated Financial Statements................................................35
(b) (i) The following financial statement schedule required to be filed by
Items 8 and 14(d) of Form 10-K is included in Part IV:
Schedule II -- Valuation and Qualifying Accounts..........................................66
All other schedules are omitted because they are not applicable,
not required or the required information is included in the
financial statements or notes thereto.
(ii) The following consolidated financial statements of Storer
Communications, Inc. ("Storer") for the year ended December 31,
1992 are required to be filed by Item 14(d)(1) of Form 10-K and
are incorporated by reference to Storer's Annual Report on Form
10-K for the year ended December 31, 1993.
Storer Communications, Inc.
Independent Auditors' Report
Consolidated Statements of Operations
Consolidated Statements of Stockholder's Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
All schedules are omitted because they are not applicable, not
required or the required information is included in the financial
statements or notes thereto.
(c) Exhibits required to be filed by Item 601 of Regulation S-K:
3.1(a) Amended and Restated Articles of Incorporation filed on July 24,
1990 (incorporated by reference to Exhibit 3(i)(1) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994).
3.1(b) Amendment to Articles of Incorporation filed on July 14, 1994
(incorporated by reference to Exhibit 3(i)(2) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994).
3.2 Amended and Restated By-Laws (incorporated by reference to
Exhibit 3(ii) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).
4.1 Specimen Class A Common Stock Certificate (incorporated by
reference to Exhibit 2(a) to the Company's Registration
Statement on Form S-7 filed with the Commission on September 17,
1980, File No. 2-69178).
56
4.2 Specimen Class A Special Common Stock Certificate (incorporated
by reference to Exhibit 4(2) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1986).
4.3(a) Indenture (including form of Note), dated as of May 15, 1983,
between Storer Communications, Inc. and The Chase Manhattan
Bank, N.A., as Trustee, relating to 10% Subordinated Debentures
due May 2003 of Storer Communications, Inc. (incorporated by
reference to Exhibit 4.6 to the Registration Statement on Form
S-1 (File No. 2-98938) of SCI Holdings, Inc.).
4.3(b) First Supplemental Indenture, dated December 3, 1986
(incorporated by reference to Exhibit 4.5 to the Current Report
on Form 8-K of Storer Communications, Inc. dated December 3,
1986).
4.4 Amended and Restated Indenture dated as of June 5, 1992 among
Comcast Cellular Corporation, the Company and The Bank of New
York, as Trustee, relating to $500,493,000 Series A Senior
Participating Redeemable Zero Coupon Notes due 2000 and
$500,493,000 Series B Senior Participating Redeemable Zero
Coupon Notes due 2000 (incorporated by reference to Exhibit 4.3
to the Registration Statement on Form S-1 (File No. 33-46863) of
Comcast Cellular Corporation).
4.5 Indenture, dated as of October 17, 1991, between the Company and
Morgan Guaranty Trust Company of New York, as Trustee
(incorporated by reference to Exhibit 2 to the Company's Current
Report on Form 8-K filed with the Commission on October 31,
1991).
4.6 Form of Debenture relating to the Company's 10-1/4% Senior
Subordinated Debentures due 2001 (incorporated by reference to
Exhibit 4(19) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991).
4.7 Form of Debenture relating to the Company's $300,000,000 10-5/8%
Senior Subordinated Debentures due 2012 (incorporated by
reference to Exhibit 4(17) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).
4.8 Form of Debenture relating to the Company's $200,000,000 9-1/2%
Senior Subordinated Debentures due 2008 (incorporated by
reference to Exhibit 4(18) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).
4.9 Indenture, dated as of February 20, 1991, between the Company
and Bankers Trust Company, as Trustee (incorporated by reference
to Exhibit 4.3 to the Company's Registration Statement on Form
S-3, File No. 33-32830, filed with the Commission on January 11,
1990).
4.10 Form of Debenture relating the Company's 3-3/8% / 5-1/2% Step-up
Convertible Subordinated Debentures Due 2005 (incorporated by
reference to Exhibit 4(14) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).
4.11 Form of Debenture relating to the Company's 1-1/8% Discount
Convertible Subordinated Debentures Due 2007 (incorporated by
reference to Exhibit 4 to the Company's Current Report on Form
8-K filed with the Commission on November 15, 1993).
10.1(a) Credit Agreement, dated as of March 1, 1991, between Comcast
Holdings, Inc., The Chase Manhattan Bank (National Association),
as Agent, and various banks, and related agreements included
therein (incorporated by reference to Exhibit 10(1) to the
Company's Annual Report on Form 10-K for the year ended December
31, 1990, as amended by Form 8 filed April 16, 1991).
10.1(b) Amendment No. 1, dated as of January 11, 1994, among Comcast
Holdings, Inc., the Chase Manhattan Bank (National Association),
the banks named therein, and for limited purposes, Comcast
Corporation and Comcast Cable Communications, Inc (incorporated
by reference to Exhibit 10(1)(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993).
10.1(c) Copies of promissory notes delivered to Banks (incorporated by
reference to Exhibit 10(1)(c) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).
57
10.1(d) Consent and Amendment, dated as of January 13, 1994, among
Comcast Holdings, Inc., the Lenders named therein, and for
limited purposes, Comcast Corporation and Comcast Cable
Communications, Inc. (incorporated by reference to Exhibit
10(1)(d) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.1(e) Consent and Amendment, dated as of January 13, 1994, among
Comcast Holdings, Inc., the Nippon Credit Bank, Ltd., and for
limited purposes, Comcast Corporation and Comcast Cable
Communications, Inc. (incorporated by reference to Exhibit
10(1)(e) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.1(f) Amendment No. 2, dated as of May 15, 1994, to the Credit
Agreement dated as of March 1, 1991, between Comcast Holdings,
Inc., The Chase Manhattan Bank (National Association) as Agent,
and the Lenders therein, and, for limited purposes, Comcast
Corporation, Comcast Cable Communications, Inc. and Corestates
Bank, N.A., as 1987 Collateral Agent and 1991 Collateral Agent
(incorporated by reference to Exhibit 10.5 to the Company's
Current Report on Form 8-K filed on November 2, 1994).
10.1(g) Second Consent and Amendment, dated as of May 15, 1994, to the
Credit Agreement dated as of March 1, 1991, among Comcast
Holdings, Inc., the Lenders named therein, and for limited
purposes, Comcast Corporation and Comcast Cable Communications,
Inc.(incorporated by reference to Exhibit 10.6 to the Company's
Current Report on Form 8-K filed on November 2, 1994).
10.1(h) Second Consent and Amendment, dated as of May 15, 1994, to the
Credit Agreement dated as of March 1, 1991, among Comcast
Holdings, Inc., the Nippon Credit Bank, Ltd. and for limited
purposes, Comcast Corporation and Comcast Cable Communications,
Inc. (incorporated by reference to Exhibit 10.7 to the Company's
Current Report on Form 8-K filed on November 2, 1994).
10.2(a) Loan Agreements, dated as of March 31, 1987, among Comcast
Holdings, Inc. and certain lenders, and related agreements
included therein (incorporated by reference to Exhibit 10(29) to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1987).
10.2(b) Amendment Agreements, dated as of March 1, 1991, among Comcast
Holdings, Inc. and certain lenders, and related agreements
included therein (incorporated by reference to Exhibit 10(2)(b)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1990, as amended by Form 8 filed April 16, 1991).
10.3 Guaranty by the Company to the City of Philadelphia, dated as of
October 30, 1987, (incorporated by reference to Exhibit 10(31)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1987).
10.4* 1982 Incentive Stock Option Plan, as amended (incorporated by
reference to Exhibit 10(12) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991).
10.5(a)*1986 Amended and Restated Non-Qualified Stock Option Plan
(incorporated by reference to Exhibit 10(11) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1991).
10.5(b)*Amendment to 1986 Nonqualified Stock Option Plan, dated
September 16, 1994.
10.6(a)*Comcast Corporation 1987 Stock Option Plan, as amended and
restated (incorporated by reference to Exhibit 99 to the
Company's Registration Statement on Form S-8 filed on December
16, 1994).
10.6(b)* Amendment to 1987 Stock Option Plan, dated September 16, 1994.
__________
*Constitutes a management contract or compensatory plan or arrangement.
58
10.7(a) Retirement-Investment Plan, as amended, including Amendment
Nos. 1, 2 and 3 (incorporated by reference to Exhibit 10(17)
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990, as amended by Form 8 filed April
16, 1991).
10.7(b) Amendment Nos. 4, 5 and 6 to the Retirement-Investment Plan
(incorporated by reference to Exhibit 10(14) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991).
10.7(c) Amendment No. 7 to the Retirement-Investment Plan
(incorporated by reference to Exhibit 10(9)(c) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.7(d) Amendment No. 8 to the Retirement-Investment Plan
(incorporated by reference to Exhibit 10(9)(d) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.8* Amended and Restated Deferred Compensation Plan, dated
January 1, 1995.
10.9* 1990 Restricted Stock Plan, as amended and restated on
November 11, 1994.
10.10* 1992 Executive Split Dollar Insurance Plan (incorporated by
reference to Exhibit 10(12) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992).
10.11* Form of Compensation and Deferred Compensation Agreement and
Stock Appreciation Bonus Plan for Ralph J. Roberts
(incorporated by reference to Exhibit 10(13) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.12 Note Purchase Agreement, dated as of April 27, 1989, by and
among Comcast Cable of Maryland, Inc., Comcast Cablevision
of Maryland Limited Partnership, COM Maryland, Inc. and the
Purchasers Named on Schedule I Thereto relating to
$178,000,000 10.57% Senior Notes due 1999 (incorporated by
reference to Exhibit 10(25) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1989).
10.13(a) Credit Agreement, dated as of March 4, 1992, among Comcast
Cellular Communications, Inc., The Bank of New York,
Barclays Bank, PLC, The Chase Manhattan Bank (National
Association), Provident National Bank, and The
Toronto-Dominion Bank (incorporated by reference to Exhibit
4 to the Company's Current Report on Form 8-K filed with the
Commission on March 19, 1992, as amended by Form 8 dated
April 24, 1992).
10.13(b) Amendment No. 1 to the Credit Agreement, dated as of
September 21, 1992, between Comcast Cellular Communications,
Inc., the banks named therein and The Toronto-Dominion Bank
Trust Company, as Administrative Agent (incorporated by
reference to Exhibit (17)(b) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992).
10.13(c) Amendment No. 2 to the Credit Agreement, dated April 12,
1993, between Comcast Cellular Communications, Inc., the
banks named therein and the Toronto-Dominion Bank Trust
Company, as administrative agent (incorporated by reference
to Exhibit 10(18)(c) to the Company's Annual Report on Form
10-K for the year ended December 31, 1993).
10.13(d) Amendment No. 3, dated as of September 2, 1994, to the
Credit Agreement dated as of March 4, 1992, between Comcast
Cellular Communications, Inc., the banks therein and the
Toronto-Dominion Bank Trust Company, as administrative agent
(incorporated by reference to Exhibit 10.4 to the Current
Report on Form 8-K of the Company filed on November 2,
1994).
10.14 Tax Sharing Agreement, dated as of December 2, 1992, among
Storer Communications, Inc., TKR Cable I, Inc., TKR Cable
II, Inc., TKR Cable III, Inc., Tele-Communications, Inc.,
the Company and each of the Departing Subsidiaries that are
signatories thereto (incorporated by reference to Exhibit 4
to the Company's Current Report on Form 8-K filed with the
Commission on December 17, 1992, as amended by Form 8 filed
January 8, 1993).
_______________
*Constitutes a management contract or compensatory plan or arrangement.
59
10.15 Credit Agreement, dated as of December 2, 1992, among
Comcast Storer, Inc. and The Bank of New York, The Bank of
Nova Scotia, Canadian Imperial Bank of Commerce, The Chase
Manhattan Bank (National Association), Chemical Bank, LTCB
Trust Company and The Toronto-Dominion Bank, as managing
agents, and The Bank of New York, as administrative agent
(incorporated by reference to Exhibit 5 to the Company's
Current Report on Form 8-K filed with the Commission on
December 17, 1992, as amended by Form 8 filed January 8,
1993).
10.16 Note Purchase Agreement, dated as of November 15, 1992,
among Comcast Storer, Inc., Storer Communications, Inc.,
Comcast Storer Finance Sub, Inc. and each of the respective
purchasers named therein (incorporated by reference to
Exhibit 6 to the Company's Current Report on Form 8-K filed
with the Commission on December 17, 1992, as amended by Form
8 filed January 8, 1993).
10.17 Payment Agreement, dated December 2, 1992, among the
Company, Comcast Storer, Inc., SCI Holdings, Inc., Storer
Communications, Inc. and each of the Remaining Subsidiaries
that are signatories thereto (incorporated by reference to
Exhibit 7 to the Company's Current Report on Form 8-K filed
with the Commission on December 17, 1992, as amended by Form
8 filed January 8, 1993).
10.18 Intercreditor and Collateral Agency Agreement, dated as of
December 2, 1992, among Comcast Storer, Inc., Comcast Cable
Communications, Inc., Storer Communications, Inc., the banks
party to the Credit Agreement dated as of December 2, 1992,
the purchasers of the Senior Notes under the separate Note
Purchase Agreements each dated as of November 15, 1992, the
Senior Lenders (as defined therein) and The Bank of New York
as collateral agent for the Senior Lenders (incorporated by
reference to Exhibit 8 to the Company's Current Report on
Form 8-K filed with the Commission on December 17, 1992, as
amended by Form 8 filed January 8, 1993).
10.19 Tax Sharing Agreement, dated December 2, 1992, between the
Company and Comcast Storer, Inc. (incorporated by reference
to Exhibit 9 to the Company's Current Report on Form 8-K
filed with the Commission on December 17, 1992, as amended
by Form 8 filed January 8, 1993).
10.20 Pledge Agreement, dated as of December 2, 1992, between
Comcast Cable Communications, Inc. and The Bank of New York
(incorporated by reference to Exhibit 10 to the Company's
Current Report on Form 8-K filed with the Commission on
December 17, 1992, as amended by Form 8 filed January 8,
1993).
10.21 Pledge Agreement, dated as of December 2, 1992, between
Comcast Storer, Inc. and The Bank of New York (incorporated
by reference to Exhibit 11 to the Company's Current Report
on Form 8-K filed with the Commission on December 17, 1992,
as amended by Form 8 filed January 8, 1993).
10.22 Pledge Agreement, dated as of December 2, 1992, between
Storer Communications, Inc. and The Bank of New York
(incorporated by reference to Exhibit 12 to the Company's
Current Report on Form 8-K filed with the Commission on
December 17, 1992, as amended by Form 8 filed January 8,
1993).
10.23 Note Pledge Agreement, dated as of December 2, 1992, between
Comcast Storer, Inc. and The Bank of New York (incorporated
by reference to Exhibit 13 to the Company's Current Report
on Form 8-K filed with the Commission on December 17, 1992,
as amended by Form 8 filed January 8, 1993).
10.24 Guaranty Agreement, dated as of December 2, 1992, between
Storer Communications, Inc. and The Bank of New York
(incorporated by reference to Exhibit 14 to the Company's
Current Report on Form 8-K filed with the Commission on
December 17, 1992, as amended by Form 8 filed January 8,
1993).
60
10.25 Guaranty Agreement, dated as of December 2, 1992, between
Comcast Storer Finance Sub, Inc. and The Bank of New York
(incorporated by reference to Exhibit 15 to the Company's
Current Report on Form 8-K filed with the Commission on
December 17, 1992, as amended by Form 8 filed January 8,
1993).
10.26(a) Stock Purchase Agreement, dated September 14, 1992, among
the Company, Comcast FCI, Inc. and Fleet Call, Inc.
(incorporated by reference to Exhibit A to Amendment No. 1
to the Company's Schedule 13D dated September 22, 1992 filed
with respect to Fleet Call, Inc.).
10.26(b) Letter Agreement, dated October 28, 1992, amending Stock
Purchase Agreement (incorporated by reference to Exhibit L
to Amendment No. 2 to the Company's Schedule 13D dated
February 23, 1993 filed with respect to Fleet Call, Inc.).
10.26(c) Letter Agreement, dated November 24, 1992, amending Stock
Purchase Agreement (incorporated by reference to Exhibit M
to Amendment No. 2 to the Company's Schedule 13D dated
February 23, 1993 filed with respect to Fleet Call, Inc.).
10.26(d) Notice, dated February 15, 1993, from Fleet Call, Inc. to
the Company pursuant to the Stock Purchase Agreement
(incorporated by reference to Exhibit N to Amendment No. 2
to the Company's Schedule 13D dated February 23, 1993 filed
with respect to Fleet Call, Inc.).
10.26(e) Acknowledgement, dated February 15, 1993, among the Company,
Comcast FCI, Inc. and Fleet Call, Inc. (incorporated by
reference to Exhibit O to Amendment No. 2 to the Company's
Schedule 13D dated February 23, 1993 filed with respect to
Fleet Call, Inc.).
10.26(f) Letter Agreement, dated February 15, 1993, amending the
Stock Purchase Agreement (incorporated by reference to
Exhibit P to Amendment No. 2 to the Company's Schedule 13D
dated February 23, 1993 filed with respect to Fleet Call,
Inc.).
10.26(g) Letter Agreement, dated July 22, 1993, among the Company,
Comcast FCI, Inc. and Nextel Communications, Inc. (formerly
Fleet Call, Inc.) (incorporated by reference to Exhibit A to
Amendment No. 3 to Schedule 13D dated July 27, 1993 filed by
the Company with respect to Nextel Communications, Inc.).
10.26(h) Amendment, dated August 4, 1994, to Stock Purchase Agreement
dated as of September 14, 1992 among Comcast Corporation,
Comcast FCI, Inc. and Nextel Communications, Inc.
(incorporated by reference to Exhibit C to Amendment No. 7
to the Schedule 13D of Comcast Corporation relating to
common stock of Nextel Communications, Inc. filed on August
9, 1994).
10.27 Option Agreement, dated September 14, 1992, between Fleet
Call, Inc. and Comcast FCI, Inc. (incorporated by reference
to Exhibit B to Amendment No. 1 to the Company's Schedule
13D dated September 22, 1992 filed with respect to Fleet
Call, Inc.).
10.28 Promissory Note, dated September 14, 1992, issued by Comcast
FCI, Inc. in favor of Fleet Call, Inc. (incorporated by
reference to Exhibit C to Amendment No. 1 to the Company's
Schedule 13D dated September 22, 1992 filed with respect to
Fleet Call, Inc.).
10.29 Stock Pledge Agreement, dated September 14, 1992, between
Comcast FCI, Inc. and Fleet Call, Inc. (incorporated by
reference to Exhibit D to Amendment No. 1 to the Company's
Schedule 13D dated September 22, 1992 filed with respect to
Fleet Call, Inc.).
10.30 Stockholders' Voting Agreement, dated September 14, 1992,
among Comcast FCI, Inc. and the other parties named therein
(incorporated by reference to Exhibit E to Amendment No. 1
to the Company's Schedule 13D dated September 22, 1992 filed
with respect to Fleet Call, Inc.).
61
10.31(a) Share Purchase Agreement, dated June 18, 1994, between
Comcast Corporation and Rogers Communications Inc.
(incorporated by reference to Exhibit 10(3) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994).
10.31(b) First Amendment to Share Purchase Agreement, dated as of
December 22, 1994, by and between Comcast Corporation and
Rogers Communications Inc., to the Share Purchase Agreement
dated June 18, 1994 (incorporated by reference to Exhibit
10.9 to the Company's Current Report on Form 8-K filed on
January 6, 1995).
10.32(a) Agreement and Plan of Merger, dated August 4, 1994, among
Comcast Corporation, Liberty Media Corporation, Comcast
QMerger, Inc. and QVC, Inc. (incorporated by reference to
Exhibit 99.49 to Amendment No. 21 to the Schedule 13D of
Comcast Corporation relating to common stock of QVC, Inc.
filed on August 8, 1994).
10.32(b) First Amendment to Agreement and Plan of Merger, dated as of
February 3, 1995, (incorporated by reference to Exhibit
(c)(35) to Amendment No. 17 to the Tender Offer Statement on
Schedule 14D-1 filed with the Securities and Exchange
Commission on February 6, 1995 by QVC Programming Holdings,
Inc., Comcast Corporation and Tele-Communications, Inc. with
respect to the tender offer for all outstanding shares of
QVC, Inc.).
10.33 CreditAgreement, dated as of February 15, 1995, among QVC,
Inc. and the Banks listed therein (incorporated by reference
to Exhibit (b)(6) to Amendment No. 21 to the Tender Offer
Statement on Schedule 14D-1 filed with the Securities and
Exchange Commission on February 17, 1995 by QVC Programming
Holdings, Inc., Comcast Corporation and Tele-Communications,
Inc. with respect to the tender offer for all outstanding
shares of QVC, Inc.).
10.34 Storer Communications Retirement Savings Plan, dated January
1, 1993, (incorporated by reference to Exhibit 4.1 to the
Form S-8 of Comcast Corporation filed on June 29, 1994).
10.35 Credit Agreement, dated as of September 14, 1994, among
Comcast Cable Tri-Holdings, Inc., The Bank of New York, The
Chase Manhattan Bank (National Association), PNC Bank,
National Association, as Managing Agents, and the Bank of
New York, as Administrative Agent, and the banks named
therein (incorporated by reference to Exhibit 10.3 to the
Current Report on Form 8-K of the Company filed on November
2, 1994).
10.36 Comcast MHCP Holdings, L.L.C. Amended and Restated Limited
Liability Company Agreement, dated as of December 18, 1994,
among Comcast Cable Communications, Inc., The California
Public Employees' Retirement System and, for certain limited
purposes, Comcast Corporation (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on January 6, 1995).
10.37 Credit Agreement, dated as of December 22, 1994, among
Comcast MH Holdings, Inc., the banks listed therein, The
Chase Manhattan Bank (National Association), NationsBank of
Texas, N.A. and the Toronto-Dominion Bank, as Arranging
Agents, The Bank of New York, The Bank of Nova Scotia,
Canadian Imperial Bank of Commerce and Morgan Guaranty Trust
Company of New York, as Managing Agents and NationsBank of
Texas, N.A., as Administrative Agent (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K filed on January 6, 1995).
10.38 Pledge Agreement, dated as of December 22, 1994, between
Comcast MH Holdings, Inc. and NationsBank of Texas, N.A., as
the secured party (incorporated by reference to Exhibit 10.3
to the Company's Current Report on Form 8-K filed on January
6, 1995).
10.39 Pledge Agreement, dated as of December 22, 1994, between
Comcast Communications Properties, Inc. and NationsBank of
Texas, N.A., as the Secured Party (incorporated by reference
to Exhibit 10.4 to the Company's Current Report on Form 8-K
filed on January 6, 1995).
62
10.40 Affiliate Subordination Agreement (as the same may be
amended, modified, supplemented, waived, extended or
restated from time to time, this "Agreement"), dated as of
December 22, 1994, among Comcast Corporation, Comcast MH
Holdings, Inc., (the "Borrower"), any affiliate of the
Borrower that shall have become a party thereto and
NationsBank of Texas, N.A., as Administrative Agent under
the Credit Agreement dated as of December 22, 1994, among
the Borrower, the Banks listed therein, The Chase Manhattan
Bank (National Association), NationsBank of Texas, N.A. and
The Toronto-Dominion Bank, as Arranging Agents, The Bank of
New York, The Bank of Nova Scotia, Canadian Imperial Bank of
Commerce and Morgan Guaranty Trust Company of New York, as
Managing Agents, and the Administrative Agent (incorporated
by reference to Exhibit 10.5 to the Company's Current Report
on Form 8-K filed on January 6, 1995).
10.41 Registration Rights and Price Protection Agreement, dated as
of December 22, 1994, by and between Comcast Corporation and
The California Public Employees' Retirement System
(incorporated by reference to Exhibit 10.8 to the Company's
Current Report on Form 8-K filed on January 6, 1995).
10.42 Agreement of Limited Partnership of WirelessCo, L.P., a
Delaware Limited Partnership, dated as of October 24, 1994,
by and among Sprint Spectrum, Inc., TCI Network, Inc.,
Comcast Telephony Services and Cox Communications Wireless,
Inc., each as a General Partner and a Limited Partner.
10.43/*/ Credit Agreement, dated as of November 18, 1994, among
Comcast Corporation and The Bank of New York, Chemical Bank
and The Toronto-Dominion Bank, as Managing Agents and
Issuing Banks, The Bank of New York and Chemical Bank, as
Co-Administrative Agents, The Toronto-Dominion Bank, as
Documentation Agent and The Bank of New York, as Paying
Agent, and the Banks listed therein.
10.44/*/ Guaranty Agreement, dated as of November 18, 1994, between
Comcast Cable Communications, Inc., and The Bank of New
York, as paying agent on behalf of itself, the Banks, the
Managing Agents, the Issuing Banks, the Co-Administrative
Agents and the Documentation Agent under and as defined in
the Credit Agreement dated as of November 18, 1994.
10.45/*/ Pledge Agreement, dated as of January 1, 1996, between
Comcast Corporation and The Bank of New York, as the Secured
Party.
10.46/*/ Affiliate Subordination Agreement, dated as of November 18,
1994, among Comcast Cable Communications, Inc., Comcast
Financial Corporation, and any affiliate of the borrower or
Comcast that shall have become a party hereto and The Bank
of New York, as Paying Agent under the Credit Agreement
dated as of November 18, 1994.
21 List of Subsidiaries.
23 Accountants' Consents.
27 Financial Data Schedule.
99.1 Report of Independent Public Accountants to Garden State
Cablevision L.P., as of December 31, 1994 and 1993 and for
the years then ended.
99.2 Report of Independent Public Accountants to Garden State
Cablevision L.P., as of December 31, 1993 and 1992 and for
the years then ended (incorporated by reference to Exhibit
99(1) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
99.3 Report of Independent Public Accountants to Comcast
International Holdings, Inc., as of December 31, 1994 and
1993 and for the years then ended.
63
/*/ Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the
Registrant agrees to furnish a copy of the referenced
agreement to the Commission upon request.
(c) Reports on Form 8-K
The Company filed a Current Report on Form 8-K under Item 5 on
November 2, 1994 which included the Company's Unaudited Pro Forma
Condensed Consolidated Financial Statements and the Combined Financial
Statements for the U.S. Cable Television Operations of Maclean Hunter
as well as the Consolidated Financial Statements for QVC, Inc.
(formerly, QVC Network, Inc.) for the year ended January 31, 1994 and
for the quarter ended April 30, 1994, which were incorporated by
reference to QVC, Inc.'s Annual Report on Form 10-K and Quarterly
Report on Form 10-Q for those periods, respectively.
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in Philadelphia,
Pennsylvania on February 22, 1995.
Comcast Corporation
By: /s/ BRIAN L. ROBERTS
--------------------------
Brian L. Roberts
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ RALPH J. ROBERTS
- --------------------------
Ralph J. Roberts Chairman of the Board of February 22, 1995
Directors; Director
/s/ JULIAN A. BRODSKY
- --------------------------
Julian A. Brodsky Vice Chairman of the Board of February 22, 1995
Directors; Director
/s/ BRIAN L. ROBERTS
- --------------------------
Brian L. Roberts President; Director (Principal February 22, 1995
Executive Officer)
/s/ JOHN R. ALCHIN
- --------------------------
John R. Alchin Senior Vice President, Treasurer February 22, 1995
(Principal Financial Officer)
/s/ LAWRENCE S. SMITH
- --------------------------
Lawrence S. Smith Senior Vice President, Accounting February 22, 1995
and Administration (Principal
Accounting Officer)
/s/ DANIEL AARON
- --------------------------
Daniel Aaron Director February 22, 1995
/s/ GUSTAVE G. AMSTERDAM
- --------------------------
Gustave G. Amsterdam Director February 22, 1995
/s/ SHELDON M. BONOVITZ
- --------------------------
Sheldon M. Bonovitz Director February 22, 1995
/s/ JOSEPH L. CASTLE II
- --------------------------
Joseph L. Castle II Director February 22, 1995
65
SIGNATURE TITLE DATE
/s/ BERNARD C. WATSON
- --------------------------
Bernard C. Watson Director February 22, 1995
/s/ IRVING A. WECHSLER
- --------------------------
Irving A. Wechsler Director February 22, 1995
/s/ ANNE WEXLER
- --------------------------
Anne Wexler Director February 22, 1995
66
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in thousands)
Additions
Balance at Charged to Deductions Balance
Beginning Costs and from at End
Description of Year Expenses Reserves(A) of Year
1994
Allowance for
doubtful accounts $11,792 $21,321 $21,841 $11,272
======= ======= ======= =======
1993
Allowance for
doubtful accounts $9,817 $20,427 $18,452 $11,792
====== ======= ======= =======
1992
Allowance for
doubtful accounts $6,143 $16,834 $13,160 $9,817
====== ======= ======= ======
(A) Uncollectible accounts written off.
67
INDEX TO EXHIBITS
Exhibit
Number Exhibit
10.5(b)* Amendment to 1986 Nonqualified Stock Option Plan,
dated September 16, 1994.
10.6(b)* Amendment to 1987 Stock Option Plan, dated September
16, 1994.
10.8* Amended and Restated Deferred Compensation Plan,
dated January 1, 1995.
10.9* 1990 Restricted Stock Plan, as amended and restated
on November 11, 1994.
10.42 Agreement of Limited Partnership of WirelessCo, L.P.,
a Delaware Limited Partnership, dated as of October
24, 1994, by and among Sprint Spectrum, Inc., TCI
Network, Inc., Comcast Telephony Services and Cox
Communications Wireless, Inc., each as a General
Partner and a Limited Partner.
10.43/*/ Credit Agreement, as of November 18, 1994, among
Comcast Corporation, The Bank of New York, Chemical
Bank and The Toronto-Dominion Bank, as Managing
Agents and Issuing Banks, The Bank of New York and
Chemical Bank, as Co-Administrative Agents, The
Toronto-Dominion Bank, as Documentation Agent and The
Bank of New York, as Paying Agent, and the Banks
listed therein.
10.44/*/ Guaranty Agreement, dated as of November 18, 1994,
between Comcast Cable Communications, Inc., and The
Bank of New York, as paying agent on behalf of
itself, the Banks, the Managing Agents, the Issuing
Banks, the Co-Administrative Agents and the
Documentation Agent under and as defined in the
Credit Agreement dated as of November 18, 1994.
10.45/*/ Pledge Agreement, dated as of January 1, 1996,
between Comcast Corporation and The Bank of New York,
as the Secured Party.
10.46/*/ Affiliate Subordination Agreement, dated as of
November 18, 1994, among Comcast Cable
Communications, Inc., Comcast Financial Corporation,
and any affiliate of the borrower or Comcast that
shall have become a party hereto and The Bank of New
York, as Paying Agent under the Credit Agreement
dated as of November 18, 1994.
21 List of Subsidiaries.
23 Accountants' Consents.
27 Financial Data Schedule.
99.1 Report of Independent Public Accountants to Garden
State Cablevision L.P., as of December 31, 1994 and
1993 and for the years then ended.
99.3 Report of Independent Public Accountants to Comcast
International Holdings, Inc., as of December 31, 1994
and 1993 and for the years then ended.
- --------------
* Constitutes a management contract or compensatory plan or arrangement.
/*/ Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant
agrees to furnish a copy of the referenced agreement to the Commission
upon request.