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FORM 10-K
___________________________
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
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ____________
Commission file number 0-6983
COMCAST CORPORATION
[GRAPHIC OMITTED - LOGO]
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1500 Market Street, Philadelphia, PA 19102-2148
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
___________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
___________________________
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
3-3/8% / 5-1/2% Step-up Convertible Subordinated Debentures Due 2005
1-1/8% Discount Convertible Subordinated Debentures Due 2007
___________________________
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, 1997, the aggregate market value of the Class A Common Stock
and Class A Special Common Stock held by non-affiliates of the Registrant was
$567.5 million and $5.091 billion, respectively.
___________________________
As of February 1, 1997, there were 283,488,179 shares of Class A Special Common
Stock, 33,508,729 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 1997.
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COMCAST CORPORATION
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business...........................................................1
Item 2 Properties........................................................21
Item 3 Legal Proceedings.................................................22
Item 4 Submission of Matters to a Vote of Security Holders...............22
Item 4A Executive Officers of the Registrant..............................22
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters...................................24
Item 6 Selected Financial Data...........................................25
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations.................26
Item 8 Financial Statements and Supplementary Data.......................40
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure............72
PART III
Item 10 Directors and Executive Officers of the Registrant................72
Item 11 Executive Compensation............................................72
Item 12 Security Ownership of Certain Beneficial
Owners and Management.........................................72
Item 13 Certain Relationships and Related Transactions....................72
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K...................................................73
SIGNATURES..................................................................81
___________________________
This Annual Report on Form 10-K for the year ended December 31, 1996, 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.
This Annual Report on Form 10-K contains forward looking statements made
pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned that such forward looking statements
involve risks and uncertainties which could significantly affect expected
results in the future from those expressed in any such forward looking
statements made by, or on behalf of the Company. Certain factors that could
cause actual results to differ materially include, without limitation, the
effects of legislative and regulatory changes; the potential for increased
competition; technological changes; the need to generate substantial growth in
the subscriber base by successfully launching, marketing and providing services
in identified markets; pricing pressures which could affect demand for the
Company's services; the Company's ability to expand its distribution; changes in
labor, programming, equipment and capital costs; the Company's continued ability
to create or acquire programming and products that customers will find
attractive; future acquisitions, strategic partnerships and divestitures;
general business and economic conditions; and other risks detailed from time to
time in the Company's periodic reports filed with the Securities and Exchange
Commission.
PART I
ITEM 1 BUSINESS
Comcast Corporation and its subsidiaries (the "Company") is principally engaged
in the development, management and operation of wired and wireless
telecommunications and the provision of content (see "Description of the
Company's Businesses"). 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 10 to the Company's consolidated financial statements for information
about the Company's operations by industry segment.
GENERAL DEVELOPMENTS OF BUSINESS
E! Entertainment
As of December 31, 1996, the Company owned a 10.4% interest in E! Entertainment
Television, Inc. ("E! Entertainment"), an entertainment programming service that
currently is distributed to more than 42 million subscribers. The Company has
the right, by virtue of various agreements among the shareholders of E!
Entertainment, to purchase an additional 58.4% interest in E! Entertainment from
Time Warner, Inc. ("Time Warner") for $321.1 million. In January 1997, the
Company and The Walt Disney Company ("Disney") entered into an agreement to form
a new limited liability company ("Newco") that will be owned 50.1% by the
Company and 49.9% by Disney. Pursuant to the agreement, the Company will
contribute to Newco its 10.4% interest in E! Entertainment, the right to
exercise its option to purchase the Time Warner interest and $132.3 million in
cash. Disney will contribute to Newco $188.8 million in cash. Newco will use the
cash contributed by the Company and Disney to purchase the Time Warner interest.
Following such purchase, Newco will own a 68.8% interest in E! Entertainment. To
fund the cash portion of its contribution, the Company will borrow $132.3
million from Disney in the form of two 10-year, 7% notes. These transactions are
expected to close in the first quarter of 1997, subject to regulatory approval
and certain other conditions.
Scripps Cable
In November 1996, the Company acquired the cable television operations ("Scripps
Cable") of The E.W. Scripps Company in exchange for 93.048 million shares of the
Company's Class A Special Common Stock, par value $1.00 per share (the "Class A
Special Common Stock"), valued at $1.552 billion (the "Scripps Acquisition").
Scripps Cable passed more than 1.3 million homes and served more than 800,000
subscribers as of December 31, 1996, with 60% of its subscribers located in
Sacramento, California and Chattanooga and Knoxville, Tennessee. The Company has
accounted for the Scripps Acquisition under the purchase method and Scripps
Cable was consolidated with the Company effective November 1, 1996.
Comcast-Spectacor
In July 1996, the Company completed its acquisition (the "Sports Venture
Acquisition") of a 66% interest in the Philadelphia Flyers Limited Partnership,
a Pennsylvania limited partnership ("PFLP"), the assets of which, after giving
effect to the Sports Venture Acquisition, consist of (i) the National Basketball
Association ("NBA") franchise to own and operate the Philadelphia 76ers
basketball team and related assets (the "Sixers"), (ii) the National Hockey
League ("NHL") franchise to own and operate the Philadelphia Flyers hockey team
and related assets, and (iii) two adjacent arenas, leasehold interests in and
development rights related to the land underlying the arenas and other adjacent
parcels of land located in Philadelphia, Pennsylvania (collectively, the
"Arenas"). Concurrent with the completion of the Sports Venture Acquisition,
PFLP was renamed Comcast Spectacor, L.P. ("Comcast-Spectacor").
The Sports Venture Acquisition was completed in two steps. In April 1996, the
Company purchased the Sixers for $125.0 million in cash plus assumed net
liabilities of $11.0 million through a partnership controlled by the Company. To
complete the Sports Venture Acquisition, in July 1996, the Company contributed
its interest in the Sixers, exchanged approximately 3.5 million shares of the
Company's Class A Special Common Stock and 6,370 shares of the Company's newly
issued 5% Series A Convertible Preferred Stock (the "Preferred Stock"), and paid
$15.0 million in cash for its current interest in Comcast-Spectacor. The
remaining 34% interest in Comcast-Spectacor is owned by a group, including the
former majority owner of PFLP, who also manages Comcast-Spectacor. In connection
with the Sports Venture Acquisition, Comcast-Spectacor assumed the outstanding
liabilities relating to the Sixers and the Arenas, including a mortgage
obligation of $155.0 million. The Company accounts for its interest in Comcast-
Spectacor under the equity method.
Sprint Spectrum
The Company, Tele-Communications, Inc. ("TCI"), Cox Communications, Inc. ("Cox,"
and together with the Company and TCI, the "Cable Parents") and Sprint
Corporation ("Sprint," and together with the Cable Parents, the "Parents"), and
certain subsidiaries of the Parents (the "Partner Subsidiaries") engage in the
wireless communications business through a limited partnership known as "Sprint
Spectrum," a development stage enterprise. The Company owns 15% of Sprint
Spectrum and accounts for its investment in Sprint Spectrum under the equity
method.
Sprint Spectrum was the successful bidder for 29 personal communications
services ("PCS") licenses in the auction conducted by the Federal Communications
Commission ("FCC") from December 1994 through mid-March 1995. The purchase price
for the licenses was $2.11 billion, all of which has been paid to the FCC. In
addition, Sprint Spectrum has invested, and may continue to invest, in other
entities that hold PCS licenses, may acquire PCS licenses in future FCC auctions
or from other license holders and may affiliate with other license holders.
The Partner Subsidiaries have committed to contribute $4.2 billion in cash to
Sprint Spectrum through 1999, of which the Company's share is $630.0 million. Of
this funding requirement, the Company has made total cash contributions to
Sprint Spectrum of $452.8 million through December 31, 1996 and issued a $105.0
million guaranty on a portion of Sprint Spectrum's outstanding debt. The Company
anticipates that Sprint Spectrum's capital requirements over the next several
years will be significant. Requirements in excess of committed capital are
planned to be funded by Sprint Spectrum through external financing, including,
but not limited to, vendor financing, bank financing and securities offered to
the public. In August 1996, Sprint Spectrum sold $750.0 million principal amount
at maturity of Senior Notes and Senior Discount Notes due in 2006 in a public
offering. In October 1996, Sprint Spectrum closed three credit agreements which
provided $2.0 billion in bank financing and $3.1 billion in vendor financing.
The timing of the Company's remaining capital contributions to Sprint Spectrum
is dependent upon a number of factors, including Sprint Spectrum's working
capital requirements. The Company anticipates funding its remaining capital
commitments to Sprint Spectrum through its cash flows from operating activities,
its existing cash, cash equivalents, short-term investments and lines of credit
or other external financing, or by a combination of these sources.
Repurchase Program
Concurrent with the announcement of the Scripps Acquisition in October 1995, the
Company announced that its Board of Directors authorized a market repurchase
program (the "Repurchase Program") pursuant to which the Company may purchase,
at such times and on such terms as it deems appropriate, up to $500.0 million of
its outstanding common stock, subject to certain restrictions and market
conditions. During the years ended December 31, 1996 and 1995, the Company
repurchased 10.5 million shares and 680,000 shares, respectively, of its common
stock for aggregate consideration of $180.0 million and $12.4 million,
respectively, pursuant to the Repurchase Program. During January 1997, the
Company repurchased an additional 450,000 shares of its common stock for
aggregate consideration of $7.6 million. The Repurchase Program will terminate
in May 1997.
As part of the Repurchase Program, the Company sold put options on 1.0 million
and 3.0 million shares of its Class A Special Common Stock during the years
ended December 31, 1996 and 1995, respectively. The put options give the holders
the right to require the Company to repurchase such shares at specified prices
on specific dates in January through March 1997. As of December 31, 1996, the
Company has reclassified $69.6 million, the amount it would be obligated to pay
to repurchase such shares upon exercise of the put options, to a temporary
equity account in its
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consolidated balance sheet. The temporary equity related to these shares will be
reclassified to additional capital in the first quarter of 1997 upon expiration
or settlement of the options.
DESCRIPTION OF THE COMPANY'S BUSINESSES
WIRED TELECOMMUNICATIONS
Wired telecommunications includes cable and telecommunications services in the
United States ("US") and the United Kingdom ("UK") (see "Cable Communications -
Company's Systems" and "- UK Activities"). The Company also owns a 50% interest
in Garden State Cablevision L.P. ("Garden State"), a cable communications
company serving portions of southern New Jersey, and a 16.1% interest in
Teleport Communications Group, Inc. ("TCGI"), one of the largest competitive
alternative access providers in the US in terms of route miles.
CABLE COMMUNICATIONS
General
A cable communications system receives signals by means of special antennae,
microwave relay systems, earth stations and fiber optics. 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; audio programming; electronic
retailing and public service announcements. In addition, each of the Company's
systems offer, for an extra monthly charge, one or more premium services ("Pay
Cable") such as Home Box Office(R), Cinemax(R), Showtime(R), The Movie
Channel(TM) and Encore(R), which generally offer, without commercial
interruption, feature motion pictures, live and taped sporting events, concerts
and other special features. Substantially all of the Company's systems offer
pay-per-view services, which permit a subscriber to order, for a separate fee,
individual feature motion pictures and special event programs. The Company has
also started offering or is field testing other cable-based services including
cable modems (see "Description of the Company's Businesses - Wired
Telecommunications - Online Services"), video games and data transfer.
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 provision of free services to
schools and other public institutions; and the maintenance of insurance and
indemnity bonds. Cable franchises are subject to the Cable Communications Policy
Act of 1984 (the "1984 Cable Act"), the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act," and together with the 1984 Cable
Act, the "Cable Acts") and the Telecommunications Act of 1996 (the "1996 Telecom
Act"), as well as FCC, state and local regulations (see "Legislation and
Regulation").
The Company's franchises typically provide for periodic payment of fees to
franchising authorities of 5% of "revenues" (as defined by each franchise
agreement), which fees may be passed on to subscribers. Franchises are generally
non-transferable without the consent of the governmental authority. Many of the
Company's franchises 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"). In addition, under the 1996 Telecom Act, certain
providers of programming services may be exempt from local franchising
requirements.
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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, 1996:
1996 (5) 1995 1994 (4) 1993 1992
(In thousands)
Homes Passed (1)(3) 6,975 5,570 5,491 4,211 4,154
Cable Subscribers (2)(3) 4,280 3,407 3,307 2,648 2,583
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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) A dwelling with one or more television sets connected to a system is
counted as one Cable Subscriber.
(3) Consists of systems whose financial results are consolidated with
those of the Company. Amounts do not include information for the
Company's investment in Garden State or in other systems managed by
the Company in which the Company has less than a 50% interest. As of
December 31, 1996, total Homes Passed and Cable Subscribers for such
entities were 331,000 and 227,000, respectively.
(4) In 1994, the Company acquired the US cable television operations of
Maclean Hunter Limited.
(5) In 1996, the Company acquired Scripps Cable.
Revenue Sources
The Company's cable communications systems offer varying levels of service,
depending primarily on their respective channel capacities. As of December 31,
1996, a majority of the Company's subscribers were served by systems that had
the capacity to carry in excess of 60 channels.
Monthly service and equipment 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, advertising sales and commissions from electronic retailing.
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 per channel or a
percentage of certain revenues for programming. Programming costs increase in
the ordinary course of the Company's business as a result of increases in the
number of subscribers, expansion of the number of channels provided to customers
and contractual rate increases from programming suppliers.
The Company seeks and secures long-term programming contracts with suppliers,
some of which provide volume discount pricing structures and/or offer marketing
support to the Company. The Company anticipates that future contract renewals
will result in programming costs exceeding current levels, particularly for
sports programming.
National manufacturers are the primary sources of supplies, equipment and
materials utilized in the construction, rebuild and upgrade 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.
The Company anticipates that its programming and construction, rebuild and
upgrade costs will be significant in future periods. The amount of such costs
will depend on numerous factors, many of which are beyond the Company's control.
These factors include the effects of competition, whether a particular system
has sufficient capacity to handle new product offerings including the offering
of communications services, whether and to what extent the Company will be able
to recover its investment under FCC rate guidelines and other factors, and
whether
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the Company acquires additional systems in need of upgrading or rebuilding.
Increases in such costs may be significant to the Company's financial position,
results of operations and liquidity.
UK Activities
The Company beneficially owns a 25.7% equity interest and controls 77.6% of the
total voting power of Comcast UK Cable Partners Limited, a consolidated
subsidiary of the Company ("Comcast UK Cable"). As of December 31, 1996, Comcast
UK Cable has equity interests in four operating companies (the "UK 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 50.0% interest, Cambridge Holding Company Limited
("Cambridge Cable"), in which Comcast UK Cable owns a 100.0% interest, and two
companies holding the franchises for Darlington and Teesside, England
("Teesside"), in which Comcast UK Cable owns a 100.0% interest. The UK Operating
Companies hold exclusive cable television licenses and non-exclusive
telecommunications licenses and provide integrated cable television, residential
telephony and business telecommunications services to subscribers in their
respective franchise areas. When build-out of the UK Operating Companies'
systems is complete, these systems will have the potential to serve over 1.6
million homes and the businesses within their franchise areas.
Based on closed and announced transactions, it is apparent that the UK cable and
telecommunications industries are undergoing a significant consolidation, which
trend the Company expects to continue in the coming months. The Company has
engaged an investment advisor to assist it in evaluating the current state of
the UK marketplace, the position of other participants and its alternatives with
respect to Comcast UK Cable. There can be no assurance that the Company will
take any action, or in what time frame any such action, if undertaken, might be
accomplished.
UK Operating Companies' Systems
The table below sets forth Homes Passed, Telephony Subscriber and Cable
Subscriber information for the UK Operating Companies' cable communications
systems for the five years ended December 31, 1996:
1996 1995 1994 1993 1992
(In thousands)
Homes Passed (1) (2)
Birmingham Cable 374 292 227 156 104
Cable London 312 246 171 121 78
Cambridge Cable 188 151 115 75 36
Teesside 100 40
Telephony Subscribers (2) (3)
Birmingham Cable 108 83 59 36 23
Cable London 60 41 32 18 12
Cambridge Cable 58 44 34 12
Teesside 50 20
Cable Subscribers (2) (4)
Birmingham Cable 111 88 73 55 35
Cable London 67 52 42 30 20
Cambridge Cable 45 36 30 16 6
Teesside 30 14
(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, Telephony Subscribers and Cable Subscribers have not been
adjusted for the Company's proportionate ownership interests in the
respective UK Operating Companies.
(3) A dwelling with one or more telephone lines connected to a system is
counted as one Telephony Subscriber.
(4) A dwelling with one or more television sets connected to a system is
counted as one Cable Subscriber.
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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 online computer
services and home video products, including videotape cassette recorders. The
extent to which a cable communications system is competitive depends, in part,
upon the cable system's ability to provide, at a reasonable price to consumers,
a greater variety of programming and other communications services than are
available off-air or through other alternative delivery sources (see
"Legislation and Regulation") and upon superior technical performance and
customer service.
The 1996 Telecom Act makes it easier for local exchange telephone companies
("LECs") and others to provide a wide variety of video services competitive with
services provided by cable systems and to provide cable services directly to
subscribers (see "Legislation and Regulation - The 1996 Telecom Act"). Various
LECs currently are providing video services within and outside their telephone
service areas through a variety of distribution methods, including both the
deployment of broadband wire facilities and the use of wireless transmission
facilities. Cable systems could be placed at a competitive disadvantage if the
delivery of video services by LECs becomes widespread since LECs are not
required, under certain circumstances, to obtain local franchises to deliver
such video services or to comply with the variety of obligations imposed upon
cable systems under such franchises (see "Legislation and Regulation"). Issues
of cross-subsidization by LECs of video and telephony services also pose
strategic disadvantages for cable operators seeking to compete with LECs which
provide video services. The Company cannot predict the likelihood of success of
video service ventures by LECs or the impact on the Company of such competitive
ventures.
Cable communications systems generally operate pursuant to franchises granted on
a non-exclusive basis. The 1992 Cable Act 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 public
utilities that own certain of the poles on which cable is attached) may become
competitors for franchises or providers of competing services (see "Legislation
and Regulation - The 1996 Telecom Act"). Competition from other video service
providers exists in the areas served by the Company. In addition, LECs in
various states either have announced plans, obtained local franchise
authorizations or are currently competing with the Company's cable
communications systems in various areas.
The availability of reasonably-priced home satellite dish earth stations
("HSDs") 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 cable competitors to
purchase and make available to HSD owners certain satellite-delivered cable
programming at competitive costs. The 1996 Telecom Act and FCC regulations
implementing that law preempt certain local restrictions on the use of HSDs and
roof-top antennae to receive satellite programming and over-the-air broadcasting
services (see "Legislation and Regulation - The 1996 Telecom Act").
Cable operators face additional competition from private satellite master
antenna television ("SMATV") systems that serve condominiums, apartment and
office complexes and private residential developments. The 1996 Telecom Act
broadens the definition of SMATV systems not subject to regulation as a
franchised cable communications service. SMATV systems offer both improved
reception of local television stations and many of the same satellite-delivered
programming services offered by franchised cable communications systems. SMATV
operators often enter into exclusive agreements with building owners or
homeowners' associations, although some states have enacted laws to provide
franchised cable systems access to such private complexes, and the 1984 Cable
Act gives a franchised cable operator the right to use existing compatible
easements within its franchise area under certain circumstances. These laws have
been challenged in the courts with varying results. In addition, some companies
are developing and/or offering packages of telephony, data and video services to
these private residential and commercial developments. The ability of the
Company to compete for subscribers in residential and commercial developments
served by SMATV operators is uncertain.
The FCC and Congress have 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 customer premises. Programming is currently available to the owners
of HSDs through conventional, medium and high-powered satellites. In 1990,
Primestar Partners, L.P. ("Primestar"),
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a consortium comprised of cable operators, including the Company and a satellite
company, commenced operation of a medium-power DBS satellite system using the Ku
portion of the frequency spectrum and currently provides service consisting of
approximately 95 channels of programming, including broadcast signals and
pay-per-view services (see "Wireless Telecommunications - DBS Operations"). In
January 1997, Primestar launched a replacement medium-power DBS satellite which
will enable it to increase its capacity to approximately 160 channels. In
addition, through one of its owners which is also a Primestar affiliate,
Primestar has obtained the right to provide service over a high-power DBS
satellite and, using video compression technology, intends initially to offer
approximately 70 channels of video programming in the future. This programming
is intended to be offered to existing cable subscribers as an addition to their
cable service. DirecTV, which includes AT&T Corp. as an investor, began offering
nationwide high-power DBS service in 1994 accompanied by extensive marketing
efforts. Several other major companies, including EchoStar Communications
Corporation ("EchoStar") and American Sky Broadcasting ("ASkyB"), a joint
venture between MCI Telecommunications Corporation and News Corp., have begun
offering or are currently developing high-power DBS services. EchoStar has
already commenced its domestic DBS service and offers approximately 120 channels
of video programming. ASkyB is constructing satellites that reportedly, when
operational, will provide approximately 200 channels of DBS service in the US.
The recently announced plans of News Corp. to purchase an interest in EchoStar
may, if consummated, create a more significant competitor to cable and DBS
service providers, including the Company.
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 comparable to those of cable systems. Digital satellite
service ("DSS") offered by DBS systems currently has certain advantages over
cable systems with respect to programming capacity and digital quality, as well
as certain current disadvantages that include high up-front customer equipment
costs and a lack of local programming, local service and equipment distribution.
While DSS presents a competitive threat to cable, the Company currently is
increasing channel capacity in many of its systems and upgrading its local
customer service and technical support. The Company is currently in the process
of implementing ten regional customer service call centers. As of December 31,
1996, three of these call centers were in operation, servicing more than 950,000
subscribers. These upgrades will enable the Company to introduce new premium
channels, pay-per-view programming, interactive computer-based services and
other communications services in order to enhance its ability to compete.
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. Several Regional Bell Operating Companies ("BOCs")
have acquired significant interests in major MMDS companies operating in certain
of the Company's cable service areas. Recent public announcements by Bell
Atlantic Corporation ("Bell Atlantic"), a BOC operating in the northeastern US,
indicate that plans to compete with the Company through the use of MMDS
technology may be revised. Additionally, the FCC recently adopted new
regulations allocating 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, including internet-based services, may become
competitive with 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 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. LECs and other common carriers also provide facilities for
the transmission and distribution to homes and businesses of interactive
computer-based services, including the Internet, as well as data and other
non-video services. The FCC has conducted spectrum auctions for licenses to
provide PCS. PCS will enable license holders, including cable operators, to
provide voice and data services (see "Wireless Telecommunications - Cellular
Telephone Communications - Competition").
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 communications industry or on the operations of the Company.
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Legislation and Regulation
The Cable Acts and the 1996 Telecom Act amended the Communications Act of 1934
(as amended, the "Communications Act") and established a national policy to
guide the development and regulation of cable systems. The FCC and state
regulatory agencies are required to conduct numerous rulemaking and regulatory
proceedings to implement the 1996 Telecom Act, and such proceedings 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 1996 Telecom Act. The 1996 Telecom Act, the most comprehensive reform of the
nation's telecommunications laws since the Communications Act, became effective
in February 1996. Although the long-term goal of this act is to promote
competition and decrease regulation of these industries, in the short-term, the
law delegates to the FCC (and in some cases the states) broad new rulemaking
authority. The 1996 Telecom Act deregulates rates for cable programming service
tiers ("CPSTs") in March 1999 for large Multiple System Operators ("MSOs"), such
as the Company, and immediately for certain small operators. Deregulation will
occur sooner for systems in markets where comparable video services, other than
DBS, are offered by the LECs, or their affiliates, or by third parties utilizing
the LECs' facilities or where "effective competition" is established under the
1992 Cable Act. The 1996 Telecom Act also modifies the uniform rate provisions
of the 1992 Cable Act by prohibiting regulation of non-predatory, bulk discount
rates offered to subscribers in commercial and residential developments and
permits regulated equipment rates to be computed by aggregating costs of broad
categories of equipment at the franchise, system, regional or company level. The
1996 Telecom Act eliminates the right of individual subscribers to file rate
complaints with the FCC concerning certain CPSTs and requires the FCC to issue a
final order within 90 days after receipt of CPST rate complaints filed by any
franchising authority. The 1996 Telecom Act also modifies the existing statutory
provisions governing cable system technical standards, equipment compatibility,
subscriber notice requirements and program access, permits certain operators to
include losses incurred prior to September 1992 in setting regulated rates and
repeals the three-year anti-trafficking prohibition adopted in the 1992 Cable
Act. FCC regulations implementing the 1996 Telecom Act preempt certain local
restrictions on satellite and over-the-air antenna reception of video
programming services, including zoning, land-use or building regulations, or any
private covenant, homeowners' association rule or similar restriction on
property within the exclusive use or control of the antenna user.
The 1996 Telecom Act eliminates the requirement that LECs obtain FCC approval
under Section 214 of the Communications Act before providing video services in
their telephone service areas and removes the statutory telephone company/cable
television cross-ownership prohibition, thereby allowing LECs to offer video
services in their telephone service areas. LECs may provide service as
traditional cable operators with local franchises or they may opt to provide
their programming over unfranchised "open video systems," subject to certain
conditions, including, but not limited to, setting aside a portion of their
channel capacity for use by unaffiliated program distributors and satisfying
certain other requirements. Under limited circumstances, cable operators also
may elect to offer services through open video systems. The 1996 Telecom Act
also prohibits a LEC from acquiring a cable operator in its telephone service
area except in limited circumstances. The 1996 Telecom Act removes barriers to
entry in the local telephone exchange market by preempting state and local laws
that restrict competition and by requiring all LECs to provide nondiscriminatory
access and interconnection to potential competitors, such as cable operators,
wireless telecommunications providers and long distance companies (see "Wireless
Telecommunications Cellular Telephone Communications - Legislation and
Regulation").
The 1996 Telecom Act also contains provisions regulating the content of video
programming and computer services. Specifically, the new law prohibits the use
of computer services to transmit "indecent" material to minors. Several special
three-judge federal district courts have issued preliminary injunctions
enjoining the enforcement of these provisions as unconstitutional to the extent
they regulate the transmission of indecent material. The US Supreme Court
recently announced that it would review one of these decisions. In accordance
with the 1996 Telecom Act, the television industry recently adopted a voluntary
ratings system for violent and indecent video programming. The 1996 Telecom Act
also requires all new television sets to contain a so-called "V-chip" capable of
blocking all programs with a given rating.
Rate Regulation. The 1992 Cable Act authorized rate regulation for cable
communications services and equipment in communities that are not subject to
"effective competition," as defined by federal law. Most 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
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to resolve complaints about rates for CPSTs (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 1996
Telecom Act provides for rate deregulation of CPSTs by March 1999 (see "The 1996
Telecom Act").
FCC regulations, which became effective in September 1993, govern rates that may
be charged to subscribers for basic cable service and certain CPSTs (together,
the "Regulated Services"). The FCC uses a benchmark methodology as the principal
method of regulating rates for Regulated Services. Cable operators are also
permitted to justify rates using a cost-of-service methodology. In 1994, the
FCC's benchmark regulations required operators to implement rate reductions for
Regulated Services of up to 17% of the rates for such services in effect on
September 30, 1992, adjusted for inflation, programming modifications, equipment
costs and increases in certain operating costs. In July 1994, the Company
reduced rates for Regulated Services in the majority of its cable systems to
comply with the FCC's regulations. The FCC has also adopted comprehensive and
restrictive regulations allowing operators to modify their regulated rates on a
quarterly or annual basis using various methodologies that account for changes
in the number of regulated channels, inflation and increases in certain external
costs, such as franchise and other governmental fees, copyright and
retransmission consent fees, taxes, programming fees and franchise related
obligations. The Company cannot predict whether the FCC will modify these "going
forward" regulations in the future.
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
reasonable using the FCC's cost-of-service rate regulations which require, among
other things, the exclusion of 34% of system acquisition costs related to
intangible and tangible assets used to provide Regulated Services. The FCC's
cost-of-service regulations contain a rebuttable presumption of an industry-wide
11.25% after tax rate of return on an operator's allowable rate base, but the
FCC has initiated a further rulemaking in which it proposes to use an operator's
actual debt cost and capital structure to determine an operator's cost of
capital or rate of return.
The Company has settled the majority of outstanding proceedings challenging its
rates charged for regulated cable services. In December 1995, the FCC adopted an
order approving a negotiated settlement of rate complaints pending against the
Company for CPSTs which provided $6.6 million in refunds, plus interest, given
in the form of bill credits during 1996, to 1.3 million of the Company's cable
subscribers. As part of the negotiated settlement, the Company agreed to forego
certain inflation and external cost adjustments for systems covered by its
cost-of-service filings for CPSTs. The Company currently is seeking to justify
rates for basic cable services and equipment in certain of its cable systems in
the State of Connecticut on the basis of a cost-of-service showing. The State of
Connecticut has ordered the Company to reduce such rates and to make refunds to
subscribers. The Company has appealed the Connecticut decision to the FCC.
Recent pronouncements from the FCC, which generally support the Company's
position on appeal, have caused the State of Connecticut to reexamine its prior
ruling. While the Company cannot predict the outcome of this action, the Company
believes that the ultimate resolution of these pending regulatory matters will
not have a material adverse impact on the Company's financial position, results
of operations or liquidity.
"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. Many 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
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generally is required to devote up to one-third of its activated channel
capacity for the carriage of local commercial television stations whether
pursuant to the mandatory carriage or retransmission consent requirements of the
1992 Cable Act. 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 1993. The US Supreme Court is currently reviewing the constitutional
validity of the 1992 Cable Act's mandatory signal carriage requirements. The
Company cannot predict the ultimate outcome of this litigation. Pending action
by the US Supreme Court, the mandatory broadcast signal carriage requirements
remain in effect.
Designated Channels. The Communications 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. The US Supreme Court recently held parts of the 1992 Cable Act
regulating "indecent" programming on local access channels to be
unconstitutional, but upheld the statutory right of cable operators to prohibit
or limit the provision of "indecent" programming on commercial leased access
channels.
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. In January, 1995, the FCC relaxed its
restrictions on ownership of SMATV systems to permit a cable operator to acquire
SMATV systems in the operator's existing franchise area so long as the
programming services provided through the SMATV system are offered according to
the terms and conditions of the cable operator's local franchise agreement. The
1996 Telecom Act provides that the cable/SMATV and cable/MMDS cross-ownership
rules do not apply in any franchise area where the operator faces "effective
competition" as defined by federal law.
The Cable Acts also provide 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. The Cable Acts limit the payment of franchise fees to 5% of
revenues derived from cable operations and permit 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 periodic payment of fees to franchising authorities of 5% of
"revenues" (as defined by each franchise agreement), which fees may be passed on
to subscribers. The 1996 Telecom Act generally prohibits franchising authorities
from (i) imposing requirements in the cable franchising process that require,
prohibit or restrict the provision of telecommunications services by an
operator, (ii) imposing franchise fees on revenues derived by the operator from
providing telecommunications services over its cable system, or (iii)
restricting an operator's use of any type of subscriber equipment or
transmission technology.
The 1984 Cable Act contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. The 1992 Cable Act made
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. As such, the Company
anticipates that its future franchise renewal prospects generally will be
favorable.
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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 US 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. 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. An appeal of that decision has been
consolidated with appeals challenging the FCC's regulatory ownership
restrictions and is pending. The 1996 Telecom Act eliminates the statutory
prohibition on the common ownership, operation or control of a cable system and
a television broadcast station in the same service area and directs the FCC to
review its broadcast-cable ownership restrictions to determine if they are
necessary in the public interest. Pursuant to the mandate of the 1996 Telecom
Act, the FCC eliminated its regulatory restriction on cross-ownership of cable
systems and national broadcasting networks.
LEC Ownership of Cable Systems. The 1996 Telecom Act makes far-reaching changes
in the regulation of LECs that provide cable services. The new law eliminates
federal legal barriers to competition in the local telephone and cable
communications businesses, preempts legal barriers to competition that
previously existed in state and local laws and regulations, and sets basic
standards for relationships between telecommunications providers (see "The 1996
Telecom Act"). The 1996 Telecom Act generally limits acquisitions and prohibits
certain joint ventures between LECs and cable operators in the same market. The
FCC adopted regulations implementing the 1996 Telecom Act requirement that LECs
open their telephone networks to competition by providing competitors
interconnection, access to unbundled network elements and retail services at
wholesale rates. Numerous parties have appealed these regulations. The appeals
have been consolidated and will be reviewed by the US Court of Appeals for the
Eighth Circuit, which has stayed the FCC's pricing and nondiscrimination
regulations (see "Wireless Telecommunications - Cellular Telephone
Communications - Legislation and Regulation"). The ultimate outcome of these
rulemakings, and the ultimate impact of the 1996 Telecom Act or any final
regulations adopted pursuant to the new law on the Company or its businesses
cannot be determined at this time.
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. The 1996 Telecom Act and the FCC's
implementing regulations modify the current pole attachment provisions of the
Communications Act by immediately permitting certain providers of
telecommunications services to rely upon the protections of the current law and
by requiring that utilities provide cable systems and telecommunications
carriers with nondiscriminatory access to any pole, conduit or right-of-way
controlled by the utility. Additionally, within two years of enactment of the
1996 Telecom Act, the FCC is required to adopt new regulations to govern the
charges for pole attachments used by companies providing telecommunications
services, including cable operators. These new pole attachment rate regulations
will become effective five years after enactment of the 1996 Telecom Act, and
any increase in attachment rates resulting from the FCC's new regulations will
be phased in equal annual increments over a period of five years beginning on
the effective date of the new FCC regulations.
Other Statutory Provisions. The 1992 Cable Act, the 1996 Telecom Act and FCC
regulations preclude any satellite video programmer affiliated with a cable
company, or with a common carrier providing video programming directly to its
subscribers, from favoring an affiliated company over competitors and requires
such programmers to sell their programming to other multichannel video
distributors. These provisions limit the ability of program suppliers affiliated
with cable companies or with common carriers providing satellite delivered video
programming directly to their subscribers to offer exclusive programming
arrangements to their affiliates. The Communications Act also includes
provisions, among others, concerning horizontal and vertical ownership of cable
systems, customer service,
- 11 -
subscriber privacy, marketing practices, equal employment opportunity, obscene
or indecent programming, regulation of technical standards and equipment
compatibility.
Other FCC Regulations. The FCC has numerous rulemaking proceedings pending that
will implement various provisions of the 1996 Telecom Act; it also has adopted
regulations implementing various provisions of the 1992 Cable Act and the 1996
Telecom Act that are the subject of petitions requesting reconsideration of
various aspects of its rulemaking proceedings. 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 broadcast
programming, application of rules governing political broadcasts, limitations on
advertising contained in non-broadcast children's programming, consumer
protection and customer service, 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 communications have
previously been introduced in Congress or considered by other governmental
bodies over the past several years. It is probable that further attempts will be
made by Congress and other governmental bodies relating to the regulation 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.
Cable operators distribute programming and advertising that use music controlled
by the two major music performing rights organizations, ASCAP and BMI. In
October 1989, the special rate court of the US District Court for the Southern
District of New York imposed interim rates on the cable industry's use of
ASCAP-controlled music. The same federal district court recently established a
special rate court for BMI. BMI and cable industry representatives recently
concluded negotiations for a standard licensing agreement covering the
performance of BMI music contained in advertising and other information inserted
by operators into cable programming and on certain local access and origination
channels carried on cable systems. The Company's settlement with BMI did not
have a significant impact on the Company's financial position, results of
operations or liquidity. ASCAP and cable industry representatives have met to
discuss the development of a standard licensing agreement covering
ASCAP-controlled music in local origination and access channels and pay-per-view
programming. Although the Company cannot predict the ultimate outcome of these
industry negotiations or the amount of any license fees it may be required to
pay for past and future use of ASCAP-controlled music, it does not believe such
license fees will be significant to the Company's financial position, results of
operations or liquidity.
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 non-exclusive
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
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.
- 12 -
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 Wire- less Telegraphy Acts of
1949-67 for the use of microwave distribution systems. Any system covering 1,000
homes or less requires a telecommunications license but not a cable television
license, and a system that covers only one building or two adjacent buildings
can operate pursuant to an existing general telecommunications license.
The 1996 Broadcasting Act (the "1996 Act") became law in July 1996. The 1996 Act
amends the Broadcasting Act and makes provision for the broadcasting in digital
form of television and sound program services and broadcasting in digital form
on television. The 1996 Act also addresses rights to televise sporting or other
events of national interest. In addition, cable operators must comply with and
are entitled to the benefits of the New Roads and Street Works Act 1991, the
principal benefit of which is to allow cable operators to "piggy back" their
construction on that of local utilities. However, the aggressive build schedules
followed by the UK Operating Companies make waiting for local utilities to
undertake construction impractical.
The cable television licenses held by the relevant subsidiaries of the UK
Operating Companies were issued under the UK Cable Act for 15-year periods. The
majority of the UK Operating Companies' cable television licenses have been
extended to run for 23 years and are scheduled to expire beginning in late 2012.
The telecommunications licenses held by these subsidiaries of the UK Operating
Companies are for 23-year periods and are scheduled to expire beginning in late
2012.
ONLINE SERVICES
In December 1996, the Company began marketing high-speed cable modem services in
areas served by two of its cable systems. High-speed cable modems are capable of
providing access to online information, including the Internet, at much faster
speeds than that of conventional or Integrated Service Digital Network ("ISDN")
modems. In August 1996, the Company invested in the At Home Corporation
("@Home"), which offers a network that distributes high-speed interactive
content over the cable industry's hybrid-fiber coaxial distribution
architecture. The Company's @Home package includes a high-speed cable modem;
24-hour-a-day unlimited access to the Internet; electronic mail and chat; an
Internet guide designed by @Home, featuring a menu of local community content,
in addition to the vast Internet content already available. @Home is owned by
the Company, TCI, Cox and Kleiner Perkins Caufield & Byers. The Company expects
to expand the marketing of such services in selected cable systems during 1997.
The Company anticipates that competition in the online services area will be
significant. Competitors in this area include LECs, long distance carriers and
others, many of whom have more substantial resources than the Company.
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WIRELESS TELECOMMUNICATIONS
The Company's wireless telecommunications operations primarily consist of the
Company's cellular telephone communications operations. The Company's other
wireless telecommunications businesses includes its DBS operations, including
the Company's investment in Primestar (see "Wired Telecommunications - Cable
Communications - Competition"), and its interest in Sprint Spectrum, which has
acquired 29 PCS licenses and is in the process of developing operations to
provide telecommunications services (see "General Developments of Business -
Sprint Spectrum"). A subsidiary of the Company also was the high bidder on
twelve 10-MHz PCS licenses in an auction conducted by the FCC completed in
January 1997. In addition, the Company, through a majority owned and
consolidated subsidiary, provides directory assistance and other information
services to users of wireless telephones in a number of domestic markets.
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 prior generation systems. Each cell has a coverage area generally ranging
from one to more than 300 square miles. A cellular telephone system includes one
or more computerized central switching facilities known as mobile switching
centers ("MSC") which control the automatic transfer of calls, coordinate calls
to and from cellular telephones and connect calls to the LEC or to an
interexchange carrier. An MSC also records information on system usage and
subscriber statistics.
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 MSC 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 LECs 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 US so that a cellular telephone
may be used wherever cellular service is available. Each cellular telephone
system in the US 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 MSCs 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 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 Company's implementation of digital radio technology
is expected to commence in 1997. It is anticipated that a substantial portion of
increased capacity for subsequent traffic and subscriber growth will be
accommodated using the lower cost digital technology.
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 or 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 implemented a
number of features which have decreased the incidents of fraudulent use of their
systems. Among
- 14 -
these are Personal Identification Numbers ("PINs"), which are required to be
used by a majority of the Company's customers, and the Company's Security Zone
feature which restricts customer usage outside of the Company's service areas.
In addition, the Company has implemented authentication and radiofrequency
("RF") fingerprinting technologies which associate ESN/mobile number
combinations with particular cellular telephone units. The use of digital radio
technology also purportedly will make it more difficult to commit cellular
fraud. However, fraudulent use of the Company's systems remains a significant
concern.
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 ("MSA") and Rural Service Area ("RSA") as of December 31, 1996
(in thousands):
Market Ownership Pops (1) Net Pops
MSAs:
Atlantic City, NJ 97% 333 323
Aurora-Elgin, IL 82% 48 39
Joliet, IL 84% 36 30
Long Branch, NJ 100% 591 591
New Brunswick, NJ 100% 703 703
Philadelphia, PA 100% 4,894 4,894
Trenton, NJ 85% 331 281
Vineland, NJ 95% 139 132
Wilmington, DE 100% 618 618
----- -----
7,693 7,611
----- -----
RSAs:
Ocean County, NJ 100% 471 471
Kent and Sussex, DE 50% 257 129
----- -----
728 600
----- -----
8,421 8,211
===== =====
- -----------
(1) Source: 1997 Rand McNally Commercial Atlas & Marketing Guide
As of December 31, 1996, the Company's consolidated cellular telephone business
had 762,000 subscribers in the markets listed above.
Competition
The FCC 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. The Wireline licensee in the
Company's principal markets is Cellco Partnership, a joint venture between Bell
Atlantic Mobile Systems, Inc. and NYNEX Mobile Communications Co. The Company's
principal Wireline competitor has a larger coverage area and may have access to
more substantial financial resources than the Company.
In recent years, new mobile telecommunications service providers have entered
the market and created additional competition in the wireless telecommunications
business. Many of such providers have access to substantial capital resources
and operate, or through affiliates operate, cellular telephone systems, bringing
significant wireless experience to the new marketplace. Accordingly, while there
are only two cellular providers licensed in a given area, new competitors
continue to emerge utilizing different frequencies and new technologies.
Competition between
- 15 -
wireless operators 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 most prominent new providers are the PCS operators. PCS is used to describe
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. 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 - Sprint Spectrum"). All of the
30-MHz Major Trading Area ("MTA") licenses for PCS were issued by June 1995 and
PCS licensees are required to construct their networks to be capable of covering
one third of their service area population within five years of the date of
licensing. Winners in the Company's Philadelphia markets were AT&T Wireless
Services, Inc. and PhillieCo, L.P., an affiliate of Sprint Spectrum. Broadband
PCS service likely will become a direct competitor to cellular service. In
September 1996, the FCC granted, through a bidding process, an additional 30-MHz
Basic Trading Area ("BTA") PCS license, designated for license to small
businesses, rural telephone companies and other entrepreneurs. Additional
auctions for 10-MHz blocks of PCS spectrum (including licenses designated for
small businesses) were concluded in January 1997. A wholly owned subsidiary of
the Company was the high bidder on twelve 10-MHz licenses covering the
Philadelphia MTA and the Allentown BTA, with a bid of $17.5 million for these
licenses.
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 currently lack cellular's ability to expand capacity
through frequency re-use by using many low-power transmitters and to hand-off
calls. Nextel Communications, Inc., in which the Company holds an equity
interest, 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 enhanced SMR 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 has also decided to license SMR spectrum in
contiguous blocks via the competitive bidding process.
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, thus providing additional competition to the Company's systems.
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
currently is seeking comment on whether resellers should be permitted to install
separate switching facilities in cellular systems, although it has tentatively
concluded not to require such interconnections. The FCC is also considering
whether resellers should receive direct assignments of telephone numbers from
LECs.
It is likely that the FCC will offer additional spectrum for wireless mobile
licenses in the future. Spectrum in the "Wireless Communications Service" is to
be auctioned in April 1997. Applicants also 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. These developments and further technological advances may make available
other alternatives to cellular service thereby creating additional sources of
competition.
- 16 -
Legislation and 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 US 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 exchange Wireline telephone companies. There is no technical
or operational difference between Wireline and Non-Wireline systems other than
different frequencies.
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 cellular 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 anti-competitive 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. Licenses may be revoked for
cause and license renewal applications denied if the FCC determines that a
renewal would not serve the public interest. 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 FCC has granted renewal of the Company's
licenses for the Philadelphia, PA, Wilmington, DE and New Brunswick and Long
Branch, NJ MSAs. The Company's license for the Trenton, NJ MSA expires in
October 1997. The balance of the Company's licenses expire from 1998 through
2006.
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 decided to consider the opportunities that other nations
provide to US 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. The 1996
Telecom Act relaxes these restrictions by eliminating the statutory provisions
restricting foreign officers and directors in licensees and their parent
corporations. In February 1997, the US government entered into a World Trade
Organization agreement with respect to telecommunications. Upon its
effectiveness, the agreement will require the US, among other things, to afford
"national" treatment to foreign investors seeking indirect ownership of
commercial mobile radio service ("CMRS") licenses in the US. These changes may
permit additional foreign investment and participation in the US wireless
marketplace and therefore may enhance competition.
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 1996, however, the FCC adopted new
standards for evaluating the extent to which wireless facilities will expose
both employees and the public to RF radiation. At that time, the FCC determined
that state and local regulation of RF radiation from facilities used to provide
"personal wireless services," including cellular and PCS, is preempted to the
extent the facilities comply with the FCC's RF exposure limits.
The FCC also requires LECs in each market to offer reasonable terms and
facilities for the interconnection of both cellular telephone systems in that
market to the LECs' landline network. Cellular telephone companies affiliated
with the LEC are required to disclose how their systems will interconnect with
the landline network. The licensee not affiliated with the LEC has the right to
interconnect with the landline network in a manner no less favorable than that
of the licensee affiliated with the LEC. In addition, the licensee not
affiliated with the LEC may, at its discretion, request reasonable
interconnection arrangements that are different than those provided to the
affiliated licensee in that market, and the LEC must negotiate such requests in
good faith. The FCC reiterated its position on
- 17 -
interconnection issues in a declaratory ruling which clarified that LECs are
expected to provide, within a reasonable time, the agreed-upon form of
interconnection. In June 1996, the FCC adopted a national regulatory framework
for implementing the local competition provisions of the 1996 Telecom Act,
including adoption of rules delineating interconnection obligations of incumbent
LECs ("ILECs"), unbundling requirements for ILEC network elements, requirements
for access to local rights-of-way, dialing parity and telephone numbering, and
requirements for resale of and non-discriminatory access to ILEC services. In
many instances, the FCC left the task of implementing the FCC's regulatory
standards to the individual states. Numerous LECs have appealed the FCC's
decisions and a judicial determination of the legality of the FCC's
interconnection rules is pending at the US Court of Appeals for the Eighth
Circuit, which has stayed certain portions of the FCC's new regulations
concerning ILEC pricing and nondiscrimination obligations.
Notwithstanding the federal court stay of certain FCC interconnection
regulations, a subsidiary of the Company has renegotiated its interconnection
contracts with Bell Atlantic pursuant to the 1996 Telecom Act. The agreements,
covering Pennsylvania, New Jersey, Delaware and Maryland, provide for the
reciprocal transport and termination of CMRS traffic by Bell Atlantic and the
Company at substantially reduced rates. These agreements have been submitted to
each of the four state public utility commissions for their approval, and have
been approved in three of such states. Because the terms of these agreements,
including pricing, are similar to agreements already approved by those states,
the Company expects to receive regulatory approval by the remaining public
utility commission without substantial modification.
To date, the FCC has undertaken significant efforts to reconsider the regulation
of CMRS providers in the wake of competitive developments in the
telecommunications marketplace. For instance, in June 1996, the FCC eliminated
the cellular/PCS cross-ownership rule in favor of a single, generally
applicable, CMRS spectrum cap rule. The change permits cellular providers to
hold attributable interests in 20-MHz of PCS spectrum (e.g. two 10-MHz licenses)
in areas where there is significant service area overlap. The FCC is also
considering whether all CMRS providers should provide interconnection to all
other CMRS providers. The FCC recently initiated a rulemaking to establish new
federal universal service mechanisms. The proceeding will determine the extent
to which cellular operators and other wireless and wireline telecommunications
service providers will be required to contribute to state and federal universal
service funds, as well as their ability to draw universal service support. The
FCC also initiated a rulemaking to reform its system of interstate access
charges to make it compatible with the 1996 Telecom Act and with federal and
state actions to open local networks to competition. The new rules will
establish a transition to an access charge structure that more closely reflects
the economic costs of accessing landline networks for the termination of long
distance calls. Further, the FCC is considering new rules to govern how customer
proprietary network information ("CPNI") may be used by telecommunications
carriers, including the BOCs, in marketing a broad range of telecommunications
services to their customers, and the customers of affiliated companies.
Resolution of the issues raised in this proceeding may affect the costs of
providing cellular service and the way in which the Company conducts its
business. However, the Company does not anticipate that resolution of these
issues will result in a significant adverse impact on its financial position,
results of operations or liquidity.
Finally, the 1996 Telecom Act relieves BOC-affiliated cellular providers of
their equal access obligations. As such, BOC-affiliated carriers are afforded
greater flexibility in contracting with interexchange carriers for the provision
of long distance services. Prior to the legislative change, cellular systems
affiliated with the BOCs were required to offer equal access to interexchange
carriers and those affiliated with AT&T voluntarily provided equal access.
Nevertheless, the FCC retains authority to require all CMRS operators to provide
unblocked access through the use of other mechanisms if customers are being
denied access to the telephone toll service providers of their choice, and if
such denial is contrary to the public interest.
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 FCC, to date, has denied all state petitions to
regulate the rates charged by CMRS providers.
The scope of the allowable level of state regulation of CMRS, however, remains
unclear. The 1993 Budget Act does not identify the "other terms and conditions"
of CMRS service that can be regulated by the states. Moreover, the extent to
which states may regulate intrastate LEC-CMRS interconnection remains
unresolved. The resolution of this
- 18 -
issue will impact the extent to which cellular providers will be subject to
state regulation of CMRS interconnection to the LECs. The siting of cells also
remains subject to state and local jurisdiction although petitions seeking
clarification of states' siting authority are currently pending at the FCC.
DBS OPERATIONS
Primestar, in which the Company holds an equity interest (see "Description of
the Company's Businesses - Cable Communications - Competition"), provides
programming and marketing support to its partners. The Company is also a
franchisee of the Primestar DBS service, which is provided to customers via
medium-power communications satellite to leased HSDs of approximately three feet
in diameter. Through its DBS operations, the Company provided service to
approximately 121,000 Primestar subscribers as of December 31, 1996.
CONTENT
Content consists primarily of the Company's 57% ownership interest in QVC, Inc.
and its subsidiaries ("QVC"), which is consolidated with and managed by the
Company. In addition, Comcast Content and Communication Corporation ("C3") is
engaged in the development of content in four distinct areas: development and
production of programming for the Company and other media outlets; enhancement
of existing and creation of new distribution channels; expansion of
transactional services; and acquisitions of programming and media related
companies. In the programming sector, C3 assists the Company with its
programming investments which include E! Entertainment (see "General
Developments of Business - E! Entertainment"), Viewer's Choice, The Golf
Channel, Speedvision, Outdoor Life, Music Choice, Lightspan and the Sunshine
Network.
ELECTRONIC RETAILING
General
The Company provides electronic retailing services through QVC, a domestic and
international general merchandise retailer. Through its merchandise-focused
television programs, QVC sells a wide variety of products directly to consumers.
The products are described and demonstrated by program hosts and orders are
placed directly with QVC by viewers who call a toll-free telephone number. QVC
television programming is produced at its facilities in Pennsylvania and is
distributed nationally via satellite to affiliated local cable system operators
and other multichannel video programming providers ("Program Carriers") who have
entered into carriage agreements (the "Affiliation Agreements") with QVC and who
retransmit QVC programming to their subscribers.
QVC Services
Products. QVC sells a variety of consumer products and accessories including
jewelry, apparel and accessories, housewares, collectibles, electronics, toys
and cosmetics. QVC obtains products from domestic and foreign manufacturers and
wholesalers and is often able to make purchases on favorable terms based on the
volume of the transactions. QVC intends to continue introducing new products and
product lines. QVC is not dependent upon any one particular supplier for any
significant portion of its inventory.
Process. Viewers place orders to purchase merchandise by calling a toll-free
telephone number. QVC uses automatic call distributing equipment to distribute
calls to its operators. The majority of all payments for purchases are made with
a major credit card or QVC's private label credit card. The accounts receivable
from QVC's private label credit card program are purchased (with recourse) and
serviced by an unrelated third party. QVC's policy is to ship merchandise
promptly from its distribution centers, typically within 24 hours after receipt
of an order. QVC offers a return policy which permits customers to return within
30 days any merchandise purchased from QVC for a full refund of the purchase
price and original shipping charges.
Primary Channel. QVC's main channel (the "Primary Channel"), is transmitted live
24 hours a day, 7 days a week, to approximately 54 million cable television
homes and on a part-time basis to approximately two million additional cable
television homes. In addition, the Primary Channel can be received by
approximately five million HSD users. The QVC program schedule consists of
one-hour and multi-hour program segments. Each program segment has a theme
devoted to a particular category of product or lifestyle. From time to time, QVC
features special program
- 19 -
segments devoted to merchandise associated with a particular celebrity, event,
geographical region or seasonal interest.
Q2. QVC's secondary channel ("Q2") broadcasts 24 hours a day, 7 days a week, to
approximately nine million cable television homes and on a part-time basis to
approximately two million additional cable television homes. In addition, the Q2
service can be received by approximately four million HSD users. In the first
half of 1996, the format of Q2 programming was changed to become a faster-paced,
news-like format, combining live hosts and edited tape of top products and
stories from the Primary Channel.
QVC UK. In October 1993, QVC launched an electronic retailing program service in
the UK ("QVC--The Shopping Channel") through a joint venture agreement with
British Sky Broadcasting Limited. This service currently reaches over five
million cable television and HSD-served homes in the UK.
QVC Germany. In December 1996, QVC launched an electronic retailing programming
service in Germany. The service currently reaches over four million cable
television and HSD-served homes in Germany.
iQVC. In December 1995, QVC launched its interactive shopping service ("iQVC")
on The Microsoft Network ("MSN"), Microsoft Corporation's on-line service. In
1996, iQVC was also made available through the Internet. The iQVC service offers
a diverse array of merchandise, available on-line, 24 hours a day, 7 days a
week.
QVC Transmission
The QVC signal is transmitted via two exclusive, protected, non-preemptible
transponders on communications satellites. Each communications satellite has a
number of separate transponders. 'Protected' status means that, in the event of
transponder failure, QVC's signal will be transferred to a spare transponder or,
if none is available, to a preemptible transponder located on the same satellite
or, in certain cases, to a transponder on another satellite owned by the same
lessor if one is available at the time of the failure. 'Non-preemptible' status
means that the transponder cannot be preempted in favor of a user of a
'protected' transponder that has failed. QVC has never had an interruption in
programming due to transponder failure and believes that because it has the
exclusive use of two protected, non-preemptible transponders, such interruption
is unlikely to occur. There can be no assurance, however, that there will not be
an interruption or termination of satellite transmission due to transponder
failure. Such interruption or termination could have a material adverse effect
on QVC.
Program Carriers
QVC has entered into Affiliation Agreements with Program Carriers to carry its
programming. There are generally no additional charges to the subscribers for
distribution of QVC. In return for carrying QVC, each Program Carrier receives
an allocated portion, based upon market share, of five percent of the net sales
of merchandise sold to customers located in the Program Carrier's service area.
The terms of most Affiliation Agreements are automatically renewable for
one-year terms unless terminated by either party on at least 90 days notice
prior to the end of the term. Affiliation Agreements covering most of QVC's
cable television homes can be terminated in the sixth year of their respective
terms by the Program Carrier unless the Program Carrier earns a specified
minimum level of sales commissions. QVC's sales are currently at levels that
meet such minimum requirements. The Affiliation Agreements provide for the
Program Carrier to broadcast commercials regarding QVC on other channels and to
distribute QVC's advertising material to subscribers. As of December 31, 1996,
approximately 30% of the total homes reached by QVC were attributable to QVC's
Affiliation Agreements with the Company and TCI, the indirect owner of the
minority interest in QVC, and their respective subsidiaries.
Renewal of these Affiliation Agreements on favorable terms is dependent upon
QVC's ability to negotiate successfully with Program Carriers. QVC competes for
cable channels with competitive programming, as well as alternative programming
supplied by a variety of other well-established sources, including news, public
affairs, entertainment and sports programmers. QVC's business is highly
dependent on its affiliation with Program Carriers for the transmission of QVC
programming. The loss of a significant number of cable television homes because
of termination or non-renewal of Affiliation Agreements would have a material
adverse effect on QVC. To induce Program Carriers to enter into or extend
Affiliation Agreements or to increase the number of cable television homes under
existing Affiliation Agreements, QVC has developed other incentive programs,
including various forms of
- 20 -
marketing, launch and equipment purchase support. QVC will continue to recruit
additional Program Carriers and seek to enlarge its audience.
Legislation and Regulation
The FCC does not directly regulate the content or transmission of programming
services like those offered by QVC. The FCC does, however, exercise regulatory
authority over the satellites and uplink facilities which transmit programming
services such as those provided by QVC. The FCC has granted, subject to periodic
reviews, permanent licenses to QVC for its uplink facilities (and for backup
equipment of certain of these facilities) at sufficient power levels for
transmission of QVC. Regarding the satellites from which QVC obtains transponder
capacity, the FCC presently exercises licensing authority but does not regulate
the rates, terms or conditions of service provided by these facilities. Pursuant
to its residual statutory authority, the FCC could, however, alter the
regulatory obligations applicable to satellite service providers.
Competition
QVC operates in a highly competitive environment. As a general merchandise
retailer, QVC competes for consumer expenditures and interest with the entire
retail industry, including department, discount, warehouse and specialty stores,
mail order and other direct sellers, shopping center and mall tenants and
conventional free-standing stores, many of which are connected in chain or
franchise systems. On television, it is also in competition with other
satellite-transmitted programs for channel space and viewer loyalty. QVC
believes that, at the present time, most Program Carriers are not willing to
devote more than two channels to televised shopping and may allocate only one
until digital compression is utilized on a large-scale basis several years in
the future. Many systems have limited channel capacity and may be precluded from
adding any new programs at the present time. The development and utilization of
digital compression is expected to provide Program Carriers with greater channel
capacity thereby increasing the opportunity for QVC, in addition to other home
shopping programs, to be distributed on additional channels.
Seasonality
QVC's business is seasonal in nature, with its major selling season during the
last quarter of the calendar year. Net revenue for the fourth quarter of the
year ended December 31, 1996 accounted for 30% of QVC's annual net sales from
electronic retailing.
EMPLOYEES
As of December 31, 1996, the Company had 16,400 employees, excluding employees
in managed operations. Of these employees, 7,700 were associated with domestic
cable communications, 5,500 were associated with electronic retailing and 1,500
were associated with cellular telephone communications. The Company believes
that its relationships with its employees are good.
ITEM 2 PROPERTIES
Domestic Cable Communications
The principal physical assets of a cable communications system consist of a
central receiving apparatus, distribution cables, converters, regional customer
service call centers 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, regional customer service call centers
and local business offices. The physical components of cable communications
systems require maintenance and periodic upgrading and rebuilding to keep pace
with technological advances. A significant number of the Company's systems will
be upgraded or rebuilt over the next several years.
Cellular Communications
The principal physical assets of a cellular telephone communications system
include cell sites and central switching equipment. The Company primarily leases
its sites used for its transmission facilities, retail stores and its
administrative offices. The physical components of a cellular telephone
communications system require maintenance
- 21 -
and upgrading to keep pace with technological advances. It is anticipated that
digital capability will be added to the Company's system beginning in 1997.
Electronic Retailing
The principal physical assets of the Company's electronic retailing operations
consist of television studios, telecommunications centers, local business
offices and various product warehouses and distribution centers. The Company,
through QVC, owns the majority of these assets. The physical components of
electronic retailing operations require maintenance and periodic upgrading and
rebuilding to keep pace with technological advances. QVC's warehousing and
distribution facilities will be upgraded or rebuilt 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
The Company is not party to litigation which, in the opinion of the Company's
management, will have a material adverse effect on the Company's financial
position, results of operations or liquidity.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of Shareholders on November 7, 1996, the shareholders
approved the following proposal:
To issue Comcast Class A Special Common Stock in the Merger of The E.W.
Scripps Company with and into the Company.
Class of Stock For Against Abstain
Class A 21,215,706 90,737 48,151
Class B 131,793,750
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 1997, 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 1, 1997:
Officer
Name Age Since Position with the Company
Ralph J. Roberts 76 1969 Chairman of the Board of Directors;
Director
Julian A. Brodsky 63 1969 Vice Chairman of the Board of
Directors; Director
Brian L. Roberts 37 1986 President; Director
Lawrence S. Smith 49 1988 Executive Vice President
John R. Alchin 48 1990 Senior Vice President; Treasurer
Stanley L. Wang 56 1981 Senior Vice President; General
Counsel; Secretary
- 22 -
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. As of
December 31, 1996, the shares of the Company owned by Sural constitute 80.6% of
the voting power of the two classes of the Company's voting common stock
combined. Mr. Roberts currently has voting control of Sural. Mr. Roberts is also
a Director of Comcast UK Cable Partners Limited and Storer Communications, Inc.
Julian A. Brodsky has served as a Director and 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 also a Director
of Comcast UK Cable Partners Limited, Storer Communications, Inc. and RBB Fund,
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
business and affairs of the Company. Mr. Roberts is also a Director of Teleport
Communications Group, Inc., Comcast UK Cable Partners Limited and Storer
Communications, Inc. He is a son of Ralph J. Roberts.
Lawrence S. Smith was named Executive Vice President of the Company in December
1995. Prior to that time, Mr. Smith 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 Teleport Communications Group, Inc.
and Comcast UK Cable Partners Limited and is a Partnership Board Representative
of Sprint Spectrum Holding Company, L.P.
John R. Alchin has served as Treasurer and Senior Vice President of the Company
for more than five years. Mr. Alchin is the Principal Financial Officer of the
Company. Mr. Alchin 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
Storer Communications, Inc.
- 23 -
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 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.
Class A
Special Class A
High Low High Low
1996
First Quarter.................. $21 1/16 $17 1/2 $20 5/8 $17 1/4
Second Quarter................. 18 3/4 16 1/4 18 7/8 16 5/16
Third Quarter.................. 18 3/8 13 7/8 18 1/4 13 7/8
Fourth Quarter................. 17 7/8 14 5/8 17 3/4 14 1/4
1995
First Quarter.................. $16 5/16 $14 9/16 $16 3/8 $14 3/8
Second Quarter................. 19 1/16 14 18 7/8 13 3/4
Third Quarter.................. 22 18 5/8 22 1/8 18 9/16
Fourth Quarter................. 20 5/8 16 5/8 20 7/16 16 1/2
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, 1996 and
1995 on shares of Class A Special, Class A and Class B Common Stock. 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.
The holders of the Class A Special Common Stock are not entitled to vote in the
election of directors or otherwise, except where class voting is required by
applicable law, in which case, each holder of Class A Special Common Stock shall
be entitled to one vote per share. Each holder of Class A Common Stock has one
vote per share and each holder of Class B Common Stock has 15 votes per share.
Under applicable law, holders of Class A Special Common Stock have voting rights
in the event of certain amendments to the Articles of Incorporation and certain
mergers and other fundamental corporate changes. In all other instances,
including the election of directors, the Class A Common Stock and the Class B
Common Stock vote as one class. Neither the holders of Class A Common Stock nor
the holders of Class B Common Stock have cumulative voting rights.
As of February 1, 1997, there were 2,672 record holders of the Company's Class A
Special Common Stock and 1,793 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.
- 24 -
ITEM 6 SELECTED FINANCIAL DATA
Year Ended December 31,
1996 (1) 1995 (1) 1994 (1) 1993 (6) 1992 (6)
(Dollars in millions, except per share data)
Statement of Operations Data:
Revenues.............................. $4,038.4 $3,362.9 $1,375.3 $1,338.2 $900.3
Operating income...................... 508.9 329.8 239.8 264.9 165.1
Equity in net losses of affiliates.... 144.8 86.6 40.9 28.9 104.3
Loss before extraordinary items
and cumulative effect of
accounting changes.................. (52.5) (37.8) (75.3) (98.9) (217.9)
Extraordinary items................... (1.0) (6.1) (11.7) (17.6) (52.3)
Cumulative effect of accounting
changes (2)......................... (742.7)
Net loss.............................. (53.5) (43.9) (87.0) (859.2) (270.2)
Loss per share before extraordinary
items and cumulative effect of
accounting changes (3).............. (.21) (.16) (.32) (.46) (1.08)
Extraordinary items per share (3)..... (.02) (.05) (.08) (.26)
Cumulative effect of accounting
changes per share (3)............... (3.47)
Net loss per share (3)................ (.21) (.18) (.37) (4.01) (1.34)
Cash dividends
declared per share (3).............. .0933 .0933 .0933 .0933 .0933
Balance Sheet Data:
At year end:
Total assets........................ 12,088.6 9,580.3 6,763.0 4,948.3 4,271.9
Working capital (deficiency)........ 40.9 531.6 (52.1) 176.6 36.9
Long-term debt...................... 7,102.7 6,943.8 4,810.5 4,154.8 3,973.5
Stockholders' equity (deficiency)... 551.6 (827.7) (726.8) (870.5) (181.6)
Supplementary Financial Data:
Operating income before
depreciation and amortization (4)... 1,207.2 1,018.8 576.3 606.4 397.2
Net cash provided by
operating activities (5)............ 799.6 520.7 369.1 345.9 252.3
- ---------------
(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) Primarily represents the cumulative effect of the adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
effective January 1, 1993.
(3) As adjusted for the Company's three-for-two stock split effective February
2, 1994.
(4) Operating income before depreciation and amortization is commonly referred
to in the Company's businesses as "operating cash flow." Operating cash
flow is a measure of a company's ability to generate cash to service its
obligations, including debt service obligations, and to finance capital and
other expenditures. In part due to the capital intensive nature of the
Company's businesses and the resulting significant level of non-cash
depreciation and amortization expense, operating cash flow is frequently
used as one of the bases for comparing businesses in the Company's
industries. 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.
(5) Represents net cash provided by operating activities as presented in the
Company's consolidated statement of cash flows.
(6) Comparability of the information presented for the years ended December 31,
1993 and 1992 is affected by the Company's acquisition of AWACS, Inc., the
Non-Wireline cellular telephone system serving the Philadelphia MSA, from
Metromedia Company in March 1992 and the split-off of Storer
Communications, Inc. ("Storer") between the Company and Storer's other
shareholder in December 1992. Prior to December 1992, the Company had a 50%
interest in Storer which was accounted for under the equity method.
- 25 -
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company has experienced significant growth in recent years through both
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 and
sales of long-term investments, as well as its existing cash, cash equivalents
and short-term investments.
General Developments of Business
E! Entertainment
As of December 31, 1996, the Company owned a 10.4% interest in E! Entertainment
Television, Inc. ("E! Entertainment"), an entertainment programming service that
currently is distributed to more than 42 million subscribers. The Company has
the right, by virtue of various agreements among the shareholders of E!
Entertainment, to purchase an additional 58.4% interest in E! Entertainment from
Time Warner, Inc. ("Time Warner") for $321.1 million. In January 1997, the
Company and The Walt Disney Company ("Disney") entered into an agreement to form
a new limited liability company ("Newco") that will be owned 50.1% by the
Company and 49.9% by Disney. Pursuant to the agreement, the Company will
contribute to Newco its 10.4% interest in E! Entertainment, the right to
exercise its option to purchase the Time Warner interest and $132.3 million in
cash. Disney will contribute to Newco $188.8 million in cash. Newco will use the
cash contributed by the Company and Disney to purchase the Time Warner interest.
Following such purchase, Newco will own a 68.8% interest in E! Entertainment. To
fund the cash portion of its contribution, the Company will borrow $132.3
million from Disney in the form of two 10-year, 7% notes (the "Disney Notes").
These transactions (collectively, the "E! Acquisition") are expected to close in
the first quarter of 1997, subject to regulatory approval and certain other
conditions.
Scripps Cable
In November 1996, the Company acquired the cable television operations ("Scripps
Cable") of The E.W. Scripps Company in exchange for 93.048 million shares of the
Company's Class A Special Common Stock, par value $1.00 per share (the "Class A
Special Common Stock"), valued at $1.552 billion (the "Scripps Acquisition").
Scripps Cable passed more than 1.3 million homes and served more than 800,000
subscribers as of December 31, 1996, with 60% of its subscribers located in
Sacramento, California and Chattanooga and Knoxville, Tennessee. The Company has
accounted for the Scripps Acquisition under the purchase method and Scripps
Cable was consolidated with the Company effective November 1, 1996.
Comcast-Spectacor
In July 1996, the Company completed its acquisition (the "Sports Venture
Acquisition") of a 66% interest in the Philadelphia Flyers Limited Partnership,
a Pennsylvania limited partnership ("PFLP"), the assets of which, after giving
effect to the Sports Venture Acquisition, consist of (i) the National Basketball
Association ("NBA") franchise to own and operate the Philadelphia 76ers
basketball team and related assets (the "Sixers"), (ii) the National Hockey
League ("NHL") franchise to own and operate the Philadelphia Flyers hockey team
and related assets, and (iii) two adjacent arenas, leasehold interests in and
development rights related to the land underlying the arenas and other adjacent
parcels of land located in Philadelphia, Pennsylvania (collectively, the
"Arenas"). Concurrent with the completion of the Sports Venture Acquisition,
PFLP was renamed Comcast Spectacor, L.P. ("Comcast-Spectacor").
The Sports Venture Acquisition was completed in two steps. In April 1996, the
Company purchased the Sixers for $125.0 million in cash plus assumed net
liabilities of $11.0 million through a partnership controlled by the Company. To
complete the Sports Venture Acquisition, in July 1996, the Company contributed
its interest in the Sixers, exchanged approximately 3.5 million shares of the
Company's Class A Special Common Stock and 6,370 shares of the Company's newly
issued 5% Series A Convertible Preferred Stock (the "Preferred Stock"), and paid
$15.0 million in cash for its current interest in Comcast-Spectacor. The
remaining 34% interest in Comcast-Spectacor is owned by a group, including the
former majority owner of PFLP, who also manages Comcast-Spectacor (the "Minority
- 26 -
Group"). In connection with the Sports Venture Acquisition, Comcast-Spectacor
assumed the outstanding liabilities relating to the Sixers and the Arenas,
including a mortgage obligation of $155.0 million. The Company accounts for its
interest in Comcast-Spectacor under the equity method.
Sprint Spectrum
The Company, Tele-Communications, Inc. ("TCI"), Cox Communications, Inc. ("Cox,"
and together with the Company and TCI, the "Cable Parents") and Sprint
Corporation ("Sprint," and together with the Cable Parents, the "Parents"), and
certain subsidiaries of the Parents (the "Partner Subsidiaries") engage in the
wireless communications business through a limited partnership known as "Sprint
Spectrum," a development stage enterprise. The Company owns 15% of Sprint
Spectrum and accounts for its investment in Sprint Spectrum under the equity
method.
Sprint Spectrum was the successful bidder for 29 personal communications
services ("PCS") licenses in the auction conducted by the Federal Communications
Commission ("FCC") from December 1994 through mid-March 1995. The purchase price
for the licenses was $2.11 billion, all of which has been paid to the FCC. In
addition, Sprint Spectrum has invested, and may continue to invest, in other
entities that hold PCS licenses, may acquire PCS licenses in future FCC auctions
or from other license holders and may affiliate with other license holders.
Repurchase Program
Concurrent with the announcement of the Scripps Acquisition in October 1995, the
Company announced that its Board of Directors authorized a market repurchase
program (the "Repurchase Program") pursuant to which the Company may purchase,
at such times and on such terms as it deems appropriate, up to $500.0 million of
its outstanding common stock, subject to certain restrictions and market
conditions. During the years ended December 31, 1996 and 1995, the Company
repurchased 10.5 million shares and 680,000 shares, respectively, of its common
stock for aggregate consideration of $180.0 million and $12.4 million,
respectively, pursuant to the Repurchase Program. During January 1997, the
Company repurchased an additional 450,000 shares of its common stock for
aggregate consideration of $7.6 million. The Repurchase Program will terminate
in May 1997.
QVC
In February 1995, the Company and TCI acquired all of the outstanding stock of
QVC, Inc. and its subsidiaries ("QVC") not previously owned by them
(approximately 65% of such shares on a fully diluted basis) for $46, in cash,
per share (the "QVC Acquisition"), representing a total cost of approximately
$1.4 billion. The QVC Acquisition, including the exercise of certain warrants
held by the Company, was financed with cash contributions from the Company and
TCI of $296.3 million and $6.6 million, respectively, borrowings of $1.1 billion
under a $1.2 billion QVC credit facility and existing cash and cash equivalents
held by QVC. Following the acquisition, the Company and TCI owned, through their
respective subsidiaries, 57.45% and 42.55%, respectively, of QVC. The Company,
through a management agreement, is responsible for the day to day operations of
QVC. The Company has accounted for the QVC Acquisition under the purchase method
and QVC was consolidated with the Company effective February 1, 1995.
Maclean Hunter
In December 1994, the Company, through Comcast MHCP Holdings, L.L.C. (the
"LLC"), acquired the US 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 in cash. The Company and the California Public
Employees' Retirement System ("CalPERS") invested $305.6 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
balance of the Maclean Hunter Acquisition was financed through borrowings under
a credit facility of a wholly owned subsidiary of the LLC. The Company has
accounted for the Maclean Hunter Acquisition under the purchase method and
Maclean Hunter was consolidated with the Company effective December 22, 1994.
-------------------------
- 27 -
Liquidity and Capital Resources
Cash, Cash Equivalents and Short-term Investments
The Company has traditionally maintained significant levels of cash, cash
equivalents and short-term investments to meet its short-term liquidity
requirements. Cash, cash equivalents and short-term investments as of December
31, 1996 and 1995 were $539.6 million and $910.1 million, respectively. As of
December 31, 1996, $376.8 million of the Company's cash, cash equivalents and
short-term investments is restricted to use by subsidiaries of the Company under
contractual or other arrangements, including $213.7 million which is restricted
to use by Comcast UK Cable Partners Limited ("Comcast UK Cable"), a consolidated
subsidiary of the Company.
The Company's cash equivalents and short-term investments are recorded at cost
which approximates their fair value. As of December 31, 1996, the Company's
short-term investments of $208.3 million include 1.27 million shares of Time
Warner common stock recorded at fair value of $47.4 million (see "Investments").
The remaining short-term investments, of $160.9 million, had a weighted average
maturity of approximately 10 months.
Accounts Receivable - Electronic Retailing
The Company has an agreement with an unrelated third party which provides for
the sale and servicing of accounts receivable relating to the Company's
electronic retailing operations. The Company sold accounts receivable at face
value of $687.0 million and $530.2 million under this agreement in 1996 and
1995, respectively. The Company remains obligated to repurchase uncollectible
accounts pursuant to the recourse provisions of the agreement and is required to
maintain a specified percentage of all outstanding receivables under the program
as a deposit with the third party to secure its obligations under the agreement.
The uncollected balance of accounts receivable sold under this program was
$317.7 million and $283.1 million as of December 31, 1996 and 1995,
respectively, of which $284.5 million and $234.5 million, respectively,
represent deposits under the agreement, that are included in accounts
receivable. Total recorded reserves relating to the possible repurchase of
uncollectible accounts was $73.2 million and $71.6 million as of December 31,
1996 and 1995, respectively. The receivables sold under the program are
considered, for financial reporting purposes, to be financial instruments with
off-balance sheet risk. The carrying value of accounts receivable, adjusted for
the reserves described above, approximates fair value as of December 31, 1996
and 1995.
Investments
Under the provisions of the Sprint Spectrum partnership agreement, the Partner
Subsidiaries have committed to contribute $4.2 billion in cash to Sprint
Spectrum through 1999, of which the Company's share is $630.0 million. Of this
funding requirement, the Company has made total cash contributions to Sprint
Spectrum of $452.8 million through December 31, 1996 and issued a $105.0 million
guaranty on a portion of Sprint Spectrum's outstanding debt. The Company
anticipates that Sprint Spectrum's capital requirements over the next several
years will be significant. Requirements in excess of committed capital are
planned to be funded by Sprint Spectrum through external financing, including,
but not limited to, vendor financing, bank financing and securities offered to
the public. In August 1996, Sprint Spectrum sold $750.0 million principal amount
at maturity of Senior Notes and Senior Discount Notes due in 2006 in a public
offering. In October 1996, Sprint Spectrum closed three credit agreements which
provided $2.0 billion in bank financing and $3.1 billion in vendor financing.
The timing of the Company's remaining capital contributions to Sprint Spectrum
is dependent upon a number of factors, including Sprint Spectrum's working
capital requirements. The Company anticipates funding its remaining capital
commitments to Sprint Spectrum through its cash flows from operating activities,
its existing cash, cash equivalents, short-term investments and lines of credit
or other external financing, or by a combination of these sources.
The Company held 693,000 shares of common stock of Nextel Communications, Inc.
("Nextel") as of December 31, 1995. In February 1996, in connection with certain
preemptive rights of the Company under previously existing agreements with
Nextel, the Company purchased an additional 8.16 million shares of Nextel common
stock at $12.25 per share, for a total cost of $99.9 million. During the years
ended December 31, 1996 and 1995, the Company sold 5.6 million shares and 11.3
million shares, respectively, of Nextel common stock for $105.4 million and
$212.6 million, respectively, and recognized pre-tax gains of $35.4 million and
$36.2 million, respectively, as investment income in its consolidated statement
of operations. As of December 31, 1996, the Company held 3.3 million shares
- 28 -
of Nextel common stock, classified as long-term investments available for sale.
As of December 31, 1996, the Company held options, which expire in September
1997, to acquire an additional 25.0 million shares of Nextel common stock at $16
per share. These options are also classified as long-term investments available
for sale. In 1997, the Company sold these options to Nextel for $25.0 million.
The Company received 1.36 million shares of Time Warner common stock (the "Time
Warner Stock") in exchange (the "Exchange") for all of the shares of Turner
Broadcasting System, Inc. ("TBS") stock (the "TBS Stock") held by the Company as
a result of the merger of Time Warner and TBS in October 1996. As a result of
the Exchange, the Company recognized a gain of $47.3 million in the fourth
quarter of 1996, representing the difference between the Company's historical
cost basis in the TBS Stock of $8.9 million and the new basis for the Company's
investment in Time Warner Stock of $56.2 million, which was based on the closing
price of the Time Warner Stock on the merger date of $41.375 per share. In
December 1996 and January 1997, the Company sold 92,500 shares and 1.27 million
shares, respectively, of the Time Warner Stock, representing the Company's
entire interest in Time Warner, for $3.7 million and $48.6 million,
respectively.
The Company does not have any additional significant contractual commitments
with respect to any of its investments. However, to the extent the Company does
not fund its investees' capital calls, it exposes itself to dilution of its
ownership interests. The Company continually evaluates its existing investments
as well as new investment opportunities.
Investment Rights
Beginning in January 1998, the Company has the right to purchase the minority
interests in Comcast-Spectacor from the Minority Group for the Minority Group's
pro rata portion of the fair market value (on a going concern basis as
determined by an appraisal process) of Comcast-Spectacor. The Minority Group
also has the right (together with the Company's right, the "Exit Rights") to
require the Company to purchase its interests under the same terms. The Company
may pay the Minority Group for such interests in shares of the Company's Class A
Special Common Stock, subject to certain restrictions. If the Minority Group
exercises its Exit Rights and the Company elects not to purchase their interest,
the Company and the Minority Group will use their best efforts to sell
Comcast-Spectacor.
Assuming consummation of the E! Acquisition, after the 18 month anniversary of
the closing date of the E! Acquisition, Disney, in certain circumstances, is
entitled to cause Newco to purchase Disney's entire interest in Newco at its
then fair market value (as determined by an appraisal process). If Newco elects
not to purchase Disney's interests, Disney has the right, at its option, to
purchase either the Company's entire interest in Newco or all of the shares of
stock of E! Entertainment held by Newco, in each case at fair market value. In
the event that Disney exercises its rights, as described above, a portion or all
of the Disney Notes may be replaced with a three year note due to Disney.
Liberty Media Corporation ("Liberty"), a majority owned subsidiary of TCI, may,
at certain times following February 9, 2000, trigger the exercise of certain
exit rights with respect to its investment in QVC. 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.
As a result of the Maclean Hunter Acquisition, 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.
- 29 -
Capital Expenditures
It is anticipated that, during 1997, the Company will incur approximately $1.1
billion of capital expenditures, including $600 million for the upgrading and
rebuilding of certain of the Company's cable communications systems, $125
million for the upgrading of QVC's warehousing and distribution facilities, $125
million for the upgrading of the Company's cellular communications systems and
$150 million for the build-out of the Company's consolidated United Kingdom
("UK") affiliates' systems. The remaining $100 million of anticipated capital
expenditures for 1997 will be utilized for the Company's direct broadcast
satellite operations and other initiatives. The amount of such capital
expenditures for years subsequent to 1997 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 cable system upgrade, whether
a particular cable system has sufficient capacity to handle new product
offerings including the offering of cable modem, cable telephony and
telecommunications services, whether and to what extent the Company will be able
to recover its investment under FCC rate guidelines and other factors, and
whether the Company acquires additional cable systems in need of upgrading or
rebuilding. The Company, however, anticipates capital expenditures for years
subsequent to 1997 will continue to be significant. As of December 31, 1996, the
Company does not have any significant contractual obligations for capital
expenditures.
UK Industry Consolidation
Based on closed and announced transactions, it is apparent that the UK cable and
telecommunications industries are undergoing a significant consolidation, which
trend the Company expects to continue in the coming months. The Company has
engaged an investment advisor to assist it in evaluating the current state of
the UK marketplace, the position of other participants and its alternatives with
respect to Comcast UK Cable. There can be no assurance that the Company will
take any action, or in what time frame any such action, if undertaken, might be
accomplished.
Financing
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
and, to some extent, through public offerings of a subsidiary company's stock
and debt instruments. As of December 31, 1996 and 1995, the Company's long-term
debt, including current portion, was $7.332 billion and $7.029 billion,
respectively, of which 45.2% and 54.0%, respectively, was at variable rates.
Maturities of long-term debt outstanding as of December 31, 1996 for the five
years commencing in 1997 are $229.5 million, $671.5 million, $462.5 million,
$668.1 million and $1.282 billion. As of February 1, 1997, certain subsidiaries
of the Company had unused lines of credit of $1.679 billion. The availability
and use of these unused lines of credit is restricted by the covenants of the
related debt agreements and to subsidiary general purposes and dividend
declaration. In addition, of the total unused lines of credit, $625.0 million
was established by a subsidiary for debt refinancing. The Company's long-term
debt had estimated fair values of $7.323 billion and $7.089 billion as of
December 31, 1996 and 1995, respectively. The Company's weighted average
interest rate was 7.90%, 8.32% and 7.75% during the years ended December 31,
1996, 1995 and 1994, respectively. The Company continually evaluates its debt
structure with the intention of reducing its debt service requirements when
desirable.
In November 1995, Comcast UK Cable received net proceeds of $291.1 million from
the sale of $517.3 million principal amount at maturity of its 11.20% senior
discount debentures due 2007 (the "2007 Discount Debentures"). Interest accretes
on the 2007 Discount Debentures at 11.20% per annum, compounded semi-annually
from November 15, 1995 to November 15, 2000, after which date interest will be
paid in cash on each May 15 and November 15, through November 15, 2007. The net
proceeds from the offering are being utilized by Comcast UK Cable for advances
and capital contributions to its equity investees and subsidiaries primarily for
the build-out of their telecommunications networks in the UK.
As part of the Repurchase Program, the Company sold put options on 1.0 million
and 3.0 million shares of its Class A Special Common Stock during the years
ended December 31, 1996 and 1995, respectively. The put options give the holders
the right to require the Company to repurchase such shares at specified prices
on specific dates in January through March 1997. As of December 31, 1996, the
Company has reclassified $69.6 million, the amount it would be obligated to pay
to repurchase such shares upon exercise of the put options, to a temporary
equity account in its
- 30 -
consolidated balance sheet. The temporary equity related to these shares will be
reclassified to additional capital in the first quarter of 1997 upon expiration
or settlement of the options.
On March 27, 1997, the Company announced that its wholly owned subsidiary,
Comcast Cellular Holdings Inc. ("Comcast Cellular"), intends to offer
approximately $900 million of senior notes (the "Notes") in a private placement.
The Notes will be obligations of Comcast Cellular and will not be obligations
of, nor guaranteed by, the Company. The interest rate and certain other terms of
the Notes have not yet been determined. However, there can be no assurance that
acceptable terms will be reached or that the offering will be consummated.
Comcast Cellular anticipates using the net proceeds from the offering to redeem
or retire existing long-term debt of its subsidiaries.
Interest Rate and Foreign Currency Risk Management
The Company is exposed to market risk including changes in interest rates and
foreign currency exchange rates. To manage the volatility relating to these
exposures, the Company enters into various derivative transactions pursuant to
the Company's policies in areas such as counterparty exposure and hedging
practices. Positions are monitored using techniques including market value and
sensitivity analyses. The Company does not hold or issue any derivative
financial instruments for trading purposes and is not a party to leveraged
instruments. The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and 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 use of interest rate risk management instruments, such as interest rate
exchange agreements ("Swaps"), interest rate cap agreements ("Caps") and
interest rate collar agreements ("Collars"), is required under the terms of
certain of the Company's outstanding debt agreements. The Company's policy is to
manage interest costs using a mix of fixed and variable rate debt. Using Swaps,
the Company agrees to exchange, at specified intervals, the difference between
fixed and variable interest amounts calculated by reference to an agreed-upon
notional principal amount. Caps are used to lock in a maximum interest rate
should variable rates rise, but enable the Company to otherwise pay lower market
rates. Collars limit the Company's exposure to and benefits from interest rate
fluctuations on variable rate debt to within a certain range of rates.
The following table summarizes the terms of the Company's existing Swaps, Caps
and Collars as of December 31, 1996 and 1995 (dollars in millions):
Notional Average Estimated
Amount Maturities Interest Rate Fair Value
As of December 31, 1996
Variable to Fixed Swaps $1,080.0 1997-2000 5.85% $7.4
Caps 250.0 1997 8.55%
Collars 620.0 1997-1998 6.98% / 5.16% 0.1
As of December 31, 1995
Variable to Fixed Swaps $650.0 1997-2000 6.05% ($6.8)
Caps 250.0 1997 8.20%
Collars 300.0 1997 7.21% / 5.09% (0.9)
The notional amounts of interest rate agreements, as presented in the above
table, are used to measure interest to be paid or received and do not represent
the amount of exposure to credit loss. The estimated fair value approximates the
proceeds (costs) to settle the outstanding contracts. While Swaps, Caps and
Collars represent an integral part of the Company's interest rate risk
management program, their incremental effect on interest expense for the years
ended December 31, 1996, 1995 and 1994 was not significant.
The Company has entered into certain foreign currency exchange option contracts
("FX Options") as a normal part of its foreign currency risk management efforts.
During 1995, Comcast UK Cable entered into certain foreign exchange put option
contracts ("FX Puts") which may be settled only on November 16, 2000. These FX
Puts are used to limit Comcast UK Cable's exposure to the risk that the eventual
cash outflows related to net monetary liabilities denominated in currencies
other than its functional currency (the UK Pound Sterling or "UK Pound")
- 31 -
(principally the 2007 Discount Debentures) are adversely affected by changes in
exchange rates. As of December 31, 1996 and 1995, Comcast UK Cable had
(pound)250.0 million notional amount of FX Puts to purchase US dollars at an
exchange rate of $1.35 per (pound)1.00 (the "Ratio"). The FX Puts provide a
hedge, to the extent the exchange rate falls below the Ratio, against Comcast UK
Cable's net monetary liabilities denominated in US dollars since gains and
losses realized on the FX Puts are offset against foreign exchange gains or
losses realized on the underlying net liabilities. Premiums paid for the FX
Puts, of $21.4 million, have been recorded as assets in the Company's
consolidated balance sheet. These premiums are being amortized over the terms of
the related contracts. As of December 31, 1996, the FX Puts had a carrying value
of $18.4 million and an estimated fair value of $5.5 million. The differences
between the carrying amounts and the estimated fair value of the FX Puts were
not significant as of December 31, 1995.
In the fourth quarter of 1995, in order to reduce hedging costs, Comcast UK
Cable sold foreign exchange call option contracts ("FX Calls") to exchange
(pound)250.0 million notional amount. Comcast UK Cable received $5.3 million
from the sale of these contracts. These contracts may only be settled on their
expiration dates. Of these contracts, (pound)200.0 million notional amount, with
an exchange ratio of $1.70 per (pound)1.00, expired unexercised in November 1996
while the remaining contract, with a (pound)50.0 million notional amount and an
exchange ratio of $1.62 per (pound)1.00, has a settlement date in November 2000.
In the fourth quarter of 1996, in order to continue to reduce hedging costs,
Comcast UK Cable sold additional FX Calls, for proceeds of $3.5 million, to
exchange (pound)200.0 million notional amount at an average exchange ratio of
$1.75 per (pound)1.00. These contracts may only be settled on their expiration
dates during the fourth quarter of 1997. The FX Calls are marked-to-market on a
current basis in the Company's consolidated statement of operations.
As of December 31, 1996 and 1995, the estimated fair value of the liabilities
related to the FX Calls, as recorded in the Company's consolidated balance
sheet, was $12.2 million and $5.8 million, respectively. Changes in fair value
between measurement dates relating to the FX Calls resulted in exchange losses
of $2.2 million during the year ended December 31, 1996 in the Company's
consolidated statement of operations. There were no significant exchange gains
or losses relating to these contracts during the year ended December 31, 1995.
-------------------------
As a result of the Scripps Acquisition, the Company no longer has a
stockholders' deficiency. However, the Company expects to continue to recognize
significant losses for the foreseeable future resulting in decreases in
stockholders' equity. The telecommunications industry, including cable and
cellular communications, and the electronic retailing industry are experiencing
increasing competition and rapid technological changes. The Company's future
results of operations will be affected by its ability to react to changes in the
competitive environment and by its ability to implement new technologies.
However, the Company believes that competition, technological changes and its
significant losses will not significantly affect its ability to obtain
financing.
The Company believes that it will be able to meet its current and long-term
liquidity and capital requirements, including fixed charges, through its cash
flows from operating activities, existing cash, cash equivalents, short-term
investments and lines of credit and other external financing.
Statement of Cash Flows
Cash and cash equivalents decreased $207.8 million as of December 31, 1996 from
December 31, 1995 and increased $203.8 million as of December 31, 1995 from
December 31, 1994. Changes in cash and cash equivalents resulted from cash flows
from operating, financing and investing activities which are explained below.
Net cash provided by operating activities amounted to $799.6 million, $520.7
million and $369.1 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The increase of $278.9 million from 1995 to 1996 was principally
due to changes in working capital as a result of the timing of receipts and
disbursements and the increase in the Company's operating income before
depreciation and amortization (see "Results of Operations"), including the
effects of the Scripps Acquisition. The increase of $151.6 million from 1994 to
1995 was principally due to effects of the QVC Acquisition and the Maclean
Hunter Acquisition.
Net cash (used in) provided by financing activities, which includes the
issuances of securities as well as borrowings, was ($81.2) million, $2.036
billion and $1.115 billion for the years ended December 31, 1996, 1995 and 1994,
- 32 -
respectively. During 1996, the Company borrowed $839.5 million under new and
existing lines of credit and repaid $734.4 million, including $257.4 million in
connection with the refinancing of certain indebtedness and $123.7 million of
repayments under a vendor financing arrangement. Net repurchases of the
Company's common stock in 1996 were $175.9 million. During 1995, the Company
borrowed $3.728 billion including $1.1 billion in connection with the QVC
Acquisition, $1.085 billion in connection with the refinancing of certain
indebtedness, $300.9 million associated with the funding of Sprint Spectrum,
$300.0 million of the 2007 Discount Debentures, $250.0 million of the Company's
9-3/8% senior subordinated debentures due 2005 and $250.0 million of the
Company's 9-1/8% senior subordinated debentures due 2006. In addition, during
1995, the Company retired and repaid $1.620 billion of its long-term debt,
including $1.186 billion in connection with the refinancing of certain
indebtedness, and $175.0 million of optional repayments on QVC's credit
facility. Proceeds from 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. Net cash provided by financing activities in 1994 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.
Net cash used in investing activities was $926.2 million, $2.353 billion and
$1.309 billion for the years ended December 31, 1996, 1995 and 1994,
respectively. During 1996, net cash used in investing activities includes
acquisitions, net of cash acquired, of $60.4 million, additional cash
investments in affiliates of $502.0 million, including $159.6 million in
connection with the Company's investment in Comcast-Spectacor, capital
contributions to Sprint Spectrum of $106.8 million and the purchase of Nextel
shares of $99.9 million, and capital expenditures of $670.4 million. Cash
proceeds from investing activities include proceeds from the sales of short-term
and long-term investments of $377.7 million, including $105.4 million from sales
of Nextel shares and $52.5 million of distributions from Garden State
Cablevision, L.P. ("Garden State"), an investee of the Company. As the Company
issued shares of its Class A Special Common Stock as consideration in the
Scripps Acquisition, the transaction had no significant impact on investing
activities in the consolidated statement of cash flows. During 1995, net cash
used in investing activities includes acquisitions of $1.386 billion,
principally the acquisition of QVC, net of cash acquired, additional cash
investments in affiliates of $480.2 million, including capital contributions to
Sprint Spectrum of $327.5 million, capital expenditures of $623.0 million and
net purchases of short-term investments of $240.8 million. Such amounts were
offset by proceeds from sales of long-term investments of $410.5 million,
principally in connection with the Heritage Transaction (see "Results of
Operations - Consolidated Analysis") and the sale of Nextel shares. 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.
Results of Operations
The effects of the Company's recent acquisitions have been to increase
significantly the Company's revenues and expenses, resulting in substantial
increases in its operating income before depreciation and amortization,
depreciation expense, amortization expense and interest expense. In addition,
the Company's equity in net losses of affiliates has increased principally as a
result of the start-up nature of certain of the Company's equity investees (see
"Operating Results by Business Segment" and "Consolidated Analysis"). As a
result of the increases in depreciation expense, amortization expense and
interest expense associated with these acquisitions and their financing and the
expected increases in equity in net losses of affiliates, it is expected that
the Company will continue to recognize significant losses for the foreseeable
future.
- 33 -
Summarized consolidated financial information for the Company for the three
years ended December 31, 1996 is as follows (dollars in millions, "NM" denotes
percentage is not meaningful):
Year Ended
December 31, Increase/(Decrease)
1996 1995 $ %
Revenues $4,038.4 $3,362.9 $675.5 20.1%
Cost of goods sold from electronic retailing 1,110.9 898.3 212.6 23.7
Operating, selling, general and administrative expenses 1,720.3 1,445.8 274.5 19.0
-------- --------
Operating income before depreciation and
amortization (1) 1,207.2 1,018.8 188.4 18.5
Depreciation 314.6 339.9 (25.3) (7.4)
Amortization 383.7 349.1 34.6 9.9
-------- --------
Operating income 508.9 329.8 179.1 54.3
-------- --------
Interest expense 540.8 524.7 16.1 3.1
Investment income (122.6) (229.8) (107.2) (46.6)
Equity in net losses of affiliates 144.8 86.6 58.2 67.2
Gain from equity offering of affiliate (40.6) 40.6 NM
Other 2.6 (6.3) (8.9) (141.3)
Income tax expense 84.4 42.1 42.3 100.5
Minority interest (48.0) (49.7) (1.7) (3.4)
Extraordinary items (1.0) (6.1) (5.1) (83.6)
-------- --------
Net loss ($53.5) ($43.9) $9.6 21.9%
======== ========
Year Ended
December 31, Increase/(Decrease)
1995 1994 $ %
Revenues $3,362.9 $1,375.3 $1,987.6 144.5%
Cost of goods sold from electronic retailing 898.3 898.3 NM
Operating, selling, general and administrative expenses 1,445.8 799.0 646.8 81.0
-------- --------
Operating income before depreciation and
amortization (1) 1,018.8 576.3 442.5 76.8
Depreciation 339.9 182.2 157.7 86.6
Amortization 349.1 154.3 194.8 126.2
-------- --------
Operating income 329.8 239.8 90.0 37.5
-------- --------
Interest expense 524.7 313.4 211.3 67.4
Investment income (229.8) (24.6) 205.2 NM
Equity in net losses of affiliates 86.6 40.9 45.7 111.7
Other (6.3) 6.3 NM
Income tax expense (benefit) 42.1 (9.2) 51.3 NM
Minority interest (49.7) (5.4) 44.3 NM
Extraordinary items (6.1) (11.7) (5.6) (47.9)
-------- --------
Net loss ($43.9) ($87.0) ($43.1) (49.5%)
======== ========
- ------------
(1) Operating income before depreciation and amortization is commonly referred
to in the Company's businesses as "operating cash flow." Operating cash
flow is a measure of a company's ability to generate cash to service its
obligations, including debt service obligations, and to finance capital and
other expenditures. In part due to the capital intensive nature of the
Company's businesses and the resulting significant level of non-cash
depreciation and amortization expense, operating cash flow is frequently
used as one of the bases for comparing businesses in the Company's
industries. 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.
- 34 -
Operating Results by Business Segment
The following represent the operating results of the Company's significant
business segments, including: "Domestic Cable Communications," the most
significant of the Company's wired telecommunications operations; "Electronic
Retailing," the most significant of the Company's content businesses; and
"Cellular Communications," the most significant of the Company's wireless
telecommunications operations. The remaining components of the Company's
operations are not independently significant to the Company's consolidated
financial position or results of operations (see Note 10 to the Company's
consolidated financial statements).
Domestic Cable Communications
The following table sets forth the operating results for the Company's domestic
cable communications segment (dollars in millions):
Year Ended
December 31, Increase
1996 1995 $ %
Service income $1,640.9 $1,454.9 $186.0 12.8%
Operating, selling, general and
administrative expenses 830.9 736.4 94.5 12.8
-------- -------- ------
Operating income before depreciation
and amortization (a) $810.0 $718.5 $91.5 12.7%
======== ======== ======
Year Ended
December 31, Increase
1995 1994 $ %
Service income $1,454.9 $1,065.3 $389.6 36.6%
Operating, selling, general and
administrative expenses 736.4 547.8 188.6 34.4
-------- -------- ------
Operating income before depreciation
and amortization (a) $718.5 $517.5 $201.0 38.8%
======== ======== ======
- ---------------
(a) See footnote (1) on page 34.
The Scripps Acquisition accounted for $52.3 million of the $186.0 million
increase in service income from 1995 to 1996. Of the remaining increase of
$133.7 million, $33.5 million is attributable to subscriber growth, $84.5
million is attributable to changes in rates, $4.7 million is attributable to
growth in cable advertising sales and $11.0 million relates to other product
offerings. The Maclean Hunter Acquisition accounted for $270.1 million of the
$389.6 million increase in service income from 1994 to 1995. Of the remaining
increase of $119.5 million, $46.0 million is attributable to subscriber growth,
$54.6 million relates to changes in rates, which includes the change in the
estimated effects of cable rate regulation, $14.0 million results from growth in
cable advertising sales and $4.9 million relates to growth in other product
offerings.
The Scripps Acquisition accounted for $30.9 million of the $94.5 million
increase in operating, selling, general and administrative expenses from 1995 to
1996. Of the remaining increase of $63.6 million, $21.7 million is attributable
to increases in the costs of programming as a result of subscriber growth,
additional channel offerings and changes in rates, $25.3 million is attributable
to increases in costs associated with implementation of three regional customer
service call centers and increases in the cost of labor, $4.2 million is
attributable to growth in cable advertising sales and $12.4 million is
attributable to increases in other volume related expenses. The Maclean Hunter
Acquisition accounted for $143.7 million of the $188.6 million increase in
operating, selling, general and administrative expenses from 1994 to 1995. Of
the remaining increase of $44.9 million, $22.6 million is attributable to
increases in the costs of cable programming as a result of subscriber growth,
additional channel offerings and changes in rates, $7.2 million is attributable
to increases in expenses associated with the growth in cable advertising sales
and $15.1 million results from increases in the cost of labor and other volume
related expenses. It is anticipated that the Company's cost of cable programming
will increase in the future as cable programming rates increase and additional
sources of cable programming become available.
- 35 -
Electronic Retailing
As a result of the QVC Acquisition, the Company commenced consolidating the
financial results of QVC effective February 1, 1995. The following table
presents actual financial information for the year ended December 31, 1996 and
pro forma financial information for the years ended December 31, 1995 and 1994.
Pro forma financial information is presented herein for purposes of analysis and
may not reflect what actual operating results would have been had the Company
owned QVC since January 1, 1994 (dollars in millions):
Year Ended
December 31, Increase
1996 1995 $ %
Net sales from electronic retailing $1,835.8 $1,619.2 $216.6 13.4%
Cost of goods sold from electronic retailing 1,110.9 976.4 134.5 13.8
Operating, selling, general and administrative
expenses 424.6 387.4 37.2 9.6
-------- -------- ------
Operating income before depreciation
and amortization (a) $300.3 $255.4 $44.9 17.6%
======== ======== ======
Gross margin 39.5% 39.7%
======== ========
Year Ended
December 31, Increase
1995 1994 $ %
Net sales from electronic retailing $1,619.2 $1,374.5 $244.7 17.8%
Cost of goods sold from electronic retailing 976.4 839.5 136.9 16.3
Operating, selling, general and administrative
expenses 387.4 326.1 61.3 18.8
-------- -------- ------
Operating income before depreciation
and amortization (a) $255.4 $208.9 $46.5 22.3%
======== ======== ======
Gross margin 39.7% 38.9%
======== ========
- ---------------
(a) See footnote (1) on page 34.
Effective April 1, 1995, QVC consolidated the results of its UK operations.
These operations accounted for $50.3 million of the sales increase from 1995 to
1996. Nine months of sales from these operations accounted for $48.4 million of
the sales increase from 1994 to 1995. The remaining increases of $166.3 million
and $196.3 million from 1995 to 1996 and 1994 to 1995, respectively, are
primarily attributable to increases of 7.2% and 9.2% in the average number of
QVC homes receiving QVC services in the US over the respective prior year
periods.
An allowance for returned merchandise is provided as a percentage of sales based
on historical experience. The return provision was approximately 21 percent of
gross sales for each of the years ended December 31, 1996, 1995 and 1994.
The $134.5 million and $136.9 million increases in cost of goods sold from
electronic retailing from 1995 to 1996 and 1994 to 1995, respectively, are
directly related to the growth in net sales. The 0.2 percentage point decrease
in gross margin from 1995 to 1996 and 0.8 percentage point increase in gross
margin from 1994 to 1995 are due to slight changes in product mix from year to
year.
The growth in and consolidation of QVC's UK operations, effective April 1, 1995,
resulted in increases in operating, selling, general and administrative expenses
of $17.4 million and $25.8 million from 1995 to 1996 and 1994 to 1995,
respectively. The remaining increases of $19.8 million and $35.5 million from
1995 to 1996 and 1994 to 1995, respectively, are attributable to higher sales
volume, increases in advertising costs and additional costs associated with new
businesses.
- 36 -
Cellular Communications
The following table sets forth the operating results for the Company's cellular
communications segment (dollars in millions):
Year Ended
December 31, Increase
1996 1995 $ %
Service income $426.1 $374.9 $51.2 13.7%
Operating, selling, general and administrative
expenses 265.9 237.1 28.8 12.1
------ ------ -----
Operating income before depreciation
and amortization (a) $160.2 $137.8 $22.4 16.3%
====== ====== =====
Year Ended
December 31, Increase
1995 1994 $ %
Service income $374.9 $286.1 $88.8 31.0%
Operating, selling, general and administrative
expenses 237.1 169.8 67.3 39.6
------ ------ -----
Operating income before depreciation
and amortization (a) $137.8 $116.3 $21.5 18.5%
====== ====== =====
- ---------------
(a) See footnote (1) on page 34.
Of the respective $51.2 million and $88.8 million increases in service income
from 1995 to 1996 and 1994 to 1995, $69.6 million and $99.6 million,
respectively, are attributable to the Company's subscriber growth. Offsetting
the increases from 1995 to 1996 and 1994 to 1995 are decreases of $19.3 million
and $25.0 million, respectively, resulting from reductions in the average rate
per minute of use in these respective periods. The remaining changes from 1995
to 1996 and 1994 to 1995 are attributable to growth in roamer revenue and other
products of $900,000 and $14.2 million, respectively. The Company expects that
the decrease in average minutes-of-use per cellular subscriber will continue in
the future, which is consistent with industry trends.
Of the respective $28.8 million and $67.3 million increases in operating,
selling, general and administrative expenses from 1995 to 1996 and 1994 to 1995,
$24.3 million and $38.2 million, respectively, are related to subscriber growth,
including the costs to acquire and service subscribers. The remaining increases
of $4.5 million and $29.1 million, respectively, are due to increases in other
expenses, including subscriber retention costs, administrative costs and theft
of service in 1995.
Consolidated Analysis
The $25.3 million decrease in depreciation expense from 1995 to 1996 is
primarily attributable to the effects of the rebuild of certain of the Company's
cellular equipment in 1995 (see below) offset, in part, by the effects of
capital expenditures during 1995 and 1996 and the effects of the Scripps
Acquisition in 1996. The $157.7 million increase in depreciation expense from
1994 to 1995 is attributable to the effects of the acquisitions of QVC and
Maclean Hunter, the effects of the rebuild of certain of the Company's cellular
equipment in 1995 and capital expenditures during the periods, offset, in part,
by the effects of asset disposals during the periods.
In 1995, the Company's cellular division purchased $172.0 million of switching
and cell site equipment which replaced the existing switching and cell site
equipment (the "Cellular Rebuild"). The Company substantially completed the
Cellular Rebuild during 1995. Accordingly, during 1995, the Company charged
$110.0 million to depreciation expense which represented the difference between
the net book value of the equipment replaced and the residual value realized
upon its disposal.
- 37 -
The $34.6 million and $194.8 million increases in amortization expense from 1995
to 1996 and 1994 to 1995, respectively, are primarily attributable to the
effects of the acquisition of Scripps Cable in 1996 and the effects of the
acquisitions of QVC and Maclean Hunter in 1995 and 1994, respectively.
The $16.1 million increase in interest expense from 1995 to 1996 is primarily
attributable to an increase in the Company's outstanding long-term debt, offset,
in part, by a decrease in interest rates from 1995 to 1996 and the effects of
capitalized interest. The $211.3 million increase in interest expense from 1994
to 1995 is primarily due to increased levels of debt associated with the
acquisitions of QVC and Maclean Hunter.
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 $107.2 million decrease in investment income from 1995 to 1996 is primarily
attributable to the effects of the gain realized in the Heritage Transaction in
1995 (see below), offset, in part, by the gain recognized upon the exchange of
the shares of TBS held by the Company for Time Warner Stock in 1996. The $205.2
million increase in investment income from 1994 to 1995 is principally due to
the $177.2 million in gains related to the Heritage Transaction and the sale of
Nextel common stock in 1995. The remaining increase for this period is due to
the effects of the QVC Acquisition and an increase in the Company's cash, cash
equivalents and short-term investments, offset by $15.3 million of losses
recorded relating to the net realizable value of certain of the Company's
investments.
In January 1995, the Company exchanged its investments in Heritage
Communications, Inc. with TCI for 13.3 million publicly-traded Class A common
shares of TCI with a fair market value of $290.0 million. Shortly thereafter,
the Company sold 9.1 million unrestricted TCI shares for total proceeds of
$188.1 million (collectively, the "Heritage Transaction"). As a result of these
transactions, the Company recognized a pre-tax gain of $141.0 million as
investment income in its 1995 consolidated statement of operations.
The increases in equity in net losses of affiliates for both periods are due to
the timing of investments in and changes in losses incurred by Sprint Spectrum,
TCGI (as defined below), the Company's international investees and certain
programming investees. Based on Sprint Spectrum's current operations and
business plan, the Company anticipates that its proportionate share of Sprint
Spectrum's losses will be significant in future years.
Through June 27, 1996, the Company held investments in Teleport Communications
Group Inc. ("TCGI"), TCG Partners and certain local joint ventures (the "Joint
Ventures") managed by TCGI and TCG Partners. On June 27, 1996, TCGI sold
approximately 27 million shares of its Class A Common Stock (the "TCGI Class A
Stock"), for $16 per share, in an initial public offering (the "TCGI IPO"). In
connection with the TCGI IPO, TCGI, the Company and subsidiaries of Cox, TCI and
Continental Cablevision ("Continental" and collectively with Cox, TCI and the
Company, the "Cable Stockholders") entered into an agreement pursuant to which
TCGI was reorganized (the "Reorganization"). The Reorganization consisted of,
among other things: (i) the acquisition by TCGI of TCG Partners; (ii) the
acquisition by TCGI of additional interests in the Joint Ventures (including
100% of those interests held by the Company); and (iii) the contribution to TCGI
of $269.0 million aggregate principal amount of indebtedness, plus accrued
interest thereon, owed by TCGI to the Cable Stockholders (except that TCI
retained a $26 million subordinated note of TCGI), including $53.8 million
principal amount and $4.1 million of accrued interest owed to the Company. In
connection with the Reorganization, the Company received 25.6 million shares of
TCGI's Class B Common Stock (the "TCGI Class B Stock"). Each share of TCGI Class
B Stock is entitled to voting power equivalent to ten shares of TCGI Class A
Stock and is convertible, at the option of the holder, into one share of TCGI
Class A Stock. The Company recorded a $40.6 million increase in its
proportionate share of TCGI's net assets as a gain from equity offering of
affiliate in its 1996 consolidated statement of operations. After giving effect
to the Reorganization and the TCGI IPO, the Company owns 19.5% of the
outstanding TCGI Class B Stock representing a 19.1% voting interest and a 16.1%
equity interest. The Company continues to account for its interest in TCGI under
the equity method. Assuming conversion of the TCGI Class B Stock held by the
Company into TCGI Class A Stock, the Company's investment would have a fair
value of approximately $781.5 million based on the quoted market price of the
TCGI Class A Stock as of December 31, 1996.
The $8.9 million decrease in other income from 1995 to 1996 is primarily
attributable to the settlement of certain litigation in 1996 offset, in part, by
an increase in foreign exchange gains.
- 38 -
The $42.3 million and $51.3 million increases in income tax expense from 1995 to
1996 and 1994 to 1995 are primarily attributable to increases in QVC's income
before income taxes and the consolidation of QVC for financial reporting
purposes in 1995.
The $44.3 million increase in minority interest income from 1994 to 1995 is
attributable to minority interests in the net income (loss) of QVC, Maclean
Hunter and Comcast UK Cable.
In May 1996, the Company expensed unamortized debt acquisition costs of $1.8
million in connection with the prepayment of a portion of a subsidiary's
outstanding debt, resulting in an extraordinary loss, net of tax of $1.0
million. The Company incurred debt extinguishment costs totaling $9.4 million
during 1995 in connection with the refinancing of certain indebtedness,
resulting in an extraordinary loss, net of tax, of $6.1 million or $.02 per
share. During 1994, the Company paid premiums and expensed unamortized debt
acquisition costs totaling $18.0 million, primarily in connection with the
redemption of its $150.0 million, 11-7/8% senior subordinated debentures due
2004, resulting in an extraordinary loss, net of tax, of $11.7 million or $.05
per share.
For the years ended December 31, 1996, 1995 and 1994, the Company's
distributions from Garden State and earnings before extraordinary items, income
tax expense (benefit), equity in net losses of affiliates and fixed charges
(interest expense) were $770.0 million, $615.6 million and $269.8 million,
respectively. Such earnings were adequate to cover the Company's fixed charges,
of $572.9 million, including capitalized interest of $32.1 million, for the year
ended December 31, 1996. Excluding the pre-tax gains of $177.2 million
recognized in 1995 in connection with the Heritage Transaction and sales of the
Company's Nextel shares, such earnings were not adequate to cover the Company's
fixed charges of $531.1 million and $313.4 million for the years ended December
31, 1995 and 1994, respectively, including capitalized interest of $6.4 million
in 1995. The Company's fixed charges include non-cash interest expense of $97.0
million, $60.2 million and $53.5 million for the years ended December 31, 1996,
1995 and 1994, respectively. For the years ended December 31, 1995 and 1994, the
inadequacy of these earnings to cover fixed charges is primarily due to the
substantial non-cash charges for depreciation expense, including the 1995 charge
associated with the Cellular Rebuild, and amortization expense.
The Company believes that its losses will not significantly affect the
performance of its normal business activities because of its existing cash, cash
equivalents and short-term investments, its ability to generate operating income
before depreciation and amortization and its ability to obtain external
financing.
The Company believes that its operations are not materially affected by
inflation.
Regulatory Developments
The Company has settled the majority of outstanding proceedings challenging its
rates charged for regulated cable services. In December 1995, the FCC adopted an
order approving a negotiated settlement of rate complaints pending against the
Company for cable programming service tiers ("CPSTs") which provided $6.6
million in refunds, plus interest, given in the form of bill credits during
1996, to 1.3 million of the Company's cable subscribers. As part of the
negotiated settlement, the Company agreed to forego certain inflation and
external cost adjustments for systems covered by its cost-of-service filings for
CPSTs. The Company currently is seeking to justify rates for basic cable
services and equipment in certain of its cable systems in the State of
Connecticut on the basis of a cost-of-service showing. The State of Connecticut
has ordered the Company to reduce such rates and to make refunds to subscribers.
The Company has appealed the Connecticut decision to the FCC. Recent
pronouncements from the FCC, which generally support the Company's position on
appeal, have caused the State of Connecticut to reexamine its prior ruling.
While the Company cannot predict the outcome of this action, the Company
believes that the ultimate resolution of these pending regulatory matters will
not have a material adverse impact on the Company's financial position, results
of operations or liquidity.
- 39 -
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, 1996 and 1995, 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,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the consolidated financial
statements of QVC, Inc. ("QVC") as of and for the year ended December 31, 1996
and as of and for the eleven month period ended December 31, 1995 and the
consolidated financial statements of Comcast International Holdings, Inc.
("International") and the financial statements of Garden State Cablevision L.P.
("Garden State") for the year ended December 31, 1994. QVC and International are
consolidated with the Company. The Company's investment in Garden State is
accounted for under the equity method. QVC's financial statements reflect total
assets constituting 17% and 20%, respectively, and total revenues constituting
45% and 44%, respectively, of the Company's consolidated total assets and
revenues as of and for the years ended December 31, 1996 and 1995. The Company's
combined equity in the net losses of International and Garden State for the year
ended December 31, 1994 of $39 million is included in the Company's consolidated
financial statements. The financial statements of QVC, 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 QVC, International and Garden State for
the periods specified above, 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, 1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 28, 1997
- 40 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except share data)
December 31,
ASSETS 1996 1995
CURRENT ASSETS
Cash and cash equivalents............................................. $331.3 $539.1
Short-term investments................................................ 208.3 371.0
Accounts receivable, less allowance for doubtful
accounts of $97.1 and $81.3......................................... 439.3 390.7
Inventories, net...................................................... 258.4 243.4
Other current assets.................................................. 168.5 109.5
--------- --------
Total current assets.............................................. 1,405.8 1,653.7
--------- --------
INVESTMENTS, principally in affiliates................................... 1,177.7 906.4
--------- --------
PROPERTY AND EQUIPMENT................................................... 3,600.1 2,484.4
Accumulated depreciation.............................................. (1,061.3) (873.2)
--------- --------
Property and equipment, net........................................... 2,538.8 1,611.2
--------- --------
DEFERRED CHARGES
Franchise and license acquisition costs............................... 4,895.7 3,568.6
Excess of cost over net assets acquired and other..................... 3,683.1 3,075.0
--------- --------
8,578.8 6,643.6
Accumulated amortization.............................................. (1,612.5) (1,234.6)
--------- --------
Deferred charges, net................................................. 6,966.3 5,409.0
--------- --------
$12,088.6 $9,580.3
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses................................. $1,044.3 $964.0
Accrued interest...................................................... 91.1 72.7
Current portion of long-term debt..................................... 229.5 85.4
--------- --------
Total current liabilities......................................... 1,364.9 1,122.1
--------- --------
LONG-TERM DEBT, less current portion..................................... 7,102.7 6,943.8
--------- --------
DEFERRED INCOME TAXES.................................................... 2,140.5 1,518.0
--------- --------
MINORITY INTEREST AND OTHER.............................................. 859.3 772.0
--------- --------
COMMITMENTS AND CONTINGENCIES
COMMON EQUITY PUT OPTIONS................................................ 69.6 52.1
--------- --------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, no par value - authorized, 20,000,000
shares; issued 5% series A convertible, 6,370 at redemption value... 31.9
Class A special common stock, $1 par value - authorized,
500,000,000 shares; issued, 283,281,675 and 192,844,814 ............ 283.3 192.8
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 33,959,368 and 37,706,517 .............. 34.0 37.7
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 8,786,250 ............................... 8.8 8.8
Additional capital.................................................... 2,327.4 843.1
Accumulated deficit................................................... (2,127.9) (1,914.3)
Unrealized gains on marketable securities............................. 0.1 22.2
Cumulative translation adjustments.................................... (6.0) (18.0)
--------- --------
Total stockholders' equity (deficiency)........................... 551.6 (827.7)
--------- --------
$12,088.6 $9,580.3
========= ========
See notes to consolidated financial statements.
- 41 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in millions, except per share data)
Year Ended December 31,
1996 1995 1994
REVENUES
Service income............................................. $2,202.6 $1,875.2 $1,375.3
Net sales from electronic retailing........................ 1,835.8 1,487.7
-------- -------- --------
4,038.4 3,362.9 1,375.3
-------- -------- --------
COSTS AND EXPENSES
Operating.................................................. 948.7 803.4 409.8
Cost of goods sold from electronic retailing............... 1,110.9 898.3
Selling, general and administrative........................ 771.6 642.4 389.2
Depreciation............................................... 314.6 339.9 182.2
Amortization............................................... 383.7 349.1 154.3
-------- -------- --------
3,529.5 3,033.1 1,135.5
-------- -------- --------
OPERATING INCOME.............................................. 508.9 329.8 239.8
OTHER (INCOME) EXPENSE
Interest expense........................................... 540.8 524.7 313.4
Investment income.......................................... (122.6) (229.8) (24.6)
Equity in net losses of affiliates......................... 144.8 86.6 40.9
Gain from equity offering of affiliate..................... (40.6)
Other...................................................... 2.6 (6.3)
-------- -------- --------
525.0 375.2 329.7
-------- -------- --------
LOSS BEFORE INCOME TAX EXPENSE (BENEFIT), MINORITY
INTEREST AND EXTRAORDINARY ITEMS........................... (16.1) (45.4) (89.9)
INCOME TAX EXPENSE (BENEFIT).................................. 84.4 42.1 (9.2)
-------- -------- --------
LOSS BEFORE MINORITY INTEREST AND EXTRAORDINARY
ITEMS...................................................... (100.5) (87.5) (80.7)
MINORITY INTEREST............................................. (48.0) (49.7) (5.4)
-------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEMS............................... (52.5) (37.8) (75.3)
EXTRAORDINARY ITEMS .......................................... (1.0) (6.1) (11.7)
-------- -------- --------
NET LOSS...................................................... ($53.5) ($43.9) ($87.0)
======== ======== ========
LOSS PER SHARE
Loss before extraordinary items............................ ($.21) ($.16) ($.32)
Extraordinary items........................................ (.02) (.05)
-------- -------- --------
Net loss................................................. ($.21) ($.18) ($.37)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING ............................................... 247.6 239.7 236.3
======== ======== ========
See notes to consolidated financial statements.
- 42 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Year Ended December 31,
1996 1995 1994
OPERATING ACTIVITIES
Net loss................................................... ($53.5) ($43.9) ($87.0)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation............................................. 314.6 339.9 182.2
Amortization............................................. 383.7 349.1 154.3
Non-cash interest expense, net........................... 62.2 53.8 53.5
Equity in net losses of affiliates....................... 144.8 86.6 40.9
Gain from equity offering of affiliate................... (40.6)
Gains on sales of subsidiaries........................... (5.5) (5.8)
Gains on long-term investments, net...................... (69.2) (183.0)
Minority interest........................................ (48.0) (49.7) (5.4)
Extraordinary items...................................... 1.0 6.1 11.7
Deferred income taxes and other.......................... 14.0 (15.7) 9.7
--------- --------- ---------
709.0 537.7 354.1
Increase in accounts receivable, net..................... (38.2) (62.4) (28.3)
Increase in inventories, net............................. (5.8) (57.5) (7.3)
Decrease (increase) in other current assets.............. 0.6 (23.3) (5.3)
Increase in accounts payable and accrued expenses........ 114.9 114.3 57.5
Increase (decrease) in accrued interest.................. 19.1 11.9 (1.6)
--------- --------- ---------
Net cash provided by operating activities.............. 799.6 520.7 369.1
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings................................... 839.5 3,728.2 1,201.1
Retirement and repayment of debt........................... (734.4) (1,619.6) (509.0)
(Repurchases) issuances of common stock, net............... (175.9) (7.1) 2.9
Issuance of common stock of a subsidiary, net.............. 209.4
Equity contributions to subsidiaries....................... 6.6 250.0
Dividends.................................................. (26.8) (22.4) (22.7)
Other...................................................... 16.4 (50.0) (16.5)
--------- --------- ---------
Net cash (used in) provided by financing activities.... (81.2) 2,035.7 1,115.2
--------- --------- ---------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired......................... (60.4) (1,386.0) (1,292.6)
Proceeds from sales (purchases) of short-term
investments, net......................................... 210.2 (240.8) 389.3
Investments, principally in affiliates..................... (502.0) (480.2) (125.0)
Proceeds from sales of and distributions from
long-term investments.................................... 167.5 410.5
Capital expenditures....................................... (670.4) (623.0) (269.9)
Proceeds from sale of subsidiary........................... 28.2
Other...................................................... (71.1) (33.1) (39.4)
--------- --------- ---------
Net cash used in investing activities.................. (926.2) (2,352.6) (1,309.4)
--------- --------- ---------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS........................................... (207.8) 203.8 174.9
CASH AND CASH EQUIVALENTS, beginning of year.................. 539.1 335.3 160.4
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year........................ $331.3 $539.1 $335.3
========= ========= =========
See notes to consolidated financial statements.
- 43 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Dollars in millions, except per share data)
Unrealized
Common Stock Gains on
Addi- Accum- Market- Cumulative
Preferred Class A tional ulated able Translation
Stock Special Class A Class B Capital Deficit Securities Adjustments Total
BALANCE, JANUARY 1, 1994 $ $174.0 $38.9 $8.8 $647.2 ($1,717.9) $ ($21.5) ($870.5)
Net loss (87.0) (87.0)
Issuance of common stock 0.2 2.2 2.4
Conversion of convertible subordinated
debt to common stock 16.8 166.7 183.5
Exercise of options 0.5 0.1 6.0 6.6
Retirement of common stock (0.3) (5.9) (6.2)
Cash dividends, $.0933 per share (22.7) (22.7)
Unrecognized gain on issuance of common
stock of a subsidiary 59.3 59.3
Unrealized gains on marketable securities,
net of deferred taxes of $2.1 3.9 3.9
Cumulative translation adjustments 4.0 4.0
----- ------ ----- ---- -------- --------- ---- ----- ------
BALANCE, DECEMBER 31, 1994 191.2 39.0 8.8 875.5 (1,827.6) 3.9 (17.5) (726.7)
Net loss (43.9) (43.9)
Issuance of common stock 1.1 17.4 18.5
Conversion of convertible subordinated
debt to common stock 0.4 4.0 4.4
Exercise of options 0.3 0.1 3.2 3.6
Retirement of common stock (0.2) (1.4) (7.5) (20.4) (29.5)
Cash dividends, $.0933 per share (22.4) (22.4)
Temporary equity related to put options (52.1) (52.1)
Proceeds from sales of put options 2.6 2.6
Unrealized gains on marketable securities,
net of deferred taxes of $9.8 18.3 18.3
Cumulative translation adjustments (0.5) (0.5)
----- ------ ----- ---- -------- --------- ---- ----- ------
BALANCE, DECEMBER 31, 1995 192.8 37.7 8.8 843.1 (1,914.3) 22.2 (18.0) (827.7)
Net loss (53.5) (53.5)
Issuance of common stock 97.2 1,526.3 1,623.5
Issuance of preferred stock 31.9 31.9
Exercise of options 0.2 0.2 3.0 3.4
Retirement of common stock (6.9) (3.9) (41.3) (133.3) (185.4)
Cash dividends, $.0933 per share (26.8) (26.8)
Unrecognized gain on issuance of
common stock of a subsidiary 11.6 11.6
Temporary equity related to put options (17.5) (17.5)
Proceeds from sales and extensions of
put options 2.2 2.2
Unrealized losses on marketable securities,
net of deferred taxes of ($11.9) (22.1) (22.1)
Cumulative translation adjustments 12.0 12.0
----- ------ ----- ---- -------- --------- ---- ----- ------
BALANCE, DECEMBER 31, 1996 $31.9 $283.3 $34.0 $8.8 $2,327.4 ($2,127.9) $0.1 ($6.0) $551.6
===== ====== ===== ==== ======== ========= ==== ===== ======
See notes to consolidated financial statements.
- 44 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. BUSINESS
Comcast Corporation and its subsidiaries (the "Company") is principally
engaged in the development, management and operation of wired and wireless
telecommunications and the provision of content.
Wired telecommunications includes cable and telecommunications services in
the United States ("US") and the United Kingdom ("UK"). The Company's
consolidated domestic cable operations served approximately 4.3 million
subscribers and passed approximately 7.0 million homes as of December 31,
1996. The Company owns a 50% interest in Garden State Cablevision L.P.
("Garden State"), a cable communications company serving more than 204,000
subscribers and passing more than 294,000 homes in the State of New Jersey.
In the UK, a subsidiary of the Company, Comcast UK Cable Partners Limited
("Comcast UK Cable"), holds ownership interests in four cable and telephony
businesses that collectively have the potential to serve over 1.6 million
homes.
Wireless telecommunications includes cellular services, personal
communications services provided through the Company's investment in Sprint
Spectrum and direct to home satellite television through the Company's
equity interest in and distribution arrangements with Primestar Partners,
L.P. ("Primestar"). The Company provides cellular telephone communications
services pursuant to licenses granted by the Federal Communications
Commission ("FCC") in markets with a population of more than 8.4 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.
Content is provided through QVC, Inc. and its subsidiaries ("QVC"), an
electronic retailer, Comcast Content and Communication Corporation ("C3")
and other investments, including Comcast Spectacor, L.P. ("Comcast-
Spectacor") and E! Entertainment Television, Inc. ("E! Entertainment").
Through QVC, the Company markets a wide variety of products and reaches, on
a full and part-time basis, over 61 million homes in the US, over five
million homes in the UK and over four million homes in Germany.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned or controlled subsidiaries. All significant
intercompany accounts and transactions among consolidated entities have
been eliminated. Included in the Company's consolidated balance sheet as of
December 31, 1996 and 1995 are net assets of foreign subsidiaries of $143.7
million and $115.2 million, respectively.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
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, 1996 and 1995, and have not been
comprehensively revalued for purposes of these consolidated financial
statements since such dates.
- 45 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
Cash Equivalents and Short-term Investments
Cash equivalents consist principally of US Government obligations,
commercial paper, repurchase agreements and certificates of deposit with
maturities of three months or less when purchased. Short-term investments
consist principally of US Government obligations, commercial paper,
repurchase agreements and certificates of deposit with maturities of
greater than three months when purchased. The carrying amounts of the
Company's cash equivalents and short-term investments, classified as
available for sale securities, approximate their fair values. As of
December 31, 1996, short-term investments also include the Company's
investment in Time Warner, Inc. ("Time Warner") common stock (see Note 4).
Inventories - Electronic Retailing
Inventories, consisting primarily of products held for sale, are stated at
the lower of cost or market. Cost is determined by the first-in, first-out
method.
Investments, Principally in Affiliates
Investments in entities in which the Company has the ability to exercise
significant influence over the operating and financial policies of the
investee and investments in partnerships which are not controlled by the
Company are accounted for under the equity method. Equity method
investments are recorded at original cost and adjusted periodically to
recognize the Company's proportionate share of the investees' net income or
losses after the date of investment, additional contributions made and
dividends received. 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.
Unrestricted publicly traded investments, including options to purchase
such securities, are classified as available for sale and are recorded at
their fair value, with unrealized gains or losses resulting from changes in
fair value between measurement dates recorded as a component of
stockholders' equity (deficiency).
Restricted publicly traded investments and investments in privately held
companies are stated at cost, adjusted for any known diminution in value.
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 and improvements 8-40 years
Operating facilities 5-20 years
Other equipment 2-10 years
Improvements that extend asset lives are capitalized; other repairs and
maintenance charges are expensed as incurred. The cost and related
accumulated depreciation applicable to assets sold or retired are removed
from the accounts and the gain or loss on disposition is recognized as a
component of depreciation expense.
Deferred Charges
Franchise and license acquisition costs are amortized on a straight-line
basis over their legal or estimated useful lives of 12 to 40 years. The
excess of cost over the fair value of net assets acquired is being
amortized on a straight-line basis over estimated useful lives of 20 to 40
years.
Valuation of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets, including property and equipment and deferred charges, using
objective methodologies. Such methodologies include evaluations based on
the cash flows generated by the underlying assets or other determinants of
fair value.
- 46 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries, where the
functional currency is the local currency, are translated into US dollars
at the December 31 exchange rate. The related translation adjustments are
recorded as a separate component of stockholders' equity (deficiency).
Revenues and expenses are translated using average exchange rates
prevailing during the year. Foreign currency transaction gains and losses
are included in other (income) expense.
Revenue Recognition
Service income is recognized as service is provided. Credit risk is managed
by disconnecting services to cable and cellular customers who are
delinquent. Net sales from electronic retailing are recognized at the time
of shipment to customers. An allowance for returned merchandise is provided
as a percentage of sales based on historical experience. The return
provision was approximately 21 percent of gross sales for each of the years
ended December 31, 1996 and 1995.
Stock-Based Compensation
Effective January 1, 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 encourages, but does not require,
companies to record compensation cost for stock-based compensation plans at
fair value. The Company has elected to continue to account for stock-based
compensation in accordance with Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations, as permitted by SFAS 123. Compensation expense for stock
options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee
must pay to acquire the stock. Compensation expense for restricted stock
awards is recorded annually based on the quoted market price of the
Company's stock at the date of the grant and the vesting period.
Compensation expense for stock appreciation rights is recorded annually
based on the changes in quoted market prices of the Company's stock or
other determinants of fair value at the end of the year (see Note 6).
Postretirement and Postemployment Benefits
The estimated costs of retiree benefits and benefits for former or inactive
employees, after employment but before retirement, are accrued and recorded
as a charge to operations during the years the employees provide services.
Investment Income
Investment income includes interest income and gains, net of losses, on the
sales of marketable securities and long-term investments. Gross realized
gains and losses are recognized using the specific identification method
(see Note 4). In 1996 and 1995, investment income also includes impairment
losses resulting from adjustments to the net realizable value of certain of
the Company's long-term investments.
Capitalized Interest
Interest is capitalized as part of the historical cost of acquiring
qualifying assets, including investments in equity method investees while
the investee has activities in progress necessary to commence its planned
principal operations. Capitalized interest for the years ended December 31,
1996 and 1995 was $32.1 million and $6.4 million, respectively.
Income Taxes
The Company recognizes deferred tax assets and liabilities 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 consolidated
financial statements in the period of enactment.
- 47 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
Loss per Share
For the years ended December 31, 1996, 1995 and 1994, 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 1996,
1995 and 1994 is antidilutive and, therefore, has not been presented.
Derivative Financial Instruments
The Company uses derivative financial instruments, including interest rate
exchange agreements ("Swaps"), interest rate cap agreements ("Caps"),
interest rate collar agreements ("Collars") and foreign exchange option
contracts ("FX Options"), to manage its exposure to fluctuations in
interest rates and foreign currency exchange rates.
Swaps, Caps and Collars are matched with either fixed or variable rate debt
and periodic cash payments are accrued on a settlement basis as an
adjustment to interest expense. Any premiums associated with these
instruments are amortized over their term and realized gains or losses as a
result of the termination of the instruments are deferred and amortized
over the shorter of the remaining term of the instrument or the underlying
debt. Written options are marked-to-market on a current basis in the
Company's consolidated statement of operations. Gains and losses related to
qualifying hedges of foreign currency denominated debt are offset against
the translation adjustment included in stockholders' equity (deficiency).
Other FX Options are marked-to-market on a current basis in the Company's
consolidated statement of operations.
The Company does not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments (see Note 5).
The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and 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.
Sale of Stock by a Subsidiary or Equity Method Investee
Changes in the Company's proportionate share of the underlying equity of a
consolidated subsidiary or equity method investee which result from the
issuance of additional securities by such subsidiary or investee are
recognized as gains or losses in the Company's consolidated statement of
operations unless gain realization is not assured in the circumstances.
Gains for which realization is not assured are credited directly to
additional capital.
New Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which will be adopted by the Company in
1997, as required by this statement. Under the provisions of this
statement, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered
and derecognizes liabilities when extinguished. The Company does not expect
that adoption of this standard will have a significant impact on its
financial position or results of operations.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This
standard, which clarifies and supersedes the current authoritative
accounting literature regarding the computation and disclosure of earnings
per share, is applicable to interim and annual periods ending after
December 15, 1997 and may not be applied earlier. The Company does not
expect adoption of this standard to result in significant changes to the
Company's calculation or presentation of loss per share.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 1996.
- 48 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
E! Entertainment
As of December 31, 1996, the Company owned a 10.4% interest in E!
Entertainment, an entertainment programming service that currently is
distributed to more than 42 million subscribers. The Company has the right,
by virtue of various agreements among the shareholders of E! Entertainment,
to purchase an additional 58.4% interest in E! Entertainment from Time
Warner for $321.1 million. In January 1997, the Company and The Walt Disney
Company ("Disney") entered into an agreement to form a new limited
liability company ("Newco") that will be owned 50.1% by the Company and
49.9% by Disney. Pursuant to the agreement, the Company will contribute to
Newco its 10.4% interest in E! Entertainment, the right to exercise its
option to purchase the Time Warner interest and $132.3 million in cash.
Disney will contribute to Newco $188.8 million in cash. Newco will use the
cash contributed by the Company and Disney to purchase the Time Warner
interest. Following such purchase, Newco will own a 68.8% interest in E!
Entertainment. To fund the cash portion of its contribution, the Company
will borrow $132.3 million from Disney in the form of two 10-year, 7% notes
(the "Disney Notes"). These transactions (collectively, the "E!
Acquisition") are expected to close in the first quarter of 1997, subject
to regulatory approval and certain other conditions.
Scripps Cable
In November 1996, the Company acquired the cable television operations
("Scripps Cable") of The E.W. Scripps Company ("E.W. Scripps") in exchange
for 93.048 million shares of the Company's Class A Special Common Stock,
par value $1.00 per share (the "Class A Special Common Stock"), valued at
$1.552 billion (the "Scripps Acquisition"). Scripps Cable passed more than
1.3 million homes and served more than 800,000 subscribers as of December
31, 1996, with 60% of its subscribers located in Sacramento, California and
Chattanooga and Knoxville, Tennessee. The Company has accounted for the
Scripps Acquisition under the purchase method and Scripps Cable was
consolidated with the Company effective November 1, 1996. As the
consideration given in exchange for Scripps Cable was shares of Class A
Special Common Stock, the Scripps Acquisition had no significant impact on
the Company's consolidated statement of cash flows.
The allocation of the purchase price to the assets and liabilities of
Scripps Cable is preliminary pending a final appraisal and the final
purchase price adjustment between the Company and E.W. Scripps. The terms
of the Scripps Acquisition provide for, among other things, the
indemnification of the Company by E.W. Scripps for certain liabilities,
including tax liabilities, relating to Scripps Cable prior to the
acquisition date.
Comcast-Spectacor
In July 1996, the Company completed its acquisition (the "Sports Venture
Acquisition") of a 66% interest in the Philadelphia Flyers Limited
Partnership, a Pennsylvania limited partnership ("PFLP"), the assets of
which, after giving effect to the Sports Venture Acquisition, consist of
(i) the National Basketball Association ("NBA") franchise to own and
operate the Philadelphia 76ers basketball team and related assets (the
"Sixers"), (ii) the National Hockey League ("NHL") franchise to own and
operate the Philadelphia Flyers hockey team and related assets, and (iii)
two adjacent arenas, leasehold interests in and development rights related
to the land underlying the arenas and other adjacent parcels of land
located in Philadelphia, Pennsylvania (collectively, the "Arenas").
Concurrent with the completion of the Sports Venture Acquisition, PFLP was
renamed Comcast Spectacor, L.P. ("Comcast-Spectacor").
The Sports Venture Acquisition was completed in two steps. In April 1996,
the Company purchased the Sixers for $125.0 million in cash plus assumed
net liabilities of $11.0 million through a partnership controlled by the
Company. To complete the Sports Venture Acquisition, in July 1996, the
Company contributed its interest in the Sixers, exchanged approximately 3.5
million shares of the Company's Class A Special Common Stock and 6,370
shares of the Company's newly issued 5% Series A Convertible Preferred
Stock (the "Preferred Stock" see Note 6), and paid $15.0 million in cash
for its current interest in Comcast-Spectacor. The remaining 34% interest
in Comcast-Spectacor is owned by a group, including the former majority
owner of PFLP, who also
- 49 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
manages Comcast-Spectacor (the "Minority Group"). In connection with the
Sports Venture Acquisition, Comcast-Spectacor assumed the outstanding
liabilities relating to the Sixers and the Arenas, including a mortgage
obligation of $155.0 million. The Company accounts for its interest in
Comcast-Spectacor under the equity method. The issuance of the Preferred
Stock and the Class A Special Common Stock in the Sports Venture
Acquisition had no impact on the Company's consolidated statement of cash
flows due to their non-cash nature.
Sprint Spectrum
The Company, Tele-Communications, Inc. ("TCI"), Cox Communications, Inc.
("Cox," and together with the Company and TCI, the "Cable Parents") and
Sprint Corporation ("Sprint," and together with the Cable Parents, the
"Parents"), and certain subsidiaries of the Parents (the "Partner
Subsidiaries") engage in the wireless communications business through a
limited partnership known as "Sprint Spectrum," a development stage
enterprise. The Company owns 15% of Sprint Spectrum and accounts for its
investment in Sprint Spectrum under the equity method (see Note 4).
Sprint Spectrum was the successful bidder for 29 personal communications
services ("PCS") licenses in the auction conducted by the FCC from December
1994 through mid-March 1995. The purchase price for the licenses was $2.11
billion, all of which has been paid to the FCC. In addition, Sprint
Spectrum has invested, and may continue to invest, in other entities that
hold PCS licenses, may acquire PCS licenses in future FCC auctions or from
other license holders and may affiliate with other license holders.
The Partner Subsidiaries have committed to contribute $4.2 billion in cash
to Sprint Spectrum through 1999, of which the Company's share is $630.0
million. Of this funding requirement, the Company has made total cash
contributions to Sprint Spectrum of $452.8 million through December 31,
1996 and issued a $105.0 million guaranty on a portion of Sprint Spectrum's
outstanding debt. The Company anticipates that Sprint Spectrum's capital
requirements over the next several years will be significant. Requirements
in excess of committed capital are planned to be funded by Sprint Spectrum
through external financing, including, but not limited to, vendor
financing, bank financing and securities offered to the public. In August
1996, Sprint Spectrum sold $750.0 million principal amount at maturity of
Senior Notes and Senior Discount Notes due in 2006 in a public offering. In
October 1996, Sprint Spectrum closed three credit agreements which provided
$2.0 billion in bank financing and $3.1 billion in vendor financing. The
timing of the Company's remaining capital contributions to Sprint Spectrum
is dependent upon a number of factors, including Sprint Spectrum's working
capital requirements. The Company anticipates funding its remaining capital
commitments to Sprint Spectrum through its cash flows from operating
activities, its existing cash, cash equivalents, short-term investments and
lines of credit or other external financing, or by a combination of these
sources.
QVC
In February 1995, the Company and TCI acquired all of the outstanding stock
of QVC not previously owned by them (approximately 65% of such shares on a
fully diluted basis) for $46, in cash, per share (the "QVC Acquisition"),
representing a total cost of approximately $1.4 billion. The QVC
Acquisition, including the exercise of certain warrants held by the
Company, was financed with cash contributions from the Company and TCI of
$296.3 million and $6.6 million, respectively, borrowings of $1.1 billion
under a $1.2 billion QVC credit facility and existing cash and cash
equivalents held by QVC. Following the acquisition, the Company and TCI
owned, through their respective subsidiaries, 57.45% and 42.55%,
respectively, of QVC. The Company, through a management agreement, is
responsible for the day to day operations of QVC. The Company has accounted
for the QVC Acquisition under the purchase method and QVC was consolidated
with the Company effective February 1, 1995.
- 50 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
Maclean Hunter
In December 1994, the Company, through Comcast MHCP Holdings, L.L.C. (the
"LLC"), acquired the US 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 in cash. The Company and the
California Public Employees' Retirement System ("CalPERS") invested $305.6
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 balance of the Maclean Hunter Acquisition was financed
through borrowings under a credit facility of a wholly owned subsidiary of
the LLC. The Company has accounted for the Maclean Hunter Acquisition under
the purchase method and Maclean Hunter was consolidated with the Company
effective December 22, 1994.
Cellular Rebuild
In 1995, the Company's cellular division purchased $172.0 million of
switching and cell site equipment which replaced the existing switching and
cell site equipment (the "Cellular Rebuild"). The Company substantially
completed the Cellular Rebuild during 1995. Accordingly, during 1995, the
Company charged $110.0 million to depreciation expense which represented
the difference between the net book value of the equipment replaced and the
residual value realized upon its disposal.
Unaudited Pro Forma Information
The following unaudited pro forma information for the years ended December
31, 1996 and 1995 has been presented as if the Scripps Acquisition and the
QVC Acquisition had occurred on January 1, 1995. 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 January 1, 1995 (dollars in millions, except per
share data).
Year Ended December 31,
1996 1995
Revenues................................... $4,290.6 $3,772.0
Loss before extraordinary items............ (79.3) (83.5)
Net loss................................... (80.3) (89.6)
Net loss per share......................... (.24) (.27)
- 51 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
4. INVESTMENTS, PRINCIPALLY IN AFFILIATES
December 31,
1996 1995
(Dollars in millions)
Equity method.......................................... $936.4 $678.8
Public companies....................................... 165.5 170.1
Privately held companies............................... 75.8 57.5
-------- ------
$1,177.7 $906.4
======== ======
Equity Method
The Company records its proportionate interests in the net income (loss) of
substantially all of its investees three months in arrears, other than the
UK Investees. The Company's recorded investments exceed its proportionate
interests in the book value of the investees' net assets by $233.2 million
as of December 31, 1996 (primarily related to the investments in
Comcast-Spectacor and Sprint Spectrum). Such excess is 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. The
original cost of investments accounted for under the equity method totaled
$1.241 billion and $962.2 million as of December 31, 1996 and 1995,
respectively. Summarized financial information for the Company's equity
method investees for 1996, 1995 and 1994 is presented below (in millions).
Sprint UK
Spectrum TCGI Investees QVC Other Combined
Year Ended December 31, 1996:
Combined Results of Operations
Revenues, net............................... $0.1 $192.9 $155.2 $440.0 $788.2
Operating, selling, general and
administrative expenses................... 208.0 180.9 140.9 486.0 1,015.8
Depreciation and amortization............... 1.9 57.2 57.6 60.0 176.7
Operating loss.............................. (209.8) (45.2) (43.3) (106.0) (404.3)
Net loss (1)................................ (344.9) (84.8) (72.2) (140.8) (642.7)
Company's Equity in Net Loss
Equity in current period net loss........... ($51.7) ($15.1) ($28.6) ($45.9) ($141.3)
Amortization income (expense)............... 0.6 (1.1) (0.3) (2.7) (3.5)
------- ------- ------ ------ --------
Total equity in net loss.................. ($51.1) ($16.2) ($28.9) ($48.6) ($144.8)
====== ====== ====== ====== =======
Year Ended December 31, 1995:
Combined Results of Operations
Revenues, net............................... $ $180.5 $143.7 $425.9 $314.4 $1,064.5
Operating, selling, general and
administrative expenses................... 21.6 167.8 156.6 354.7 347.8 1,048.5
Depreciation and amortization............... 0.2 44.4 52.2 13.0 57.6 167.4
Operating (loss) income..................... (21.8) (31.7) (65.1) 58.2 (91.0) (151.4)
Net (loss) income (1)....................... (31.2) (72.1) (91.2) 28.3 (116.1) (282.3)
Company's Equity in Net (Loss) Income
Equity in current period net (loss)
income.................................... ($4.7) ($13.6) ($37.5) $4.3 ($29.8) ($81.3)
Amortization (expense) income............... (0.5) (2.1) 1.2 (3.9) (5.3)
------- ------- ------ ------ ------ --------
Total equity in net (loss) income......... ($5.2) ($15.7) ($37.5) $5.5 ($33.7) ($86.6)
======= ======= ====== ====== ====== ========
- 52 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
Sprint UK
Spectrum TCGI Investees QVC Other Combined
Year Ended December 31, 1994:
Combined Results of Operations
Revenues, net............................... $125.8 $97.6 $1,336.7 $138.7 $1,698.8
Operating, selling, general and
administrative expenses................... 128.8 125.0 1,138.2 132.4 1,524.4
Depreciation and amortization............... 22.3 32.9 44.9 54.3 154.4
Operating (loss) income..................... (25.3) (60.3) 153.6 (48.0) 20.0
Net (loss) income (1)....................... (39.6) (65.8) 41.1 (72.7) (137.0)
Company's Equity in Net (Loss) Income
Equity in current period net (loss)
income.................................... ($7.3) ($25.1) $6.3 ($14.2) ($40.3)
Amortization (expense) income............... (2.1) 4.9 (3.4) (0.6)
------- ------ ------ ------ --------
Total equity in net (loss) income......... ($9.4) ($25.1) $11.2 ($17.6) ($40.9)
======= ====== ====== ====== ========
Sprint UK
Spectrum TCGI Investees QVC Other Combined
Combined Financial Position
As of December 31, 1996:
Current assets.............................. $477.5 $988.8 $138.3 $292.7 $1,897.3
Noncurrent assets........................... 2,921.8 1,037.1 711.4 1,262.2 5,932.5
Current liabilities......................... 113.1 203.3 204.1 280.5 801.0
Noncurrent liabilities...................... 682.8 1,011.1 427.6 1,180.8 3,302.3
As of December 31, 1995:
Current assets.............................. $1.3 $59.8 $257.2 $118.9 $437.2
Noncurrent assets........................... 2,242.8 694.9 663.0 687.6 4,288.3
Current liabilities......................... 20.1 124.4 107.1 66.8 318.4
Noncurrent liabilities...................... 400.0 565.9 717.2 1,683.1
- --------
(1) Net (loss) income also represents (loss) income from continuing operations
before extraordinary items and cumulative effect of changes in accounting
principle.
Sprint Spectrum. The Company made its initial investment in 1994 and, as of
December 31, 1996, holds a general and limited partnership interest of 15%
in Sprint Spectrum, a limited partnership engaged in the wireless
communications business (see Note 3). The investment in Sprint Spectrum is
accounted for under the equity method based on the Company's general
partnership interest and its representation on the partnership's board of
directors.
TCGI. Through June 1996, the Company held investments in Teleport
Communications Group, Inc. ("TCGI"), TCG Partners and certain local joint
ventures (the "Teleport Joint Ventures") managed by TCGI and TCG Partners.
TCGI is one of the largest competitive alternative access providers in the
US in terms of route miles. The Company had a 20.0% investment in TCGI and
interests in the Teleport Joint Ventures ranging from 12.4% to 20.3%. On
June 27, 1996, TCGI sold approximately 27 million shares of its Class A
Common Stock (the "TCGI Class A Stock"), for $16 per share, in an initial
public offering (the "TCGI IPO"). In connection with the TCGI IPO, TCGI,
the Company and subsidiaries of Cox, TCI and Continental Cablevision
("Continental" and collectively with Cox, TCI and the Company, the "Cable
Stockholders") entered into an agreement pursuant
- 53 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
to which TCGI was reorganized (the "Reorganization"). The Reorganization
consisted of, among other things: (i) the acquisition by TCGI of TCG
Partners; (ii) the acquisition by TCGI of additional interests in the
Teleport Joint Ventures (including 100% of those interests held by the
Company); and (iii) the contribution to TCGI of $269.0 million aggregate
principal amount of indebtedness, plus accrued interest thereon, owed by
TCGI to the Cable Stockholders (except that TCI retained a $26 million
subordinated note of TCGI), including $53.8 million principal amount and
$4.1 million of accrued interest owed to the Company. In connection with
the Reorganization, the Company received 25.6 million shares of TCGI's
Class B Common Stock (the "TCGI Class B Stock"). Each share of TCGI Class B
Stock is entitled to voting power equivalent to ten shares of TCGI Class A
Stock and is convertible, at the option of the holder, into one share of
TCGI Class A Stock. The Company recorded a $40.6 million increase in its
proportionate share of TCGI's net assets as a gain from equity offering of
affiliate in its 1996 consolidated statement of operations (the "TCGI
Gain"). After giving effect to the Reorganization and the TCGI IPO, the
Company owns 19.5% of the outstanding TCGI Class B Stock representing a
19.1% voting interest and a 16.1% equity interest. The Company continues to
account for its interest in TCGI under the equity method based upon its
voting interest maintained through the TCGI Class B Stock, its
representation on TCGI's board of directors and its participation in a TCGI
stockholder agreement granting certain rights to a control group. Assuming
conversion of the TCGI Class B Stock held by the Company into TCGI Class A
Stock, the Company's investment would have a fair value of approximately
$781.5 million, based on the quoted market price of the TCGI Class A Stock
as of December 31, 1996.
UK Investees. As of December 31, 1996, Comcast UK Cable, a consolidated
subsidiary of the Company, holds a 27.5% interest and a 50.0% interest in
Birmingham Cable Corporation Limited and Cable London PLC. In addition,
Comcast UK Cable has historically held investments in Cambridge Holding
Company Limited ("Cambridge Cable") and Cable Programme Partners-1 Limited
Partnership ("CPP-1"). In March 1996, Comcast UK Cable purchased the 50.0%
interest in Cambridge Cable that it had not previously owned for cash and
approximately 8.9 million of its Class A Common Shares (the "Cambridge
Acquisition"). Following the Cambridge Acquisition, Comcast UK Cable owns
100.0% of Cambridge Cable and has consolidated the financial position and
results of operations of Cambridge Cable beginning on March 31, 1996.
During 1995, CPP-1, which previously developed and distributed cable
programming in the UK, sold its only channel and wound down its operations
to a minimal level of activity. As a result, the Company reduced the
carrying value of its 16.4% interest in CPP-1 to zero.
In September 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. As a result of the IPO and related transactions, the
Company recorded an increase in its proportionate share of Comcast UK
Cable's net assets as an increase in additional capital of $59.3 million.
In addition, as a result of the Cambridge Acquisition, the Company recorded
the increase in its proportionate share of Comcast UK Cable's net assets as
an increase in additional capital of $11.6 million. The increases in the
Company's proportionate share of Comcast UK Cable's net assets as a result
of these transactions were recorded directly to additional capital since
gain realization was not assured based on the start-up nature of the
operations of Comcast UK Cable and its affiliates. As a result of these
transactions, the Company beneficially owns 25.7% 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 77.6% of the total voting power of all outstanding
Comcast UK Cable common shares and continues to consolidate Comcast UK
Cable.
QVC. Through January 31, 1995, QVC's fiscal year end was January 31, and
therefore, the Company recorded its equity interest in QVC's net income two
months in arrears. For the year ended December 31, 1995, the Company
recorded its proportionate interest in QVC's net income for the period from
November 1, 1994 through January 31, 1995. Such results were not previously
recorded by the Company since QVC's results of operations were recorded two
months in arrears. QVC's results of operations and financial position,
subsequent to January 31, 1995, are not separately presented as QVC was
consolidated with the Company effective February 1, 1995
- 54 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
(see Note 3).The summarized financial information for the year ended
December 31, 1994 includes financial information for QVC for the twelve
months ended October 31, 1994.
Other. The Company's 13 other equity investees include investments in wired
telecommunications (including Garden State - see Note 1), wireless
telecommunications and content providers (including Comcast-Spectacor - see
Note 3). The Company holds interests representing less than 20% of the
total outstanding ownership interests in certain of its equity method
investees. The equity method of accounting is utilized for these
investments based on the type of investment (i.e. general partnership
interest), board representation, participation in a controlling investor
group, significant shareholder rights or a combination of these and other
factors. In addition, the Company's 66% interest in Comcast-Spectacor is
accounted for under the equity method since the Company does not maintain
control over Comcast-Spectacor's operations. The Company does not consider
these other equity method investments to be individually significant to its
consolidated financial position, results of operations or liquidity.
Accordingly, the Company has not included separate audited financial
statements for these entities in this filing on Form 10-K.
-------------------------
Except for Sprint Spectrum (see Note 3), the Company does not have any
additional significant contractual commitments with respect to any of its
investments. However, to the extent the Company does not fund its
investees' capital calls, it exposes itself to dilution of its ownership
interests.
Public Companies
The following is a summary of the Company's investments in unrestricted
publicly-traded companies (dollars in millions):
December 31, 1996 December 31, 1995
Carrying Unrealized Carrying Unrealized
Value Gain (Loss) Value Gain (Loss)
Nextel Communications, Inc.
("Nextel") (1).......................... $75.4 $14.2 $30.2 ($0.9)
Turner Broadcasting System, Inc.
("TBS") (2)............................. 44.7 35.8
Other..................................... 90.1 (9.0) 95.2 (0.7)
------ ---- ------ -----
$165.5 $5.2 $170.1 $34.2
====== ==== ====== =====
-----------------
(1) As of December 31, 1996 and 1995, the Company held 3.3 million and
693,000 shares of Nextel common stock, respectively. The investment
includes options, which expire in September 1997, to acquire an
additional 25.0 million shares of Nextel common stock at $16 per
share. As of December 31, 1996, these options have been adjusted to
their fair value of $32.6 million, as required by Generally Accepted
Accounting Principles issued during 1996, reflecting an unrealized
gain of $12.6 million. As of December 31, 1995, these options were
recorded at their cost of $20.0 million and had an estimated fair
value of $99.7 million. At December 31, 1995, the associated
unrealized gain was not reflected in the above table or in the
Company's consolidated balance sheet. In 1997, the Company sold these
options to Nextel for $25.0 million.
(2) The Company's investment in TBS was exchanged for shares of Time
Warner during 1996. The above table excludes the Company's investment
in Time Warner as of December 31, 1996 (see below).
In February 1996, in connection with certain preemptive rights of the
Company under previously existing agreements with Nextel, the Company
purchased an additional 8.16 million shares, classified as long-term
investments available for sale, of Nextel common stock at $12.25 per share,
for a total cost of $99.9 million. During the years ended December 31, 1996
and 1995, the Company sold 5.6 million shares and 11.3 million shares,
respectively, of Nextel common stock for $105.4 million and $212.6 million,
respectively, and recognized
- 55 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
pre-tax gains of $35.4 million and $36.2 million, respectively, as
investment income in its consolidated statement of operations.
The Company received 1.36 million shares of Time Warner common stock (the
"Time Warner Stock") in exchange (the "Exchange") for all of the shares of
TBS stock (the "TBS Stock") held by the Company as a result of the merger
of Time Warner and TBS in October 1996. As a result of the Exchange, the
Company recognized a gain of $47.3 million in the fourth quarter of 1996,
representing the difference between the Company's historical cost basis in
the TBS Stock of $8.9 million and the new basis for the Company's
investment in Time Warner Stock of $56.2 million, which was based on the
closing price of the Time Warner Stock on the merger date of $41.375 per
share. In December 1996 and January 1997, the Company sold 92,500 shares
and 1.27 million shares, respectively, of the Time Warner Stock,
representing the Company's entire interest in Time Warner, for $3.7 million
and $48.6 million, respectively. As of December 31, 1996, the 1.27 million
shares of Time Warner Stock held by the Company were recorded at fair value
of $47.4 million and included in short-term investments in the Company's
consolidated balance sheet.
In January 1995, the Company exchanged its investments in Heritage
Communications, Inc. with TCI for 13.3 million publicly-traded Class A
common shares of TCI with a fair market value of $290.0 million. Shortly
thereafter, the Company sold 9.1 million unrestricted TCI shares for total
proceeds of $188.1 million (collectively, the "Heritage Transaction"). As a
result of these transactions, the Company recognized a pre-tax gain of
$141.0 million as investment income in its 1995 consolidated statement of
operations.
Privately Held Companies
It is not practicable to estimate the fair value of the Company's
investments in privately held companies due to a lack of quoted market
prices and excessive costs involved in determining such fair value.
- 56 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
5. LONG-TERM DEBT
December 31,
1996 1995
(Dollars in millions)
Notes payable to banks and insurance companies, due
in installments through 2004.......................................... $4,662.5 $4,476.5
Senior participating redeemable zero coupon notes, due 2000............. 447.9 402.4
11.20% Senior discount debentures, due 2007............................. 339.2 304.3
10% Subordinated debentures, due 2003................................... 126.6 124.6
10-1/4% Senior subordinated debentures, due 2001........................ 125.0 125.0
9-3/8% Senior subordinated debentures, due 2005......................... 250.0 250.0
9-1/8% Senior subordinated debentures, due 2006......................... 250.0 250.0
9-1/2% Senior subordinated debentures, due 2008......................... 200.0 200.0
10-5/8% Senior subordinated debentures, due 2012........................ 300.0 300.0
Convertible subordinated debt:
3-3/8% / 5-1/2% Step-up convertible subordinated
debentures, due 2005................................................ 250.0 250.0
1-1/8% Discount convertible subordinated debentures, due 2007......... 341.3 327.5
Other debt, due in installments principally through 2000................ 39.7 18.9
-------- --------
7,332.2 7,029.2
Less current portion ................................................... 229.5 85.4
-------- --------
$7,102.7 $6,943.8
======== ========
The maturities of long-term debt outstanding as of December 31, 1996 for
the four years after 1997 are as follows:
(Dollars in millions)
1998............................. $671.5
1999............................. 462.5
2000............................. 668.1
2001............................. 1,282.4
Zero Notes
The senior participating redeemable zero coupon notes, due 2000 (the "Zero
Notes"), have an aggregate face amount payable at maturity of $629.4
million, accreting 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. The holders of the Zero Notes have the right, upon request of the
holders of the majority of the notes, to require the Company to redeem the
Zero Notes at any time on or after March 5, 1998. The accreted value of the
Zero Notes, without giving effect to the alternative formula based on the
private market value of the cellular business, of $447.9 million as of
December 31,1996 has been presented above as a 1998 maturity. As of
December 31, 1996, $209.7 million accreted value of the Zero Notes is
payable, at the Company's option, either in cash or the Company's Class A
Special Common Stock.
- 57 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
2007 Discount Debentures
In November 1995, Comcast UK Cable received net proceeds of $291.1 million
from the sale of $517.3 million principal amount at maturity of its 11.20%
senior discount debentures due 2007 (the "2007 Discount Debentures").
Interest accretes on the 2007 Discount Debentures at 11.20% per annum,
compounded semi-annually from November 15, 1995 to November 15, 2000, after
which date interest will be paid in cash on each May 15 and November 15,
through November 15, 2007.
Convertible Subordinated Debt
The 3-3/8% / 5-1/2% step-up convertible subordinated debentures due 2005
are convertible into the Company's Class A Special Common Stock at a
conversion price of $24.50 per share. Interest on the debentures accrues at
a rate per annum of 3-3/8% from the date of issuance to 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 September 9, 1997 to maturity, or earlier redemption.
The 1-1/8% discount convertible subordinated debentures due 2007 are
convertible into the Company's Class A Special Common Stock 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.
Debt Extinguishments
In May 1996, the Company expensed unamortized debt acquisition costs of
$1.8 million in connection with the prepayment of a portion of a
subsidiary's outstanding debt, resulting in an extraordinary loss, net of
tax of $1.0 million. The Company incurred debt extinguishment costs
totaling $9.4 million during 1995 in connection with the refinancing of
certain indebtedness, resulting in an extraordinary loss, net of tax, of
$6.1 million or $.02 per share. During 1994, the Company paid premiums and
expensed unamortized debt acquisition costs totaling $18.0 million,
primarily in connection with the redemption of its $150.0 million, 11-7/8%
Senior subordinated debentures due 2004, resulting in an extraordinary
loss, net of tax, of $11.7 million or $.05 per share.
Interest Rates
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 3/8% to 2%; and
Certificate of deposit rate plus 3/4% to 2%.
As of December 31, 1996 and 1995, the Company's effective weighted average
interest rate on its variable rate bank and insurance company debt
outstanding was 6.53% and 7.13%, respectively.
Interest Rate and Foreign Currency Risk Management
The Company is exposed to market risk including changes in interest rates
and foreign currency exchange rates. To manage the volatility relating to
these exposures, the Company enters into various derivative transactions
pursuant to the Company's policies in areas such as counterparty exposure
and hedging practices. Positions are monitored using techniques including
market value and sensitivity analyses.
The use of interest rate risk management instruments, such as Swaps, Caps
and Collars, is required under the terms of certain of the Company's
outstanding debt agreements. The Company's policy is to manage interest
costs using a mix of fixed and variable rate debt. Using Swaps, the Company
agrees to exchange, at specified intervals, the difference between fixed
and variable interest amounts calculated by reference to an agreed-upon
notional principal amount. Caps are used to lock in a maximum interest rate
should variable rates rise, but enable
- 58 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
the Company to otherwise pay lower market rates. Collars limit the
Company's exposure to and benefits from interest rate fluctuations on
variable rate debt to within a certain range of rates.
The following table summarizes the terms of the Company's existing Swaps,
Caps and Collars as of December 31, 1996 and 1995 (dollars in millions):
Notional Average Estimated
Amount Maturities Interest Rate Fair Value
As of December 31, 1996
Variable to Fixed Swaps $1,080.0 1997-2000 5.85% $7.4
Caps 250.0 1997 8.55%
Collars 620.0 1997-1998 6.98% / 5.16% 0.1
As of December 31, 1995
Variable to Fixed Swaps $650.0 1997-2000 6.05% ($6.8)
Caps 250.0 1997 8.20%
Collars 300.0 1997 7.21% / 5.09% (0.9)
The notional amounts of interest rate agreements, as presented in the above
table, are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The estimated fair value
approximates the proceeds (costs) to settle the outstanding contracts.
While Swaps, Caps and Collars represent an integral part of the Company's
interest rate risk management program, their incremental effect on interest
expense for the years ended December 31, 1996, 1995 and 1994 was not
significant.
The Company has entered into certain FX Options as a normal part of its
foreign currency risk management efforts. During 1995, Comcast UK Cable
entered into certain foreign exchange put option contracts ("FX Puts")
which may be settled only on November 16, 2000. These FX Puts are used to
limit Comcast UK Cable's exposure to the risk that the eventual cash
outflows related to net monetary liabilities denominated in currencies
other than its functional currency (the UK Pound Sterling or "UK Pound")
(principally the 2007 Discount Debentures) are adversely affected by
changes in exchange rates. As of December 31, 1996 and 1995, Comcast UK
Cable had (pound)250.0 million notional amount of FX Puts to purchase US
dollars at an exchange rate of $1.35 per (pound)1.00 (the "Ratio"). The FX
Puts provide a hedge, to the extent the exchange rate falls below the
Ratio, against Comcast UK Cable's net monetary liabilities denominated in
US dollars since gains and losses realized on the FX Puts are offset
against foreign exchange gains or losses realized on the underlying net
liabilities. Premiums paid for the FX Puts, of $21.4 million, have been
recorded as assets in the Company's consolidated balance sheet. These
premiums are being amortized over the terms of the related contracts. As of
December 31, 1996, the FX Puts had a carrying value of $18.4 million and an
estimated fair value of $5.5 million. The differences between the carrying
amounts and the estimated fair value of the FX Puts were not significant as
of December 31, 1995.
In the fourth quarter of 1995, in order to reduce hedging costs, Comcast UK
Cable sold foreign exchange call option contracts ("FX Calls") to exchange
(pound)250.0 million notional amount. Comcast UK Cable received $5.3
million from the sale of these contracts. These contracts may only be
settled on their expiration dates. Of these contracts, (pound)200.0 million
notional amount, with an exchange ratio of $1.70 per (pound)1.00, expired
unexercised in November 1996 while the remaining contract, with a
(pound)50.0 million notional amount and an exchange ratio of $1.62 per
(pound)1.00, has a settlement date in November 2000. In the fourth quarter
of 1996, in order to continue to reduce hedging costs, Comcast UK Cable
sold additional FX Calls, for proceeds of $3.5 million, to exchange
(pound)200.0 million notional amount at an average exchange ratio of $1.75
per (pound)1.00. These contracts may only be settled on their expiration
dates during the fourth quarter of 1997. The FX Calls are marked-to-market
on a current basis in the Company's consolidated statement of operations.
- 59 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
As of December 31, 1996 and 1995, the estimated fair value of the
liabilities related to the FX Calls, as recorded in the Company's
consolidated balance sheet, was $12.2 million and $5.8 million,
respectively. Changes in fair value between measurement dates relating to
the FX Calls resulted in exchange losses of $2.2 million during the year
ended December 31, 1996 in the Company's consolidated statement of
operations. There were no significant exchange gains or losses relating to
these contracts during the year ended December 31, 1995.
Estimated Fair Value
The Company's long-term debt had estimated fair values of $7.323 billion
and $7.089 billion as of December 31, 1996 and 1995, respectively. 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 debt with similar terms and
remaining maturities are used to estimate fair value for debt issues for
which quoted market prices are not available.
Debt Covenants
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, 1996, $376.8 million of the Company's cash, cash
equivalents and short-term investments is restricted to use by subsidiaries
of the Company under contractual or other arrangements, including $213.7
million which is restricted to use by Comcast UK Cable.
Restricted net assets of the Company's subsidiaries were approximately $2.4
billion as of December 31, 1996. The restricted net assets of subsidiaries
exceeds the Company's consolidated net assets as certain of the Company's
subsidiaries have a stockholders' deficiency.
Lines and Letters of Credit
As of February 1, 1997, certain subsidiaries of the Company had unused
lines of credit of $1.679 billion. The availability and use of these unused
lines of credit is restricted by the covenants of the related debt
agreements and to subsidiary general purposes and dividend declaration. In
addition, of the total unused lines of credit, $625.0 million was
established by a subsidiary for debt refinancing.
As of December 31, 1996, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $102.3 million to
cover potential fundings associated with several projects.
6. STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred Stock
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 Company's Board of Directors (the "Board") shall from
time to time fix by resolution.
In July 1996, in connection with the Sports Venture Acquisition (see Note
3), the Company issued 6,370 shares of Preferred Stock. Each holder of
shares of the Preferred Stock is entitled to receive cumulative cash
dividends at the annual rate of $250 per share, payable quarterly in
arrears. The Preferred Stock is redeemable, at the option of the Company,
beginning in July 1999 at a redemption price of $5,000 per share plus
accrued and unpaid dividends, subject to certain conditions and conversion
adjustments. The Preferred Stock is convertible,
- 60 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
at the option of the holder, into shares of the Company's Class A Special
Common Stock at a ratio of 209.1175 shares of Class A Special Common Stock
for each share of Preferred Stock, subject to certain conditions. The
holders of the Preferred Stock are not entitled to any voting rights except
as otherwise provided by the Company's Articles of Incorporation or by
applicable law.
Common Stock
Class A Special Common Stock is generally 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, 1996, 20.7 million shares of Class A Special Common
Stock were reserved for issuance upon conversion of the Company's
convertible subordinated debentures.
Repurchase Program
Concurrent with the announcement of the Scripps Acquisition in October
1995, the Company announced that its Board authorized a market repurchase
program (the "Repurchase Program") pursuant to which the Company may
purchase, at such times and on such terms as it deems appropriate, up to
$500.0 million of its outstanding common stock, subject to certain
restrictions and market conditions. During the years ended December 31,
1996 and 1995, the Company repurchased 10.5 million shares and 680,000
shares, respectively, of its common stock for aggregate consideration of
$180.0 million and $12.4 million, respectively, pursuant to the Repurchase
Program. During January 1997, the Company repurchased an additional 450,000
shares of its common stock for aggregate consideration of $7.6 million. The
Repurchase Program will terminate in May 1997. In addition, as of December
31, 1996, the Company has put options outstanding on 4.0 million shares of
its Class A Special Common Stock (see Note 9).
Share Exchange
In December 1995, the Company issued 751,000 shares of its Class A Special
Common Stock to the Company's Retirement-Investment Plan in exchange for an
equivalent number of shares of its Class A Common Stock held as an
investment of the Plan. The Class A Common Stock was subsequently retired.
Stock-Based Compensation Plans
As of December 31, 1996, the Company and its subsidiaries have several
stock-based compensation plans for certain employees, officers, directors
and other persons designated by the applicable compensation committees of
the Boards of Directors of the Company and its subsidiaries. These plans
are described below.
Comcast Option Plan. The Company maintains qualified and nonqualified stock
option plans for certain employees, directors and other persons under which
fixed stock options are granted and the option price is not less than the
fair value of a share of the underlying stock at the date of grant
(collectively, the "Comcast Option Plan"). Under the Comcast Option Plan,
36.1 million shares of Class A Special Common Stock and 658,000 shares of
Class B Common Stock were reserved as of December 31, 1996. Option terms
are generally from five to 10 1/2 years, with options generally becoming
exercisable between two and 9 1/2 years from the date of grant.
- 61 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
A summary of the activity of the Comcast Option Plan as of and for the
years ended December 31, 1996, 1995, and 1994 is presented below (options
in thousands):
1996 1995 1994
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
Class A Special Common Stock
Outstanding at
beginning of year 14,208 $14.25 11,868 $13.73 7,512 $9.34
Granted 1,308 17.41 2,899 15.88 5,165 19.61
Exercised (199) 8.72 (267) 9.13 (527) 8.55
Canceled (466) 16.08 (292) 15.42 (282) 13.84
------ ------ -----
Outstanding at
end of year 14,851 14.54 14,208 14.25 11,868 13.73
====== ====== =====
Exercisable at end of year 6,875 $13.40 5,812 $13.13 4,950 $13.12
====== ====== =====
Class A Common Stock
Outstanding at
beginning of year 229 $4.87 362 $4.74 468 $4.57
Exercised (229) 4.87 (129) 4.52 (81) 3.71
Canceled (4) 4.92 (25) 4.84
------ ------ -----
Outstanding at
end of year 229 4.87 362 4.74
====== ====== =====
Exercisable at end of year 226 $4.86 206 $4.66
====== ====== =====
Class B Common Stock
Outstanding at beginning
and end of year 658 $5.70 658 $5.70 658 $5.70
====== ====== =====
Exercisable at end of year 658 $5.70 557 $5.45 304 $5.59
====== ====== =====
- 62 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
The following table summarizes information about the Class A Special Common
Stock options outstanding under the Comcast Option Plan as of December 31,
1996 (options in thousands):
Options Outstanding Options Exercisable
Weighted-
Range of Number Average Weighted- Number Weighted-
Exercise Outstanding Remaining Average Exercisable Average
Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
$6.22 to $9.92 2,851 2.8 Years $7.14 1,811 $7.12
$10.17 to $14.63 3,828 5.3 Years 11.78 2,247 11.14
$15.00 to $17.63 2,652 8.7 Years 15.95 59 15.57
$17.75 to $23.28 5,520 5.6 Years 19.61 2,758 19.33
------ -----
14,851 6,875
====== =====
The weighted-average fair value at date of grant of a Class A Special
Common Stock option granted under the Comcast Option Plan during 1996 and
1995 was $9.71 and $9.67, respectively. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants in
1996 and 1995: dividend yield of .53% and .65% for 1996 and 1995,
respectively; expected volatility of 34.9% and 40.7% for 1996 and 1995,
respectively; risk-free interest rate of 6.8% and 7.6% for 1996 and 1995,
respectively; expected option lives of 9.9 years and 10.2 years for 1996
and 1995, respectively; and a forfeiture rate of 3.0% for both years.
QVC Tandem Plan. QVC established a qualified and nonqualified combination
stock option/Stock Appreciation Rights ("SAR") plan (collectively, the "QVC
Tandem Plan") during 1995 for employees, officers, directors and other
persons designated by the Compensation Committee of QVC's Board of
Directors. Under the QVC Tandem Plan, the option price is generally not
less than the fair value, as determined by an independent appraisal, of a
share of the underlying common stock of QVC (the "QVC Common Stock") at the
date of grant. As of the latest valuation date, the fair value of a share
of QVC Common Stock was $585.19. If the SAR feature of the QVC Tandem Plan
is elected by the eligible participant, the participant receives 75% of the
excess of the fair value of a share of QVC Common Stock over the exercise
price of the option to which it is attached at the exercise date. Option
holders have stated an intention not to exercise the SAR feature of the QVC
Tandem Plan. Because the exercise of the option component is more likely
than the exercise of the SAR feature, compensation expense is measured
based on the stock option component. Under the QVC Tandem Plan, option/SAR
terms are ten years from the date of grant, with options/SARs generally
becoming exercisable over four years from the date of grant. As of December
31, 1996, 263,000 shares of QVC Common Stock were reserved under the plan.
Compensation expense of $4.0 million was recorded under this plan during
the year ended December 31, 1996. No compensation expense was recognized
under this plan during the year ended December 31, 1995.
- 63 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
A summary of the activity of the QVC Tandem Plan as of and for the years
ended December 31, 1996 and 1995 is presented below (options/SARs in
thousands):
1996 1995
Weighted- Weighted-
Average Average
Options/ Exercise Options/ Exercise
SARs Price SARs Price
Outstanding at
beginning of year 142 $177.05
Granted 26 271.23 142 $177.05
Canceled (4) 177.05
----- -----
Outstanding at
end of year 164 192.16 142 177.05
===== =====
Exercisable at end of year 36 $177.05
=====
The following table summarizes information about the options/SARs
outstanding under the QVC Tandem Plan as of December 31, 1996 (options/SARs
in thousands):
Options/SARs Outstanding Options/SARs Exercisable
Weighted-
Number Average Number
Exercise Outstanding Remaining Exercisable
Price at 12/31/96 Contractual Life at 12/31/96
$177.05 157 8.3 Years 36
522.31 3 9.5 Years
585.19 4 9.8 Years
----- -----
164 36
===== =====
The weighted-average fair value at date of grant of a QVC Common Stock
option/SAR granted during 1996 and 1995 was $385.13 and $96.05,
respectively. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995: no dividend
yield for both years; expected volatility of 20% for both years; risk-free
interest rate of 6.8% and 7.5% for 1996 and 1995, respectively; expected
option lives of 10 years for both 1996 and 1995; and a forfeiture rate of
3.0% for both years.
Had compensation expense for the Company's two aforementioned stock-based
compensation plans been determined based on the fair value at the grant
dates for awards under those plans under the provisions of SFAS No. 123,
the Company's net loss and net loss per share would have been increased to
the pro forma amounts indicated below (dollars in millions, except per
share data):
1996 1995
Net loss -- As reported ($53.5) ($43.9)
Net loss -- Pro forma (61.0) (50.7)
Net loss per share -- As reported ($.21) ($.18)
Net loss per share -- Pro forma (.24) (.21)
The pro forma effect on net loss and net loss per share for 1996 and 1995
by applying SFAS No. 123 may not be indicative of the pro forma effect on
net income or loss in future years since SFAS No. 123 does not take
- 64 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
into consideration pro forma compensation expense related to awards made
prior to January 1, 1995 and since additional awards in future years are
anticipated.
Other Stock-Based Compensation Plans
The Company maintains a restricted stock program under which management
employees may be granted restricted shares of the Company's Class A Special
Common Stock. The shares awarded vest annually, generally over a period not
to exceed five years from the date of the award, and do not have voting or
dividend rights until vesting occurs. At December 31, 1996, there were 1.4
million unvested shares granted under the program, of which 281,000 vested
in January 1997. During the years ended December 31, 1996 and 1995, 951,000
and 135,000 shares were granted under the program, respectively, with a
weighted-average grant date market value of $19.16 and $20.61 per share,
respectively. Compensation expense recognized during the years ended
December 31, 1996, 1995, and 1994 under this program was $5.5 million, $4.6
million, and $4.4 million, respectively. There was no significant
difference between the amount of compensation expense recognized by the
Company during the years ended December 31, 1996 and 1995 and the amount
that would have been recognized had compensation expense been determined
under the provisions of SFAS 123.
The Company and QVC established SAR plans during 1996 and 1995 for certain
employees, officers, directors, and other persons (the "QVC SAR Plans").
Under the QVC SAR Plans, eligible participants are entitled to receive a
cash payment from the Company or QVC equal to 100% of the excess, if any,
of the fair value of a share of QVC Common Stock at the exercise date over
the fair value of such a share at the grant date. The SARs have a term of
ten years from the date of grant and become exercisable over four to five
years from the date of grant. During each of the years ended December 31,
1996 and 1995, 11,000 SARs were awarded and 21,000 SARs were outstanding at
December 31, 1996, of which 3,000 were exercisable. Compensation expense
related to the plans of $4.5 million and $1.1 million was recorded during
the years ended December 31, 1996 and 1995, respectively. There was no
significant difference between the amount of compensation expense
recognized and the amount that would have been recognized had compensation
expense been determined under the provisions of SFAS 123.
7. INCOME TAXES
As a result of the Company's recent acquisitions, the Company's deferred
income tax liability and deferred charges were increased for temporary
differences between the financial reporting basis and the income tax
reporting basis of the assets acquired at the dates of their acquisition,
as described below (dollars in millions):
Year Ended December 31,
1996 1995 1994
Scripps Cable................................... $499.2
Interest in Comcast-Spectacor................... 36.4
QVC............................................. $45.7
Maclean Hunter.................................. $488.0
At their dates of acquisition, Scripps Cable and QVC had net deferred
income tax liabilities of $101.7 million and $33.2 million, respectively,
which were assumed by the Company.
The Company joins with its 80% or more owned subsidiaries in filing
consolidated federal income tax returns. Both QVC and the direct subsidiary
of the LLC file separate consolidated federal income tax returns. The
increases in the Company's consolidated current federal income tax expense,
shown in the table below, is primarily attributable to QVC's federal income
tax expense being consolidated with the Company's for financial reporting
purposes.
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COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
Income tax expense (benefit) consists of the following components:
Year Ended December 31,
1996 1995 1994
(Dollars in millions)
Current expense
Federal.................................................... $82.0 $45.2 $8.1
State...................................................... 23.3 14.3 12.4
----- ----- -----
105.3 59.5 20.5
----- ----- -----
Deferred expense (benefit)
Federal.................................................... (20.4) (22.0) (27.9)
State...................................................... (0.5) 4.6 (1.8)
----- ----- -----
(20.9) (17.4) (29.7)
----- ----- -----
Income tax expense (benefit)............................... $84.4 $42.1 ($9.2)
===== ===== =====
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,
1996 1995 1994
(Dollars in millions)
Federal tax at statutory rate.............................. ($5.6) ($15.9) ($31.5)
Non-deductible depreciation and amortization............... 32.0 23.7 3.2
State income taxes, net of federal benefit................. 14.8 12.3 6.9
Non-deductible foreign losses and equity in
net losses of affiliates................................. 27.5 17.3 10.6
Additions to valuation allowance........................... 18.3 1.4 0.6
Other...................................................... (2.6) 3.3 1.0
----- ----- -----
Income tax expense (benefit)............................... $84.4 $42.1 ($9.2)
===== ===== =====
- 66 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
Deferred income tax benefit resulted from the following differences between
financial and income tax reporting:
Year Ended December 31,
1996 1995 1994
(Dollars in millions)
Depreciation and amortization......................... ($60.2) ($68.3) ($36.3)
Accrued expenses not currently deductible............. (6.3) (2.7) (22.3)
Non-deductible reserves for bad debts,
obsolete inventory and sales returns................ (11.0) (14.2)
Non-taxable temporary differences associated
with sale or exchange of securities................. 30.9 22.7
Losses (income) from affiliated partnerships.......... 25.6 (2.4) (1.0)
Utilization of net operating loss carryforwards....... 41.0 28.3
Deferred tax assets arising from current
period losses ...................................... (23.0) (10.0)
Change in valuation allowance and other............... 23.1 16.5 1.6
------ ------ ------
Deferred income tax benefit........................... ($20.9) ($17.4) ($29.7)
====== ====== ======
Significant components of the Company's net deferred tax liability are as
follows:
December 31,
1996 1995
(Dollars in millions)
Deferred tax assets:
Net operating loss carryforwards.................... $280.9 $257.9
Differences between book and
tax basis of property and equipment
and deferred charges.............................. 24.5 26.8
Reserves for bad debts, obsolete inventory
and sales returns................................. 73.9 62.9
Other............................................... 49.7 43.3
Less: Valuation allowance........................... (263.2) (244.9)
-------- --------
165.8 146.0
-------- --------
Deferred tax liabilities, principally
differences between book and tax
basis of property and equipment and
deferred charges.................................... 2,228.3 1,604.2
-------- --------
Net deferred tax liability............................ $2,062.5 $1,458.2
======== ========
The deferred tax liability is net of deferred tax assets of $78.0 million
and $59.8 million as of December 31, 1996 and 1995, respectively, which are
included in other current assets in the Company's consolidated balance
sheet. 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 subsidiaries of
the LLC have net operating loss carryforwards of approximately $28.0
million for which a deferred tax asset has been recorded, which expire
primarily in 2010 and 2011. Remaining net operating loss carryforwards, for
which valuation allowances have been established, expire in periods through
2011.
- 67 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
8. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of $456.8 million, $459.1
million and $261.6 million during the years ended December 31, 1996, 1995
and 1994, respectively.
The Company made cash payments for income taxes of $101.4 million and $35.4
million during the years ended December 31, 1996 and 1995, respectively.
Cash payments for income taxes during the year ended December 31, 1994 were
not significant.
9. COMMITMENTS AND CONTINGENCIES
Commitments
Beginning in January 1998, the Company has the right to purchase the
minority interests in Comcast-Spectacor from the Minority Group for the
Minority Group's pro rata portion of the fair market value (on a going
concern basis as determined by an appraisal process) of Comcast-Spectacor.
The Minority Group also has the right (together with the Company's right,
the "Exit Rights") to require the Company to purchase its interests under
the same terms. The Company may pay the Minority Group for such interests
in shares of the Company's Class A Special Common Stock, subject to certain
restrictions. If the Minority Group exercises its Exit Rights and the
Company elects not to purchase their interest, the Company and the Minority
Group will use their best efforts to sell Comcast-Spectacor.
Assuming consummation of the E! Acquisition, after the 18 month anniversary
of the closing date of the E! Acquisition, Disney, in certain
circumstances, is entitled to cause Newco to purchase Disney's entire
interest in Newco at its then fair market value (as determined by an
appraisal process). If Newco elects not to purchase Disney's interests,
Disney has the right, at its option, to purchase either the Company's
entire interest in Newco or all of the shares of stock of E! Entertainment
held by Newco, in each case at fair market value. In the event that Disney
exercises its rights, as described above, a portion or all of the Disney
Notes may be replaced with a three year note due to Disney.
Liberty Media Corporation ("Liberty"), a majority owned subsidiary of TCI,
may, at certain times following February 9, 2000, trigger the exercise of
certain exit rights with respect to its investment in QVC. 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.
As a result of the Maclean Hunter Acquisition, 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.
As part of the Repurchase Program, the Company sold put options on 1.0
million and 3.0 million shares of its Class A Special Common Stock during
the years ended December 31, 1996 and 1995, respectively. The put options
give the holders the right to require the Company to repurchase such shares
at specified prices on specific dates in January through March 1997. As of
December 31, 1996, the Company has reclassified $69.6
- 68 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
million, the amount it would be obligated to pay to repurchase such shares
upon exercise of the put options, to a temporary equity account in its
consolidated balance sheet. The temporary equity related to these shares
will be reclassified to additional capital in the first quarter of 1997
upon expiration or settlement of the options. The difference between the
proceeds received from the sale of these put options and their estimated
fair value was not significant as of December 31, 1996 and 1995.
Minimum annual rental commitments for office space and equipment under
noncancellable operating leases as of December 31, 1996 are as follows:
(Dollars
in millions)
1997 $52.4
1998 48.7
1999 42.5
2000 36.3
2001 36.2
Thereafter 159.8
Rental expense of $54.7 million, $44.6 million and $21.9 million for 1996,
1995 and 1994, respectively, has been charged to operations.
Contingencies
The Company has an agreement with an unrelated third party which provides
for the sale and servicing of accounts receivable relating to the Company's
electronic retailing operations. The Company sold accounts receivable at
face value of $687.0 million and $530.2 million under this agreement in
1996 and 1995, respectively. The Company remains obligated to repurchase
uncollectible accounts pursuant to the recourse provisions of the agreement
and is required to maintain a specified percentage of all outstanding
receivables under the program as a deposit with the third party to secure
its obligations under the agreement.
The uncollected balance of accounts receivable sold under this program was
$317.7 million and $283.1 million as of December 31, 1996 and 1995,
respectively, of which $284.5 million and $234.5 million, respectively,
represent deposits under the agreement, that are included in accounts
receivable. Total recorded reserves relating to the possible repurchase of
uncollectible accounts was $73.2 million and $71.6 million as of December
31, 1996 and 1995, respectively. The receivables sold under the program are
considered, for financial reporting purposes, to be financial instruments
with off-balance sheet risk. The carrying value of accounts receivable,
adjusted for the reserves described above, approximates fair value as of
December 31, 1996 and 1995.
The Company is subject to claims which arise in the ordinary course of its
business and other legal proceedings. In the opinion of management, the
amount of ultimate liability with respect to these actions will not
materially affect the financial position, results of operations or
liquidity of the Company.
The Company has settled the majority of outstanding proceedings challenging
its rates charged for regulated cable services. In December 1995, the FCC
adopted an order approving a negotiated settlement of rate complaints
pending against the Company for cable programming service tiers ("CPSTs")
which provided $6.6 million in refunds, plus interest, given in the form of
bill credits during 1996, to 1.3 million of the Company's cable
subscribers. As part of the negotiated settlement, the Company agreed to
forego certain inflation and external cost adjustments for systems covered
by its cost-of-service filings for CPSTs. The Company currently is seeking
to justify rates for basic cable services and equipment in certain of its
cable systems in the State of Connecticut on the basis of a cost-of-service
showing. The State of Connecticut has ordered the Company to reduce such
rates and to make refunds to subscribers. The Company has appealed the
Connecticut decision to the FCC. Recent pronouncements from the FCC, which
generally support the Company's position on appeal, have caused the State
of Connecticut to reexamine its prior ruling. While the Company cannot
predict the
- 69 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
outcome of this action, the Company believes that the ultimate resolution
of these pending regulatory matters will not have a material adverse impact
on the Company's financial position, results of operations or liquidity.
10. FINANCIAL DATA BY BUSINESS SEGMENT
The following represents the Company's significant business segments,
including: "Domestic Cable Communications," the most significant of the
Company's wired telecommunications operations; "Electronic Retailing," the
most significant of the Company's content businesses; and "Cellular
Communications," the most significant of the Company's wireless
telecommunications operations. The remaining components of the Company's
operations are not independently significant to the Company's consolidated
financial position or results of operations and are included under the
caption "Corporate and Other" (dollars in millions).
Domestic
Cable Electronic Cellular Corporate
Communications Retailing Communications and Other(1) Total
1996
Revenues.................................... $1,640.9 $1,835.8 $426.1 $135.6 $4,038.4
Depreciation and amortization............... 416.2 107.7 117.2 57.2 698.3
Operating income (loss)..................... 393.8 192.6 43.0 (120.5) 508.9
Interest expense............................ 228.3 65.2 92.4 154.9 540.8
Assets...................................... 6,938.3 2,162.7 1,368.3 1,619.3 12,088.6
Long-term debt.............................. 3,078.1 842.6 1,104.4 2,077.6 7,102.7
Capital expenditures........................ 290.9 63.6 116.0 199.9 670.4
Equity in net (losses) income of
affiliates................................ (22.1) 0.2 (122.9) (144.8)
1995
Revenues.................................... $1,454.9 $1,487.7 $374.9 $45.4 $3,362.9
Depreciation and amortization............... 372.5 86.1 205.7 24.7 689.0
Operating income (loss)..................... 346.0 145.8 (67.9) (94.1) 329.8
Interest expense............................ 245.6 75.3 74.7 129.1 524.7
Assets...................................... 4,531.1 2,096.4 1,349.4 1,603.4 9,580.3
Long-term debt.............................. 2,984.2 911.3 928.9 2,119.4 6,943.8
Capital expenditures........................ 237.8 28.1 228.7 128.4 623.0
Equity in net (losses) income of
affiliates................................ (17.6) 0.3 (69.3) (86.6)
1994
Revenues.................................... $1,065.3 $ $286.1 $23.9 $1,375.3
Depreciation and amortization............... 229.5 89.9 17.1 336.5
Operating income (loss)..................... 288.0 26.4 (74.6) 239.8
Interest expense............................ 151.1 58.6 103.7 313.4
Assets...................................... 4,504.8 84.1 1,203.2 970.9 6,763.0
Long-term debt.............................. 2,852.9 744.5 1,213.1 4,810.5
Capital expenditures........................ 171.7 71.9 26.3 269.9
Equity in net (losses) income of
affiliates................................ (8.3) 11.2 (43.8) (40.9)
- --------------
(1) Corporate and other includes certain elimination entries related to the
segments presented.
- 70 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 and 1994 (Concluded)
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth Total
Quarter Quarter Quarter (2) Quarter (5) Year
(Dollars in millions, except per share data)
1996
Revenues................................. $950.7 $945.6 $974.6 $1,167.5 $4,038.4
Operating income before
depreciation and amortization (1)...... 270.1 296.1 295.8 345.2 1,207.2
Operating income......................... 113.3 128.7 129.1 137.8 508.9
(Loss) income before extraordinary
item (4)............................... (34.6) 17.8 (10.0) (25.7) (52.5)
Extraordinary item....................... (1.0) (1.0)
Net (loss) income (4).................... (34.6) 16.8 (10.0) (25.7) (53.5)
(Loss) income per share before
extraordinary item..................... (.14) .07 (.04) (.10) (.21)
Extraordinary item per share.............
Net (loss) income per share.............. (.14) .07 (.04) (.10) (.21)
Cash dividends per share................. .0233 .0233 .0233 .0233 .0933
1995
Revenues................................. $663.6 $823.6 $870.2 $1,005.5 $3,362.9
Operating income before
depreciation and amortization (1)...... 219.6 260.8 264.1 274.3 1,018.8
Operating income (3)..................... (23.9) 117.3 116.5 119.9 329.8
Loss before extraordinary items (3)...... (0.6) (29.3) (2.0) (5.9) (37.8)
Extraordinary items...................... (5.4) (0.7) (6.1)
Net loss (3)............................. (0.6) (29.3) (7.4) (6.6) (43.9)
Loss per share before
extraordinary items.................... (.12) (.01) (.03) (.16)
Extraordinary items per share............ (.02) (.02)
Net loss per share....................... (.12) (.03) (.03) (.18)
Cash dividends per share................. .0233 .0233 .0233 .0233 .0933
- --------------
(1) Operating income before depreciation and amortization is commonly referred
to in the Company's businesses as "operating cash flow." Operating cash
flow is a measure of a company's ability to generate cash to service its
obligations, including debt service obligations, and to finance capital and
other expenditures. In part due to the capital intensive nature of the
Company's businesses and the resulting significant level of non-cash
depreciation and amortization expense, operating cash flow is frequently
used as one of the bases for comparing businesses in the Company's
industries. 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.
(2) Results of operations for the third quarter of 1995 were affected by
premiums paid and losses incurred in connection with the redemption of
certain of the Company's debt, shown as extraordinary items in the
Company's consolidated statement of operations.
(3) Results of operations were affected by the Cellular Rebuild and the
Heritage Transaction in the first quarter of 1995 and by the sale of Nextel
shares in the third quarter of 1995 (see Notes 3 and 4).
(4) Results of operations were affected by the TCGI Gain and the sale of Nextel
shares in the second quarter of 1996 (see Note 4).
(5) Results of operations for the fourth quarter of 1996 includes the results
of operations of Scripps Cable, which have been consolidated effective
November 1, 1996, and the gain on the Exchange (see Notes 3 and 4). The
Company's consolidated results of operations for the fourth quarter of 1996
and 1995 are also affected by the seasonality of the Company's electronic
retailing operations.
- 71 -
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 1997, which shall be
filed with the Securities and Exchange Commission within 120 days of the end of
the Registrant's latest fiscal year.
- 72 -
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.......................................40
Consolidated Balance Sheet--December 31, 1996 and 1995.............41
Consolidated Statement of Operations--Years
Ended December 31, 1996, 1995 and 1994...........................42
Consolidated Statement of Cash Flows--Years
Ended December 31, 1996, 1995 and 1994...........................43
Consolidated Statement of Stockholders' Equity
(Deficiency)--Years Ended December 31, 1996,
1995 and 1994....................................................44
Notes to Consolidated Financial Statements.........................45
(b) (i) The following financial statement schedules required to be filed
by Items 8 and 14(d) of Form 10-K are included in Part IV:
Schedule I -- Condensed Financial Information of Registrant
Unconsolidated (Parent Only)
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable,
not required or the required information is included in the
consolidated 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 3.1(a) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
3.1(b) Amendment to Restated Articles of Incorporation filed on
July 14, 1994 (incorporated by reference to Exhibit 3.1(b)
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
3.1(c) Amendment to Restated Articles of Incorporation filed on
July 12, 1995 (incorporated by reference to Exhibit 3.1(c)
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
3.1(d) Amendment to Restated Articles of Incorporation filed on
June 24, 1996 (incorporated by reference to Exhibit 4.1(d)
to the Company's Registration Statement on Form S-3, as
amended, filed on July 16, 1996).
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 on September 17, 1980, File No.
2- 69178).
- 73 -
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 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 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 on November 15, 1993).
4.12 Form of Debenture relating to the Company's $250.0 million
9-3/8% Senior Subordinated Debentures due 2005 (incorporated
by reference to Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995).
4.13 Form of Debenture relating to the Company's $250.0 million
9-1/8% Senior Subordinated Debentures due 2006 (incorporated
by reference to Exhibit 4.13 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
- 74 -
4.14 Indenture dated as of November 15, 1995, between Comcast UK
Cable Partners Limited and Bank of Montreal Trust Company,
as Trustee, in respect of Comcast UK Cable Partners
Limited's 11.20% Senior Discount Debentures due 2007
(incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-1 (File No. 33-96932) of
Comcast UK Cable Partners Limited).
4.14(a) Form of Debenture relating to Comcast UK Cable Partners
Limited's 11.20% Senior Discount Debentures due 2007
(incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-1 (File No. 33-96932) of
Comcast UK Cable Partners Limited).
4.15 Form of Statement of Designations, Preferences and Rights of
5% Series A Convertible Preferred Stock of the Company
(incorporated by reference to Exhibit 4.1(e) to the
Company's Registration Statement on Form S-3 filed on July
16, 1996).
10.1/*/ Credit Agreement, dated as of September 14, 1995, between
Comcast Cellular Communications, Inc., the banks listed
therein, The Bank of New York, Barclays Bank PLC, The Chase
Manhattan Bank, N.A., PNC Bank, National Association, and
The Toronto-Dominion Bank, as Arranging Agents, and Toronto
Dominion (Texas), Inc., as Administrative Agent.
10.2/*/ Credit Agreement, dated as of September 19, 1995, between
Comcast Holdings, Inc., the banks listed therein, The Chase
Manhattan Bank, N.A., as Arranging Agent, Bank of Montreal,
CIBC Inc., The Long-term Credit Bank of Japan, Limited,
Royal Bank of Canada and Societe Generale, as Managing
Agents, and The Chase Manhattan Bank, N.A., as
Administrative Agent.
10.3* Comcast Corporation 1986 Non-Qualified Stock Option Plan, as
amended and restated, effective December 10, 1996.
10.4* Comcast Corporation 1987 Stock Option Plan, as amended and
restated, effective December 10, 1996.
10.5* Comcast Corporation 1996 Stock Option Plan, as amended and
restated, effective December 10, 1996.
10.6* Comcast Corporation 1996 Deferred Compensation Plan, as
amended and restated, effective December 10, 1996
(incorporated by reference to Exhibit 10 to the Company's
Registration Statement on Form S-8 filed on December 24,
1996).
10.7* Comcast Corporation 1990 Restricted Stock Plan, as amended
and restated, effective December 18, 1996.
10.8* 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).
10.9* Comcast Corporation 1996 Cash Bonus Plan, as amended and
restated, effective December 10, 1996.
10.10* Comcast Corporation 1996 Executive Cash Bonus Plan, dated
August 15, 1996.
------------------
* 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.
- 75 -
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 The Comcast Corporation Retirement-Investment Plan, as
amended and restated effective January 1, 1993 (revised
through September 30, 1995) (incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form
S-8 filed on October 5, 1995).
10.13 Defined Contribution Plans Master Trust Agreement, between
Comcast Corporation and State Street Bank and Trust Company
(incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-8 filed on October 5,
1995).
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 on
December 17, 1992, as amended by Form 8 filed January 8,
1993).
10.15(a) 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 on December 17, 1992, as
amended by Form 8 filed January 8, 1993).
10.15(b)/*/ Amendment No. 1, dated as of November 30, 1994, to the
Credit Agreement dated as of December 2, 1992, among Comcast
Storer, Inc., the banks named therein and The Bank of New
York, as administrative agent.
10.15(c)/*/ Amendment No. 2, dated as of December 13, 1995, to the
Credit Agreement dated as of December 2, 1992, as amended,
among Comcast Storer, Inc., the banks named therein and The
Bank of New York, as administrative agent.
10.15(d)/*/ Amendment No. 3 and Waiver, dated as of February 29, 1996,
to the Credit Agreement dated as of December 2, 1992, as
amended, among Comcast Storer, Inc., the banks named therein
and The Bank of New York, as administrative agent.
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
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
on December 17, 1992, as amended by Form 8 filed January 8,
1993).
------------------
* 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.
- 76 -
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 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 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 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 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 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 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 on December 17, 1992, as
amended by Form 8 filed January 8, 1993).
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 on December 17, 1992, as
amended by Form 8 filed January 8, 1993).
10.26 Amended and Restated Option Agreement, dated September 11,
1995, between Nextel Communications, Inc. and Comcast FCI,
Inc. (incorporated by reference to Exhibit M to Amendment
No. 15 to the Company's Schedule 13D dated September 13,
1995 filed with respect to Nextel Communications, Inc.).
10.27(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).
10.27(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).
10.28(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 the
Company relating to common stock of QVC, Inc. filed on
August 8, 1994).
- 77 -
10.28(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 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.).
10.29 Amended and Restated Stockholders Agreement, dated as of
February 9, 1995, among Comcast Corporation, Comcast QVC,
Inc., QVC Programming Holdings, Inc., Liberty Media
Corporation, QVC Investment, Inc. and Liberty QVC, Inc.
(incorporated by reference to Exhibit 10.5 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1995).
10.30(a) Credit Agreement, 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 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.).
10.30(b)/*/ Amendment, dated as of July 19, 1996, to the Credit
Agreement, dated as of February 15, 1995, among QVC, Inc.
and the Banks listed therein.
10.31 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).
10.32 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).
10.33 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).
10.34 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).
10.35 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).
------------------
/*/ 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.
- 78 -
10.36 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).
10.37 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).
10.38 Amended and Restated Agreement of Limited Partnership of
MajorCo, L.P., a Delaware Limited Partnership, dated as of
January 31, 1996, among Sprint Spectrum, L.P., TCI Network
Services, Comcast Telephony Services and Cox Telephony
Partnership (incorporated by reference to Exhibit 1 to the
Company's Current Report on Form 8-K filed on February 12,
1996).
10.39 Parents Agreement, dated as of January 31, 1996, between
Comcast Corporation and Sprint Corporation (incorporated by
reference to Exhibit 3 to the Company's Current Report on
Form 8-K filed on February 12, 1996).
10.40 Agreement and Plan of Merger by and among The E.W. Scripps
Company, Scripps Howard, Inc., and Comcast Corporation dated
as of October 28, 1995 (incorporated by reference to Exhibit
2.1 to the Company's Registration Statement on Form S-4
filed, as amended, on November 13, 1996).
10.41 Voting Agreement by and among Comcast Corporation, The E.W.
Scripps Company, Sural Corporation and The Edward W. Scripps
Trust, dated as of October 28, 1995 (incorporated by
reference to Exhibit 2.2 to the Company's Registration
Statement on Form S-4 filed, as amended, on November 13,
1996).
10.42/*/ Credit Agreement, dated as of November 15, 1996, among
Comcast SCH Holdings, Inc., the banks listed therein,
Nationsbank of Texas, N.A., as Documentation Agent, The
Chase Manhattan Bank, as Syndication Agent, The Bank of New
York, The Chase Manhattan Bank and Nationsbank of Texas,
N.A., as Managing Agents, and The Bank of New York, as
Administrative Agent.
21 List of Subsidiaries.
23.1 Consents of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen - Birmingham.
23.3 Consent of Arthur Andersen - London.
23.4 Consents of Deloitte & Touche LLP.
------------------
/*/ 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.
- 79 -
23.5 Consent of Deloitte & Touche - Birmingham.
23.6 Consent of Deloitte & Touche - London.
23.7 Consent of KPMG Peat Marwick LLP.
23.8 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule.
99.1 Report of Independent Public Accountants to QVC, Inc., as of
December 31, 1996 and 1995 and for the year ended December
31, 1996 and for the eleven-month period ended December 31,
1995.
99.2 Report of Independent Public Accountants to Garden State
Cablevision L.P., for the year ended December 31, 1994
(incorporated by reference to Exhibit 99.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995).
99.3 Report of Independent Public Accountants to Comcast
International Holdings, Inc., for the year ended December
31, 1994 (incorporated by reference to Exhibit 99.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
99.4 Consolidated financial statements of Sprint Spectrum Holding
Company, L.P. and subsidiaries, development stage
enterprises, as of and for the years ended December 31, 1996
and 1995, for the period from October 24, 1994 (date of
inception) to December 31, 1994 and for the cumulative
period from October 24, 1994 (date of inception) to December
31, 1996.
99.5 Consolidated and combined financial statements of Teleport
Communications Group, Inc. and its subsidiaries as of
December 31, 1996 and 1995 and for the years ended December
31, 1996, 1995 and 1994 (incorporated by reference to Item
8, Financial Statements and Supplementary Data, of the
Annual Report on Form 10-K of Teleport Communications Group,
Inc. for the year ended December 31, 1996 (File No.
0-20913)).
99.6 Consolidated financial statements of Birmingham Cable
Corporation Limited and subsidiaries as of December 31, 1996
and 1995 and for the years ended December 31, 1996, 1995 and
1994 (incorporated by reference to pages 46 through 57 of
the Annual Report on Form 10-K of Comcast UK Cable Partners
Limited for the year ended December 31, 1996 (File No.
0-24792)).
99.7 Consolidated financial statements of Cable London PLC and
subsidiaries as of December 31, 1996 and 1995 and for the
years ended December 31, 1996, 1995 and 1994 (incorporated
by reference to pages 58 through 69 of the Annual Report on
Form 10-K of Comcast UK Cable Partners Limited for the year
ended December 31, 1996 (File No. 0-24792)).
(d) Reports on Form 8-K
(i) Comcast Corporation filed a Current Report on Form 8-K under Item
5 on November 4, 1996 relating to its earnings release for the
quarter ended September 30, 1996.
(ii) Comcast Corporation filed a Current Report on Form 8-K under Item
2 on November 27, 1996 relating to its purchase of the cable
television operations of The E.W. Scripps Company, which included
Comcast Corporation's Unaudited Pro Forma Condensed Consolidated
Financial Statements as of and for the nine months ended
September 30, 1996 and for the year ended December 31, 1995.
- 80 -
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 March 31, 1997.
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 March 31, 1997
Directors; Director
/s/ Julian A. Brodsky
- ---------------------------
Julian A. Brodsky Vice Chairman of the Board of March 31, 1997
Directors; Director
/s/ Brian L. Roberts
- ---------------------------
Brian L. Roberts President; Director (Principal March 31, 1997
Executive Officer)
/s/ Lawrence S. Smith
- ---------------------------
Lawrence S. Smith Executive Vice President March 31, 1997
(Principal Accounting Officer)
/s/ John R. Alchin
- ---------------------------
John R. Alchin Senior Vice President, Treasurer March 31, 1997
(Principal Financial Officer)
/s/ Daniel Aaron
- ---------------------------
Daniel Aaron Director March 31, 1997
/s/ Gustave G. Amsterdam
- ---------------------------
Gustave G. Amsterdam Director March 31, 1997
/s/ Sheldon M. Bonovitz
- ---------------------------
Sheldon M. Bonovitz Director March 31, 1997
/s/ Joseph L. Castle II
- ---------------------------
Joseph L. Castle II Director March 31, 1997
- 81 -
SIGNATURE TITLE DATE
/s/ Bernard C. Watson
- ---------------------------
Bernard C. Watson Director March 31, 1997
/s/ Irving A. Wechsler
- ---------------------------
Irving A. Wechsler Director March 31, 1997
/s/ Anne Wexler
- ---------------------------
Anne Wexler Director March 31, 1997
- 82 -
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED BALANCE SHEET
(Dollars in millions, except share data)
December 31,
ASSETS 1996 1995
Cash and cash equivalents....................................................... $9.7 $7.6
Other current assets............................................................ 5.7 4.2
-------- --------
Total current assets........................................................ 15.4 11.8
Investments in and amounts due from subsidiaries................................
eliminated upon consolidation................................................. 2,635.5 1,113.3
Property and equipment, net..................................................... 30.9 16.7
Other assets, net............................................................... 85.8 73.5
-------- --------
$2,767.6 $1,215.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Accrued interest................................................................ $49.5 $46.3
Other current liabilities....................................................... 188.3 148.7
-------- --------
Total current liabilities................................................... 237.8 195.0
-------- --------
Long-term debt.................................................................. 1,716.3 1,702.5
-------- --------
Deferred income taxes and other................................................. 192.3 93.4
-------- --------
Common equity put options....................................................... 69.6 52.1
-------- --------
Stockholders' equity (deficiency)
Preferred stock, no par value - authorized, 20,000,000
shares; issued 5% series A convertible, 6,370 at
redemption value............................................................ 31.9
Class A special common stock, $1 par value - authorized,
500,000,000 shares; issued, 283,281,675 and 192,844,814..................... 283.3 192.8
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 33,959,368 and 37,706,517....................... 34.0 37.7
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 8,786,250........................................ 8.8 8.8
Additional capital............................................................ 2,327.4 843.1
Accumulated deficit........................................................... (2,127.9) (1,914.3)
Unrealized gains on marketable securities, including
securities held by subsidiaries............................................. 0.1 22.2
Cumulative translation adjustments of subsidiaries............................ (6.0) (18.0)
-------- --------
Total stockholders' equity (deficiency)..................................... 551.6 (827.7)
-------- --------
$2,767.6 $1,215.3
======== ========
- 83 -
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(In millions, except per share data)
Year Ended December 31,
1996 1995 1994
REVENUES, principally intercompany fees eliminated
upon consolidation......................................................... $212.0 $192.2 $153.9
GENERAL AND ADMINISTRATIVE EXPENSES............................................. 87.7 76.4 78.7
--------- --------- ---------
OPERATING INCOME................................................................ 124.3 115.8 75.2
OTHER (INCOME) EXPENSE
Interest expense, including intercompany interest, net..................... 263.6 214.6 123.0
Equity in net (income) losses of affiliates and other...................... (37.1) (22.3) 46.6
--------- --------- ---------
226.5 192.3 169.6
--------- --------- ---------
LOSS BEFORE INCOME TAX BENEFIT AND
EXTRAORDINARY ITEMS........................................................... (102.2) (76.5) (94.4)
INCOME TAX BENEFIT.............................................................. 48.7 33.2 15.4
--------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEMS................................................. (53.5) (43.3) (79.0)
EXTRAORDINARY ITEMS............................................................. (0.6) (8.0)
--------- --------- ---------
NET LOSS........................................................................ (53.5) (43.9) (87.0)
ACCUMULATED DEFICIT
Beginning of year.......................................................... (1,914.3) (1,827.6) (1,717.9)
Retirement of common stock................................................. (133.3) (20.4)
Cash dividends, $.0933 per share per year.................................. (26.8) (22.4) (22.7)
--------- --------- ---------
End of year................................................................ ($2,127.9) ($1,914.3) ($1,827.6)
========= ========= =========
- 84 -
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED STATEMENT OF CASH FLOWS
(In millions)
Year Ended December 31,
1996 1995 1994
OPERATING ACTIVITIES
Net loss................................................................... ($53.5) ($43.9) ($87.0)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization............................................ 8.9 6.5 4.8
Non-cash interest expense, net........................................... 136.2 105.5 37.4
Equity in net (income) losses of affiliates.............................. (36.2) (17.4) 51.9
Extraordinary items...................................................... 0.6 8.0
Deferred income taxes and other.......................................... 57.2 33.2 9.4
------ ------ ------
112.6 84.5 24.5
Increase in other current assets......................................... (1.5) (1.2) (2.2)
Increase in accrued interest and other current liabilities............... 42.8 36.7 25.2
------ ------ ------
Net cash provided by operating activities.............................. 153.9 120.0 47.5
------ ------ ------
FINANCING ACTIVITIES
Proceeds from borrowings................................................... 800.9
Retirement and repayment of debt........................................... (300.9) (150.0)
(Repurchases) issuances of common stock, net............................... (175.9) (7.1) 2.9
Dividends.................................................................. (26.8) (22.4) (22.7)
Other...................................................................... 43.0 52.5 10.2
------ ------ ------
Net cash (used in) provided by financing activities.................... (159.7) 523.0 (159.6)
------ ------ ------
INVESTING ACTIVITIES
Net transactions with affiliates........................................... 41.7 (619.1) 155.5
Capital expenditures....................................................... (20.8) (11.9) (4.4)
Other...................................................................... (13.0) (15.7) (32.2)
------ ------ ------
Net cash provided by (used in) investing activities.................... 7.9 (646.7) 118.9
------ ------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ 2.1 (3.7) 6.8
CASH AND CASH EQUIVALENTS, beginning of year.................................... 7.6 11.3 4.5
------ ------ ------
CASH AND CASH EQUIVALENTS, end of year.......................................... $9.7 $7.6 $11.3
====== ====== ======
- 85 -
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In millions)
Additions
Balance at Effect of Charged to Deductions Balance
Beginning QVC Costs and from at End
of Year Acquisition Expenses Reserves(A) of Year
Allowance for Doubtful Accounts
1996 $81.3 $ $65.1 $49.3 $97.1
1995 11.3 57.8 51.4 39.2 81.3
1994 11.8 21.3 21.8 11.3
Allowance for Obsolete
Electronic Retailing Inventories
1996 $28.5 $ $29.7 $23.5 $34.7
1995 18.4 28.4 18.3 28.5
(A) Uncollectible accounts and obsolete inventory written off.
- 86 -
INDEX TO EXHIBITS
Exhibit
Number Exhibit
10.1/*/ Credit Agreement, dated as of September 14, 1995, between
Comcast Cellular Communications, Inc., the banks listed
therein, The Bank of New York, Barclays Bank PLC, The Chase
Manhattan Bank, N.A., PNC Bank, National Association, and
The Toronto-Dominion Bank, as Arranging Agents, and Toronto
Dominion (Texas), Inc., as Administrative Agent.
10.2/*/ Credit Agreement, dated as of September 19, 1995, between
Comcast Holdings, Inc., the banks listed therein, The Chase
Manhattan Bank, N.A., as Arranging Agent, Bank of Montreal,
CIBC Inc., The Long-term Credit Bank of Japan, Limited,
Royal Bank of Canada and Societe Generale, as Managing
Agents, and The Chase Manhattan Bank, N.A., as
Administrative Agent.
10.3* Comcast Corporation 1986 Non-Qualified Stock Option Plan, as
amended and restated, effective December 10, 1996.
10.4* Comcast Corporation 1987 Stock Option Plan, as amended and
restated, effective December 10, 1996.
10.5* Comcast Corporation 1996 Stock Option Plan, as amended and
restated, effective December 10, 1996.
10.7* Comcast Corporation 1990 Restricted Stock Plan, as amended
and restated, effective December 18, 1996.
10.9* Comcast Corporation 1996 Cash Bonus Plan, as amended and
restated, effective December 10, 1996.
10.10* Comcast Corporation 1996 Executive Cash Bonus Plan, dated
August 15, 1996.
10.15(b)/*/ Amendment No. 1, dated as of November 30, 1994, to the
Credit Agreement dated as of December 2, 1992, among Comcast
Storer, Inc., the banks named therein and The Bank of New
York, as administrative agent.
10.15(c)/*/ Amendment No. 2, dated as of December 13, 1995, to the
Credit Agreement dated as of December 2, 1992, as amended,
among Comcast Storer, Inc., the banks named therein and The
Bank of New York, as administrative agent.
10.15(d)/*/ Amendment No. 3 and Waiver, dated as of February 29, 1996,
to the Credit Agreement dated as of December 2, 1992, as
amended, among Comcast Storer, Inc., the banks named therein
and The Bank of New York, as administrative agent.
10.30(b)/*/ Amendment, dated as of July 19, 1996, to the Credit
Agreement, dated as of February 15, 1995, among QVC, Inc.
and the Banks listed therein.
10.42/*/ Credit Agreement, dated as of November 15, 1996, among
Comcast SCH Holdings, Inc., the banks listed therein,
Nationsbank of Texas, N.A., as Documentation Agent, The
Chase Manhattan Bank, as Syndication Agent, The Bank of New
York, The Chase Manhattan Bank and Nationsbank of Texas,
N.A., as Managing Agents, and The Bank of New York, as
Administrative Agent.
--------------
* 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.
21 List of Subsidiaries.
23.1 Consents of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen - Birmingham.
23.3 Consent of Arthur Andersen - London.
23.4 Consents of Deloitte & Touche LLP.
23.5 Consent of Deloitte & Touche - Birmingham.
23.6 Consent of Deloitte & Touche - London.
23.7 Consent of KPMG Peat Marwick LLP.
23.8 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule.
99.1 Report of Independent Public Accountants to QVC, Inc., as of
December 31, 1996 and 1995 and for the year ended December
31, 1996 and for the eleven-month period ended December 31,
1995.
99.4 Consolidated financial statements of Sprint Spectrum Holding
Company, L.P. and subsidiaries, development stage
enterprises, as of and for the years ended December 31, 1996
and 1995, for the period from October 24, 1994 (date of
inception) to December 31, 1994 and for the cumulative
period from October 24, 1994 (date of inception) to December
31, 1996.