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FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997
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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Common Stock, $1.00 par value
Class A Special Common Stock, $1.00 par value
1-1/8% Discount Convertible Subordinated Debentures Due 2007
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _____
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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. [ ]
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As of January 30, 1998, the aggregate market value of the Class A Common Stock
and Class A Special Common Stock held by non-affiliates of the Registrant was
$919.7 million and $9.743 billion, respectively.
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As of January 30, 1998, there were 317,530,008 shares of Class A Special Common
Stock, 31,792,325 shares of Class A Common Stock and 8,786,250 shares of Class B
Common Stock outstanding.
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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 1998.
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COMCAST CORPORATION
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business.............................................................1
Item 2 Properties..........................................................22
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.........................42
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure..............78
PART III
Item 10 Directors and Executive Officers of the Registrant..................78
Item 11 Executive Compensation..............................................78
Item 12 Security Ownership of Certain Beneficial
Owners and Management...........................................78
Item 13 Certain Relationships and Related Transactions......................78
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K.....................................................79
SIGNATURES....................................................................85
This Annual Report on Form 10-K for the year ended December 31, 1997, 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 hybrid fiber-coaxial broadband
cable networks, cellular and personal communications systems and the provision
of content.
The Company's consolidated domestic cable operations served approximately 4.4
million subscribers and passed more than 7.1 million homes as of December 31,
1997. The Company owns a 50% interest in Garden State Cablevision L.P. ("Garden
State"), a cable communications company serving more than 208,000 subscribers
and passing more than 297,000 homes in the State of New Jersey. Satellite
delivered video service is provided through the Company's equity interest in and
distribution arrangements with Primestar Partners, L.P. ("Primestar") (see
"Description of the Company's Businesses - Cable Communications - Direct
Broadcast Satellite Operations"). In the United Kingdom ("UK"), 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 (see "General Developments of Business - Sale of Comcast UK
Cable").
The Company provides cellular telephone communications services pursuant to
licenses granted by the Federal Communications Commission ("FCC") in markets
with a population ("Pops") of more than 8.2 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. Personal communications services
("PCS") are provided through the Company's investment in Sprint Spectrum
Holdings Company, L.P. ("Sprint Spectrum" or "Sprint PCS").
Content is provided through the Company's majority-owned subsidiaries, QVC, Inc.
("QVC"), an electronic retailer and E! Entertainment Television, Inc. ("E!
Entertainment"), and other investments, including Comcast SportsNet, The Golf
Channel, The Speedvision Network ("Speedvision") and The Outdoor Life Network
("Outdoor Life"). Through QVC, the Company markets a wide variety of products
and is available, on a full and part-time basis, to over 68 million homes in the
United States ("US"), over 6.5 million homes in the UK and over 9.5 million
homes in Germany (see "Description of the Company's Businesses - Content -
Electronic Retailing - Distribution Channels").
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 in Item 8 for
information about the Company's operations by industry segment.
GENERAL DEVELOPMENTS OF BUSINESS
The Company entered into a number of significant transactions in 1997 and
subsequent to December 31, 1997. These transactions are summarized below and are
more fully described in Note 3 to the Company's consolidated financial
statements in Item 8.
Sale of Comcast UK Cable
On February 4, 1998, Comcast UK Cable, a consolidated subsidiary of the Company,
entered into a definitive agreement to be acquired by NTL Incorporated ("NTL"),
an alternative telecommunications company in the UK. Pursuant to certain
conditions, the Company is expected to receive 4.8 million shares of NTL common
stock in exchange for all of the shares of Comcast UK Cable held by the Company
(the "NTL Transaction"). Based on the closing price of the NTL common stock on
February 4, 1998 of $32.00 per share, the Company is expected to recognize a
pre-tax gain of $81.4 million upon closing of the NTL Transaction. The NTL
Transaction is expected to close in 1998, subject to the receipt of necessary
regulatory and shareholder approvals, the consent of the bondholders of Comcast
UK Cable and NTL, as well as the consent of certain NTL bank lenders.
AT&T Acquisition of TCGI
On January 8, 1998, AT&T Corporation ("AT&T") entered into a definitive merger
agreement with Teleport Communications Group, Inc. ("TCGI"). Upon closing of the
merger (the "AT&T Transaction"), the Company is expected to receive 24.2 million
shares of AT&T common stock in exchange for all of the shares of TCGI held by
the Company. Based on the closing price of the AT&T common stock on January 30,
1998 of $62.625 per share, the Company is expected to recognize a pre-tax gain
of approximately $1.390 billion upon closing of the AT&T Transaction. The AT&T
Transaction is expected to close in 1998, subject to receipt of necessary
regulatory and shareholder approvals.
E! Entertainment
On March 31, 1997, the Company, through Comcast Entertainment Holdings LLC (the
"LLC"), which is owned 50.1% by the Company and 49.9% by The Walt Disney Company
("Disney"), purchased a 58.4% interest in E! Entertainment from Time Warner,
Inc. ("Time Warner") for $321.9 million (the "E! Acquisition"). In connection
with the E! Acquisition, the Company contributed its 10.4% interest in E!
Entertainment to the LLC. In December 1997, the LLC acquired the 10.4% interest
in E! Entertainment held by Cox Communications, Inc. ("Cox") for $57.1 million.
Following these transactions, the LLC owns a 79.2% interest in E! Entertainment.
Microsoft Investment
On June 30, 1997, the Company and Microsoft Corporation ("Microsoft") completed
a Stock Purchase Agreement. Microsoft purchased and the Company issued 24.6
million shares of the Company's Class A Special Common Stock, par value $1.00
per share, at $20.29 per share, for $500.0 million and 500,000 shares of the
Company's newly issued 5.25% Series B Mandatorily Redeemable Convertible
Preferred Stock, par value $1,000 per share, for $500.0 million.
Offerings of Subsidiary Debt
In May 1997, Comcast Cable Communications, Inc. ("Comcast Cable") and Comcast
Cellular Corporation (formerly Comcast Cellular Holdings, Inc.) ("Comcast
Cellular"), both wholly owned subsidiaries of the Company, sold a total of $2.7
billion of nonrecourse public debt with interest rates ranging from 8 1/8% to 9
1/2% and maturity dates from 2004 to 2027. Comcast Cable and Comcast Cellular
used the net proceeds from the offerings to repay existing borrowings by their
subsidiaries.
DESCRIPTION OF THE COMPANY'S BUSINESSES
CABLE COMMUNICATIONS
Technology and Capital Improvements
Comcast Cable's broadband networks, which receive signals by means of special
antennae, microwave relay systems, earth stations and fiber optic cable lines,
distribute a variety of video, telecommunications and data services to consumers
and businesses.
The Company is continuing to upgrade most of its cable systems, deploying fiber
optic cable and upgrading the technical quality of its broadband network. The
result is an increase in channel capacity and system reliability, facilitating
the delivery of additional video programming and other services such as enhanced
video, high-speed Internet access and telephony. The Company's cable
communications systems have bandwidth capacities ranging from 300-MHz to 860-
MHz, which permits carriage of 37 to 112 analog channels. As of December 31,
1997, approximately 85% of the Company's broadband network had at least a
62-channel capacity. During 1997, the Company began field testing its digital
converter cable service in Southern California. Digital compression will enable
the Company to increase the channel capacity of its cable communications systems
to more than 100 channels, as well as to improve picture quality. The Company
has entered into agreements with suppliers of digital converters for delivery
commencing in 1998.
In October 1997, the Company entered into a "social contract" with the FCC (see
"Legislation and Regulation"). Pursuant to this agreement, the Company has
committed that by March 31, 1999, 80% of the Company's cable subscribers will be
served by a system with a capacity of at least 550-MHz and at least 60% of the
Company's cable subscribers will be served by a system with a capacity of at
least 750-MHz. In addition, the Company has agreed to provide free cable service
connections, modems and modem service to schools and to 250 public libraries in
communities where the Company commercially deploys cable modem service to
residential customers.
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Franchises
Cable communications systems are 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 up to 5% of "revenues" (as defined by each franchise
agreement), which fees may generally 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, renewals may include less
favorable terms and conditions. Furthermore, the governmental authority may
choose to award additional franchises to competing companies at any time. In
addition, under the 1996 Telecom Act, certain providers of programming services
may be exempt from local franchising requirements (see "Competition" and
"Legislation and Regulation").
Revenue Sources
The Company's cable communications systems offer varying levels of service for a
monthly fee. These fees may be for a grouping (i.e. "package") of channels (i.e.
"product tier"), equipment rentals, modem services and for other products and
services. Packages of channels may consist of television 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. The Company also offers and may
receive an additional monthly fee for 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. The charge for Pay Cable services varies with the
type and level of service selected by the subscriber. Monthly service and
equipment rates and related charges vary in accordance with the type of service
selected by the subscriber. Subscribers typically pay on a monthly basis and
generally may discontinue services at any time (see "Legislation and
Regulation").
In addition to recurring monthly subscription fees, the Company also generates
revenues from advertising sales, pay-per- view services, installation services,
commissions from electronic retailing (see "Description of the Company's
Businesses - Content - Electronic Retailing") and other services. The Company
derives revenues from the sale of advertising time to local, regional and
national advertisers on networks such as ESPN, MTV and USA. Pay-per-view
services permit a subscriber to order, for a separate fee, individual feature
motion pictures and special event programs.
In December 1996, the Company began marketing At Home Corporation's ("@Home")
high-speed cable modem services in areas served by certain of its cable systems.
The @Home service allows residential subscribers to connect their personal
computers via cable modems to a new high-speed national network developed and
managed by @Home. This service enables subscribers to receive access to online
information, including the Internet, at faster speeds than that of conventional
or Integrated Service Digital Network ("ISDN") modems. For businesses, the
Company, through @Home, provides a platform for Internet, intranet and extranet
connectivity solutions and networked business applications. @Home and the
Company aggregate content, sell advertising to businesses and provide services
to @Home subscribers. As of December 31, 1997, the Comcast @Home service was
available to be marketed to over 865,000 homes in six markets and had more than
9,700 customers (see "Description of the Company's Businesses - Content - Cable
Television Programming Investments").
The Company's sales efforts are primarily directed toward increasing penetration
and incremental revenues in its franchise areas. The Company sells its cable
communications services through telemarketing, direct mail advertising,
promotional campaigns, door-to-door selling, local media and newspaper
advertising.
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Programming
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 and incentives
to the Company. The Company's programming contracts are generally for a fixed
period of time and are subject to negotiated renewal. The Company anticipates
that future contract renewals will result in programming costs exceeding current
levels, particularly for sports programming.
Customer Service
The Company is currently consolidating the majority of its local customer
service call centers into large regional operations, consistent with its focus
on clustering of operations. These regional call centers have technologically
advanced telephone systems that provide the capability of 24-hour per day call
answering, telemarketing and other services. These centers will allow the
Company to better serve its customer base, as well as to cross-market new
products and services to subscribers. As of December 31, 1997, eight of these
call centers were in operation, serving approximately 2.1 million subscribers.
The Company intends to expand the number of call centers in operation to 10 in
1998, bringing the total number of subscribers served by a call center to
approximately 2.6 million by December 31, 1998. Customer service is provided to
subscribers in the remaining cable systems primarily through local system-based
representatives.
Company's Systems
The table below sets forth a summary of Homes Passed, Cable Subscribers and
Cable Penetration information for the Company's domestic cable communications
systems as of December 31 (homes and subscribers in thousands):
1997 1996 (5) 1995 1994 (6) 1993
Homes Passed (1)(4)............................ 7,138 6,975 5,570 5,491 4,211
Cable Subscribers (2)(4)....................... 4,366 4,280 3,407 3,307 2,648
Cable Penetration (3)(4)....................... 61.2% 61.4% 61.2% 60.2% 62.9%
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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) Cable Subscribers as a percentage of Homes Passed.
(4) Consists of systems whose financial results are consolidated with those of
the Company. Amounts do not include information for the Company's 50%
investment in Garden State or the Hattiesburg, Mississippi system managed
by the Company in which the Company has less than a 50% interest. As of
December 31, 1997, total Homes Passed and Cable Subscribers for such
entities were 336,000 and 233,000, respectively.
(5) In November 1996, the Company acquired the cable television operations of
The E.W. Scripps Company.
(6) In December 1994, the Company acquired the US cable television operations
of Maclean Hunter Limited.
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System Clusters
The Company manages the majority of its systems in geographic clusters to
increase operating efficiencies. Clustering permits an increased emphasis by the
Company upon more uniform, efficient and cost effective delivery of customer
service and support. The following table is a summary of Homes Passed, Cable
Subscribers and Cable Penetration for the Company's ten largest regional cable
television clusters as of December 31, 1997 (homes and subscribers in
thousands):
Geographic Cluster Homes Cable Cable
Passed Subscribers Penetration
New Jersey....................................... 940.0 596.6 63.5%
Florida.......................................... 912.9 553.0 60.6%
Michigan......................................... 964.9 492.3 51.0%
Baltimore Area................................... 661.7 453.2 68.5%
Philadelphia Area................................ 499.7 302.9 60.6%
Southern California.............................. 508.6 271.9 53.5%
Tennessee........................................ 426.7 262.1 61.4%
Sacramento....................................... 458.2 236.1 51.5%
Indianapolis..................................... 365.8 227.7 62.2%
Alabama.......................................... 315.8 210.5 66.7%
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6,054.3 3,606.3 59.6%
Other Systems.................................... 1,083.8 759.9 70.1%
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Total............................................ 7,138.1 4,366.2 61.2%
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Direct Broadcast Satellite ("DBS") Operations
The Company holds a 10.4% general and limited partnership interest in Primestar,
which is principally engaged in the business of acquiring, originating and/or
providing television programming services delivered by satellite through a
network of distributors, including the Company, throughout the US. Primestar is
the oldest Ku-band satellite service in the US with the second largest
subscriber base of any US digital satellite television service. Primestar
currently offers over 160 channels of entertainment programming for distribution
via medium-power satellite to subscribers' home satellite dishes ("HSDs")of
approximately 27 to 36 inches in diameter.
The Company, through a wholly owned subsidiary, distributes the Primestar DBS
service (the "Primestar Service") (see "Competition") to subscribers within
specified areas of 19 states in the US. The Company uses independent sales
agents, national retailers (e.g. Radio Shack) and localized advertising
campaigns to promote demand for the Primestar Service. As of December 31, 1997,
the Company provided the Primestar Service to more than 181,000 subscribers.
Restructuring of Primestar Operations
On February 6, 1998, the Company entered into a Merger and Contribution
Agreement (the "Merger and Contribution Agreement") with Primestar and the
affiliates of each of the other partners of Primestar, including TCI Satellite
Entertainment, Inc. ("TSAT"), a publicly-traded company, pursuant to which the
Company's DBS operations, the Company's partnership interests in Primestar and
the Primestar partnership interests and the DBS operations of the other partners
of Primestar will be consolidated into a newly formed company ("New Primestar").
Under the terms of the Merger and Contribution Agreement, upon closing of the
transactions, it is expected that New Primestar, through a series of
transactions, will pay the Company approximately $83 million (based upon the
number of the Company's subscribers to the Primestar Service as of December 31,
1997), and that the Company would own approximately 10% of New Primestar common
equity, both subject to adjustment based on the number of the Company's
subscribers to the Primestar Service, inventory amounts and other factors as of
the closing of the transactions. Subject to receipt of regulatory approval and
other conditions, after the closing of the transactions, TSAT will merge with
and into New Primestar in a transaction in which TSAT's outstanding common
shares will be converted into common shares of New Primestar. As of December 31,
1997 and for the year then ended, the assets and revenues of the Company's DBS
operations totaled $162.8 million and $114.1 million, respectively.
In June 1997, Primestar entered into an agreement with The News Corporation
Limited, MCI Telecommunications Corporation and American Sky Broadcasting LLC
("ASkyB"), pursuant to which Primestar (or, under certain conditions, New
Primestar) will acquire certain assets relating to a high-power DBS business
(the "ASkyB Transaction"). In
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exchange for such assets, ASkyB will receive non-voting securities of New
Primestar that will be convertible into non-voting common stock of New
Primestar, and, accordingly, will reduce the Company's common equity interest in
New Primestar to approximately 7% on a fully diluted basis, subject to
adjustment.
The Merger and Contribution Agreement and the ASkyB Transaction are not
conditioned on each other and may close independently. The Merger and
Contribution Agreement is expected to close in 1998, subject to receipt of TSAT
shareholder approval. The ASkyB Transaction is expected to close in 1998,
subject to receipt of all necessary governmental and regulatory approvals,
including the approval of the FCC. There can be no assurance that such approvals
will be obtained.
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 and upon
superior technical performance and customer service.
The 1996 Telecom Act makes it easier for local exchange carriers ("LECs") and
others to provide to subscribers a wide variety of video services competitive
with services provided by cable systems. 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
cable networks and the use of wireless transmission facilities. LECs in various
states either have announced plans, obtained local franchise authorizations or
are currently competing with certain of the Company's cable communications
systems. An affiliate of Ameritech Corporation ("Ameritech") has obtained
approximately 12 cable franchises in its telephone service areas that are
currently served by the Company and competes directly with the Company to
provide video and other broadband services to subscribers. LECs and other
companies 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. Cable systems could be placed at a
competitive disadvantage if the delivery of video and interactive online
computer 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. Issues of cross-subsidization by LECs of video, data and
telephony services also pose strategic disadvantages for cable operators seeking
to compete with LECs which provide such services. The Company cannot predict the
likelihood of success of such video or broadband service ventures by LECs or the
impact on the Company of such competitive ventures (see "Legislation and
Regulation").
Cable communications systems 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. Well-financed businesses from outside the
cable industry (such as public utilities that own certain of the poles to which
cable is attached) may become competitors for franchises or providers of
competing services (see "Legislation and Regulation").
Congress has enacted legislation and the FCC has adopted regulatory 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, DBS
service whereby signals are transmitted by satellite to receiving facilities
located on customer premises. Programming is currently available to individual
households, condominiums, apartment and office complexes through conventional,
medium and high-power satellites. DBS providers can offer more than 100 channels
to their subscribers. Several major companies are offering or are currently
developing nationwide high-power DBS services, including DirecTV, EchoStar
Communications Corporation and ASkyB. Additionally, Primestar offers video
programming from a medium-power DBS satellite system (see "DBS Operations"). DBS
systems 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 and installation
costs and a lack of local programming and service. The FCC and Congress are
presently considering proposals to
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enhance the ability of DBS providers to gain access to additional programming
and to authorize DBS carriers to transmit local signals to local markets.
The availability of reasonably-priced HSDs also 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").
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. The 1984 Cable Act
also 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
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 Company is developing competitive packages of
services (video, data and telephony) to offer to such developments.
Cable communications systems also compete with wireless program distribution
services such as multichannel, multipoint distribution services ("MMDS") which
use low-power microwave frequencies to transmit video programming over-the-air
to subscribers. There are MMDS operators which are authorized to provide or are
providing broadcast and satellite programming to subscribers in areas served by
the Company's cable systems. Additionally, the FCC adopted regulations
allocating frequencies in the 28-GHz band for a new multichannel wireless video
service called Local Multipoint Distribution Service ("LMDS") that is similar to
MMDS. The FCC initiated spectrum auctions for LMDS licenses in February 1998.
The Company is unable to predict whether wireless video services will have a
material impact on its operations.
Competition in the online services area is significant. Recently, a number of
large corporations in the telecommunications and technology industries,
including the Regional Bell Operating Companies ("RBOCs"), GTE Corporation,
Microsoft, Compaq Computer Corporation and Intel Corporation, announced the
formation of a working group to accelerate the deployment of Asymmetric Digital
Subscriber Line ("ADSL") technology. It is anticipated that ADSL technology will
allow Internet access at peak data transmission speeds equal to or greater than
that of modems over conventional telephone lines. Bell Atlantic Corporation
("Bell Atlantic") recently requested the FCC to fully deregulate packet-
switched networks to allow it to provide high-speed broadband services,
including online services, without regard to present Local Access Transport Area
("LATA") boundaries and other regulatory restrictions. Competitors in the online
services area include existing Internet service providers, LECs, long distance
carriers and others, many of whom have more substantial resources than the
Company. The Company cannot predict the likelihood of success of the online
services offered by the Company's competitors or the impact on the Company of
such competitive ventures.
Other new technologies 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. PCS license
holders, including cable operators, are able to provide competitive voice and
data services (see "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.
- 7 -
CELLULAR TELEPHONE COMMUNICATIONS
Company's Systems
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. As of December 31, 1997, the Company's consolidated systems
covered a total population of over 8.2 million and served more than 783,000
customers, representing a penetration rate of 9.5%.
Revenue Sources
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. The Company charges its customers for service activation,
monthly access, per-minute airtime and custom calling features, and generally
offers a variety of pricing options, most of which combine a fixed monthly
access fee and per-minute charges. The Company pays the local telephone service
company directly for interconnection of cellular networks with the wireline
telephone network.
The Company offers products and services to increase the value to the customer
of the basic telephony service and to increase airtime revenues. Such products
include paging services, enhanced directory assistance and concierge services,
voice activated dialing, enhanced voice mail and prepaid calling. The deployment
of digital technology (see "Technology and Capital Improvements") has allowed
the Company to offer additional services such as caller identification, short
messaging, message waiting indicators and enhanced call privacy through
encryption. In addition, the Company offers data transmission over its existing
cellular network, which allows the rapid transfer of data to and from personal
computers, personal digital assistants and other devices.
The Company currently markets its services under the Comcast MetrophoneSM brand
name in the Philadelphia, PA metropolitan statistical area ("MSA") and under the
Comcast CELLULARONE(R) brand name in its other markets in New Jersey and
Delaware. The Company markets its products and services through multiple
distribution channels throughout its contiguous markets. These channels include
direct channels, such as its direct sales force, retail stores and
telemarketing, and indirect channels, such as national and local retailers and
automotive dealers. The Company's long-term emphasis is on the development of
its direct distribution channels, particularly its own retail outlets and
telemarketing, as a means to reduce the cost to acquire subscribers and improve
the quality of new subscribers. The Company operates 54 retail outlets in its
markets and anticipates building additional retail outlets, as well as upgrading
its existing retail outlets in the future.
The Company sells cellular telephone equipment to its customers in order to
encourage use of its services. The Company's practice, as is typical in the
industry, is to sell telephones at or below cost in response to competitive
pressures.
Technology and Capital Improvements
Each of the Company's service areas 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.
- 8 -
As required by the FCC, all cellular telephones are designed so that a cellular
telephone may be used wherever cellular service is available within the US. 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 historically has been 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 significant investment in switching and cell site equipment
manufactured by Lucent Technologies, Inc. enabled it to deploy Time Division
Multiple Access ("TDMA") digital cellular technology throughout its
Pennsylvania/New Jersey and Delaware network. This technology was implemented at
the beginning of the fourth quarter of 1997. The deployment of this technology
permits the Company's subscribers and roamers to use both analog and TDMA
services throughout the Company's coverage area. The Company believes that it
will have sufficient capacity to accommodate both continued subscriber growth
and growth in subscriber minutes for the foreseeable future.
Roaming and Interconnection
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. The Company also offers various service
plans which allow customers who roam out of the Company's service area to pay
the same rates charged for local service in the Company's service area, rather
than passing through higher roaming rates customarily charged by many cellular
carriers. This billing practice provides the customer, in effect, with a broader
local service area but results in increased costs for the Company. The Company
has been reducing these costs through the continued negotiation of more
favorable roaming agreements with cellular service providers in relevant
markets.
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 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. While the use of digital radio technology
is expected to make it more difficult to commit cellular fraud, fraudulent use
of the Company's systems remains a significant concern.
Customer Service
In 1997 and 1996, the Company consolidated its New Jersey and Delaware
operations, respectively, including customer care operations, into the
operations of the Philadelphia market. The Company's sales and marketing
presence (including through the Company's direct sales group and retail stores)
and customer and dealer support will be maintained throughout the systems. In
addition to overall reductions in operating costs and increases in operational
efficiencies, such consolidation permits an increased emphasis by the Company
upon more uniform, efficient and cost effective delivery of customer service and
support.
The Company utilizes the MacroCell(R) billing and customer care platform
developed and licensed by Cincinnati Bell Information Systems, Inc. ("CBIS").
Customer service representatives are able to access current billing information
in order to respond to customer inquiries. To supplement the Company's customer
service operations, Company telemarketers contact customers periodically to
determine their satisfaction with the Company's service and to identify problems
that can lead to subscriber cancellations.
Licensing
The FCC generally grants two licenses to operate cellular telephone systems in
each market. The other cellular licensee in the Company's principal markets is
Bell Atlantic Mobile Systems, Inc. ("BAMS"). In addition to BAMS, the Company
competes for wireless customers with affiliates of AT&T, the Sprint Corporation
("Sprint"), Omnipoint
- 9 -
Communications, Inc. ("Omnipoint") (which operate PCS networks) and Nextel
Communications, Inc. ("Nextel") (which operates Specialized Mobile Radio ("SMR")
networks).
Competition
In recent years, new mobile telecommunications service providers have entered
the market and have created additional competition in the cellular/PCS
telecommunications industry. 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 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 which are currently best
suited for use in densely populated areas. Broadband PCS service is a direct
competitor to cellular service. In the Company's Philadelphia market, AT&T
Wireless Services, Inc., Omnipoint and PhillieCo, L.P., an affiliate of Sprint
PCS, have authorizations for broadband PCS systems. The FCC recently modified
the rules applicable to "C Block" broadband PCS licenses held by small
businesses, minorities and women (known as "designated entities") to reduce the
government debt now owed by these entities. "Designated entities," such as
Omnipoint in the Philadelphia market, compete with the Company.
Cellular telephone systems, including the Company's systems, also face actual or
potential competition from other current and developing technologies. In
addition to SMR systems, 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. Nextel uses its available SMR spectrum in markets
where the Company provides wireless service.
The FCC requires cellular licensees to provide service to resellers who 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. 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 (the "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. Also, the World Trade Organization ("WTO") agreement with respect to
telecommunications, which became effective on February 5, 1998, is intended to
increase competition and reduce barriers to entry by telecommunications firms in
foreign and domestic markets, and may lead to greater foreign investment and
participation in the US cellular/PCS telecommunications industry. These
developments and further technological advances and regulatory changes may make
available other alternatives to cellular service, thereby creating additional
sources of competition.
OTHER SERVICES
The Company currently holds twelve 10-MHz PCS licenses and seventeen Wireless
Communication Service ("WCS") licenses. The PCS licenses cover the Philadelphia
and Allentown, PA markets, while the WCS licenses cover the majority of the US.
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. Further, during 1997 the
Company acquired a reseller of long distance services and is currently offering
such services to businesses in the Philadelphia market and plans to offer such
services nationwide to consumers.
- 10 -
SPRINT PCS
The Company holds a 15% interest in Sprint PCS. Sprint PCS, a limited
partnership owned by the Company, Tele-Communications, Inc. ("TCI"), Cox and
Sprint, has obtained licenses to offer a full range of cellular/PCS
telecommunications services to areas in the US with an aggregate population of
approximately 250 million and is in the process of building a seamless
integrated digital nationwide wireless communications network. As of December
31, 1997, Sprint PCS had launched its service in over 130 metropolitan markets.
The proposed budget for 1998 for Sprint PCS has not yet been approved by the
partnership board, which has resulted in the occurrence of a "Deadlock Event" as
of January 1, 1998 under the partnership agreement. If the 1998 proposed budget
is not approved through resolution procedures set forth in the partnership
agreement, certain specified buy/sell procedures may be triggered, which may
result in a restructuring of the partners' interests, the sale of the Company's
interest, or, in limited circumstances, the sale of Sprint PCS.
CONTENT
Content consists primarily of the Company's 57% ownership interest in QVC, which
is consolidated with and managed by the Company. In addition, the Company owns a
controlling interest in E! Entertainment (see "General Developments of Business
- - E! Entertainment") and maintains strategic investments in other programming
ventures, including Comcast SportsNet, The Golf Channel, Speedvision and Outdoor
Life.
ELECTRONIC RETAILING
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 its viewers. QVC television programming is produced
at its facilities and is distributed via satellite to affiliated cable system
operators and other multichannel video programming providers (the "Program
Carriers") who have entered into carriage agreements (the "Affiliation
Agreements") with QVC and who retransmit QVC programming to their subscribers.
Revenue Sources
QVC sells a variety of consumer products and accessories including jewelry,
housewares, electronics, apparel and accessories, collectibles, toys and
cosmetics. QVC purchases products from domestic and foreign manufacturers and
wholesalers, often 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.
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. QVC's private label credit card
program is 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.
Distribution Channels
In the US, QVC is transmitted live 24 hours a day, 7 days a week, to
approximately 57 million cable television homes and on a part-time basis to
approximately 1.6 million additional cable television homes. In addition,
transmission can be received by approximately 9.7 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 segments devoted to
merchandise associated with a particular celebrity, event, geographical region
or seasonal interest.
In December 1996, QVC launched an electronic retailing programming service in
Germany. The service currently is available to over 9.5 million cable television
and HSD-served homes in Germany. However, the Company estimates that only 3.0
million cable television homes have programmed their television sets to receive
this service.
- 11 -
In December 1995, QVC launched its interactive shopping service ("iQVC") which
is available through the Internet. The iQVC service offers a diverse array of
merchandise, available on-line, 24 hours a day, 7 days a week.
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 6.5 million cable
television and HSD-served homes in the UK and Ireland.
QVC Transmission
The QVC domestic 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. QVC subleases transponders for the transmission of its
signals to the UK and Germany.
Program Carriers
QVC has entered into Affiliation Agreements with Program Carriers in the US to
carry its programming. Generally, there are 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, 1997, approximately 31.1% 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 with 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 marketing, launch and equipment purchase
support. QVC will continue to recruit additional Program Carriers and seek to
enlarge its audience.
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.
- 12 -
CABLE TELEVISION PROGRAMMING INVESTMENTS
The Company has made investments in cable television networks and other
programming related enterprises as a means of generating additional interest
among consumers in cable television. The Company's programming investments as of
December 31, 1997 include:
Ownership
Investment Description Percentage
@Home Internet Services over Cable Television 12.3%
CN8-The Comcast Network Regional and Local Programming 100.0%
Comcast SportsNet Regional Sports Programming and Events 46.4% (A)
E! Entertainment Entertainment-related News and Original Programming 39.7% (B)
The Golf Channel Golf-related Programming 14.4%
Outdoor Life Network Outdoor Activities 24.7%
Speedvision Network Automotive, Marine and Aviation 20.2%
Sunshine Network Regional Sports, Public Affairs and General
Entertainment 16.1%
Viewer's Choice Pay-per-view Programming 10.0%
- ------------
(A) Represents the Company's 66.3% ownership of Comcast Spectacor, L.P., which
holds a 70.0% ownership interest in Comcast SportsNet.
(B) Represents the Company's 50.1% ownership of Comcast Entertainment Holdings
LLC, which holds a 79.2% ownership interest in E! Entertainment.
@Home
In 1996, the Company, along with TCI, Cox and Kleiner Perkins Caufield & Byers,
invested in @ Home, a provider of Internet services via the cable modem over the
cable television infrastructure to consumers and businesses.
CN8-The Comcast Network
CN8-The Comcast Network, the Company's local and regional programming service,
was created in late 1996 and presently serves more than 1.5 million of the
Company's cable subscribers in Pennsylvania, New Jersey and Maryland. CN8
provides original programming, including local and regional news and public
affairs, regional sports, health and cooking and family-oriented programming.
Comcast SportsNet
In July 1996, the Company acquired a 66.3% interest in Comcast Spectacor, L.P.
("Comcast-Spectacor"), a partnership that owns the Philadelphia Flyers NHL
hockey team (the "Flyers"), the Philadelphia 76ers NBA basketball team (the
"Sixers"), and their arenas. Comcast-Spectacor and the owner of the Philadelphia
Phillies major league baseball team (the "Phillies") have formed a partnership,
Philadelphia Sports Media, L.P. d/b/a Comcast SportsNet ("CSN"), which in
October 1997 launched a 24-hour regional sports programming network ("Comcast
SportsNet") in the Philadelphia television market. Comcast SportsNet telecasts
Flyers, Sixers and Phillies games and other sports-related programming to
approximately 2.5 million viewers in the Philadelphia region. CSN has entered
into Affiliation Agreements to permit carriage of Comcast SportsNet with
multichannel video programming distributors in the Philadelphia television
market. Comcast SportsNet is delivered to affiliates by microwave, a terrestrial
means of delivery. The Company and Comcast- Spectacor are currently parties to a
proceeding at the FCC filed by a DBS provider seeking access to Comcast
SportsNet programming.
E! Entertainment
E! Entertainment is an entertainment-related news and information service with
distribution to approximately 46 million customers as of December 31, 1997. E!
Entertainment seeks to attract viewers based on international interest in
Hollywood and entertainment industry news, information and features. The Company
obtained a controlling interest in E! Entertainment in March 1997 (see "General
Developments of Business - E! Entertainment").
The Golf Channel
The Golf Channel is a 24-hour network devoted exclusively to golf programming.
The programming schedule includes live golf coverage, golf instruction programs
and golf news. In addition to the Company, the other partners in The Golf
Channel include an affiliate of Fox, Inc., Times Mirror Corporation and other
private investors. In January and February
- 13 -
1998, the Company entered into agreements to acquire an additional 28.9%
interest in The Golf Channel for $76.2 million. These transactions are expected
to close in the first quarter of 1998. After completion of these transactions,
the Company's ownership interest in The Golf Channel will be 43.3%.
The Outdoor Life Network and The Speedvision Network
Outdoor Life, which was launched in July 1995, presents programming consisting
primarily of outdoor life themes. Speedvision, which was launched in January
1996, presents a variety of programming of interest to automobile, boat and
airplane enthusiasts including news, historical and other information and event
coverage. The other partners in Outdoor Life and Speedvision include Cox and
MediaOne Group ("MediaOne").
The Sunshine Network
The Sunshine Network is a regional sports and public affairs network, providing
programming emphasizing Florida's local teams and events to more than 4.3
million homes in Florida. Programming rights on the network include eight
professional teams, including the Orlando Magic and Miami Heat NBA basketball
teams and the Tampa Bay Lightning NHL hockey team.
Viewer's Choice
Viewer's Choice, which is the brand-name operated by PPVN Holding Co. ("PPVN"),
is a cable operator-controlled buying cooperative for pay-per-view programming.
Viewer's Choice serves 925 affiliated systems with approximately 18 million
addressable households. The other owners of PPVN include Time Warner, Cox,
Disney, MediaOne and TCI.
LEGISLATION AND REGULATION
CABLE COMMUNICATIONS
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 1996 Telecom Act is
the most comprehensive reform of the nation's telecommunications laws since the
Communications Act. Although the long-term goal of the 1996 Telecom Act is to
promote competition and decrease regulation of various communications
industries, in the short-term the law delegates to the FCC (and in some cases to
the states) broad new rulemaking authority. Principal responsibility for
implementing the policies of the Cable Acts and the 1996 Telecom Act is
allocated between the FCC and state or local franchising authorities. 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.
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 to resolve complaints about
rates for cable programming service tiers ("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 eliminates the right of individuals to file CPST rate
complaints with the FCC and requires the FCC to issue a final order within 90
days after receipt of CPST rate complaints filed by any franchising authority.
The 1992 Cable Act limits the ability of cable television systems to raise rates
for basic and certain cable programming services (collectively, the "Regulated
Services").
FCC regulations govern rates that may be charged to subscribers for 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, which contains a rebuttable
presumption of an industry-wide 11.25% after tax rate of return on an operator's
allowable rate base. Franchising authorities are empowered to regulate the rates
charged for monthly basic service, 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
- 14 -
the FCC. Cable operators required to reduce rates may also be required to refund
overcharges with interest. 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.
The 1996 Telecom Act provides for rate deregulation of CPSTs by March 1999,
although legislation has been proposed to extend the regulatory period.
Deregulation will occur sooner for systems in markets where comparable video
programming services, other than DBS, are offered by local telephone companies,
or their affiliates, or by third parties using the local telephone company's
facilities, or where "effective competition" is established under the 1992 Cable
Act. The 1996 Telecom Act also modifies the uniform rate provision of the 1992
Cable Act by prohibiting regulation of nonpredatory 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.
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. The FCC and the Company
recently negotiated a "social contract" in which the Company has committed to
complete certain system upgrades and improvements by March 1999 in return for
which it may move a limited number of currently regulated programming services
in certain cable systems to a single migrated product tier on each system that
may become an unregulated new product tier after December 1997 (see "Description
of the Company's Businesses - Cable Communications - Technology and Capital
Improvements"). The Company is also currently in negotiations to settle pending
proceedings involving the Company's basic service rates in certain of its
systems. While the Company cannot predict the outcome of this action, the
Company believes that the ultimate resolution of this proceeding 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 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 WGN), commercial radio
stations and certain low-power television stations carried by such systems. In
March 1997, the US Supreme Court upheld the constitutional validity of the 1992
Cable Act's mandatory signal carriage requirements. The FCC will conduct a
rulemaking in the future to consider the requirements, if any, for mandatory
carriage of digital television signals. The Company cannot predict the ultimate
outcome of such a rulemaking or the impact of new carriage requirements on the
Company or its business.
- 15 -
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.
Franchise Procedures
The 1984 Cable Act affirms the right of franchising authorities (state or local,
depending on the practice in individual states) to award one or more franchises
within their jurisdictions and prohibits non-grandfathered cable systems from
operating without a franchise in such jurisdictions. The 1992 Cable Act
encourages competition with existing cable systems by (i) allowing
municipalities to operate their own cable systems without franchises; (ii)
preventing franchising authorities from granting exclusive franchises or from
unreasonably refusing to award additional franchises covering an existing cable
system's service area; and (iii) prohibiting (with limited exceptions) the
common ownership of cable systems and co-located MMDS or SMATV systems. The FCC
has 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 up to 5% of
"revenues" (as defined by each franchise agreement), which fees may be passed on
to subscribers. Recently, a federal appellate court held that a cable operator's
gross revenue includes all revenue received from subscribers, without deduction,
and overturned an FCC order which had held that a cable operator's gross revenue
does not include money collected from subscribers that is allocated to pay local
franchise fees. The Company cannot predict the ultimate resolution of these
matters. 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. The Company anticipates
that its future franchise renewal prospects generally will be favorable.
Various courts have considered whether franchising authorities have the legal
right to limit the number of franchises awarded within a community and to impose
certain substantive franchise requirements (e.g. access channels, universal
service and other technical requirements). These decisions have been
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.
- 16 -
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. 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 made far-reaching changes in the regulation of LECs that
provide cable services. The 1996 Telecom Act eliminated federal legal barriers
to competition in the local telephone and cable communications businesses,
preempted legal barriers to competition that previously existed in state and
local laws and regulations, and set basic standards for relationships between
telecommunications providers. The 1996 Telecom Act eliminated 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 on a
non-discriminatory basis. The 1996 Telecom Act generally limits acquisitions and
prohibits certain joint ventures between LECs and cable operators in the same
market.
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 has 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 FCC's existing pole attachment rate formula,
which may be modified by a pending rulemaking, governs charges for utilities for
attachments by cable operators providing only cable services. 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. The FCC recently adopted 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 in February 2001. Any resulting increase in attachment
rates will be phased in equal annual increments over a period of five years,
beginning in February 2001. The ultimate impact of any revised FCC rate formula
or of any new pole attachment rate regulations on the Company or its businesses
cannot be determined at this time.
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. In December 1997, the FCC initiated a rulemaking to address a number
of possible changes to its program access rules. Among the issues on which the
FCC has sought comment is whether the FCC has jurisdiction to extend its program
access rules to terrestrially-delivered programming, such as Comcast SportsNet,
and if it does have such jurisdiction, whether it should expand the rules in
this fashion. This rulemaking is pending at the FCC and the Company cannot
predict the ultimate outcome of this proceeding.
- 17 -
The 1992 Cable Act requires cable operators to block fully both the video and
audio portion of sexually explicit or indecent programming on channels that are
primarily dedicated to sexually oriented programming or alternatively to carry
such programming only at "safe harbor" time periods currently defined by the FCC
as the hours between 10 p.m. to 6 a.m. The Communications Act also includes
provisions, among others, concerning horizontal and vertical ownership of cable
systems, customer service, subscriber privacy, marketing practices, equal
employment opportunity, obscene or indecent programming, regulation of technical
standards and equipment compatibility.
Other FCC Regulations
The FCC recently revised its cable inside wiring rules to provide a more
specific procedure for the disposition of internal cable wiring that belongs to
an incumbent cable operator that is forced to terminate its cable services in a
multiple dwelling unit ("MDU") building by the building owner. The FCC is also
considering additional rules relating to MDU inside wiring that, if adopted, may
disadvantage incumbent cable operators. The FCC has various rulemaking
proceedings pending that will implement 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. Other FCC
regulations covering such areas as equal employment opportunity, syndicated
program exclusivity, network program non-duplication, closed captioning of video
programming, registration of cable systems, maintenance of various records and
public inspection files, microwave frequency usage, 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,
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.
In a report to Congress, the Copyright Office recommended that Congress make
major revisions of both the cable television and satellite compulsory licenses
to make them as simple as possible to administer, to provide copyright owners
with full compensation for the use of their works, and to treat every
multichannel video delivery system the same, except to the extent that
technological differences or differences in the regulatory burdens placed upon
the delivery system justify different copyright treatment. 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 remains 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 principal major music performing rights organizations, the
Association of Songwriters, Composers, Artists and Producers ("ASCAP") and
Broadcast Music, Inc. ("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 established a special rate court for BMI. BMI and cable industry
representatives 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
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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. 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 communications systems or decisions made on franchise
grants, renewals, transfers and amendments.
The foregoing does not purport to describe all present and proposed federal,
state, and local regulations and legislation affecting the cable industry. Other
existing federal regulations, copyright licensing, and, in many jurisdictions,
state and local franchise requirements, are currently the subject of judicial
proceedings, legislative hearings and administrative proposals which could
change, in varying degrees, the manner in which cable communications systems
operate. Neither the outcome of these proceedings nor their impact upon the
cable communications industry or the Company can be predicted at this time.
UK Regulation
The operation of a cable television/telephony system in the UK is regulated
under both the Broadcasting Act 1990 (the "Broadcasting Act") (which replaced
the Cable and Broadcasting Act 1984 (the "UK Cable Act")) and the
Telecommunications Act 1984 (the "Telecommunications Act"). The operator of a
cable/telephony franchise covering over 1,000 homes must hold two principal
licenses: (i) a license (a "cable television license") issued in the past under
the UK Cable Act or since 1990 under the Broadcasting Act, which allows the
operator to provide cable television services in the franchise area, and (ii) a
telecommunications license issued under the Telecommunications Act, which allows
the operator to operate and use the physical network necessary to provide cable
television and telecommunications services. The Independent Television
Commission ("ITC") is responsible for the licensing and regulation of cable
television. The Department of Trade and Industry ("DTI") is responsible for
issuing, and the Office of Telecommunications ("OFTEL") is responsible for
regulating the holders of, the telecommunications licenses. In addition, an
operator is required to hold a license under the Wireless Telegraphy Acts of
1949-67 for the use of microwave distribution systems. 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 Company's four cable and telephony businesses in the UK (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
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by these subsidiaries of the UK Operating Companies are for 23-year periods and
are scheduled to expire beginning in late 2012.
CELLULAR/PCS TELECOMMUNICATIONS
FCC Regulation
The FCC regulates the licensing, construction, operation and acquisition of
wireless telephone systems, including the Company's cellular systems, pursuant
to the Communications Act.
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, (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, and
(iii) restrict the amount of commercial mobile radio spectrum that a single
entity may hold in any particular area. Cellular radio licenses generally expire
ten years 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, Long Branch and Trenton, NJ. The licenses for the Aurora/Elgin, IL,
Joliet, IL, Vineland, NJ and Atlantic City, NJ expire in 1998. The balance of
the Company's licenses expire from 1999 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.
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. The FCC also has adopted standards for limiting
human exposure to RF energy from cellular/PCS telecommunications facilities. The
FCC has determined that these standards preempt state and local regulation of RF
exposure.
The FCC also requires LECs in each market to offer reasonable terms and
facilities for the interconnection of wireless telephone systems in that market
to the LECs' landline network. In June 1996, the FCC adopted a national
regulatory framework for implementing the local competition provision of the
1996 Telecom Act, including adoption of rules delineating interconnection
obligations of incumbent LECs, unbundling requirements for incumbent LECs,
network elements, requirements for access to local rights of way, dialing parity
and telephone numbering and number portability, and requirements for resale of
and nondiscriminatory access to incumbent LEC services. The FCC established a
national regulatory framework that sets pricing standards and negotiations and
arbitration guidelines. However, the US Court of Appeals for the Eighth Circuit
vacated certain of these standards and guidelines, on the grounds that the FCC
lacked the authority to bind state regulators on the matter of local pricing of
interconnection. As a result, landline interconnection pricing will be left to
state-by-state determinations. The Eighth Circuit also determined that the FCC
has special authority over Commercial Mobile Radio Services ("CMRS") carriers,
which include the Company's wireless operations and their interconnection to
incumbent LECs. Accordingly, national interconnection rules will be maintained
for the Company's CMRS operations. In January 1998, the US Supreme Court agreed
to review the Eighth Circuit decision. The Company cannot predict the outcome of
this litigation or the FCC rulemakings, and the ultimate impact of any final FCC
regulations on the Company or its businesses cannot be determined at this time.
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
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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.
The FCC changes its regulations from time to time in response to competitive
developments in the telecommunications marketplace or new federal legislation.
For instance, the FCC is considering whether all CMRS providers should provide
interconnection to all other CMRS providers. In its implementation of the 1996
Telecom Act, the FCC recently established new federal universal service rules,
under which wireless service providers are eligible to receive universal service
subsidies for the first time, but also are required to contribute to both
federal and state universal service funds. The Company began making its
contributions to the federal universal service programs in February 1998. For
the first quarter of 1998, the FCC's universal service assessments amount to
0.72% of telecommunications revenues and an additional 3.19% of all
telecommunications revenues. Various parties have challenged the FCC's universal
service rules and the cases have been consolidated in the US Court of Appeals
for the Fifth Circuit. The Company cannot predict the outcome of this
proceeding.
Finally, the 1996 Telecom Act relieves RBOC-affiliated cellular providers of
their obligations to provide equal access to long distance carriers.
RBOC-affiliated carriers are now afforded greater flexibility in contracting
with interexchange carriers for the provision of long distance services.
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. In October 1997, the FCC
released an order establishing uniform rules governing incumbent LEC
participation in broadband CMRS within each LEC's landline telephone region.
These rules will expire in January 2002, unless extended by the FCC. While the
FCC eliminated the requirements in its cellular rules for full structural
separation of the incumbent LEC cellular affiliate from the LEC landline
affiliate, the FCC adopted new rules designed to address incentives incumbent
LECs may have to engage in anti-competitive practices against CMRS providers,
such as discriminatory interconnection, cost-shifting and anti-competitive
pricing. Specifically, the FCC will require incumbent LECs to create separate
corporations for their in- region broadband CMRS operation (whether cellular,
PCS or other) and to apply existing FCC rules on affiliate transactions and use
of customer proprietary network information to LEC-CMRS operations.
Additionally, the order addressed provisions of the 1996 Telecom Act that govern
incumbent LEC joint marketing of CMRS and landline services, as well as LEC
obligations to disclose material changes in their networks. The FCC also
recently released a notice of inquiry on calling party pays, a mechanism that
would allow CMRS providers to offer service plans under which callers to CMRS
customers would pay for the calls that they make.
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 issue will determine 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.
CONTENT
The FCC does not directly regulate the content or transmission of programming
services like those offered by QVC and E! Entertainment. The FCC does, however,
exercise regulatory authority over the satellites and uplink facilities which
transmit programming services such as those provided by QVC and E!
Entertainment. 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 the QVC
service. Regarding the satellites from which QVC and E! Entertainment obtain
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
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could, however, alter the regulatory obligations applicable to satellite service
providers. The QVC programming services offered in the UK and Germany are
regulated by the media authorities in those countries.
EMPLOYEES
As of December 31, 1997, the Company had 17,600 employees, excluding employees
in managed operations. Of these employees, 8,200 were associated with domestic
cable communications, 1,600 were associated with cellular telephone
communications, 5,500 were associated with electronic retailing and 2,300 were
associated with other divisions. 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.
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 and upgrading to keep pace with
technological advances. During 1997, the Company's systems, including its cell
sites and switching equipment were upgraded with TDMA digital cellular
technology, permitting its subscribers and roamers to use both analog and TDMA
services throughout the Company's coverage area.
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. These assets
include QVC's recently constructed studios and offices, Studio Park, located in
West Chester, Pennsylvania. 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
continue to be upgraded 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 subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position, results of operations or liquidity of the Company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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 1998, or as soon thereafter
as each of their successors is duly elected and qualified.
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The following table sets forth certain information concerning the principal
executive officers of the Company, including their ages, positions and tenure as
of January 30, 1998:
Officer
Name Age Since Position with the Company
Ralph J. Roberts 77 1969 Chairman of the Board of Directors;
Director
Julian A. Brodsky 64 1969 Vice Chairman of the Board of
Directors; Director
Brian L. Roberts 38 1986 President; Director
Lawrence S. Smith 50 1988 Executive Vice President
John R. Alchin 49 1990 Senior Vice President; Treasurer
Stanley L. Wang 57 1981 Senior Vice President; General
Counsel; Secretary
Ralph J. Roberts has served as a Director and Chairman of the Board of Directors
of the Company for more than five years. Mr. Roberts devotes a major portion of
his time to the business and affairs of the Company. 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 is also a Director of Comcast UK Cable Partners Limited. Mr. Roberts
is the father of Brian L. Roberts.
Julian A. Brodsky has served as a Director and Vice Chairman of the Board of
Directors of the Company for more than five years. Mr. Brodsky devotes a major
portion of his time to the business and affairs of the Company. Mr. Brodsky
presently serves as the Treasurer and a Director of Sural. Mr. Brodsky is also a
Director of Comcast UK Cable Partners Limited 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 devotes a major portion of his time to the
business and affairs of the Company. Mr. Roberts presently serves as Vice
President and a Director of Sural. As of December 31, 1997, the shares of the
Company owned by Sural constituted approximately 82% of the voting power of the
two classes of the Company's voting common stock combined. Mr. Roberts has sole
voting power over stock representing a majority of voting power of all Sural
stock and, therefore, effectively controls the Company and its subsidiaries. Mr.
Roberts is also a Director of Comcast UK Cable Partners Limited and At Home
Corporation. Mr. Roberts 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 also 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 also a Director of Comcast UK Cable Partners Limited and
Teleport Communications Group, Inc.
Stanley L. Wang has served as Senior Vice President, Secretary and General
Counsel of the Company for more than five years.
- 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
1997
First Quarter.................. $19 3/8 $16 7/8 $18 15/16 $16 3/8
Second Quarter................. 22 1/4 14 5/8 22 3/16 14 1/2
Third Quarter.................. 25 3/4 19 3/4 25 5/8 19 13/16
Fourth Quarter................. 32 9/16 25 19/32 32 3/4 25 11/16
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
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, 1997 and
1996 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 January 30, 1998, there were 2,568 record holders of the Company's Class A
Special Common Stock and 1,880 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,
1997 (1) 1996 (1) 1995 (1) 1994 1993
(Dollars in millions, except per share data)
Statement of Operations Data:
Revenues.............................. $4,912.6 $4,038.4 $3,362.9 $1,375.3 $1,338.2
Operating income...................... 532.1 508.9 329.8 239.8 264.9
Equity in net losses of affiliates.... 330.1 144.8 86.6 40.9 28.9
Loss before extraordinary items
and cumulative effect of
accounting changes.................. (208.5) (52.5) (37.8) (75.3) (98.9)
Extraordinary items................... (30.2) (1.0) (6.1) (11.7) (17.6)
Cumulative effect of accounting
changes (2)......................... (742.7)
Net loss.............................. (238.7) (53.5) (43.9) (87.0) (859.2)
Loss for common stockholders per
common share before extraordinary
items and cumulative effect of
accounting changes (3).............. (.66) (.21) (.16) (.32) (.46)
Extraordinary items per share (3)..... (.09) (.02) (.05) (.08)
Cumulative effect of accounting
changes per share (3)............... (3.47)
Net loss for common stockholders
per common share(3)................. (.75) (.21) (.18) (.37) (4.01)
Cash dividends declared
per common share (3)................ .0933 .0933 .0933 .0933 .0933
Balance Sheet Data (at year end):
Total assets.......................... 12,804.2 12,088.6 9,580.3 6,763.0 4,948.3
Working capital (deficiency).......... 141.7 40.9 531.6 (52.1) 176.6
Long-term debt........................ 6,558.6 7,102.7 6,943.8 4,810.5 4,154.8
Stockholders' equity (deficiency)..... 1,646.5 551.6 (827.7) (726.8) (870.5)
Supplementary Financial Data:
Operating income before
depreciation and amortization (4)... 1,468.5 1,207.2 1,018.8 576.3 606.4
Net cash provided by
operating activities (5)............ 916.0 799.6 520.7 369.1 345.9
- ---------------
(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, although the Company's measure of operating cash flow may not
be comparable to similarly titled measures of other companies. 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.
- 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
See "General Developments of Business" in Part I and Note 3 to the Company's
consolidated financial statements in Item 8.
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, 1997 and 1996 were $577.6 million and $539.6 million, respectively. As of
December 31, 1997, $251.6 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 $61.7 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, 1997, short-term
investments have a weighted average maturity of approximately four months.
Accounts Receivable - Electronic Retailing
QVC, Inc. ("QVC"), an electronic retailer and majority-owned subsidiary of the
Company, has an agreement with an unrelated third party (the "Bank") whereby the
Bank provides revolving credit directly to QVC customers. The revolving credit
card issued by the Bank may be used solely for the purchase of goods and
services from QVC. The Bank may advance a portion of the purchase price to QVC.
QVC is obligated to purchase from the Bank any uncollected customers' accounts.
The uncollected balances of revolving credit extended by the Bank under this
agreement are $340.0 million and $317.7 million as of December 31, 1997 and
1996, respectively, of which $309.6 million and $284.5 million represent
interest bearing deposits due from the unrelated third party. The total reserve
balances maintained for the purchase of uncollectible accounts are $76.5 million
and $73.2 million as of December 31, 1997 and 1996, respectively. The Company's
potential obligations 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, 1997 and 1996.
Investments
Sprint PCS. The Company, Tele-Communications, Inc. ("TCI"), Cox Communications,
Inc. ("Cox") and Sprint Corporation ("Sprint," and together with the Company,
TCI and Cox, 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" or "Sprint PCS." The Partner
Subsidiaries have committed to contribute $4.2 billion in cash to Sprint PCS
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 PCS of
$602.0 million through January 30, 1998. The Company anticipates that Sprint
PCS' capital requirements over the next several years will be significant.
Requirements in excess of committed capital are planned to be funded by Sprint
PCS through external financing, including, but not limited to, vendor financing,
bank financing and securities offered to the public.
- 26 -
The proposed budget for 1998 for Sprint PCS has not yet been approved by the
partnership board, which has resulted in the occurrence of a "Deadlock Event" as
of January 1, 1998 under the partnership agreement. If the 1998 proposed budget
is not approved through resolution procedures set forth in the partnership
agreement, certain specified buy/sell procedures may be triggered which may
result in a restructuring of the partners' interests, the sale of the Company's
interest, or, in limited circumstances, the sale of Sprint PCS.
TCGI. On January 8, 1998, AT&T Corporation ("AT&T") entered into a definitive
merger agreement with Teleport Communications Group, Inc. ("TCGI"). Upon closing
of the merger (the "AT&T Transaction"), the Company is expected to receive 24.2
million shares of AT&T common stock in exchange for all of the shares of TCGI
held by the Company. Based on the closing price of the AT&T common stock on
January 30, 1998 of $62.625 per share, the Company is expected to recognize a
pre-tax gain of approximately $1.390 billion upon closing of the AT&T
Transaction. Certain conditions agreed to in the AT&T Transaction restrict the
Company's ability to sell the AT&T common stock to be received for a period of
between 45 to 135 days after the closing date of the AT&T Transaction. The AT&T
Transaction is expected to close in 1998, subject to receipt of necessary
regulatory and shareholder approvals.
In November 1997, TCGI filed a registration statement with the United States
("US") Securities and Exchange Commission to sell 7.3 million shares of TCGI
Class A Stock (the "TCGI Offering"). As a result of the TCGI Offering, the
Company will recognize a $59.6 million increase in its proportionate share of
TCGI's net assets as a gain from equity offering of affiliate. Such gain will be
recorded in the Company's March 31, 1998 condensed consolidated statement of
operations and accumulated deficit as the Company records its proportionate
share of TCGI's net losses one quarter in arrears.
Comcast UK Cable. On February 4, 1998, Comcast UK Cable entered into a
definitive agreement to be acquired by NTL Incorporated ("NTL"), an alternative
telecommunications company in the United Kingdom ("UK"). Pursuant to certain
conditions, the Company is expected to receive 4.8 million shares of NTL common
stock in exchange for all of the shares of Comcast UK Cable held by the Company
(the "NTL Transaction"). Based on the closing price of NTL common stock on
February 4, 1998 of $32.00 per share, the Company is expected to recognize a
pre-tax gain of $81.4 million upon closing of the NTL Transaction. Certain
conditions agreed to in the NTL Transaction restrict the Company's ability to
sell the NTL common stock to be received for a period of 180 days after the
closing date of the NTL Transaction. The NTL Transaction is expected to close in
1998, subject to receipt of necessary regulatory and shareholder approvals, the
consent of the bondholders of Comcast UK Cable and NTL, as well as the consent
of certain NTL bank lenders. As of December 31, 1997 and for the year then
ended, the assets and revenues of Comcast UK Cable totaled $736.0 million and
$93.3 million, respectively.
Primestar. The Company holds a 10.4% general and limited partnership interest in
Primestar Partners, L.P. ("Primestar"), which is principally engaged in the
business of acquiring, originating and/or providing television programming
services delivered by satellite through a network of distributors, including the
Company, throughout the US. The Company, through a wholly owned subsidiary,
distributes the Primestar Direct Broadcast Satellite ("DBS") service (the
"Primestar Service") to subscribers within specified areas of 19 states in the
US. As of December 31, 1997, the Company provided the Primestar Service to more
than 181,000 subscribers.
On February 6, 1998, the Company entered into a Merger and Contribution
Agreement (the "Merger and Contribution Agreement") with Primestar and the
affiliates of each of the other partners of Primestar, including TCI Satellite
Entertainment, Inc. ("TSAT"), a publicly-traded company, pursuant to which the
Company's DBS operations, the Company's partnership interests in Primestar and
the Primestar partnership interests and the DBS operations of the other partners
of Primestar will be consolidated into a newly formed company ("New Primestar").
Under the terms of the Merger and Contribution Agreement, upon closing of the
transactions, it is expected that New Primestar, through a series of
transactions, will pay the Company approximately $83 million (based upon the
number of the Company's subscribers to the Primestar Service as of December 31,
1997), and that the Company would own approximately 10% of New Primestar common
equity, both subject to adjustment based on the number of the Company's
subscribers to the Primestar Service, inventory amounts and other factors as of
the closing of the transactions. Subject to receipt of regulatory approval and
other conditions, after the closing of the transactions, TSAT will merge with
and into New Primestar in a transaction in which TSAT's outstanding common
shares will be converted into common shares of New Primestar. As of December 31,
1997 and for the year then ended, the assets and revenues of the Company's DBS
operations totaled $162.8 million and $114.1 million, respectively.
- 27 -
In June 1997, Primestar entered into an agreement with The News Corporation
Limited, MCI Telecommunications Corporation and American Sky Broadcasting LLC
("ASkyB"), pursuant to which Primestar (or, under certain conditions, New
Primestar) will acquire certain assets relating to a high-power DBS business
(the "ASkyB Transaction"). In exchange for such assets, ASkyB will receive
non-voting securities of New Primestar that will be convertible into non-voting
common stock of New Primestar, and, accordingly, will reduce the Company's
common equity interest in New Primestar to approximately 7% on a fully diluted
basis, subject to adjustment.
The Merger and Contribution Agreement and the ASkyB Transaction are not
conditioned on each other and may close independently. The Merger and
Contribution Agreement is expected to close in 1998, subject to receipt of TSAT
shareholder approval. The ASkyB Transaction is expected to close in 1998,
subject to receipt of all necessary governmental and regulatory approvals,
including the approval of the Federal Communications Commission ("FCC"). There
can be no assurance that such approvals will be obtained.
@Home. In July 1997, At Home Corporation ("@Home") completed an initial public
offering of its Series A Common Stock (the "@Home IPO"). @Home provides Internet
services to customers and businesses via the cable modem over the cable
television infrastructure in a limited number of cities in the US. As of
December 31, 1997, the Company holds 8.0 million contractually restricted shares
(the "Restricted Shares") and 6.6 million unrestricted shares (the "Unrestricted
Shares") of @Home Series A Common Stock (the "@Home Series A Stock"),
representing a 12.3% and a 5.7% equity and voting interest, respectively. The
Company has recorded the Restricted Shares at their historical cost of $1.1
million and the Unrestricted Shares, which are classified as available for sale,
at their estimated fair value of $164.6 million, based on the quoted market
price of the @Home Series A Stock as of December 31, 1997.
The Golf Channel. The Golf Channel is a 24-hour network devoted exclusively to
golf programming. The programming schedule includes live golf coverage, golf
instruction programs and golf news. In addition to the Company, the other
partners in The Golf Channel include an affiliate of Fox, Inc., Times Mirror
Corporation and other private investors. In January and February 1998, the
Company entered into agreements to acquire an additional 28.9% interest in The
Golf Channel for $76.2 million. These transactions are expected to close in the
first quarter of 1998. After completion of these transactions, the Company's
ownership interest in The Golf Channel will be 43.3%.
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. The Company continually evaluates its existing investments
as well as new investment opportunities.
Investment Rights
In July 1996, the Company acquired a 66% interest in Comcast Spectacor, L.P.
("Comcast-Spectacor"), the owner of two professional sports teams and two arenas
in Philadelphia, PA. Beginning in January 1998, the Company has the right to
purchase the remaining 34% minority interest in Comcast-Spectacor from the
minority partner for the minority partner'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 partner 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 partner for
such interests in shares of the Company's Class A Special Common Stock, subject
to certain restrictions. If the minority partner exercises its Exit Rights and
the Company elects not to purchase their interest, the Company and the minority
partner will use their best efforts to sell Comcast-Spectacor.
Beginning in October 1998, the Walt Disney Company ("Disney"), in certain
circumstances, is entitled to cause Comcast Entertainment Holdings LLC (the
"LLC"), which is owned 50.1% by the Company and 49.9% by Disney, to purchase
Disney's entire interest in the LLC at its then fair market value (as determined
by an appraisal process). If the LLC elects not to purchase Disney's interests,
Disney has the right, at its option, to purchase either the Company's entire
interest in the LLC or all of the shares of stock of E! Entertainment
Television, Inc. ("E! Entertainment") held by the LLC, in each case at fair
market value. In the event that Disney exercises its rights, as described above,
a portion or all of the $132.8 million aggregate principal amount ten-year, 7%
notes payable to Disney (the "Disney Notes") may be replaced with a three year
note due to Disney.
In February 1995, the Company and TCI acquired (the "QVC Acquisition") all of
the outstanding stock of QVC not previously owned by them (approximately 65% of
such shares on a fully diluted basis) for $1.4 billion. Following the
- 28 -
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
accounted for the QVC Acquisition under the purchase method and QVC was
consolidated with the Company effective February 1, 1995. 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.
At any time after December 18, 2001, the California Public Employees Retirement
System ("CalPERS") may elect to liquidate its interest in MHCP Holdings, L.L.C.
("MHCP Holdings"), a 55% owned indirect subsidiary of the Company (which holds
the US cable operations formerly known as Maclean Hunter Limited) in which
CalPERS owns the remaining 45% interest, at a price based upon the fair value of
CalPERS' interest in MHCP Holdings, adjusted, under certain circumstances, for
certain performance criteria relating to the fair value of MHCP Holdings 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 MHCP Holdings.
Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Certain of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000 (the "Year 2000 Issue"). If this
situation occurs, the potential exists for computer system failure or
miscalculations by computer programs, which could cause disruption of
operations.
Based on an inventory conducted in 1997, the Company has identified computer
systems that will require modification or replacement so that they will properly
utilize dates beyond December 31, 1999. The Company presently believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue can be mitigated. However, if such modifications and conversions are
not made, or are not completed within an adequate time frame, the Year 2000
Issue could have a material impact on the operations of the Company.
The Company has initiated communications with all of its significant software
suppliers and service bureaus to determine their plans for remediating the Year
2000 Issue in their software which the Company uses or relies upon. The
Company's estimate to complete the remediation plan includes the estimated time
associated with mitigating the Year 2000 Issue for third party software.
However, there can be no guarantee that the systems of other companies on which
the Company relies will be converted on a timely basis, or that a failure to
convert by another company would not have material adverse effect on the
Company.
The Company continues to use both internal and external resources to reprogram
or replace software for Year 2000 modifications. Management of the Company will
also continue to periodically report the progress of its Year 2000 remediation
plan to the Audit Committee of the Company's Board of Directors. The Company
plans to complete the Year 2000 mitigation in 1999. The costs directly
attributable to the Year 2000 Issue are not expected to have a material effect
on the Company's results of operations.
The costs of the project and the date on which the Company plans to complete the
Year 2000 modifications and replacements are based on management's best
estimates, which were derived using assumptions of future events including the
continued availability of resources and the reliability of third party
modification plans. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those plans.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel with appropriate necessary
skills, the ability to locate and correct all relevant computer code and similar
uncertainties.
- 29 -
Capital Expenditures
It is anticipated that, during 1998, the Company will incur approximately $1.1
billion of capital expenditures, including $700 million for the upgrading and
rebuilding of certain of the Company's cable communications systems, $100
million for the upgrading of QVC's warehousing and distribution facilities, $100
million for the upgrading of the Company's cellular communications systems and
$150 million for the build-out of the Company's consolidated UK affiliates'
systems (subject to the timing of the closing of the NTL Transaction). The
amount of such capital expenditures for years subsequent to 1998 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. 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. Costs 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. Future
increases in such costs may be significant to the Company's financial position,
results of operations and liquidity. The Company anticipates capital
expenditures for years subsequent to 1998 will continue to be significant. As of
December 31, 1997, the Company does not have any significant contractual
obligations for capital expenditures.
Financing
Other than the acquisition of the cable television operations ("Scripps Cable")
of the E.W. Scripps Company in November 1996 (the "Scripps Acquisition"), 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 through public offerings of subsidiary stock and debt instruments. As of
December 31, 1997 and 1996, the Company's long-term debt, including current
portion, was $6.691 billion and $7.332 billion, respectively, of which 17.1% and
45.2%, respectively, was at variable rates. As of January 30,1998, certain
subsidiaries of the Company had unused lines of credit of $1.0 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. The Company's long-term debt had estimated fair values of
$7.123 billion and $7.323 billion as of December 31, 1997 and 1996,
respectively. The Company's weighted average interest rate was 8.36%, 7.90% and
8.32% during the years ended December 31, 1997, 1996 and 1995, respectively. The
Company continually evaluates its debt structure with the intention of reducing
its debt service requirements when desirable.
On February 26, 1998, the Company announced its intention to redeem its $541.9
million principal amount 1 1/8% discount convertible subordinated debentures due
2007 (the "1 1/8% Debentures") on March 30, 1998 at a redemption price of
67.112% of the principal amount, together with accrued interest thereon. As of
December 31, 1997, the accreted value of the 1 1/8% Debentures was $355.9
million. Each $1,000 principal amount of 1 1/8% Debentures is convertible into
19.3125 shares of the Company's Class A Special Common Stock. The Company
anticipates using available borrowings under a subsidiary credit facility to
fund amounts redeemed for cash, if any. In the first quarter of 1998,
stockholders' equity will be increased by the full amount of the 1 1/8%
Debentures converted, if any, plus accrued interest, less unamortized debt
acquisition costs.
In December 1997, Comcast UK Holdings Ltd. ("UK Holdings"), a wholly owned
subsidiary of Comcast UK Cable, entered into a loan agreement with a consortium
of banks to provide financing under a revolving credit facility (the "UK
Holdings Credit Facility") up to a maximum of (UK Pound)200.0 million. There
were no borrowings under the UK Holdings Credit Facility at December 31, 1997.
In January 1998, UK Holdings borrowed (UK Pound)75.0 million under the UK
Holdings Credit Facility. The UK Holdings Credit Facility bears interest at a
rate per annum equal to the London Interbank Offered Rate ("LIBOR") plus 1/2% to
2 1/4%. Amounts available under the UK Holdings Credit Facility will be reduced
each quarter in varying amounts beginning March 31, 2000 and continuing through
December 31, 2000. Final maturity of the UK Holdings Credit Facility is January
31, 2001. Borrowings under the UK Holdings Credit Facility are guaranteed by
certain of Comcast UK Cable's wholly owned subsidiaries.
In October 1997, the Company completed the redemption of its $250.0 million
principal amount 3 3/8% / 5 1/2% step up convertible subordinated debentures due
2005 (the "Step Up Debentures"). The Company issued 8.4 million shares
- 30 -
of its Class A Special Common Stock upon conversion of $206.4 million principal
amount of Step Up Debentures while $43.6 million principal amount of Step Up
Debentures was redeemed for cash at a redemption price of 105.58% of the
principal amount, together with accrued interest thereon. Stockholders' equity
was increased by the full amount of Step Up Debentures converted plus accrued
interest, less unamortized debt acquisition costs. The issuance of the Company's
Class A Special Common Stock upon conversion of the Step Up Debentures had no
impact on the Company's consolidated statement of cash flows due to its noncash
nature.
In October 1997, Comcast Cellular (see below) refinanced its existing revolving
credit facility with the proceeds from borrowings under a new $400.0 million
credit agreement (the "New Bank Facility") with certain banks. Initial
borrowings under the New Bank Facility were used principally to repay existing
debt.
In June 1997, the Company redeemed for cash all of its outstanding 10%
Subordinated Debentures, due 2003 (the "10% Debentures"). An aggregate principal
amount of $139.3 million of the 10% Debentures was redeemed at a redemption
price of 100% of the principal amount thereof, together with accrued interest
thereon. On the date of redemption, the 10% Debentures had an accreted value of
$127.7 million.
In May 1997, Comcast Cable Communications, Inc. ("Comcast Cable"), a wholly
owned subsidiary of the Company, completed the sale of $1.7 billion principal
amount of notes (the "Cable Notes") through a private offering with registration
rights. The Cable Notes were issued in four tranches: $300.0 million principal
amount of 8 1/8% Notes due 2004, $600.0 million principal amount of 8 3/8% Notes
due 2007, $550.0 million principal amount of 8 7/8% Notes due 2017 and $250.0
million principal amount of 8 1/2% Notes due 2027. Comcast Cable used
substantially all of the net proceeds from the offering of the Cable Notes to
repay certain of its subsidiaries' notes payable to banks with the balance used
for subsidiary general purposes. Collectively, the offering of the Cable Notes
and the repayment of the aforementioned notes payable with the net proceeds from
the offering of the Cable Notes are referred to herein as the "Cable
Refinancing."
In May 1997, Comcast Cellular Corporation (formerly Comcast Cellular Holdings,
Inc.) ("Comcast Cellular"), a wholly owned subsidiary of the Company, completed
the sale of $1.0 billion principal amount of 9 1/2% Senior Notes due 2007 (the
"Cellular Notes") through a private offering with registration rights. Comcast
Cellular used the net proceeds from the offering to redeem its senior
participating redeemable zero coupon notes and repay existing subsidiary
indebtedness. Collectively, the offering of the Cellular Notes and the
redemption and the repayments of the aforementioned notes with the net proceeds
from the offering of the Cellular Notes are referred to herein as the "Cellular
Refinancing."
In October 1997, Comcast Cable and Comcast Cellular completed the exchange of
the Cable Notes and the Cellular Notes for new notes (with the same terms) which
were registered under the Securities Act of 1933, as amended.
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 were 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.
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 could purchase,
at such times and on such terms as it deemed appropriate, up to $500.0 million
of its outstanding common equity securities, subject to certain restrictions and
market conditions. Based on the trade date for stock repurchases, during the
years ended December 31, 1997, 1996 and 1995, the Company repurchased 2.3
million shares, 10.5 million shares and 680,000 shares, respectively, of its
common stock for aggregate consideration of $36.2 million, $180.0 million and
$12.4 million, respectively, pursuant to the Repurchase Program. During the term
of the Repurchase Program, which terminated on May 13, 1997, the Company
repurchased a total of 13.5 million shares of its common stock for aggregate
consideration of $228.6 million.
- 31 -
Interest Rate and Foreign Currency Exchange Rate 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.
Interest Rate Risk
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 table set forth below summarizes the fair values and contract terms of
financial instruments subject to interest rate risk maintained by the Company as
of December 31, 1997 (dollars in millions):
Expected Maturity Date Fair Value at
1998 1999 2000 2001 2002 Thereafter Total 12/31/97
Debt
Fixed Rate.................... $43.9 $9.1 $19.7 $226.2 $101.2 $4,548.7 $4,948.8 $5,380.0
Average Interest Rate...... 10.4% 8.9% 8.2% 9.5% 8.6% 9.0% 9.0%
Variable Rate................. $88.8 $198.8 $282.1 $347.4 $389.3 $436.1 $1,742.5 $1,742.5
Average Interest Rate...... 6.5% 6.8% 6.8% 6.9% 6.9% 6.8% 6.8%
Interest Rate Instruments
Variable to Fixed Swaps....... $100.0 $50.0 $450.0 $600.0 $4.3
Average Pay Rate........... 5.7% 5.7% 5.5% 5.6%
Average Receive Rate....... 5.9% 6.0% 6.1% 6.1%
Caps.......................... $150.0 $150.0 $ --
Average Cap Rate........... 6.7% 6.7%
Collar........................ $50.0 $50.0 $0.2
Average Cap Rate........... 7.0% 7.0%
Average Floor Rate......... 4.9% 4.9%
The notional amounts of interest rate instruments, 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. Interest rates on variable
debt are estimated by the Company using the average implied forward LIBOR rates
for the year of maturity based on the yield curve in effect at December 31, 1997
plus the borrowing margin in effect for each credit facility at December 31,
1997. Average receive rates on the Variable to Fixed Swaps are estimated by the
Company using the average implied forward LIBOR rates for the year of maturity
based on the yield curve in effect at December 31, 1997. 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, 1997, 1996 and 1995 was not significant.
- 32 -
Foreign Currency Exchange Rate Risk
The Company has entered into certain foreign exchange option contracts ("FX
Options") as a normal part of its foreign currency risk management efforts.
These FX Options 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. During 1995, Comcast UK Cable entered into certain
foreign exchange put option contracts ("FX Puts") which may be settled only on
November 16, 2000. As of December 31, 1997 and 1996, Comcast UK Cable had (UK
Pound)250.0 million notional amount of FX Puts to purchase US dollars at an
exchange rate of $1.35 per (UK 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, 1997 and 1996, the FX Puts had
carrying values of $13.1 million and $18.4 million, respectively, and estimated
fair values of $5.2 million and $5.5 million, respectively. The difference
between the carrying amount and the estimated fair value of the FX Puts was not
significant as of December 31, 1995.
In 1995, in order to reduce hedging costs, Comcast UK Cable sold foreign
exchange call option contracts ("FX Calls") to exchange (UK 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, (UK Pound)200.0 million notional amount, with an exchange ratio
of $1.70 per (UK Pound)1.00, expired unexercised in November 1996 while the
remaining contract, with a (UK Pound)50.0 million notional amount and an
exchange ratio of $1.62 per (UK Pound)1.00, has a settlement date in November
2000. In 1996, in order to continue to reduce hedging costs, Comcast UK Cable
sold additional FX Calls, for proceeds of $3.5 million, to exchange (UK
Pound)200.0 million notional amount at an average exchange ratio of $1.75 per
(UK Pound)1.00. These contracts expired unexercised in 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, 1997 and 1996, the estimated fair value of the liabilities
related to the FX Calls, as recorded in the Company's consolidated balance
sheet, was $4.4 million and $12.2 million, respectively. Changes in fair value
between measurement dates relating to the FX Calls resulted in exchange gains of
$7.4 million and exchange losses of $2.2 million during the years ended December
31, 1997 and 1996, respectively. There were no significant exchange gains or
losses relating to these contracts during the year ended December 31, 1995.
The table set forth below summarizes the fair values and contract terms of
financial instruments, subject to foreign currency exchange rate risk,
maintained by the Company (dollars in millions):
Expected Fair Value at
Maturity 2007 12/31/97
On Balance Sheet Financial Instruments
(UK Pound)UK Functional Currency:
Long-term debt ($US) at accreted value............ $378.3 $417.7
Average interest rate........................... 11.20%
Expected Fair Value at
Maturity 2000 12/31/97 (1)
Foreign Exchange Rate Derivatives
(UK Pound)UK Functional Currency:
FX Puts
Contract amount................................. $337.5 $5.2
Exchange rate ($US/(UK Pound)UK)................ 1.35
FX Calls
Contract amount................................. $81.0 ($4.4)
Exchange rate ($US/(UK Pound)UK)................ 1.62
- ---------------
(1) The estimated fair value approximates the proceeds (costs) to settle the
outstanding contracts.
- 33 -
Equity Price Risk
As part of the Repurchase Program, the Company sold put options on shares of its
Class A Special Common Stock. Put options on 4.0 million shares, sold by the
Company during 1996 and 1995 and outstanding at December 31, 1996, expired
unexercised during the first quarter of 1997. Upon expiration, the Company
reclassified $69.6 million, the amount it would have been obligated to pay to
repurchase such shares had the put options been exercised, from common equity
put options to additional capital in the Company's consolidated balance sheet.
As part of the Repurchase Program, in April 1997, the Company sold put options
on 2.0 million shares of its Class A Special Common Stock. The put options give
the holder the right to require the Company to repurchase such shares at $15.68
per share on specific dates in April and May 1998. The amount the Company would
be obligated to pay to repurchase such shares upon exercise of the put options,
totaling $31.4 million, has been reclassified from additional capital to common
equity put options in the Company's December 31, 1997 consolidated balance
sheet. The difference between the proceeds from the sale of these put options
and their estimated fair value was not significant as of December 31, 1997.
-------------------------
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 increased $82.4 million as of December 31, 1997 from
December 31, 1996 and decreased $207.8 million as of December 31, 1996 from
December 31, 1995. Changes in cash and cash equivalents resulted from cash flows
from operating, financing and investing activities as explained below.
Net cash provided by operating activities amounted to $916.0 million, $799.6
million and $520.7 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The increases of $116.4 million and $278.9 million from 1996 to
1997 and 1995 to 1996 were principally due to the increase in the Company's
operating income before depreciation and amortization (see "Results of
Operations"), including the effects of the Scripps Acquisition and changes in
working capital as a result of the timing of receipts and disbursements.
Net cash provided by (used in) financing activities, which includes the
issuances and repurchases of securities as well as borrowings and repayments of
debt, was $355.6 million, ($81.2) million and $2.036 billion for the years ended
December 31, 1997, 1996 and 1995, respectively. During 1997, the Company
borrowed $3.045 billion, including the Cable Notes of $1.691 billion, the
Cellular Notes of $998.4 million, the Disney Notes of $132.8 million and
borrowings under its existing lines of credit, and repaid $3.580 billion of its
long-term debt, including $1.665 billion relating to the Cable Refinancing,
$981.8 million relating to the Cellular Refinancing, $43.6 million relating to
the redemption of the Step Up Debentures and $139.3 million relating to the
redemption of the 10% Debentures. Deferred financing costs of $44.9 million were
incurred during 1997 related principally to the issuance of the Cable Notes and
the Cellular Notes. In addition, during 1997, the Company received $1.0 billion
from Microsoft Corporation for the issuance of its Class A Special Common Stock
and Series B Preferred Stock, repurchased $33.6 million of its common stock and
paid cash dividends on its Common Stock and Series A Preferred Stock of $34.0
million. 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 and cash dividends paid on
its common stock and Series A Preferred Stock totaled $26.8 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 PCS,
$300.0 million of the 2007 Discount Debentures,
- 34 -
$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. 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. Deferred financing costs of $43.5 million incurred during 1995 related
principally to the refinancing of certain indebtedness and borrowings of the
2007 Discount Debentures. In addition, during 1995, the Company paid cash
dividends on its common stock of $22.4 million.
Net cash used in investing activities was $1.189 billion, $926.2 million and
$2.353 billion for the years ended December 31, 1997, 1996 and 1995,
respectively. During 1997, net cash used in investing activities includes
acquisitions, net of cash acquired, of $170.1 million, relating primarily to the
acquisition of E! Entertainment, investments in affiliates of $268.7 million,
including capital contributions to Sprint PCS of $144.3 million, and capital
expenditures of $925.5 million. Cash proceeds from investing activities include
proceeds from the sales of and distributions from short-term and long-term
investments of $216.7 million, including $98.4 million from sales of Nextel
Communications, Inc. ("Nextel") common stock and options and $68.9 million from
the sale of TCGI Class A Stock. 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 PCS 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., 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 PCS 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.
Results of Operations
The effects of the Company's recent acquisitions, as well as increased levels of
capital expenditures, were to increase significantly the Company's revenues and
expenses, resulting in substantial increases in its operating income before
depreciation and amortization, depreciation expense, amortization expense and
interest expense. 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").
- 35 -
Summarized consolidated financial information for the Company for the three
years ended December 31, 1997 is as follows (dollars in millions, "NM" denotes
percentage is not meaningful):
Year Ended
December 31, Increase/(Decrease)
1997 1996 $ %
Revenues...................................................... $4,912.6 $4,038.4 $874.2 21.6%
Cost of goods sold from electronic retailing.................. 1,270.2 1,114.2 156.0 14.0
Operating, selling, general and administrative expenses....... 2,173.9 1,717.0 456.9 26.6
-------- --------
Operating income before depreciation and amortization (1) .... 1,468.5 1,207.2 261.3 21.6
Depreciation.................................................. 474.3 314.6 159.7 50.8
Amortization.................................................. 462.1 383.7 78.4 20.4
-------- --------
Operating income.............................................. 532.1 508.9 23.2 4.6
-------- --------
Interest expense.............................................. 564.9 540.8 24.1 4.5
Investment income............................................. (137.1) (122.6) 14.5 11.8
Equity in net losses of affiliates............................ 330.1 144.8 185.3 NM
Gain from equity offering of affiliate........................ (7.7) (40.6) (32.9) (81.0)
Other......................................................... 11.0 2.6 8.4 NM
Income tax expense............................................ 55.6 84.4 (28.8) (34.1)
Minority interest............................................. (76.2) (48.0) 28.2 58.8
Extraordinary items........................................... (30.2) (1.0) 29.2 NM
-------- --------
Net loss...................................................... ($238.7) ($53.5) $185.2 NM
======== ========
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.................. 1,114.2 900.8 213.4 23.7
Operating, selling, general and administrative expenses....... 1,717.0 1,443.3 273.7 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) NM
Income tax expense............................................ 84.4 42.1 42.3 NM
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%
======== ========
- ------------
(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, although the Company's measure of operating cash flow may not
be comparable to similarly titled measures of other companies. 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.
- 36 -
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 cable communications operations; "Electronic
Retailing," the most significant of the Company's content businesses; and
"Cellular Communications," the most significant of the Company's
cellular/personal communications services 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
As a result of the Scripps Acquisition, the Company commenced consolidating the
financial results of Scripps Cable effective November 1, 1996. The following
table presents actual financial information for the year ended December 31, 1997
and pro forma financial information for the years ended December 31, 1996 and
1995 as if the Scripps Acquisition occurred on January 1, 1995. Pro forma
financial information is presented herein for purposes of analysis and may not
reflect what actual operating results would have been had the Company owned
Scripps Cable since January 1, 1995 (dollars in millions):
Year Ended
December 31,
Pro Forma Increase
1997 1996 $ %
Service income................................... $2,073.0 $1,893.8 $179.2 9.5%
Operating, selling, general and
administrative expenses..................... 1,085.3 979.1 106.2 10.8
-------- -------- ------
Operating income before depreciation
and amortization (a)........................ $987.7 $914.7 $73.0 8.0%
======== ======== ======
Year Ended
December 31,
Pro Forma Pro Forma Increase
1996 1995 $ %
Service income................................... $1,893.8 $1,729.7 $164.1 9.5%
Operating, selling, general and
administrative expenses..................... 979.1 892.6 86.5 9.7
-------- -------- ------
Operating income before depreciation
and amortization (a)........................ $914.7 $837.1 $77.6 9.3%
======== ======== ======
- ---------------
(a) See footnote (1) on page 36.
Of the respective $179.2 million and $164.1 million increases in service income
for the years ended December 31, 1997 and 1996, $38.1 million and $45.8 million
are attributable to subscriber growth, $122.8 million and $101.0 million relate
to changes in rates, $11.0 million and $5.5 million are attributable to growth
in cable advertising sales and $7.3 million and $11.8 million relate to other
product offerings.
Of the respective $106.2 million and $86.5 million increases in operating,
selling, general and administrative expenses for the years ended December 31,
1997 and 1996, $27.9 million and $34.7 million are attributable to increases in
the costs of cable programming as a result of subscriber growth, additional
channel offerings and changes in rates, $19.2 million and $13.5 million are
attributable to increases in costs associated with customer service, $7.7
million and $4.5 million are attributable to growth in cable advertising sales
and $51.4 million and $33.8 million result from increases in the costs of labor,
other volume related expenses and costs associated with new product offerings.
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.
- 37 -
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 years ended December 31, 1997 and
1996 and pro forma financial information for the year ended December 31, 1995 as
if the QVC Acquisition occurred on January 1, 1995. Pro forma financial
information is presented herein for purposes of analysis and may not reflect
what actual operating results would have been had the Company owned QVC since
January 1, 1995 (dollars in millions):
Year Ended
December 31, Increase
1997 1996 $ %
Net sales from electronic retailing.............. $2,082.5 $1,835.8 $246.7 13.4%
Cost of goods sold from electronic retailing..... 1,270.2 1,114.2 156.0 14.0
Operating, selling, general and administrative
expenses.................................... 474.6 421.3 53.3 12.7
-------- -------- ------
Operating income before depreciation
and amortization (a)........................ $337.7 $300.3 $37.4 12.5%
======== ======== ======
Gross margin..................................... 39.0% 39.3%
======== ========
Year Ended
December 31,
Pro Forma 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..... 1,114.2 978.8 135.4 13.8
Operating, selling, general and administrative
expenses.................................... 421.3 385.0 36.3 9.4
-------- -------- ------
Operating income before depreciation
and amortization (a)........................ $300.3 $255.4 $44.9 17.6%
======== ======== ======
Gross margin..................................... 39.3% 39.6%
======== ========
- ---------------
(a) See footnote (1) on page 36.
The respective increases in net sales from electronic retailing of $246.7
million and $216.6 million for the years ended December 31, 1997 and 1996 are
primarily attributable to the effects of 7.4% and 7.2% increases, respectively
in the average number of homes receiving QVC services in the US and 13.7% and
36.5% increases, respectively, in the average number of homes receiving QVC
services in the UK.
An allowance for returned merchandise is provided as a percentage of sales based
on historical experience. The return provision was approximately 21% of gross
sales for each of the years ended December 31, 1997, 1996 and 1995.
The increases in cost of goods sold from electronic retailing are primarily
related to the growth in net sales. The changes in gross margin between these
periods are primarily due to slight changes in product mix from year to year.
Of the respective increases in operating, selling, general and administrative
expenses of $53.3 million and $36.3 million for the years ended December 31,
1997 and 1996, $25.5 million and $6.0 million are attributable to start-up costs
incurred by QVC in Germany, which began operations in the fourth quarter of
1996, and the remaining increases are primarily attributable to higher sales
volume, increases in advertising costs and additional costs associated with new
businesses, offset, in part, by the reduction in expenses realized upon
consolidation of QVC's multichannel operations in 1996.
- 38 -
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
1997 1996 $ %
Service income................................... $444.9 $426.1 $18.8 4.4%
Operating, selling, general and administrative
expenses.................................... 269.5 265.9 3.6 1.4
------ ------ -----
Operating income before depreciation
and amortization (a)........................ $175.4 $160.2 $15.2 9.5%
====== ====== =====
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%
====== ====== =====
- ---------------
(a) See footnote (1) on page 36.
Of the respective $18.8 million and $51.2 million increases in service income
for the years ended December 31, 1997 and 1996, $18.2 million and $69.6 million,
respectively, are attributable to the Company's subscriber growth and $15.4
million and $500,000, respectively, are attributable to roamer growth.
Offsetting the increases are decreases of $14.8 million and $18.9 million,
respectively, resulting primarily from a reduction in the average rate per
minute of use as a result of promotional and free minutes provided to customers.
The $3.6 million increase in operating, selling, general and administrative
expenses from 1996 to 1997 is primarily attributable to a $10.5 million increase
in fixed costs related to retail centers. Offsetting this increase is a decrease
of $6.9 million primarily attributable to expense reductions achieved through
implementation of fraud management programs, improved bad debt experience as a
result of stronger credit procedures and a reduction in commission costs
resulting from fewer gross subscriber additions in 1997. The $28.8 million
increase in operating, selling, general and administrative expenses from 1995 to
1996 is primarily attributable to a $24.3 million increase related to subscriber
growth, including the costs to acquire and service subscribers. The remaining
increase of $4.5 million is primarily due to increases in customer service and
administrative costs, partially offset by expense reductions achieved through
implementation of fraud management programs.
Consolidated Analysis
The $159.7 million increase in depreciation expense from 1996 to 1997 is
primarily attributable to the effects of capital expenditures during 1996 and
1997 and the effects of the Scripps Acquisition. 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.
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.
- 39 -
The $78.4 million and $34.6 million increases in amortization expense from 1996
to 1997 and 1995 to 1996, respectively, are primarily attributable to the
effects of the Scripps Acquisition in November 1996 and the effects of the
QVC Acquisition in February 1995, respectively.
The $24.1 million increase in interest expense from 1996 to 1997 is primarily
attributable to an increase in the Company's weighted average interest rate on
the Company's outstanding debt and a decrease in capitalized interest from 1996
to 1997, offset, in part, by a decrease in the Company's outstanding long-term
debt. 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 and an increase in
capitalized interest from 1995 to 1996.
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 $14.5 million increase in investment income from 1996 to 1997 is primarily
attributable to the $68.9 million gain recognized in 1997 on the sale of TCGI
Class A stock, offset, in part, by the $47.3 million gain recognized upon the
exchange of the shares of Turner Broadcasting System, Inc. ("TBS") held by the
Company for Time Warner, Inc. ("Time Warner") common stock in 1996 as a result
of the merger of Time Warner and TBS in October 1996. The $107.2 million
decrease in investment income from 1995 to 1996 is principally due 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 common stock in 1996.
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 1995.
In February 1997, in connection with an acquisition, TCGI issued 2.1 million
unregistered shares of its TCGI Class A Stock. As a result of the stock
issuance, the Company recorded a $7.7 million increase in its proportionate
share of TCGI's net assets as a gain from equity offering of affiliate in its
1997 consolidated statement of operations. As a result of the TCGI IPO, 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 $185.3 million and $58.2 million increases in equity in net losses of
affiliates from 1996 to 1997 and 1995 to 1996, respectively, are due to the
timing of investments in and changes in losses incurred by Sprint PCS, TCGI, the
Company's international investees, Comcast-Spectacor and certain programming
investees, and the effects of the E! Acquisition. Based on Sprint PCS' current
operations and business plan, the Company anticipates that its proportionate
share of Sprint PCS' losses will be significant in future years. In addition, as
a result of the acquisition of E! Entertainment, the Company recorded a charge
representing the cumulative amount that would have been recorded had the Company
accounted for its investment in E! Entertainment under the equity method since
the date of initial investment (the "Cumulative Charge"). Since the Company's
proportionate share of E! Entertainment's cumulative losses was in excess of the
Company's historical cost basis in E! Entertainment and as the Company was under
no contractual obligation to fund the losses of E! Entertainment, the Cumulative
Charge was limited to the Company's historical cost basis of $12.1 million. Such
amount is included in equity in net losses of affiliates in the Company's 1997
consolidated statement of operations as it is not significant for restatement of
the Company's prior year financial statements.
The $8.4 million and $8.9 million increases in other expense from 1996 to 1997
and from 1995 to 1996 are primarily attributable to the settlement of certain
litigation in 1996 and the effects of changes in foreign exchange gains and
losses.
The $28.8 million decrease in income tax expense from 1996 to 1997 is primarily
attributable to the increase in loss before income taxes, offset by increases in
certain non-deductible expenses, such as goodwill amortization, foreign losses
and equity in net losses of certain affiliates. The $42.3 million increase in
income tax expense from 1995 to 1996 is primarily attributable to the decrease
in loss before income taxes, plus increases in certain non-deductible expenses.
- 40 -
The $28.2 million increase in minority interest income from 1996 to 1997 is
primarily attributable to minority interests in the net loss of Comcast UK Cable
and the net income of QVC.
Extraordinary items for the year ended December 31, 1997 of $30.2 million or
$.09 per common share consist of unamortized debt acquisition costs and debt
extinguishment costs of $47.9 million, net of the related tax benefit of $17.7
million, expensed in connection with the Cable Refinancing, the Cellular
Refinancing, the redemption of the 10% Debentures, the redemption of the Step Up
Debentures and repayments made with the proceeds from the New Bank Facility.
The extraordinary item for the year ended December 31, 1996 of $1.0 million
consists of unamortized debt acquisition costs of $1.8 million, net of the
related tax benefit of $800,000, expensed in connection with the prepayment of a
portion of a subsidiary's outstanding debt.
The extraordinary item for the year ended December 31, 1995 of $6.1 million or
$.02 per common share consists of debt extinguishment costs of $9.4 million, net
of the related tax benefit of $3.3 million, expensed in connection with the
refinancing of certain indebtedness.
For the years ended December 31, 1997, 1996 and 1995, the Company's
distributions from investees and earnings before extraordinary items, income tax
expense, equity in net losses of affiliates and fixed charges (interest expense)
were $742.1 million, $770.0 million and $615.6 million, respectively. Such
earnings were adequate to cover the Company's fixed charges, including
capitalized interest of $18.0 million, $32.1 million and $6.4 million, of $582.9
million, $572.9 million and $531.1 million for the years ended December 31,
1997, 1996 and 1995, respectively. The Company's fixed charges include non-cash
interest expense of $75.5 million, $97.0 million and $60.2 million for the years
ended December 31, 1997, 1996 and 1995, respectively.
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.
- 41 -
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, 1997 and 1996, 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,
1997. 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") (a consolidated subsidiary) which statements
reflect total assets constituting 17% of the Company's consolidated total assets
as of December 31, 1997 and 1996 and total revenues constituting 42%, 45% and
44% of the Company's consolidated revenues for the years ended December 31,
1997, 1996 and 1995, respectively. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included in the Company's consolidated financial
statements for QVC, is based solely upon the report of such 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 report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report 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, 1997 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 27, 1998
- 42 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions, except share data)
December 31,
ASSETS 1997 1996
CURRENT ASSETS
Cash and cash equivalents............................................. $413.7 $331.3
Short-term investments................................................ 163.9 208.3
Accounts receivable, less allowance for doubtful
accounts of $115.0 and $97.1........................................ 498.8 439.3
Inventories, net...................................................... 324.0 258.4
Other current assets.................................................. 159.1 168.5
--------- ---------
Total current assets.............................................. 1,559.5 1,405.8
--------- ---------
INVESTMENTS, principally in affiliates................................... 1,264.3 1,177.7
--------- ---------
PROPERTY AND EQUIPMENT................................................... 4,285.4 3,600.1
Accumulated depreciation.............................................. (1,388.5) (1,061.3)
--------- ---------
Property and equipment, net........................................... 2,896.9 2,538.8
--------- ---------
DEFERRED CHARGES
Franchise and license acquisition costs............................... 4,920.5 4,895.7
Excess of cost over net assets acquired and other..................... 4,292.8 3,683.1
--------- ---------
9,213.3 8,578.8
Accumulated amortization.............................................. (2,129.8) (1,612.5)
--------- ---------
Deferred charges, net................................................. 7,083.5 6,966.3
--------- ---------
$12,804.2 $12,088.6
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses................................. $1,195.5 $1,044.3
Accrued interest...................................................... 89.6 91.1
Current portion of long-term debt..................................... 132.7 229.5
--------- ---------
Total current liabilities......................................... 1,417.8 1,364.9
--------- ---------
LONG-TERM DEBT, less current portion..................................... 6,558.6 7,102.7
--------- ---------
DEFERRED INCOME TAXES.................................................... 2,112.2 2,140.5
--------- ---------
MINORITY INTEREST AND OTHER.............................................. 1,037.7 859.3
--------- ---------
COMMITMENTS AND CONTINGENCIES
COMMON EQUITY PUT OPTIONS................................................ 31.4 69.6
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock - authorized, 20,000,000 shares;
5% series A convertible, no par value; issued,
6,370 at redemption value........................................... 31.9 31.9
5.25% series B mandatorily redeemable convertible,
$1,000 par value; issued, 513,211 at redemption value............... 513.2
Class A special common stock, $1 par value - authorized,
500,000,000 shares; issued, 317,025,969 and 283,281,675 ............ 317.0 283.3
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 31,793,487 and 33,959,368............... 31.8 34.0
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 8,786,250 ............................... 8.8 8.8
Additional capital.................................................... 3,030.6 2,326.6
Accumulated deficit................................................... (2,415.9) (2,127.1)
Unrealized gains on marketable securities............................. 140.7 0.1
Cumulative translation adjustments.................................... (11.6) (6.0)
--------- ---------
Total stockholders' equity........................................ 1,646.5 551.6
--------- ---------
$12,804.2 $12,088.6
========= =========
See notes to consolidated financial statements.
- 43 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in millions, except per share data)
Year Ended December 31,
1997 1996 1995
REVENUES
Service income............................................. $2,830.1 $2,202.6 $1,875.2
Net sales from electronic retailing........................ 2,082.5 1,835.8 1,487.7
-------- -------- --------
4,912.6 4,038.4 3,362.9
-------- -------- --------
COSTS AND EXPENSES
Operating.................................................. 1,239.7 948.7 803.4
Cost of goods sold from electronic retailing............... 1,270.2 1,114.2 900.8
Selling, general and administrative........................ 934.2 768.3 639.9
Depreciation............................................... 474.3 314.6 339.9
Amortization............................................... 462.1 383.7 349.1
-------- -------- --------
4,380.5 3,529.5 3,033.1
-------- -------- --------
OPERATING INCOME.............................................. 532.1 508.9 329.8
OTHER (INCOME) EXPENSE
Interest expense........................................... 564.9 540.8 524.7
Investment income.......................................... (137.1) (122.6) (229.8)
Equity in net losses of affiliates......................... 330.1 144.8 86.6
Gain from equity offering of affiliate..................... (7.7) (40.6)
Other...................................................... 11.0 2.6 (6.3)
-------- -------- --------
761.2 525.0 375.2
-------- -------- --------
LOSS BEFORE INCOME TAX EXPENSE, MINORITY
INTEREST AND EXTRAORDINARY ITEMS........................... (229.1) (16.1) (45.4)
INCOME TAX EXPENSE............................................ 55.6 84.4 42.1
-------- -------- --------
LOSS BEFORE MINORITY INTEREST AND EXTRAORDINARY
ITEMS...................................................... (284.7) (100.5) (87.5)
MINORITY INTEREST............................................. (76.2) (48.0) (49.7)
-------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEMS............................... (208.5) (52.5) (37.8)
EXTRAORDINARY ITEMS .......................................... (30.2) (1.0) (6.1)
-------- -------- --------
NET LOSS...................................................... (238.7) (53.5) (43.9)
PREFERRED DIVIDENDS........................................... (14.8) (0.7)
-------- -------- --------
NET LOSS FOR COMMON STOCKHOLDERS.............................. ($253.5) ($54.2) ($43.9)
======== ======== ========
LOSS FOR COMMON STOCKHOLDERS PER COMMON SHARE
Loss before extraordinary items............................ ($.66) ($.21) ($.16)
Extraordinary items........................................ (.09) (.02)
-------- -------- --------
Net loss................................................. ($.75) ($.21) ($.18)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING ............................................... 339.0 247.6 239.7
======== ======== ========
See notes to consolidated financial statements.
- 44 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Year Ended December 31,
1997 1996 1995
OPERATING ACTIVITIES
Net loss................................................... ($238.7) ($53.5) ($43.9)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation............................................. 474.3 314.6 339.9
Amortization............................................. 462.1 383.7 349.1
Non-cash interest expense, net........................... 51.3 62.2 53.8
Equity in net losses of affiliates....................... 330.1 144.8 86.6
Gain from equity offering of affiliate................... (7.7) (40.6)
Gains on sale of a subsidiary............................ (5.5)
Gains on long-term investments, net...................... (81.0) (69.2) (183.0)
Minority interest........................................ (76.2) (48.0) (49.7)
Extraordinary items...................................... 30.2 1.0 6.1
Deferred income taxes and other.......................... (56.6) 14.0 (15.7)
-------- ------ --------
887.8 709.0 537.7
Increase in accounts receivable, net..................... (35.2) (38.2) (62.4)
Increase in inventories, net............................. (65.6) (5.8) (57.5)
Decrease (increase) in other current assets.............. 6.4 0.6 (23.3)
Increase in accounts payable and accrued expenses........ 109.5 114.9 114.3
Increase in accrued interest............................. 13.1 19.1 11.9
-------- ------ --------
Net cash provided by operating activities.............. 916.0 799.6 520.7
-------- ------ --------
FINANCING ACTIVITIES
Proceeds from borrowings................................... 3,044.5 839.5 3,728.2
Retirement and repayment of debt........................... (3,580.3) (734.4) (1,619.6)
Issuance of preferred stock................................ 500.0
Issuances (repurchases) of common stock, net............... 470.2 (175.9) (7.1)
Equity contribution to a subsidiary........................ 6.6
Dividends.................................................. (34.0) (26.8) (22.4)
Deferred financing costs................................... (44.9) (5.0) (43.5)
Other...................................................... 0.1 21.4 (6.5)
-------- ------ --------
Net cash provided by (used in) financing activities.... 355.6 (81.2) 2,035.7
-------- ------ --------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired......................... (170.1) (60.4) (1,386.0)
Proceeds from sales (purchases) of short-term investments, net 45.6 210.2 (240.8)
Investments, principally in affiliates..................... (268.7) (502.0) (480.2)
Proceeds from sales of and distributions from investments,
principally in affiliates................................ 171.1 167.5 410.5
Proceeds from investees' repayments of loans............... 30.6
Capital expenditures....................................... (925.5) (670.4) (623.0)
Additions to deferred charges.............................. (61.5) (38.9) (34.4)
Other...................................................... (10.7) (32.2) 1.3
-------- ------ --------
Net cash used in investing activities.................. (1,189.2) (926.2) (2,352.6)
-------- ------ --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS........................................... 82.4 (207.8) 203.8
CASH AND CASH EQUIVALENTS, beginning of year.................. 331.3 539.1 335.3
-------- ------ --------
CASH AND CASH EQUIVALENTS, end of year........................ $413.7 $331.3 $539.1
======== ====== ========
See notes to consolidated financial statements.
- 45 -
COMCAST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Dollars in millions, except per share data)
Unrealized
Preferred Stock Common Stock Accum- Gains on Cumulative
Series Series Class A Additional ulated Marketable Translation
A B Special Class A Class B Capital Deficit Securities Adjustments Total
BALANCE, JANUARY 1, 1995............$ $ $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, common,
$.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) (41.4) (133.2) (185.4)
Cash dividends, common,
$.0933 per share................ (26.1) (26.1)
Cash dividends, Series A preferred. (0.7) (0.7)
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 2,326.6 (2,127.1) 0.1 (6.0) 551.6
Net loss........................... (238.7) (238.7)
Issuance of common stock........... 24.9 475.4 500.3
Issuance of preferred stock........ 500.0 500.0
Exercise of options................ 1.0 14.8 15.8
Conversion of convertible
subordinated debt to common
stock............................ 8.4 210.1 218.5
Retirement of common stock......... (0.6) (2.2) (22.3) (17.7) (42.8)
Cash dividends, common,
$.0933 per share................. (32.4) (32.4)
Cash dividends, Series A preferred. (1.6) (1.6)
Series B preferred dividends....... 13.2 (13.2)
Temporary equity related to put
options ......................... 38.2 38.2
Proceeds from sales and extensions
of put options................... 2.6 2.6
Unrealized gains on marketable
securities, net of deferred taxes
of $75.8......................... 140.6 140.6
Cumulative translation adjustments. (5.6) (5.6)
----- ------ ------ ----- ---- -------- --------- ------ ------ --------
BALANCE, DECEMBER 31, 1997..........$31.9 $513.2 $317.0 $31.8 $8.8 $3,030.6 ($2,415.9) $140.7 ($11.6) $1,646.5
===== ====== ====== ===== ==== ======== ========= ====== ====== ========
See notes to consolidated financial statements.
- 46 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. BUSINESS
Comcast Corporation and its subsidiaries (the "Company") is principally
engaged in the development, management and operation of broadband cable
networks, cellular and personal communications systems and the provision of
content.
Cable communications includes cable and telecommunications services in the
United States ("US") and the United Kingdom ("UK"). The Company's
consolidated domestic cable operations served approximately 4.4 million
subscribers and passed approximately 7.1 million homes as of December 31,
1997. The Company owns a 50% interest in Garden State Cablevision L.P.
("Garden State"), a cable communications company serving more than 208,000
subscribers and passing more than 297,000 homes in the State of New Jersey.
Satellite-delivered video service is provided through the Company's equity
interest in and distribution arrangements with Primestar Partners, L.P.
("Primestar") (see Note 4). 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 (see Notes 3 and 4).
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 8.2 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. Personal
communications services ("PCS") are provided through the Company's
investment in Sprint Spectrum Holdings Company, L.P. ("Sprint Spectrum" or
"Sprint PCS") (see Note 4).
Content is provided through the Company's majority-owned, subsidiaries QVC,
Inc. ("QVC"), an electronic retailer and E! Entertainment Television, Inc.
("E! Entertainment") (see Note 3), and other investments, including Comcast
SportsNet, The Golf Channel, The Speedvision Network and The Outdoor Life
Network. Through QVC, the Company markets a wide variety of products and is
available to, on a full and part-time basis, over 68 million homes in the
US, over 6.5 million homes in the UK and over 9.5 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, 1997 and 1996 are net assets of foreign subsidiaries of $141.1
million and $143.7 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
- 47 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
as of December 31, 1997 and 1996, and have not been comprehensively
revalued for purposes of these consolidated financial statements since such
dates.
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 average cost method,
which approximates 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 20 to 30 years, which is consistent with the
estimated lives of the underlying assets.
Unrestricted publicly traded investments are classified as available for
sale and 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.
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.
- 48 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
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.
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. 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. The Company's policy is to allow customers to
return merchandise for credit up to thirty days after date of shipment. An
allowance for returned merchandise is provided as a percentage of sales
based on historical experience. The return provision was approximately 21%
of gross sales for each of the years ended December 31, 1997, 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," which 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 No. 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). 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,
1997, 1996 and 1995 was $18.0 million, $32.1 million and $6.4 million,
respectively.
- 49 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
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.
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"), foreign exchange option
contracts ("FX Options"), and common stock option contracts ("Equity
Options") to manage its exposure to fluctuations in interest rates, foreign
currency exchange rates and prices of its Class A Special Common Stock, par
value $1.00 per share (the "Class A Special Common Stock").
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 remaining term of the underlying debt. Unrealized gains and losses
as a result of these instruments are recognized when the underlying hedged
item is extinguished or otherwise terminated.
Written FX 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.
Proceeds from sales of Equity Options written on the Company's Class A
Special Common Stock are recorded in stockholders' equity and an amount
equal to the redemption price of the common stock is reclassified from
permanent equity to temporary equity. Subsequent changes in the market
value of the Equity Options are not recorded.
Those instruments that have been entered into by the Company to hedge
exposure to interest rate and foreign currency exchange rate risks are
periodically examined by the Company to ensure that the instruments are
matched with underlying liabilities, reduce the Company's risks relating to
interest rates and foreign currency exchange rates, and, through market
value and sensitivity analysis, maintain a high correlation to the interest
expense or underlying value of the hedged item. For those instruments that
do not meet the above criteria, variations in their fair value 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 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement, which establishes standards for reporting and
disclosure of comprehensive income, is effective for interim and annual
- 50 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
periods beginning after December 15, 1997, although earlier adoption is
permitted. Reclassification of financial information for earlier periods
presented for comparative purposes is required under SFAS No. 130. As this
statement only requires additional disclosures in the Company's
consolidated financial statements, its adoption will not have any impact on
the Company's consolidated financial position or results of operations. The
Company will adopt SFAS No. 130 effective January 1, 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement, which establishes
standards for the reporting of information about operating segments and
requires the reporting of selected information about operating segments in
interim financial statements, is effective for fiscal years beginning after
December 15, 1997, although earlier application is permitted.
Reclassification of segment information for earlier periods presented for
comparative purposes is required under SFAS No. 131. The Company does not
expect adoption of this statement to result in significant changes to its
presentation of financial data by business segment (see Note 10). The
Company will adopt SFAS No. 131 effective January 1, 1998.
Loss for Common Stockholders Per Common Share
Loss for common stockholders per common share is computed by dividing net
loss and loss before extraordinary items, after deduction of preferred
stock dividends, by the weighted average number of common shares
outstanding during the period.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which
was adopted by the Company effective for the year ended December 31, 1997,
as required by the statement. For the years ended December 31, 1997, 1996
and 1995, the Company's potential common shares have an antidilutive effect
on the loss for common stockholders per common share and, therefore, have
not been used in determining the total weighted average number of common
shares outstanding. Diluted loss for common stockholders per common share
for 1997, 1996 and 1995 is antidilutive and, therefore, has not been
presented.
The following table summarizes those securities that could potentially
dilute loss (earnings) for common stockholders per common share in the
future that were not included in determining loss for common stockholders
per common share as the effect was antidilutive (amounts in millions).
December 31,
Potential Common Shares resulting from: 1997 1996 1995
Stock options...................................... 16.8 15.5 14.9
Shares under restricted stock program.............. 1.3 1.4 1.1
Convertible preferred stock........................ 22.6 1.3
Convertible subordinated debt (see Note 6)......... 10.5 20.7 20.7
Written Equity Options............................. 2.0 4.0 3.0
------ ------ ------
53.2 42.9 39.7
====== ====== ======
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to those classifications used in 1997.
- 51 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
Sale of Comcast UK Cable
On February 4, 1998, Comcast UK Cable, a consolidated subsidiary of the
Company, entered into a definitive agreement to be acquired by NTL
Incorporated ("NTL"), an alternative telecommunications company in the UK.
Pursuant to certain conditions, the Company is expected to receive 4.8
million shares of NTL common stock in exchange for all of the shares of
Comcast UK Cable held by the Company (the "NTL Transaction"). Based on the
closing price of the NTL common stock on February 4, 1998 of $32.00 per
share, the Company is expected to recognize a pre-tax gain of $81.4 million
upon closing of the NTL Transaction. Certain conditions agreed to in the
NTL Transaction restrict the Company's ability to sell the NTL common stock
to be received for a period of 180 days after the closing of the NTL
Transaction. The NTL Transaction is expected to close in 1998, subject to
the receipt of necessary regulatory and shareholder approvals, the consent
of the bondholders of Comcast UK Cable and NTL, as well as the consent of
certain NTL bank lenders. As of December 31, 1997 and for the year then
ended, the assets and revenues of Comcast UK Cable totaled $736.0 million
and $93.3 million, respectively.
AT&T Acquisition of TCGI
On January 8, 1998, AT&T Corporation ("AT&T") entered into a definitive
merger agreement with Teleport Communications Group, Inc. ("TCGI"). Upon
closing of the merger (the "AT&T Transaction"), the Company is expected to
receive 24.2 million shares of AT&T common stock in exchange for all of the
shares of TCGI held by the Company (see Note 4). Based on the closing price
of the AT&T common stock on January 30, 1998 of $62.625 per share, the
Company is expected to recognize a pre-tax gain of approximately $1.390
billion upon closing of the AT&T Transaction. Certain conditions agreed to
in the AT&T Transaction restrict the Company's ability to sell the AT&T
common stock to be received for a period of between 45 to 135 days after
the closing of the AT&T Transaction. The AT&T Transaction is expected to
close in 1998, subject to receipt of necessary regulatory and shareholder
approvals.
E! Entertainment
On March 31, 1997, the Company, through Comcast Entertainment Holdings LLC
(the "LLC"), which is owned 50.1% by the Company and 49.9% by The Walt
Disney Company ("Disney"), purchased a 58.4% interest in E! Entertainment
from Time Warner for $321.9 million (the "E! Acquisition"). The E!
Acquisition was funded by cash contributions to the LLC by the Company and
Disney of $132.8 million and $189.1 million, respectively. In connection
with the E! Acquisition, the Company contributed its 10.4% interest in E!
Entertainment to the LLC. To fund the cash contribution to the LLC, the
Company borrowed $132.8 million from Disney in the form of two 10-year, 7%
notes (the "Disney Notes").
In December 1997, the LLC acquired the 10.4% interest in E! Entertainment
held by Cox Communications, Inc. ("Cox") for $57.1 million. The acquisition
was funded by cash contributions to the LLC by the Company and Disney of
$28.6 million and $28.5 million, respectively. As of December 31, 1997, the
LLC owns a 79.2% interest in E! Entertainment.
The Company accounted for the acquisitions under the purchase method and E!
Entertainment was consolidated with the Company effective March 31, 1997.
The allocation of the purchase price relating to the assets and liabilities
of E! Entertainment is preliminary pending a final appraisal.
Microsoft Investment
On June 30, 1997 (the "Issuance Date"), the Company and Microsoft
Corporation ("Microsoft") completed a Stock Purchase Agreement. Microsoft
purchased and the Company issued 24.6 million shares of the Company's Class
A Special Common Stock at $20.29 per share, for $500.0 million and 500,000
shares of the Company's newly issued 5.25% Series B Mandatorily Redeemable
Convertible Preferred Stock, par value $1,000 per share (the "Series B
Preferred Stock"), for $500.0 million (see Note 6).
- 52 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
Offerings of Subsidiary Debt
In May 1997, Comcast Cable Communications, Inc. ("Comcast Cable") and
Comcast Cellular Corporation (formerly Comcast Cellular Holdings, Inc.)
("Comcast Cellular"), both wholly owned subsidiaries of the Company, sold a
total of $2.7 billion of nonrecourse public debt with interest rates
ranging from 8 1/8% to 9 1/2% and maturity dates from 2004 to 2027. Comcast
Cable and Comcast Cellular used the net proceeds from the offerings to
repay existing borrowings by their subsidiaries (see Note 5).
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,
valued at $1.552 billion (the "Scripps Acquisition"). The Company 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.
During the second quarter of 1997, the Company recorded the final purchase
price allocation relating to the Scripps Acquisition. 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.
QVC
In February 1995, the Company and Tele-Communications, Inc. ("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
accounted for the QVC Acquisition under the purchase method and QVC was
consolidated with the Company effective February 1, 1995.
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).
- 53 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
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)
4. INVESTMENTS, PRINCIPALLY IN AFFILIATES
December 31,
1997 1996
(Dollars in millions)
Equity method................................................ $867.6 $966.1
Fair value method............................................ 346.5 165.5
Cost method.................................................. 50.2 46.1
-------- --------
$1,264.3 $1,177.7
======== ========
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 (see below). The Company's recorded investments exceed its
proportionate interests in the book value of the investees' net assets by
$225.8 million as of December 31, 1997 (primarily related to the
investments in Comcast-Spectacor and Sprint PCS). Such excess is being
amortized to equity in net income or loss, primarily over a period of 20 to
30 years, which is consistent with the estimated lives of the underlying
assets. The original cost of investments accounted for under the equity
method totaled $1.454 billion and $1.271 billion as of December 31, 1997
and 1996, respectively. Summarized financial information for the Company's
equity method investees for 1997, 1996 and 1995 is as follows (dollars in
millions).
- 54 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
Sprint UK Comcast
PCS TCGI Investees Spectacor QVC Other Combined
Year Ended December 31, 1997:
Combined Results of Operations
Revenues, net.......................... $111.5 $431.3 $197.5 $140.8 $755.0 $1,636.1
Operating, selling, general and
administrative expenses.............. 959.4 398.5 168.4 117.9 831.2 2,475.4
Depreciation and amortization.......... 194.2 133.9 76.0 46.5 69.1 519.7
Operating loss......................... (1,042.1) (101.1) (46.9) (23.6) (145.3) (1,359.0)
Net loss (a)........................... (1,187.3) (192.9) (92.2) (39.6) (191.2) (1,703.2)
Company's Equity in Net Loss
Equity in current period net loss (b).. ($178.1) ($30.5) ($34.6) ($26.2) ($51.6) ($321.0)
Amortization expense................... (1.5) (0.2) (0.6) (5.4) (1.4) (9.1)
------- ------- ------- ------- ------- ------- -------
Total equity in net loss............. ($179.6) ($30.7) ($35.2) ($31.6) ($53.0) ($330.1)
======= ======= ======= ======= ======= ======= =======
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 (a)........................... (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 (a).................. (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)
======= ======= ======= ======= ======= ======= =======
- ---------
(a) see footnote (1) on page 56.
(b) see footnote (2) on page 56.
- 55 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
Sprint UK Comcast
PCS TCGI Investees Spectacor Other Combined
Combined Financial Position
As of December 31, 1997:
Current assets..................... $317.3 $440.8 $35.9 $84.9 $224.0 $1,102.9
Noncurrent assets.................. 5,483.3 1,675.2 716.4 285.4 971.2 9,131.5
Current liabilities................ 440.2 302.8 74.6 107.7 750.4 1,675.7
Noncurrent liabilities............. 3,312.9 1,061.6 558.7 188.0 377.2 5,498.4
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
- --------
(1) Net (loss) income also represents (loss) income from continuing operations
before extraordinary items and cumulative effect of changes in accounting
principle.
(2) As a result of the E! Acquisition, the Company recorded a charge
representing the cumulative amount that would have been recorded had the
Company accounted for its investment in E! Entertainment under the equity
method since the date of initial investment (the "Cumulative Charge").
Since the Company's proportionate share of E! Entertainment's cumulative
losses was in excess of the Company's historical cost basis in E!
Entertainment and as the Company was under no contractual obligation to
fund the losses of E! Entertainment, the Cumulative Charge was limited to
the Company's historical cost basis of $12.1 million. Such amount is
included in equity in net losses of affiliates in the Company's
consolidated statement of operations for the year ended December 31, 1997
as it is not significant for restatement of the Company's prior year
financial statements.
Sprint PCS. The Company, TCI, Cox and Sprint Corporation ("Sprint," and
together with the Company, TCI and Cox, the "Parents"), and certain
subsidiaries of the Parents (the "Partner Subsidiaries"), engage in the
wireless communications business through Sprint PCS, a development stage
enterprise through June 30, 1997. The Company made its initial investment
in 1994 and, as of December 31, 1997, holds a general and limited
partnership interest of 15% in Sprint PCS. The Company's investment in
Sprint PCS is accounted for under the equity method based on the Company's
general partnership interest and its representation on the partnership's
board.
Sprint PCS was the successful bidder for 29 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 PCS 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 PCS 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 PCS of $602.0 million through January 30, 1998. The Company
anticipates that Sprint PCS' capital requirements over the next several
years will be significant. Requirements in excess of committed capital are
planned to be funded by Sprint PCS through external financing, including,
but not limited to, vendor financing, bank financing and securities offered
to the public.
The proposed budget for 1998 for Sprint PCS has not yet been approved by
the partnership board, which has resulted in the occurrence of a "Deadlock
Event" as of January 1, 1998 under the partnership agreement. If the 1998
proposed budget is not approved through resolution procedures set forth in
the partnership agreement, certain specified buy/sell procedures may be
triggered which may result in a restructuring of the partners' interests,
the sale of the Company's interest, or, in limited circumstances, the sale
of Sprint PCS.
- 56 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
TCGI. Through June 1996, the Company held investments in 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
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. As a result of the TCGI IPO, 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").
In February 1997, in connection with an acquisition, TCGI issued 2.1
million unregistered shares of its TCGI Class A Stock. As a result of the
stock issuance, the Company recorded a $7.7 million increase in its
proportionate share of TCGI's net assets as a gain from equity offering of
affiliate in its 1997 consolidated statement of operations.
In March 1997, the Company received 2.76 million shares of TCGI Class A
Stock from TCGI in exchange for the Company's shares of an alternate access
provider. In May 1997, the Company sold all of its shares of TCGI Class A
Stock for $68.9 million and recognized a $68.9 million pre-tax gain, which
is included in investment income in its 1997 consolidated statement of
operations.
In November 1997, TCGI filed a registration statement with the US
Securities and Exchange Commission to sell 7.3 million shares of TCGI Class
A Stock (the "TCGI Offering"). As a result of the TCGI Offering, the
Company will recognize a $59.6 million increase in its proportionate share
of TCGI's net assets as a gain from equity offering of affiliate. Such gain
will be recorded in the Company's March 31, 1998 condensed consolidated
statement of operations and accumulated deficit as the Company records its
proportionate share of TCGI's net losses one quarter in arrears.
As of December 31, 1997, the Company owns 25.6 million shares of TCGI Class
B Stock representing a 20.1% voting interest and a 14.7% equity interest.
The Company continues to account for its interest in TCGI under the equity
method based on 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.
UK Investees. As of December 31, 1997, Comcast UK Cable (see Note 3) holds
a 27.5% interest in Birmingham Cable Corporation Limited and a 50.0%
interest in Cable London PLC. In addition, Comcast UK Cable historically
held an investment in Cambridge Holding Company Limited ("Cambridge
Cable"). 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 consolidated the financial position and results of
operations of Cambridge Cable effective March 31, 1996.
- 57 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
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 "Series A 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 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 and other obligations of $155.0
million. The Company accounts for its interest in Comcast-Spectacor under
the equity method since the Company does not have control over
Comcast-Spectacor's operations. The issuance of the Series A 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.
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 (see Note 3).
Other. The Company's other equity investees include investments in cable
communications (including Garden State - see Note 1), direct broadcast
satellite ("DBS") services via Primestar (see below), cellular/PCS
telecommunications and content providers. 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. The Company does not consider these other
equity method investments to be individually significant to its
consolidated financial position, results of operations or liquidity.
Restructuring of Primestar's Operations. The Company holds a 10.4% general
and limited partnership interest in Primestar, which is principally engaged
in the business of acquiring, originating and/or providing television
programming services delivered by satellite through a network of
distributors, including the Company, throughout the US.
The Company, through a wholly owned subsidiary, distributes the Primestar
DBS service (the "Primestar Service") to subscribers within specified areas
of 19 states in the US. As of December 31, 1997, the Company provided the
Primestar Service to more than 181,000 subscribers.
- 58 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
On February 6, 1998, the Company entered into a Merger and Contribution
Agreement (the "Merger and Contribution Agreement") with Primestar and the
affiliates of each of the other partners of Primestar, including TCI
Satellite Entertainment, Inc. ("TSAT"), a publicly-traded company, pursuant
to which the Company's DBS operations, the Company's partnership interests
in Primestar and the Primestar partnership interests and the DBS operations
of the other partners of Primestar will be consolidated into a newly formed
company ("New Primestar"). Under the terms of the Merger and Contribution
Agreement, upon closing of the transactions, it is expected that New
Primestar, through a series of transactions, will pay the Company
approximately $83 million (based upon the number of the Company's
subscribers to the Primestar Service as of December 31, 1997), and that the
Company would own approximately 10% of New Primestar common equity, both
subject to adjustment based on the number of the Company's subscribers to
the Primestar Service, inventory amounts and other factors as of the
closing of the transactions. Subject to receipt of regulatory approval and
other conditions, after the closing of the transactions, TSAT will merge
with and into New Primestar in a transaction in which TSAT's outstanding
common shares will be converted into common shares of New Primestar. As of
December 31, 1997 and for the year then ended, the assets and revenues of
the Company's DBS operations totaled $162.8 million and $114.1 million,
respectively.
In June 1997, Primestar entered into an agreement with The News Corporation
Limited, MCI Telecommunications Corporation and American Sky Broadcasting
LLC ("ASkyB"), pursuant to which Primestar (or, under certain conditions,
New Primestar) will acquire certain assets relating to a high-power DBS
business (the "ASkyB Transaction"). In exchange for such assets, ASkyB will
receive non-voting securities of New Primestar that will be convertible
into non-voting common stock of New Primestar, and, accordingly, will
reduce the Company's common equity interest in New Primestar to
approximately 7% on a fully diluted basis, subject to adjustment.
The Merger and Contribution Agreement and the ASkyB Transaction are not
conditioned on each other and may close independently. The Merger and
Contribution Agreement is expected to close in 1998, subject to receipt of
TSAT shareholder approval. The ASkyB Transaction is expected to close in
1998, subject to the receipt of all necessary governmental and regulatory
approvals, including the approval of the FCC. There can be no assurance
that such approvals will be obtained.
The Golf Channel. The Golf Channel is a 24-hour network devoted exclusively
to golf programming. The programming schedule includes live golf coverage,
golf instruction programs and golf news. In addition to the Company, the
other partners in The Golf Channel include an affiliate of Fox, Inc., Times
Mirror Corporation and other private investors. In January and February
1998, the Company entered into agreements to acquire an additional 28.9%
interest in The Golf Channel for $76.2 million. These transactions are
expected to close in the first quarter of 1998. After completion of these
transactions, the Company's ownership interest in The Golf Channel will be
43.3%.
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.
Fair Value Method
The Company holds unrestricted equity investments in certain publicly
traded companies, including an investment classified as short-term as of
December 31, 1996 (see "Time Warner/TBS" below), with an historical cost of
$130.0 million and $212.7 million as of December 31, 1997 and 1996,
respectively. The Company has recorded these investments, which are
classified as available for sale, at their estimated fair values of $346.5
million and $212.9 million as of December 31, 1997 and 1996, respectively.
The unrealized pre-tax gains as of December 31, 1997 (which includes the
@Home Unrestricted Shares - see below) and December 31, 1996 of $216.5
million and $200,000, respectively, have been reported in the Company's
consolidated balance sheet as a component of stockholders' equity, net of
related deferred income tax expense of $75.8 million and $100,000,
respectively.
- 59 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
@Home. In July 1997, At Home Corporation ("@Home"), an investee of the
Company previously accounted for under the equity method, completed an
initial public offering of its Series A Common Stock (the "@Home IPO").
@Home provides Internet services to customers and businesses over the cable
television infrastructure in a limited number of cities in the US.
Effective July 1, 1997, due to the dilution of the Company's equity and
voting interests and other factors subsequent to the @Home IPO, the Company
discontinued the equity method of accounting for its investment in @Home.
As of December 31, 1997, the Company holds 8.0 million contractually
restricted shares (the "Restricted Shares") and 6.6 million unrestricted
shares (the "Unrestricted Shares") of @Home Series A Common Stock (the
"@Home Series A Stock"), representing a 12.3% and a 5.7% equity and voting
interest, respectively. The Company has recorded the Restricted Shares at
their historical cost of $1.1 million and the Unrestricted Shares, which
are classified as available for sale, at their estimated fair value of
$164.6 million, based on the quoted market price of the @Home Series A
Stock as of December 31, 1997. The unrealized pre-tax gain as of December
31, 1997 of $163.7 million has been reported in the Company's consolidated
balance sheet as a component of stockholders' equity, net of related
deferred income tax expense of $57.3 million.
Nextel. 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, 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 year ended December 31, 1996, the Company
sold 5.6 million shares of Nextel common stock for $105.4 million and
recognized a pre-tax gain of $35.4 million which is included in investment
income in its consolidated statement of operations. At December 31, 1996,
the Company held 3.3 million shares of Nextel common stock and options to
acquire an additional 25.0 million shares of Nextel common stock at $16 per
share. As of December 31, 1996, these options, which had an historical cost
of $20.0 million, were included in investments in publicly traded companies
at their fair value of $32.6 million. In February 1997, the Company sold
these options to Nextel for $25.0 million and recognized a pre-tax gain of
$5.0 million. In July 1997, the Company sold its 3.3 million shares of
Nextel common stock for $73.4 million, resulting in a pre-tax gain of $32.2
million. The gains on both the sale of the Nextel options and the Nextel
common stock are included in investment income in the Company's 1997
consolidated statement of operations.
Time Warner/TBS. 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.
In connection with the January 1997 sales, the Company recognized a pre-tax
loss of $3.8 million, which is included in investment income in its 1997
consolidated statement of operations. As of December 31, 1996, the 1.27
million shares of Time Warner Stock held by the Company were recorded at
their fair value of $47.4 million and were 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. 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.
- 60 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
Cost Method
It is not practicable to estimate the fair value of the Company's
investments in privately held companies, accounted for under the cost
method, due to a lack of quoted market prices and excessive costs involved
in determining such fair value.
5. LONG-TERM DEBT
December 31,
1997 1996
(Dollars in millions)
Notes payable to banks and insurance companies, due
in installments through 2003.......................................... $1,978.3 $4,662.5
Senior participating redeemable zero coupon notes, due 2000............. 447.9
8-1/8% Senior notes, due 2004........................................... 299.7
8-3/8% Senior notes, due 2007........................................... 596.3
9-1/2% Senior notes, due 2007........................................... 998.4
8-7/8% Senior notes, due 2017........................................... 545.5
8-1/2% Senior notes, due 2027........................................... 249.6
11.20% Senior discount debentures, due 2007............................. 378.3 339.2
10% Subordinated debentures, due 2003................................... 126.6
10-1/4% Senior subordinated debentures, due 2001........................ 125.0 125.0
9-3/8% Senior subordinated debentures, due 2005......................... 234.1 250.0
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
1-1/8% Discount convertible subordinated debentures, due 2007......... 355.9 341.3
7% Disney Notes, due 2007 (see Note 3).................................. 132.8
Other debt, due in installments principally through 2000................ 47.4 39.7
-------- --------
6,691.3 7,332.2
Less current portion.................................................... 132.7 229.5
-------- --------
$6,558.6 $7,102.7
======== ========
Maturities of long-term debt outstanding as of December 31, 1997 for the four
years after 1998 are as follows (dollars in millions):
1999................................................. $207.9
2000................................................. 301.8
2001................................................. 573.6
2002................................................. 490.5
- 61 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
Cable Notes
In May 1997, Comcast Cable completed the sale of $1.7 billion principal
amount of notes (the "Cable Notes") through a private offering with
registration rights. The Cable Notes were issued in four tranches: $300.0
million principal amount of 8 1/8% Notes due 2004 (the "Seven-Year Notes"),
$600.0 million principal amount of 8 3/8% Notes due 2007 (the "Ten-Year
Notes"), $550.0 million principal amount of 8 7/8% Notes due 2017 (the
"Twenty-Year Notes") and $250.0 million principal amount of 8 1/2% Notes
due 2027 (the "Thirty-Year Notes"). Comcast Cable used substantially all of
the net proceeds from the offering of the Cable Notes to repay certain of
its subsidiaries' notes payable to banks with the balance used for
subsidiary general purposes. Collectively, the offering of the Cable Notes
and the repayment of the aforementioned notes payable with the net proceeds
from the offering of the Cable Notes are referred to herein as the "Cable
Refinancing."
Interest on the Cable Notes is payable semiannually on May 1 and November 1
of each year, commencing November 1, 1997. The Seven-Year Notes, the
Ten-Year Notes and the Twenty-Year Notes are redeemable, in whole or in
part, at the option of Comcast Cable at any time and the Thirty-Year Notes
are redeemable, in whole or in part, at the option of Comcast Cable at any
time after May 1, 2009, in each case at a redemption price equal to the
greater of (i) 100% of their principal amount, plus accrued interest
thereon to the date of redemption, or (ii) the sum of the present values of
the remaining scheduled payments of principal and interest thereon
discounted to the date of redemption on a semiannual basis at the Adjusted
Treasury Rate (as defined), plus accrued interest on the Cable Notes to the
date of redemption. Each holder of the Thirty-Year Notes may require
Comcast Cable to repurchase all or a portion of the Thirty-Year Notes owned
by such holder on May 1, 2009 at a purchase price equal to 100% of the
principal amount thereof.
The Cable Notes are unsecured and unsubordinated obligations of Comcast
Cable and rank pari passu with all other unsecured and unsubordinated
indebtedness and other obligations of Comcast Cable. The Cable Notes are
effectively subordinated to all liabilities of Comcast Cable's
subsidiaries, including trade payables. The Cable Notes are obligations
only of Comcast Cable and are not guaranteed by and do not otherwise
constitute obligations of the Company.
The indenture for the Cable Notes, among other things, contains
restrictions (with certain exceptions) on the ability of Comcast Cable and
its Restricted Subsidiaries (as defined) to: (i) make dividend payments or
other restricted payments; (ii) create liens or enter into sale and
leaseback transactions; and (iii) enter into mergers, consolidations, or
sales of all or substantially all of their assets.
In October 1997, Comcast Cable completed an exchange of 100% of the Cable
Notes for new notes (having the terms described above) registered under the
Securities Act of 1933, as amended.
Cellular Notes
In May 1997, Comcast Cellular completed the sale of $1.0 billion principal
amount of 9 1/2% Senior Notes due 2007 (the "Cellular Notes") through a
private offering with registration rights. Comcast Cellular used the net
proceeds from the offering of the Cellular Notes to redeem its senior
participating redeemable zero coupon notes (see "Redemption of Zero Coupon
Notes" below) and to repay certain subsidiary indebtedness. Collectively,
the offering of the Cellular Notes and the redemption and the repayments of
the aforementioned notes with the net proceeds from the offering of the
Cellular Notes is referred to herein as the "Cellular Refinancing."
Interest on the Cellular Notes is payable in cash semi-annually on May 1
and November 1 of each year, commencing on November 1, 1997. The Cellular
Notes are redeemable, in whole or in part, at the option of Comcast
Cellular, at any time on or after May 1, 2002 at a redemption price,
initially of 104.75% of the principal amount of the Cellular Notes and
declining annually to 100% on May 1, 2005, plus accrued and unpaid
interest, if any, to the date of redemption. In addition, prior to May 1,
2000, Comcast Cellular may redeem the Cellular Notes at a price equal to
108.5% of the principal amount, plus accrued and unpaid interest, if any,
to the redemption date, with the net cash
- 62 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
proceeds from one or more Public Equity Offerings (as defined); provided,
however, that at least 65% of the originally issued principal amount of the
Cellular Notes would remain outstanding after giving effect to any such
redemption. Upon the occurrence of a Change of Control Triggering Event (as
defined), each holder of the Cellular Notes will have the right to require
Comcast Cellular to repurchase such holder's Cellular Notes at 101% of the
principal amount, plus accrued and unpaid interest, if any, to the
repurchase date.
The Cellular Notes are general unsecured obligations of Comcast Cellular
ranking senior to all subordinated Indebtedness (as defined) of Comcast
Cellular and pari passu in right of payment with all other existing and
future unsecured unsubordinated Indebtedness (as defined) and other
liabilities of Comcast Cellular. The Cellular Notes are subordinate to all
liabilities, including trade payables, of Comcast Cellular's subsidiaries.
The indenture for the Cellular Notes imposes certain limitations on the
ability of Comcast Cellular and its Restricted Subsidiaries (as defined)
to, among other things, incur Indebtedness (as defined), make Restricted
Payments (as defined), including the payment of cash dividends on Comcast
Cellular's Series A Preferred Stock, effect certain Asset Sales (as
defined), enter into certain transactions with affiliates, merge or
consolidate with any other person or transfer all or substantially all of
their properties and assets.
In October 1997, Comcast Cellular completed an exchange of 100% of the
Cellular Notes for new notes (having the terms described above) which were
registered under the Securities Act of 1933, as amended.
Redemption of Zero Coupon Notes
In May 1997, Comcast Cellular used the net proceeds from the sale of the
Cellular Notes to redeem all of its Series A Senior Participating
Redeemable Zero Coupon Notes Due 2000 and Series B Senior Participating
Redeemable Zero Coupon Notes Due 2000 (together, the "Zero Coupon Notes").
Unamortized debt acquisition costs related to the Zero Coupon Notes were
not significant.
Redemption of 1 1/8% Debentures
On February 26, 1998, the Company announced its intention to redeem its
$541.9 million principal amount 1 1/8% discount convertible subordinated
debentures due 2007 (the "1 1/8% Debentures") on March 30, 1998 at a
redemption price of 67.112% of the principal amount, together with accrued
interest thereon. Each $1,000 principal amount of 1 1/8% Debentures is
convertible into 19.3125 shares of the Company's Class A Special Common
Stock. The Company anticipates using available borrowings under a
subsidiary credit facility to fund amounts redeemed for cash, if any. In
the first quarter of 1998, stockholders' equity will be increased by the
full amount of the 1 1/8% Debentures converted (see Note 6), if any, plus
accrued interest, less unamortized debt acquisition costs.
UK Holdings Credit Facility
In December 1997, Comcast UK Holdings Ltd. ("UK Holdings"), a wholly owned
subsidiary of Comcast UK Cable, entered into a loan agreement with a
consortium of banks to provide financing under a revolving credit facility
(the "UK Holdings Credit Facility") up to a maximum of (UK Pound)200.0
million. There were no borrowings under the UK Holdings Credit Facility at
December 31, 1997. In January 1998, UK Holdings borrowed (UK Pound)75.0
million under the UK Holdings Credit Facility. The UK Holdings Credit
Facility bears interest at a rate per annum equal to the London Interbank
Offered Rate ("LIBOR") plus 1/2% to 2 1/4%. Amounts available under the UK
Holdings Credit Facility will be reduced each quarter in varying amounts
beginning March 31, 2000 and continuing through December 31, 2000. Final
maturity of the UK Holdings Credit Facility is January 31, 2001. Borrowings
under the UK Holdings Credit Facility are guaranteed by certain of Comcast
UK Cable's wholly owned subsidiaries.
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
- 63 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
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.
Debt Repayments
In October 1997, the Company completed the redemption of its $250.0 million
principal amount 3 3/8% / 5 1/2% step up convertible subordinated
debentures due 2005 (the "Step Up Debentures"). The Company issued 8.4
million shares of its Class A Special Common Stock upon conversion of
$206.4 million principal amount of Step Up Debentures while $43.6 million
principal amount of Step Up Debentures was redeemed for cash at a
redemption price of 105.58% of the principal amount, together with accrued
interest thereon. Stockholders' equity was increased by the full amount of
Step Up Debentures converted plus accrued interest, less unamortized debt
acquisition costs. The issuance of the Company's Class A Special Common
Stock upon conversion of the Step Up Debentures had no impact on the
Company's consolidated statement of cash flows due to its noncash nature.
In October 1997, a wholly owned subsidiary of Comcast Cellular refinanced
its existing revolving credit facility with the proceeds from borrowings
under a new $400.0 million credit agreement (the "New Bank Facility") with
certain banks. Initial borrowings under the New Bank Facility were used
principally to repay existing debt. Borrowings under the New Bank Facility
are senior to the Cellular Notes and are secured by a pledge of the capital
stock of Comcast Cellular's subsidiaries. The New Bank Facility contains
various covenants, including financial covenants restricting changes in
control (or making such an event of default) and restricting the payment of
dividends, distributions and loans or advances to Comcast Cellular.
In June 1997, the Company redeemed for cash all of its outstanding 10%
Subordinated Debentures, due 2003 (the "10% Debentures"). An aggregate
principal amount of $139.3 million of the 10% Debentures was redeemed at a
redemption price of 100% of the principal amount thereof, together with
accrued interest thereon. On the date of redemption, the 10% Debentures had
an accreted value of $127.7 million.
Extraordinary Items
Extraordinary items for the year ended December 31, 1997 of $30.2 million
or $.09 per common share consist of unamortized debt acquisition costs and
debt extinguishment costs of $47.9 million, net of the related tax benefit
of $17.7 million, expensed in connection with the Cable Refinancing, the
Cellular Refinancing, the redemption of the 10% Debentures, the redemption
of the Step Up Debentures and repayments made with the proceeds from the
New Bank Facility.
Extraordinary items for the year ended December 31, 1996 of $1.0 million
consist of unamortized debt acquisitions costs of $1.8 million, net of the
related tax benefit of $800,000, expensed in connection with the prepayment
of a portion of a subsidiary's outstanding debt.
Extraordinary items for the year ended December 31, 1995 of $6.1 million or
$.02 per common share consist of debt extinguishment costs of $9.4 million,
net of the related tax benefit of $3.3 million, expensed in connection with
the refinancing of certain indebtedness.
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 0.75%;
Federal Funds rate plus 0.5% to 1.5%; and
LIBOR plus 0.3% to 1.875%.
As of December 31, 1997 and 1996, the Company's effective weighted average
interest rate on its variable rate bank and insurance company debt
outstanding was 6.58% and 6.53%, respectively.
- 64 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
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 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, 1997 and 1996 (dollars in millions):
Notional Average Estimated
Amount Maturities Interest Rate Fair Value
As of December 31, 1997
Variable to Fixed Swaps.......... $600.0 1998-2000 5.56% $4.3
Caps............................. 150.0 1998 6.67%
Collar........................... 50.0 1998 7.00%/4.90% 0.2
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
The notional amounts of interest rate instruments, 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, 1997, 1996 and 1995 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, 1997 and 1996, Comcast UK
Cable had (UK Pound)250.0 million notional amount of FX Puts to purchase US
dollars at an exchange rate of $1.35 per (UK 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, 1997 and 1996, the FX Puts had carrying values of $13.1
million and $18.4 million, respectively, and estimated fair values of $5.2
million and $5.5 million, respectively. The difference between the carrying
amount and the estimated fair value of the FX Puts was not significant as
of December 31, 1995.
- 65 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
In 1995, in order to reduce hedging costs, Comcast UK Cable sold foreign
exchange call option contracts ("FX Calls") to exchange (UK 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, (UK Pound)200.0 million notional
amount, with an exchange ratio of $1.70 per (UK Pound)1.00, expired
unexercised in November 1996 while the remaining contract, with a (UK
Pound)50.0 million notional amount and an exchange ratio of $1.62 per (UK
Pound)1.00, has a settlement date in November 2000. In 1996, in order to
continue to reduce hedging costs, Comcast UK Cable sold additional FX
Calls, for proceeds of $3.5 million, to exchange (UK Pound)200.0 million
notional amount at an average exchange ratio of $1.75 per (UK Pound)1.00.
These contracts expired unexercised in 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, 1997 and 1996, the estimated fair value of the
liabilities related to the FX Calls, as recorded in the Company's
consolidated balance sheet, was $4.4 million and $12.2 million,
respectively. Changes in fair value between measurement dates relating to
the FX Calls resulted in exchange gains of $7.4 million and exchange losses
of $2.2 million during the years ended December 31, 1997 and 1996,
respectively. 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 $7.123 billion
and $7.323 billion as of December 31, 1997 and 1996, 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, 1997, $251.6 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 $61.7
million which is restricted to use by Comcast UK Cable.
Restricted net assets of the Company's subsidiaries were approximately $2.7
billion as of December 31, 1997. 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 January 30, 1998, certain subsidiaries of the Company had unused
lines of credit of $1.0 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.
As of December 31, 1997, the Company and certain of its subsidiaries had
unused irrevocable standby letters of credit totaling $120.5 million to
cover potential fundings associated with several projects.
- 66 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
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. 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 June 1997, in connection with Microsoft's investment in the Company (see
Note 3), the Company issued the Series B Preferred Stock. The Series B
Preferred Stock has a 5.25% pay-in-kind annual dividend. Dividends will be
paid quarterly through the issuance of additional shares of Series B
Preferred Stock (the "Additional Shares") and will be cumulative from the
Issuance Date (except that dividends on the Additional Shares will accrue
from the date such Additional Shares are issued). The Series B Preferred
Stock, including the Additional Shares, is convertible, at the option of
Microsoft, into 21.2 million shares of the Company's Class A Special Common
Stock, subject to adjustment in certain limited circumstances, which equals
an initial conversion price of $23.54 per share, increasing as a result of
the Additional Shares to $33.91 per share on June 30, 2004. The Series B
Preferred Stock is mandatorily redeemable on June 30, 2017, or, at the
option of the Company beginning on June 30, 2004 or at the option of
Microsoft on June 30, 2004 or on June 30, 2012. Upon redemption, the
Company, at its option, may redeem the Series B Preferred Stock with cash,
Class A Special Common Stock or a combination thereof. As the Company
currently intends to redeem the Series B Preferred Stock with Class A
Special Common Stock upon redemption, the Series B Preferred Stock has been
classified as a component of stockholders' equity as of December 31, 1997.
The Series B Preferred Stock is generally non-voting.
In July 1996, in connection with the Sports Venture Acquisition (see Note
4), the Company issued 6,370 shares of Series A Preferred Stock. Each
holder of shares of the Series A Preferred Stock is entitled to receive
cumulative cash dividends at the annual rate of $250 per share, payable
quarterly in arrears. The Series A 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 Series A Preferred Stock is
convertible, at the option of the holder, into shares of the Company's
Class A Special Common Stock at a ratio of 209.1175 shares of Class A
Special Common Stock for each share of Series A Preferred Stock, subject to
certain conditions. The holders of the Series A 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
The Company's 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, 1997, 10.5 million shares of Class A Special Common
Stock were reserved for issuance upon conversion of the Company's 1 1/8%
Debentures (see Note 5).
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 could
purchase, at such times and on such terms as it deemed appropriate, up to
$500.0 million of its outstanding common equity securities, subject to
certain restrictions and market conditions. Based on the trade date for
stock repurchases, during the years ended December 31, 1997, 1996 and 1995,
the Company repurchased 2.3 million shares, 10.5 million shares and 680,000
shares, respectively, of its common stock for aggregate consideration of
$36.2 million, $180.0 million and $12.4 million, respectively, pursuant to
the Repurchase Program. During the term of the
- 67 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
Repurchase Program, which terminated on May 13, 1997, the Company
repurchased a total of 13.5 million shares of its common stock for
aggregate consideration of $228.6 million.
As part of the Repurchase Program, the Company sold put options on shares
of its Class A Special Common Stock. Put options on 4.0 million shares,
sold by the Company during 1996 and 1995 and outstanding at December 31,
1996, expired unexercised during the first quarter of 1997. Upon
expiration, the Company reclassified $69.6 million, the amount it would
have been obligated to pay to repurchase such shares had the put options
been exercised, from common equity put options to additional capital in the
Company's consolidated balance sheet.
As part of the Repurchase Program, in April 1997, the Company sold put
options on 2.0 million shares of its Class A Special Common Stock. The put
options give the holder the right to require the Company to repurchase such
shares at $15.68 per share on specific dates in April and May 1998. The
amount the Company would be obligated to pay to repurchase such shares upon
exercise of the put options, totaling $31.4 million, has been reclassified
from additional capital to common equity put options in the Company's
December 31, 1997 consolidated balance sheet. The difference between the
proceeds from the sale of these put options and their estimated fair value
was not significant as of December 31, 1997.
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 in the Plan. The Class A Common Stock was subsequently retired.
Stock-Based Compensation Plans
As of December 31, 1997, 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,
33.5 million shares of Class A Special Common Stock and 658,000 shares of
Class B Common Stock were reserved as of December 31, 1997. 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.
- 68 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
A summary of the activity of the Comcast Option Plan as of and for the
years ended December 31, 1997, 1996 and 1995 is presented below (options in
thousands):
1997 1996 1995
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.. 14,851 $14.54 14,208 $14.25 11,868 $13.73
Granted........................... 2,599 19.47 1,308 17.41 2,899 15.88
Exercised......................... (795) 9.95 (199) 8.72 (267) 9.13
Canceled.......................... (545) 16.40 (466) 16.08 (292) 15.42
------ ------ ------
Outstanding at end of year........ 16,110 15.50 14,851 14.54 14,208 14.25
====== ====== ======
Exercisable at end of year........ 7,693 $13.91 6,875 $13.40 5,812 $13.13
====== ====== ======
Class A Common Stock
Outstanding at beginning of year.. 229 $4.87 362 $4.74
Exercised......................... (229) 4.87 (129) 4.52
Canceled.......................... (4) 4.92
------ ------
Outstanding at end of year........ 229 4.87
====== ======
Exercisable at end of year........ 226 $4.86
====== ======
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 $5.70 658 $5.70 557 $5.45
====== ====== ======
The following table summarizes information about the Class A Special Common
Stock options outstanding under the Comcast Option Plan as of December 31,
1997 (options in thousands):
Options Outstanding Options Exercisable
Weighted-
Range of Number Average Weighted- Number Weighted-
Exercise Outstanding Remaining Average Exercisable Average
Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price
$6.22 to $10.72 2,493 2.0 Years $7.30 1,846 $7.18
$10.83 to $14.63 3,353 4.4 Years 11.78 2,236 11.30
$15.00 to $19.00 4,667 8.3 Years 16.96 428 15.91
$19.13 to $23.81 5,597 4.9 Years 20.16 3,183 19.38
------ -----
16,110 7,693
====== =====
The weighted-average fair value at date of grant of a Class A Special
Common Stock option granted under the Comcast Option Plan during 1997, 1996
and 1995 was $10.18, $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:
dividend yield of .52%, .53% and .65% for 1997, 1996 and 1995,
respectively; expected volatility of 30.1%, 34.9% and 40.7% for 1997, 1996
and 1995, respectively; risk-free interest rate of
- 69 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
6.5%, 6.8% and 7.6% for 1997, 1996 and 1995, respectively; expected option
lives of 9.9 years for 1997 and 1996 and 10.2 years for 1995; and a
forfeiture rate of 3.0% for all 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 $688.14. 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, 1997, 236,000 shares of QVC Common Stock were reserved under the plan.
Compensation expense of $3.4 million and $4.0 million was recorded under
the QVC Tandem Plan during the years ended December 31, 1997 and 1996,
respectively. No compensation expense was recognized under the QVC Tandem
Plan during the year ended December 31, 1995.
A summary of the activity of the QVC Tandem Plan as of and for the years
ended December 31, 1997, 1996 and 1995 is presented below (options/SARs in
thousands):
1997 1996 1995
Weighted- Weighted- Weighted-
Average Average Average
Options/ Exercise Options/ Exercise Options/ Exercise
SARs Price SARs Price SARs Price
Outstanding at
beginning of year....... 164 $192.16 142 $177.05
Granted..................... 74 601.28 26 271.23 142 $177.05
Exercised................... (55) 177.05
Canceled.................... (3) 262.20 (4) 177.05
--- --- ---
Outstanding at end of year.. 180 363.99 164 192.16 142 177.05
=== === ===
Exercisable at end of year.. 20 $205.42 36 $177.05
=== ===
The following table summarizes information about the options/SARs
outstanding under the QVC Tandem Plan as of December 31, 1997 (options/SARs
in thousands):
Options/SARs Outstanding Options/SARs Exercisable
Weighted-
Number Average Number
Exercise Outstanding Remaining Exercisable
Price at 12/31/97 Contractual Life at 12/31/97
$177.05 105 7.7 Years 18
522.31 3 8.5 Years 1
585.19 5 9.0 Years 1
634.25 66 9.7 Years
688.14 1 9.8 Years
---- ---
180 20
==== ===
- 70 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
The weighted-average fair value at date of grant of a QVC Common Stock
option/SAR granted during 1997, 1996 and 1995 was $331.93, $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: no dividend yield for all years;
expected volatility of 20% for all years; risk-free interest rate of 6.2%,
6.8% and 7.5% for 1997, 1996 and 1995, respectively; expected option lives
of 10 years for all years; and a forfeiture rate of 3.0% for all 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):
1997 1996 1995
Net loss - As reported............................... ($238.7) ($53.5) ($43.9)
Net loss - Pro forma................................. (252.0) (61.0) (50.7)
Net loss for common stockholders - As reported...... ($253.5) ($54.2) ($43.9)
Net loss for common stockholders - Pro forma......... (266.7) (61.7) (50.7)
Net loss for common stockholders
per common share - As reported .................... ($.75) ($.21) ($.18)
Net loss for common stockholders
per common share - Pro forma....................... (.79) (.24) (.21)
The pro forma effect on net loss and net loss per share for the years ended
December 31, 1997, 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 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, 1997, there were 1.3
million unvested shares granted under the program, of which 327,000 vested
in January 1998. During the years ended December 31, 1997, 1996 and 1995,
208,000, 951,000 and 135,000 shares were granted under the program,
respectively, with a weighted-average grant date market value of $17.36,
$19.16 and $20.61 per share, respectively. Compensation expense recognized
during the years ended December 31, 1997, 1996 and 1995 under this program
was $7.1 million, $5.5 million, and $4.6 million, respectively. There was
no significant difference between the amount of compensation expense
recognized by the Company during the years ended December 31, 1997, 1996
and 1995 and the amount that would have been recognized had compensation
expense been determined under the provisions of SFAS No. 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 the years ended December 31, 1997,
1996 and 1995, 4,000, 11,000 and 11,000 SARs were awarded, respectively,
and 20,000 SARs were outstanding at December 31, 1997, of which 4,000 were
exercisable. Compensation expense related to the QVC SAR Plans of $3.4
million, $4.5 million and $1.1 million was recorded during the years ended
December 31, 1997, 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 No. 123.
- 71 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
E! Entertainment established a SAR plan in 1995 for certain of its
employees and officers (the "E! SAR Plan"). Approximately 7.8 million SAR
units were reserved under the E! SAR Plan and were outstanding as of
December 31, 1997. SAR units granted under the E! SAR Plan will be 100%
vested at December 31, 1998, or earlier upon death or disability or the
occurrence of certain transactions or events. The value of a SAR unit
granted pursuant to the E! SAR Plan will be based on the appreciation of
the value of E! Entertainment, determined by an independent appraisal,
between January 1, 1995 and December 31, 1998, or December 31, 1999 should
the participants holding the majority of SAR units elect to extend the
valuation date. Payments may be deferred by E! Entertainment under certain
circumstances and will not begin earlier than 1999. Compensation expense
related to the E! SAR Plan was $7.0 million during the year ended December
31, 1997. There was no significant difference between the amount of
compensation expense recognized and the amounts that would have been
recognized had compensation expense been determined under the provisions of
SFAS No. 123.
7. INCOME TAXES
The Company joins with its 80% or more owned subsidiaries (the
"Consolidated Group") in filing consolidated federal income tax returns.
Both QVC and Comcast Communications Properties, Inc., an indirect majority
owned subsidiary of the Company, file separate consolidated federal income
tax returns.
Income tax expense consists of the following components:
Year Ended December 31,
1997 1996 1995
(Dollars in millions)
Current expense
Federal.................................................... $94.4 $82.0 $45.2
State...................................................... 24.9 23.3 14.3
----- ----- -----
119.3 105.3 59.5
----- ----- -----
Deferred expense (benefit)
Federal.................................................... (61.1) (20.4) (22.0)
State...................................................... (2.6) (0.5) 4.6
----- ----- -----
(63.7) (20.9) (17.4)
----- ----- -----
Income tax expense......................................... $55.6 $84.4 $42.1
===== ===== =====
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COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
The effective income tax expense of the Company differs from the statutory
amount because of the effect of the following items:
Year Ended December 31,
1997 1996 1995
(Dollars in millions)
Federal tax at statutory rate.............................. ($80.2) ($5.6) ($15.9)
Non-deductible depreciation and amortization............... 42.6 32.0 23.7
State income taxes, net of federal benefit................. 14.5 14.8 12.3
Non-deductible foreign losses and equity in
net losses of affiliates................................. 53.1 27.5 17.3
Additions to valuation allowance........................... 16.3 18.3 1.4
Other...................................................... 9.3 (2.6) 3.3
------ ----- ------
Income tax expense......................................... $55.6 $84.4 $42.1
====== ===== ======
Deferred income tax benefit resulted from the following differences between
financial and income tax reporting:
Year Ended December 31,
1997 1996 1995
(Dollars in millions)
Depreciation and amortization......................... ($95.4) ($60.2) ($68.3)
Accrued expenses not currently deductible............. (13.2) (6.3) (2.7)
Non-deductible reserves for bad debts,
obsolete inventory and sales returns................ (10.9) (11.0) (14.2)
Non-taxable temporary differences associated
with sale or exchange of securities................. 6.4 30.9 22.7
Losses (income) from affiliated partnerships.......... 45.9 25.6 (2.4)
Utilization of net operating loss carryforwards....... 41.0
Deferred tax assets arising from current
period losses ...................................... (16.6) (23.0) (10.0)
Change in valuation allowance and other............... 20.1 23.1 16.5
------ ------ ------
Deferred income tax benefit........................... ($63.7) ($20.9) ($17.4)
====== ====== ======
- 73 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
Significant components of the Company's net deferred tax liability are as
follows:
December 31,
1997 1996
(Dollars in millions)
Deferred tax assets:
Net operating loss carryforwards.................... $343.8 $280.9
Differences between book and
tax basis of property and equipment
and deferred charges.............................. 24.5 24.5
Reserves for bad debts, obsolete inventory
and sales returns................................. 84.8 73.9
Other............................................... 62.9 49.7
Less: Valuation allowance........................... (279.5) (263.2)
-------- --------
236.5 165.8
-------- --------
Deferred tax liabilities, principally
differences between book and tax
basis of property and equipment and
deferred charges.................................... 2,256.2 2,228.3
-------- --------
Net deferred tax liability............................ $2,019.7 $2,062.5
======== ========
The deferred tax liability is net of deferred tax assets of $92.5 million
and $78.0 million as of December 31, 1997 and 1996, 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 Consolidated
Group and Comcast Communications Properties, Inc. have net operating loss
carryforwards for which deferred tax assets have been recorded of
approximately $150.0 million and $30.0 million, respectively, which expire
primarily in 2010 and 2011. Remaining net operating loss carryforwards, for
which valuation allowances have been established, expire in periods through
2012.
8. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest of $494.4 million, $456.8
million and $459.1 million during the years ended December 31, 1997, 1996
and 1995, respectively.
The Company made cash payments for income taxes of $114.2 million, $101.4
million and $35.4 million during the years ended December 31, 1997, 1996
and 1995, respectively.
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.
- 74 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
Beginning in October 1998, Disney, in certain circumstances, is entitled to
cause the LLC to purchase Disney's entire interest in the LLC at its then
fair market value (as determined by an appraisal process). If the LLC
elects not to purchase Disney's interests, Disney has the right, at its
option, to purchase either the Company's entire interest in the LLC or all
of the shares of stock of E! Entertainment held by the LLC, 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 (see Notes 3 and 5)
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.
At any time after December 18, 2001, the California Public Employees
Retirement System ("CalPERS") may elect to liquidate its interest in MHCP
Holdings, L.L.C. ("MHCP Holdings"), a 55% owned indirect subsidiary of the
Company (which holds the US cable television operations formerly known as
Maclean Hunter Limited) in which CalPERS owns the remaining 45% interest,
at a price based upon the fair value of CalPERS' interest in MHCP Holdings,
adjusted, under certain circumstances, for certain performance criteria
relating to the fair value of MHCP Holdings 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 MHCP Holdings.
Minimum annual rental commitments for office space, equipment and
transponder service agreements under noncancellable operating leases as of
December 31, 1997 are as follows:
(Dollars
in millions)
1998........................................ $58.0
1999........................................ 52.4
2000........................................ 43.3
2001........................................ 37.7
2002........................................ 36.4
Thereafter.................................. 158.8
Rental expense of $77.3 million, $54.7 million and $44.6 million for 1997,
1996 and 1995, respectively, has been charged to operations.
Contingencies
QVC has an agreement with an unrelated third party (the "Bank") whereby the
Bank provides revolving credit directly to QVC customers. The revolving
credit card issued by the Bank may be used solely for the purchase of goods
and services from QVC. The Bank may advance a portion of the purchase price
to QVC. QVC is obligated to purchase from the Bank any uncollected
customers' accounts. The uncollected balances of revolving credit extended
by the Bank under this agreement are $340.0 million and $317.7 million as
of December 31, 1997 and 1996, respectively, of which $309.6 million and
$284.5 million represent interest bearing deposits due from the unrelated
third party. The total reserve balances maintained for the purchase of
uncollectible accounts are $76.5 million and $73.2 million as of December
31, 1997 and 1996, respectively. The Company's potential
- 75 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (Continued)
obligations 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, 1997 and 1996.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position, results of operations or liquidity of the
Company.
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 cable communications operations; "Electronic Retailing," the most
significant of the Company's content businesses; and "Cellular
Communications," the most significant of the Company's cellular/PCS
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 "Other" (dollars in millions).
Domestic
Cable Electronic Cellular Corporate
Communications Retailing Communications and Other(1) Total
1997
Revenues.................................... $2,073.0 $2,082.5 $444.9 $312.2 $4,912.6
Depreciation and amortization............... 626.1 115.0 109.8 85.5 936.4
Operating income (loss)..................... 361.6 222.7 65.6 (117.8) 532.1
Interest expense............................ 227.9 56.3 111.3 169.4 564.9
Assets...................................... 6,057.8 2,268.3 1,480.8 2,997.3 12,804.2
Long-term debt.............................. 2,554.9 768.8 1,224.5 2,010.4 6,558.6
Capital expenditures........................ 497.8 97.3 130.0 200.4 925.5
Equity in net losses of affiliates.......... (330.1) (330.1)
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)
- --------------
(1) Other includes certain operating businesses, including E! Entertainment
(beginning on March 31, 1997), the Company's consolidated UK cable and
telecommunications operations, the Company's DBS operations and elimination
entries related to the segments presented.
- 76 -
COMCAST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 and 1995 (Concluded)
11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth Total
Quarter Quarter (4) Quarter Quarter (5) Year
(Dollars in millions, except per share data)
1997
Revenues................................. $1,130.8 $1,184.5 $1,204.2 $1,393.1 $4,912.6
Operating income before
depreciation and amortization (1)...... 333.7 367.4 365.0 402.4 1,468.5
Operating income......................... 121.3 117.4 123.7 169.7 532.1
Loss before extraordinary items (2)...... (64.7) (14.6) (52.1) (77.1) (208.5)
Extraordinary items (6).................. (22.8) (3.1) (4.3) (30.2)
Net loss (2)............................. (64.7) (37.4) (55.2) (81.4) (238.7)
Loss per share before extraordinary items (.20) (.05) (.17) (.24) (.66)
Extraordinary items per share............ (.07) (.01) (.01) (.09)
Net loss per share....................... (.20) (.12) (.18) (.25) (.75)
Cash dividends per common share.......... .0233 .0233 .0233 .0233 .0933
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 (3)............................... (34.6) 17.8 (10.0) (25.7) (52.5)
Extraordinary item....................... (1.0) (1.0)
Net (loss) income (3).................... (34.6) 16.8 (10.0) (25.7) (53.5)
(Loss) income per share before
extraordinary item..................... (.14) .07 (.04) (.09) (.21)
Extraordinary item per share.............
Net (loss) income per share.............. (.14) .07 (.04) (.09) (.21)
Cash dividends per common 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, although the Company's measure of operating cash flow may not
be comparable to similarly titled measures of other companies. 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 were affected by the gain on the sale of TCGI Class A
stock in the second quarter of 1997 and the gain on the sale of Nextel
common stock in the third quarter of 1997 (see Note 4).
(3) Results of operations were affected by the TCGI IPO Gain and the sale of
Nextel shares in the second quarter of 1996 (see Note 4).
(4) Results of operations for the second quarter of 1997 include the results of
E! Entertainment, which have been consolidated effective March 31, 1997
(see Note 3).
(5) Results of operations for the fourth quarter of 1996 include 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 1997
and 1996 are also affected by the seasonality of the Company's electronic
retailing operations.
(6) Extraordinary items consist of unamortized debt acquisition and debt
extinguishment costs expensed in connection with the Cable Refinancing, the
Cellular Refinancing and the redemption of the 10% debentures in the second
quarter of 1997, the redemption of the Step Up Debentures in the third
quarter of 1997 and the repayments made with the proceeds from the New Bank
Facility in the fourth quarter of 1997 (see Note 5).
- 77 -
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 1998, which shall be
filed with the Securities and Exchange Commission within 120 days of the end of
the Registrant's latest fiscal year.
- 78 -
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....................................42
Consolidated Balance Sheet--December 31, 1997 and 1996..........43
Consolidated Statement of Operations--Years
Ended December 31, 1997, 1996 and 1995........................44
Consolidated Statement of Cash Flows--Years
Ended December 31, 1997, 1996 and 1995........................45
Consolidated Statement of Stockholders' Equity
(Deficiency)--Years Ended December 31, 1997, 1996 and 1995....46
Notes to Consolidated Financial Statements......................47
(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) Reports on Form 8-K
(i) Comcast Corporation filed a Current Report on Form 8-K under Item
1 on October 27, 1997 relating to the change in control of the
Registrant.
(d) 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).
3.1(e) 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).
3.1(f) Form of Statement of Designations, Preferences and Rights of
Series B Convertible Preferred Stock of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997).
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).
- 79 -
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 Indenture, dated as of October 17, 1991, between the Company
and Bank of Montreal/Harris Trust (successor to 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).
4.4 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).
4.5 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).
4.6 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).
4.7 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).
4.8 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).
4.9 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).
4.10 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).
4.11 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).
4.11(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).
10.1* Comcast Corporation 1986 Non-Qualified Stock Option Plan, as
amended and restated, effective December 10, 1996
(incorporated by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1996).
10.2* Comcast Corporation 1987 Stock Option Plan, as amended and
restated, effective December 10, 1996 (incorporated by
reference to Exhibit 10.4 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996).
10.3* Comcast Corporation 1996 Stock Option Plan, as amended and
restated, effective May 1, 1997 (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997).
------------------
* Constitutes a management contract or compensatory plan or
arrangement.
- 80 -
10.4* Comcast Corporation 1996 Deferred Compensation Plan, as
amended and restated, effective January 9, 1998.
10.5* Comcast Corporation 1990 Restricted Stock Plan, as amended
and restated, effective September 16, 1997 (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997).
10.6* 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).
10.7* Comcast Corporation 1996 Cash Bonus Plan, as amended and
restated, effective May 30, 1997 (incorporated by reference
to Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997).
10.8* Comcast Corporation 1996 Executive Cash Bonus Plan, dated
August 15, 1996 (incorporated by reference to Exhibit 10.10
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.9* Compensation and Deferred Compensation Agreement by and
between Comcast Corporation and Ralph J. Roberts, dated
December 16, 1997.
10.10 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).
10.11 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).
10.12 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).
10.13* Comcast Corporation 1997 Deferred Stock Option Plan, as
amended and restated, effective December 18, 1997.
10.14 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).
10.15 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).
10.16 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).
------------------
* Constitutes a management contract or compensatory plan or
arrangement.
- 81 -
10.17 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).
10.18 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).
10.19 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).
10.20 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).
10.21 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).
10.22 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).
10.23 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).
10.24 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).
10.25(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.).
10.25(b)/*/ Amendment No. 3, dated as of July 19, 1996, to the Credit
Agreement, dated as of February 15, 1995, among QVC, Inc.
and the Banks listed therein.
10.26 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).
10.27 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).
------------------
/*/ 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.
- 82 -
10.28 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).
10.29 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).
10.30 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).
10.31 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).
10.32 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).
10.33 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).
10.34 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).
10.35/*/ 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.
10.36 Indenture dated as of May 1, 1997, between Comcast Cable
Communications, Inc. and Bank of Montreal Trust Company, as
Trustee, in respect of Comcast Cable Communications, Inc.'s
8-1/8% Notes due 2004, 8-3/8% Notes due 2007, 8-7/8% Notes
due 2017 and 8-1/2% Notes due 2027 (incorporated by
reference to Exhibit 4.1(a) to the Registration Statement on
Form S-4 (File No. 333-30745) of Comcast Cable
Communications, Inc.).
10.37 Indenture dated as of May 8, 1997, between Comcast Cellular
Corporation (formerly Comcast Cellular Holdings, Inc.) and
The Bank of New York, as Trustee, in respect of Comcast
Cellular Holdings, Inc.'s 9-1/2% Senior Notes due 2007
(incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4 (File No. 333-31009) of
Comcast Cellular Holdings, Inc.).
------------------
/*/ 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.
- 83 -
21 List of Subsidiaries.
23.1(a) Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule.
99.1 Report of Independent Public Accountants to QVC, Inc., as of
and for the years ended December 31, 1997 and 1996 and for
the eleven-month period ended December 31, 1995.
- 84 -
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 3, 1998.
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 3, 1998
Directors; Director
/s/ Julian A. Brodsky
- ----------------------------
Julian A. Brodsky Vice Chairman of the Board of March 3, 1998
Directors; Director
/s/ Brian L. Roberts
- ----------------------------
Brian L. Roberts President; Director (Principal March 3, 1998
Executive Officer)
/s/ Lawrence S. Smith
- ----------------------------
Lawrence S. Smith Executive Vice President March 3, 1998
(Principal Accounting Officer)
/s/ John R. Alchin
- ----------------------------
John R. Alchin Senior Vice President, Treasurer March 3, 1998
(Principal Financial Officer)
/s/ Daniel Aaron
- ----------------------------
Daniel Aaron Director March 3, 1998
/s/ Gustave G. Amsterdam
- ----------------------------
Gustave G. Amsterdam Director March 3, 1998
/s/ Sheldon M. Bonovitz
- ----------------------------
Sheldon M. Bonovitz Director March 3, 1998
/s/ Joseph L. Castle II
- ----------------------------
Joseph L. Castle II Director March 3, 1998
- 85 -
SIGNATURE TITLE DATE
/s/ Bernard C. Watson
- ----------------------------
Bernard C. Watson Director March 3, 1998
/s/ Irving A. Wechsler
- ----------------------------
Irving A. Wechsler Director March 3, 1998
/s/ Anne Wexler
- ----------------------------
Anne Wexler Director March 3, 1998
- 86 -
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF
REGISTRANT UNCONSOLIDATED (PARENT ONLY)
CONDENSED BALANCE SHEET
(In millions, except share data)
December 31,
ASSETS 1997 1996
Cash and cash equivalents............................................. $12.8 $9.7
Other current assets.................................................. 5.9 5.7
-------- --------
Total current assets................................................ 18.7 15.4
Investments in and amounts due from subsidiaries
eliminated upon consolidation....................................... 3,487.0 2,646.8
Property and equipment, net........................................... 38.5 30.9
Other assets, net..................................................... 45.5 85.8
-------- --------
$3,589.7 $2,778.9
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued interest...................................................... $35.0 $49.5
Other current liabilities............................................. 108.1 188.3
-------- --------
Total current liabilities........................................... 143.1 237.8
-------- --------
Long-term debt........................................................ 1,464.9 1,716.3
-------- --------
Deferred income taxes and other....................................... 303.8 203.6
-------- --------
Common equity put options............................................. 31.4 69.6
-------- --------
Stockholders' equity
Preferred stock - authorized, 20,000,000 shares;
5% series A convertible, no par value; issued,
6,370 at redemption value......................................... 31.9 31.9
5.25% series B mandatorily redeemable convertible,
$1,000 par value; issued, 513,211 at redemption value............. 513.2
Class A special common stock, $1 par value - authorized,
500,000,000 shares; issued, 317,025,969 and 283,281,675........... 317.0 283.3
Class A common stock, $1 par value - authorized,
200,000,000 shares; issued, 31,793,487 and 33,959,368............. 31.8 34.0
Class B common stock, $1 par value - authorized,
50,000,000 shares; issued, 8,786,250.............................. 8.8 8.8
Additional capital.................................................. 3,030.6 2,326.6
Accumulated deficit................................................. (2,415.9) (2,127.1)
Unrealized gains on marketable securities, including
securities held by subsidiaries................................... 140.7 0.1
Cumulative translation adjustments of subsidiaries.................. (11.6) (6.0)
-------- --------
Total stockholders' equity........................................ 1,646.5 551.6
-------- --------
$3,589.7 $2,778.9
======== ========
- 87 -
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,
1997 1996 1995
REVENUES, principally intercompany fees eliminated
upon consolidation......................................... $286.8 $212.0 $192.2
GENERAL AND ADMINISTRATIVE EXPENSES........................... 69.5 55.6 53.8
--------- --------- ---------
OPERATING INCOME.............................................. 217.3 156.4 138.4
OTHER (INCOME) EXPENSE
Interest expense, including intercompany interest, net..... 231.2 263.6 214.6
Equity in net losses (income) of affiliates and other...... 238.6 (16.3) (7.6)
--------- --------- ---------
469.8 247.3 207.0
--------- --------- ---------
LOSS BEFORE INCOME TAX BENEFIT AND
EXTRAORDINARY ITEMS........................................ (252.5) (90.9) (68.6)
INCOME TAX BENEFIT............................................ (16.6) (37.4) (25.3)
--------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEMS............................... (235.9) (53.5) (43.3)
EXTRAORDINARY ITEMS........................................... (2.8) (0.6)
--------- --------- ---------
NET LOSS...................................................... (238.7) (53.5) (43.9)
ACCUMULATED DEFICIT
Beginning of year.......................................... (2,127.1) (1,914.3) (1,827.6)
Retirement of common stock................................. (17.7) (133.3) (20.4)
Cash dividends, $.0933 per share per year.................. (32.4) (26.0) (22.4)
--------- --------- ---------
End of year................................................ ($2,415.9) ($2,127.1) ($1,914.3)
========= ========= =========
- 88 -
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,
1997 1996 1995
OPERATING ACTIVITIES
Net loss................................................... ($238.7) ($53.5) ($43.9)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization............................ 7.0 8.9 6.5
Non-cash interest expense, net........................... 106.8 136.2 105.5
Equity in net losses (income) of affiliates.............. 275.2 (15.2) (2.7)
Extraordinary items...................................... 2.8 0.6
Deferred income taxes and other.......................... 88.9 68.4 41.1
-------- ------- ------
242.0 144.8 107.1
Increase in other current assets......................... (0.2) (1.5) (1.2)
(Decrease) increase in accrued interest and
other current liabilities.............................. (79.9) 42.8 36.7
-------- ------- ------
Net cash provided by operating activities............ 161.9 186.1 142.6
-------- ------- ------
FINANCING ACTIVITIES
Proceeds from borrowings................................... 800.9
Retirement and repayment of debt .......................... (59.5) (300.9)
Issuance of preferred stock................................ 500.0
Issuances (repurchases) of common stock, net............... 470.2 (175.9) (7.1)
Dividends.................................................. (34.0) (26.8) (22.4)
Other...................................................... 12.7 43.0 52.5
-------- ------- ------
Net cash provided by (used in) financing activities.. 889.4 (159.7) 523.0
-------- ------- ------
INVESTING ACTIVITIES
Net transactions with affiliates........................... (1,026.4) 9.5 (641.7)
Capital expenditures....................................... (18.6) (20.8) (11.9)
Other...................................................... (3.2) (13.0) (15.7)
-------- ------- ------
Net cash used in investing activities................ (1,048.2) (24.3) (669.3)
-------- ------- ------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS........................................... 3.1 2.1 (3.7)
CASH AND CASH EQUIVALENTS, beginning of year.................. 9.7 7.6 11.3
-------- ------- ------
CASH AND CASH EQUIVALENTS, end of year........................ $12.8 $9.7 $7.6
======== ======= ======
- 89 -
COMCAST CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(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
1997..................................... $97.1 $ $65.4 $47.5 $115.0
1996..................................... 81.3 65.1 49.3 97.1
1995..................................... 11.3 57.8 51.4 39.2 81.3
Allowance for Obsolete
Electronic Retailing Inventories
1997..................................... $34.7 $ $37.0 $27.2 $44.5
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.
- 90 -