UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended:
SEPTEMBER 30, 1995
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]
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1709202
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Market Street, Philadelphia, PA 19102-2148
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes __X__ No ____
As of September 30, 1995, there were 192,028,651 shares of Class A Special
Common Stock, 39,103,350 shares of Class A Common Stock and 8,786,250 shares of
Class B Common Stock outstanding.
<PAGE>
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance
Sheet at September 30, 1995 and December 31,
1994 (Unaudited)..........................................2
Condensed Consolidated Statement of
Operations and Accumulated Deficit for
the Nine and Three Months Ended September 30,
1995 and 1994 (Unaudited).................................3
Condensed Consolidated Statement of Cash
Flows for the Nine Months Ended September 30, 1995
and 1994 (Unaudited)......................................4
Notes to Condensed Consolidated
Financial Statements (Unaudited).....................5 - 12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations..........................................13 - 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................23
Item 6. Exhibits and Reports on Form 8-K.........................23
<PAGE>2
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
September 30, December 31,
1995 1994
---------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................. $616,490 $335,320
Short-term investments, at cost which approximates fair value......... 211,943 130,134
Accounts receivable, less allowance for doubtful accounts
of $83,993 and $11,272............................................ 336,559 108,245
Inventories, net...................................................... 223,938 18,553
Prepaid charges and other............................................. 42,819 16,254
Deferred income taxes................................................. 59,786
---------- ----------
Total current assets.............................................. 1,491,535 608,506
---------- ----------
INVESTMENTS, principally in affiliates.................................... 898,859 797,075
---------- ----------
PROPERTY AND EQUIPMENT.................................................... 2,447,011 2,081,256
Accumulated depreciation.............................................. (892,893) (823,570)
---------- ----------
Property and equipment, net........................................... 1,554,118 1,257,686
---------- ----------
DEFERRED CHARGES.......................................................... 6,384,900 4,945,613
Accumulated amortization.............................................. (1,092,035) (845,896)
---------- ----------
Deferred charges, net................................................. 5,292,865 4,099,717
---------- ----------
$9,237,377 $6,762,984
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses................................. $801,267 $402,869
Accrued interest...................................................... 73,420 60,219
Subscribers' advance payments and other............................... 22,322 14,637
Current portion of long-term debt..................................... 249,058 182,913
---------- ----------
Total current liabilities......................................... 1,146,067 660,638
---------- ----------
LONG-TERM DEBT, less current portion...................................... 6,619,495 4,810,541
---------- ----------
DEFERRED INCOME TAXES.................................................... 1,520,200 1,390,849
---------- ----------
MINORITY INTEREST AND OTHER............................................... 703,932 627,745
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Class A Special Common Stock, $1 par value - authorized, 500,000,000
shares; issued, 192,028,651 and 191,230,684...................... 192,029 191,231
Class A Common Stock, $1 par value - authorized, 200,000,000
shares; issued, 39,103,350 and 39,019,809........................ 39,103 39,020
Class B Common Stock, $1 par value - authorized, 50,000,000
shares; issued, 8,786,250........................................ 8,786 8,786
Additional capital.................................................... 884,113 875,501
Accumulated deficit................................................... (1,881,687) (1,827,647)
Unrealized gains on marketable securities............................. 21,088 3,862
Cumulative translation adjustments.................................... (15,749) (17,542)
---------- ----------
Total stockholders' deficiency.................................... (752,317) (726,789)
---------- ----------
$9,237,377 $6,762,984
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>3
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Service income............................................ $1,381,510 $1,015,087 $478,758 $345,744
Net sales from electronic retailing....................... 975,917 391,491
----------- ----------- ----------- -----------
2,357,427 1,015,087 870,249 345,744
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Operating................................................. 576,543 304,697 209,186 103,225
Cost of goods sold from electronic retailing.............. 584,615 234,369
Selling, general and administrative....................... 451,695 274,192 162,550 96,394
Depreciation and amortization............................. 534,675 243,309 147,632 82,815
----------- ----------- ----------- -----------
2,147,528 822,198 753,737 282,434
----------- ----------- ----------- -----------
OPERATING INCOME.............................................. 209,899 192,889 116,512 63,310
INVESTMENT (INCOME) EXPENSE
Interest expense.......................................... 388,367 228,464 137,816 75,712
Investment income......................................... (216,827) (15,094) (51,403) (4,991)
Equity in net losses of affiliates........................ 63,534 29,417 25,628 10,902
Minority interest and other............................... (25,770) (3,498) (12,011) (81)
----------- ----------- ----------- -----------
209,304 239,289 100,030 81,542
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)
AND EXTRAORDINARY ITEMS................................... 595 (46,400) 16,482 (18,232)
INCOME TAX EXPENSE (BENEFIT).................................. 32,470 (621) 18,435 (986)
----------- ----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEMS............................... (31,875) (45,779) (1,953) (17,246)
EXTRAORDINARY ITEMS........................................... (5,407) (11,703) (5,407)
----------- ----------- ----------- -----------
NET LOSS...................................................... (37,282) (57,482) (7,360) (17,246)
ACCUMULATED DEFICIT
Beginning of period ...................................... (1,827,647) (1,717,931) (1,868,738) (1,769,723)
Dividends declared - $.0700, $.0700, $.0233
and $.0233 per share.................................. (16,758) (17,121) (5,589) (5,565)
----------- ----------- ----------- -----------
End of period............................................. ($1,881,687) ($1,792,534) ($1,881,687) ($1,792,534)
=========== =========== =========== ===========
LOSS PER SHARE
Loss before extraordinary items........................... ($.13) ($.19) ($.01) ($.07)
Extraordinary items....................................... (.02) (.05) (.02)
----------- ----------- ----------- -----------
Net Loss.............................................. ($.15) ($.24) ($.03) ($.07)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THE PERIOD...................... 239,634 235,383 239,819 238,854
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>4
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
Nine Months Ended September 30,
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.............................................................. ($37,282) ($57,482)
Noncash items included in net loss:
Depreciation and amortization..................................... 534,675 243,309
Interest expense.................................................. 41,403 40,148
Equity in net losses of affiliates................................ 63,534 29,417
Gain on sale of division.......................................... (5,825)
Gain on sales of long-term investments............................ (177,202)
Extraordinary items............................................... 5,407 11,703
Deferred income taxes, minority interest and other................ (34,603) 8,533
---------- ----------
395,932 269,803
Increase in accounts receivable, net.................................. (8,282) (23,578)
Increase in inventories, net.......................................... (37,978) (548)
Increase in prepaid charges and other................................. (16,261) (6,531)
Increase in accounts payable and accrued expenses
and subscribers' advance payments and other....................... 25,666 21,042
Increase (decrease) in accrued interest............................... 12,609 (5,127)
---------- ----------
Net cash provided by operating activities..................... 371,686 255,061
---------- ----------
FINANCING ACTIVITIES
Borrowings............................................................ 3,111,856 142,209
Retirement and repayment of debt...................................... (1,160,867) (470,877)
Issuance of common stock, net......................................... 2,726 3,198
Issuance of common stock of a subsidiary, net......................... 209,394
Equity contribution to a subsidiary................................... 6,556
Dividends............................................................. (16,758) (17,121)
Other................................................................. (22,146) (15,092)
---------- ----------
Net cash provided by (used in) financing activities........... 1,921,367 (148,289)
---------- ----------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired.................................... 1,371,074 22,189
Purchases (sales) of short-term investments, net...................... 81,809 (320,888)
Increase in investments, principally in affiliates.................... 457,984 61,565
Proceeds from sales of long-term investments.......................... (400,749)
Additions to property and equipment................................... 476,571 171,158
Proceeds from sale of division........................................ (28,183)
Other................................................................. 25,194 21,955
---------- ----------
Net cash used in (provided by) investing activities........... 2,011,883 (72,204)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS.................................... 281,170 178,976
Cash and Cash Equivalents, Beginning of Period........................ 335,320 160,434
---------- ----------
CASH AND CASH EQUIVALENTS, End of Period.................................. $616,490 $339,410
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>5
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The condensed consolidated balance sheet at December 31, 1994 has been
condensed from the audited balance sheet at that date. The condensed
consolidated balance sheet at September 30, 1995, the condensed
consolidated statement of operations and accumulated deficit for the nine
and three months ended September 30, 1995 and 1994 and the condensed
consolidated statement of cash flows for the nine months ended September
30, 1995 and 1994 have been prepared by Comcast Corporation (the "Company")
and have not been audited by the Company's Independent Auditors. In the
opinion of management, all adjustments (which include only normal recurring
adjustments and the adjustment described in Note 3) necessary to present
fairly the financial position, results of operations and cash flows at
September 30, 1995 and for all periods presented have been made.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's December
31, 1994 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for the periods ended September 30,
1995 are not necessarily indicative of operating results for the full year.
Net Loss Per Share
Net loss per share is based on the weighted average number of common shares
outstanding during the period. For the nine and three months ended
September 30, 1995 and 1994, all of the common stock equivalents have an
antidilutive effect on the loss per share and, therefore, have not been
used in determining the total weighted average number of common shares
outstanding.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New Accounting Pronouncement
Effective January 1, 1995, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." There was no cumulative effect of the adoption of SFAS No. 121.
As a result of the acquisition of QVC (see Note 3), the Company adopted the
following accounting policies:
Inventories
Inventories, consisting primarily of products held for sale, are stated at
the lower of cost or market. Cost is determined by the first-in, first-out
method.
Net Sales and Returns
Net sales from electronic retailing are recognized at the time of shipment
to customers. An allowance for returned merchandise is provided as a
percentage of sales based on historical experience.
3. ACQUISITIONS AND OTHER SIGNIFICANT EVENTS
QVC
In February 1995, the Company and Tele-Communications, Inc. ("TCI")
acquired all of the outstanding stock of QVC, Inc. ("QVC") not previously
owned by the Company and TCI (approximately 65% of such shares on a fully
diluted basis) for $46, in cash, per share. The total cost of acquiring the
outstanding shares of QVC was approximately $1.4 billion. Following the
acquisition, the Company and TCI own, through their
<PAGE>6
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
respective subsidiaries, 57.45% and 42.55%, respectively, of QVC. The
Company has accounted for the QVC acquisition under the purchase method of
accounting and QVC has been consolidated with the Company beginning in
February 1995. The allocation of the purchase price to the assets and
liabilities of QVC is preliminary pending receipt of a final appraisal.
The acquisition of QVC, including the exercise of certain warrants held by
the Company, was financed with cash contributions from the Company and TCI
of $296.3 million and $6.6 million, respectively, borrowings of $1.1
billion under a $1.2 billion QVC credit facility and existing cash and cash
equivalents held by QVC.
Liberty Media Corporation, a subsidiary of TCI, may, at certain times
following February 9, 2000, trigger the exercise of certain exit rights.
Sprint Telecommunications Venture
On March 28, 1995, subsidiaries of the Company, TCI, Sprint Corporation
("Sprint") and Cox Communications, Inc. ("Cox") formed several partnerships
to engage in the business of providing wireless and wireline telephony
services. The principal partnership is known as the Sprint
Telecommunications Venture ("STV"). The parties have agreed that STV and
its affiliated partnerships will be the exclusive vehicles for their
respective investments in certain specified telecommunications activities,
subject to certain limited exceptions. STV and the parties will
cross-promote telecommunications products and services using the "Sprint"
brand name with cable services and products branded by Cox, TCI or the
Company in their cable television systems. A partnership owned entirely by
subsidiaries of the Company, known as Comcast Telephony Services, owns 15%
of STV and, indirectly, each of STV's affiliated partnerships.
STV will engage in the business of providing wireless communications
services, primarily personal communication services ("PCS"), through a
partnership known as WirelessCo. Through WirelessCo, the partners propose
to create and operate a seamless, integrated, nationwide wireless
communications network. During the term of a trademark license from an
affiliate of Sprint, WirelessCo's services will be marketed under the
"Sprint" brand name.
WirelessCo was the successful bidder for 29 PCS licenses in the auction
conducted by the Federal Communications Commission ("FCC") from December
1994 through mid-March 1995. The purchase price for the licenses was
approximately $2.11 billion, all of which has been paid to the FCC.
WirelessCo may also elect to bid in subsequent auctions for PCS licenses.
In addition, WirelessCo has and may continue to invest in other entities
that hold PCS licenses, may acquire PCS licenses from other license holders
and may affiliate with other license holders.
STV will also engage in the business of providing local wireline telephone
service for both business and residential customers, primarily through the
cable networks of cable television operators that affiliate with the
partnership in exchange for agreed upon compensation. Cox, TCI and the
Company have agreed to affiliate their cable systems with STV to the extent
that their systems are located in markets designated in STV's business
plan. The offering of local wireline telephone services by the partnership
will require the removal of regulatory and legislative barriers to local
telephone competition.
The STV partners intend that the partnership will succeed to the business
currently conducted by Cox, TCI and the Company, together with Continental
Cablevision, Inc. ("Continental"), through Teleport Communications Group
Inc. and TCG Partners (collectively, "TCG"). TCG is one of the largest
competitive access providers in the United States. Pursuant to a
contribution agreement entered into on March 28, 1995, Cox, TCI and the
Company have agreed, subject to the satisfaction of certain conditions, to
contribute to STV their respective
<PAGE>7
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
interests in TCG and in various local joint ventures among local cable
operators and TCG. Such contributions will be subject to the receipt of
necessary regulatory approvals and the satisfaction of other conditions. In
addition, the cable partners intend to negotiate with Continental, which
owns that portion of TCG that is not owned by Cox, TCI or the Company,
regarding the acquisition of its interest by such cable partners.
Subject to agreement upon an initial business plan, the partners have
committed to contribute $4.4 billion in cash to STV during the next three
years, of which the Company's share would be $660 million, subject to
reduction resulting from the method of crediting in-kind contributions to
STV by the partners. Of the $660 million funding requirement, the Company
has made total cash capital contributions to WirelessCo of approximately
$338.8 million through September 30, 1995. The partners' capital
contributions to WirelessCo have been principally used to pay for the 29
PCS licenses acquired in the FCC auction and to acquire interests in
another entity that holds a PCS license. Additional equity requirements of
STV will be funded by the partners through capital contributions to STV in
proportion to their ownership interests. The Company anticipates that STV's
capital requirements over the next several years will be significant. These
requirements are planned to be funded by external financing by STV in
addition to capital contributions by the partners. Although it is
anticipated that external financing will be available to STV on acceptable
terms and conditions, no assurances can be given as to such availability.
Cellular Rebuild
In 1995, the Company's cellular division purchased approximately $172.0
million of switching and cell site equipment which replaced the existing
switching and cell site equipment. The Company completed the rebuild in the
third quarter of 1995. In accordance with the provisions of SFAS No. 121,
during the first quarter of 1995, the Company charged to its results of
operations approximately $110.0 million which represented the difference
between the net book value of the equipment replaced and the residual value
realized upon its disposal. This charge has been reflected in the Company's
condensed consolidated statement of operations and accumulated deficit as a
component of depreciation and amortization expense.
Ocean County
In May 1995, the Company completed the initial phase of its exchange
agreement with McCaw Cellular Communications, Inc. whereby the Company
acquired a 75% interest in the entity that holds the Ocean County, NJ Rural
Statistical Area ("RSA") cellular license (the "Ocean County Licensee") in
exchange for the Company's Hunterdon County, NJ RSA cellular license and
$37.8 million in cash. The Company acquired the remaining 25% interest in
the Ocean County Licensee in October 1995 for $17.4 million.
Nextel
In April 1995, the Company exercised certain preemptive rights under
previously existing agreements with Nextel Communications, Inc. ("Nextel")
whereby the Company has elected to purchase approximately 9 million newly
issued Nextel shares at $12.25 per share for a total cost of approximately
$110 million (the "Nextel Share Purchase Commitment"). The purchase is
contingent on the closing of an acquisition transaction by Nextel which is
expected to occur in the fourth quarter of 1995.
In July 1995, the Company sold 11.3 million shares of Nextel common stock
for $212.6 million (the "Nextel Transaction"). As a result of this
transaction, the Company recognized a pre-tax gain of $36.2 million in the
third quarter of 1995. The Company continues to hold options to acquire
25.0 million shares of Nextel common stock in addition to the Nextel Share
Purchase Commitment.
<PAGE>8
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
E.W. Scripps
On October 29, 1995, the Company announced its agreement to purchase the
cable television operations of The E.W. Scripps Company ("E.W. Scripps") in
exchange for shares of the Company's Class A Special Common Stock worth
$1.575 billion, subject to certain adjustments (the "Scripps Transaction").
E.W. Scripps' cable properties, including a pending acquisition, serve
approximately 800,000 subscribers, with over 60% of the subscribers located
in Sacramento, California and Chattanooga and Knoxville, Tennessee. The
purchase is expected to close in the second half of 1996, subject to
shareholder and regulatory approval and certain other conditions.
Share Repurchase Program
Concurrent with the announcement of the Scripps Transaction, the Company
announced that its Board of Directors has authorized the repurchase of up
to $500 million of its outstanding publicly held common equity securities.
The Company expects any such repurchases to be effected from time to time
in the open market or in private transactions, subject to market
conditions.
Pro Forma Results
The following pro forma information for the nine and three months ended
September 30, 1995 and 1994 has been presented as if the acquisition of QVC
occurred at the beginning of each period and the acquisition of Maclean
Hunter occurred on January 1, 1994. This unaudited pro forma information is
based on historical results of operations, adjusted for acquisition costs,
and is not necessarily indicative of what the results would have been had
the Company operated the acquired entities since such dates.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
1995(1) 1994(1) 1995 1994(1)
------- ------- ---- -------
<S> <C> <C> <C> <C>
Revenue $2,487,801 $2,154,514 $870,249 $747,858
Loss before extraordinary items (36,668) (111,333) (1,953) (36,391)
Net loss (42,075) (123,036) (7,360) (36,391)
Net loss per share (.18) (.52) (.03) (.15)
<FN>
(1) Effective April 1, 1995, QVC commenced consolidating its United
Kingdom ("UK") operations. Pro forma revenues presented above do not
reflect revenues relating to QVC's UK operations for periods prior to
April 1, 1995.
</FN>
</TABLE>
4. INVESTMENTS
The Company holds unrestricted equity investments in certain publicly
traded companies with an historical cost of $104.8 million and $186.6
million as of September 30, 1995 and December 31, 1994, respectively. The
Company has recorded these investments (including the Company's investment
in Nextel common stock as of December 31, 1994 - see Note 3), which are
classified as available for sale, at their estimated fair values of $137.2
million as of September 30, 1995 and $192.6 million as of December 31,
1994. The unrealized pre-tax gains of $32.4 million and $6.0 million,
respectively, have been reported in the Company's condensed consolidated
balance sheet as decreases in stockholders' deficiency, net of related
deferred income taxes.
<PAGE>9
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
In January 1995, the Company exchanged its interest in Heritage
Communications, Inc. with TCI for Class A common shares of TCI with a fair
market value of approximately $290 million. Shortly thereafter, the Company
sold certain of these shares for total proceeds of approximately $188
million which were used to fund, in part, the acquisition of QVC. As a
result of these transactions, the Company recognized a pre-tax gain of $141
million in the first quarter of 1995.
As a result of the QVC acquisition, the Company commenced consolidating the
financial results of QVC, effective February 1, 1995, on a current basis.
In the first quarter of 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 was accounted for under the equity method of accounting and its
proportionate interest in QVC's results of operations were recorded two
months in arrears. The effect of this one-time adjustment was not
significant to the Company's results of operations.
The difference between the Company's recorded investment and its
proportionate interests in the book value of its equity investees' net
assets is being amortized to equity in net income or loss, primarily over a
period of twenty years, which is consistent with the estimated lives of the
underlying assets.
Summarized financial information for investments accounted for under the
equity method of accounting is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months Three Months
Ended Ended Ended
January 31, 1995 September 30, 1995 September 30, 1995
QVC Other Combined (1) Combined (1)
<S> <C> <C> <C> <C>
Combined Results of Operations
Revenue................................... $425,921 $450,546 $876,467 $160,893
Depreciation and amortization............. 12,992 109,006 121,998 38,941
Operating income (loss)................... 58,247 (163,777) (105,530) (64,228)
Net income (loss) as reported
by affiliates...................... $28,333 ($238,461) ($210,128) ($92,587)
Company's Equity in Net Income (Loss)
Equity in current period net income
(loss).................................. $4,286 ($64,071) ($59,785) ($24,101)
Amortization income (expense)............. 1,194 (4,943) (3,749) (1,527)
-------- -------- -------- --------
Total equity in net income (loss)......... $5,480 ($69,014) ($63,534) ($25,628)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1995
Combined (1)
<S> <C>
Combined Financial Position
Current assets......................................... $310,614
Noncurrent assets...................................... 4,304,352
Current liabilities.................................... 262,204
Noncurrent liabilities................................. 1,581,365
<FN>
(1) Excludes the results of operations (subsequent to January 31, 1995)
and financial position of QVC which was consolidated with the Company
beginning in February 1995.
</FN>
</TABLE>
<PAGE>10
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
July 31, 1994 September 30, 1994
QVC Other Combined
<S> <C> <C> <C>
Combined Results of Operations
Revenue................................... $972,207 $248,653 $1,220,860
Depreciation and amortization............. 31,877 81,049 112,926
Operating income (loss)................... 117,434 (94,241) 23,193
Net income (loss) as reported
by affiliates...................... $26,637 ($123,758) ($97,121)
Company's Equity in Net Income (Loss)
Equity in current period net income (loss) $4,090 ($33,061) ($28,971)
Amortization income (expense)............. 3,694 (4,140) (446)
---------- ---------- ----------
Total equity in net income (loss)......... $7,784 ($37,201) ($29,417)
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
July 31, 1994 September 30, 1994
QVC Other Combined
<S> <C> <C> <C>
Combined Results of Operations
Revenue................................... $303,277 $89,664 $392,941
Depreciation and amortization............. 10,616 29,175 39,791
Operating income (loss)................... 31,414 (38,715) (7,301)
Net income (loss) as reported
by affiliates...................... $11,728 ($49,135) ($37,407)
Company's Equity in Net Income (Loss)
Equity in current period net income (loss) $1,807 ($12,555) ($10,748)
Amortization income (expense)............. 1,208 (1,362) (154)
---------- ---------- ----------
Total equity in net income (loss)......... $3,015 ($13,917) ($10,902)
========== ========== ==========
</TABLE>
5. LONG-TERM DEBT
On May 16, 1995, the Company issued $250.0 million principal amount of its
9-3/8% senior subordinated debentures due 2005. On October 3, 1995, the
Company issued $250.0 million principal amount of its 9-1/8% senior
subordinated debentures due 2006. On November 9, 1995, Comcast UK Cable
Partners Limited ("Comcast UK"), a subsidiary of the Company, agreed to
sell approximately $517.3 million principal amount at maturity of its
11.20% senior discount debentures due 2007 for gross proceeds of
approximately $300.0 million in a public offering. Closing of the public
offering is anticipated to occur on November 15, 1995.
The Company incurred debt extinguishment costs totaling $8.3 million during
the nine and three months ended September 30, 1995, as a result of
refinancing the indebtedness of certain subsidiaries, resulting in the
Company recording an extraordinary loss, net of tax, of $5.4 million or
$.02 per share.
As a result of these refinancings, as of October 31, 1995, certain of the
Company's subsidiaries had unused lines of credit totaling approximately
$1.5 billion. Use of these unused lines of credit is restricted to
subsidiary debt refinancing, subsidiary general corporate purposes and
dividend declaration.
<PAGE>11
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The Company paid premiums and expensed unamortized debt acquisition costs
totaling $18.0 million during the nine months ended September 30, 1994,
primarily as a result of the redemption of its $150.0 million, 11-7/8%
senior subordinated debentures due 2004, resulting in the Company recording
an extraordinary loss, net of tax, of $11.7 million or $.05 per share.
The Company has entered into interest rate protection products to limit the
Company's exposure to loss from adverse fluctuations in interest rates. As
of September 30, 1995, $815.0 million of the Company's variable rate debt
was protected by these products. Such agreements mature on various dates
through 1997 and the related differentials to be paid or received are
recognized over the terms of the related agreements.
6. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made interest payments of approximately $334.4 million, $193.4
million, $124.3 million and $56.8 million during the nine and three months
ended September 30, 1995 and 1994, respectively.
The Company redeemed its 7% convertible subordinated debentures due 2001 on
February 27, 1994 (accreted value of $152.1 million). In connection with
such redemption, substantially all of the debentures were converted into
13.5 million shares of Class A Special Common Stock of the Company.
7. CONTINGENCIES
The Company is subject to claims which arise in the ordinary course of its
business and other legal proceedings. In the opinion of management, the
amount of ultimate liability with respect to these actions will not
materially affect the financial position or results of operations of the
Company.
The Company currently is seeking to justify rates for regulated services in
certain of its cable systems in the States of New Jersey and Connecticut on
the basis of cost-of-service showings. A settlement has been reached with
the State of New Jersey with respect to rates for basic cable services and
equipment. The State of Connecticut has ordered the Company to reduce rates
for basic cable services and equipment and to make refunds to subscribers.
The Connecticut decision has been appealed to the FCC. The Company and the
FCC staff have reached agreement, subject to Commission approval, on
outstanding cost-of-service rate complaints for cable programming services
for systems in the States of New Jersey and Connecticut. The proposed
settlement will also resolve outstanding complaints with regard to
"benchmark" rate regulation in other systems. Absent legislative,
administrative or judicial relief, the FCC regulations will continue to
adversely affect the Company's results of operations.
<PAGE>12
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(Unaudited)
8. FINANCIAL DATA BY BUSINESS SEGMENT
(Dollars in thousands)
<TABLE>
<CAPTION>
Domestic
Cable Electronic Cellular Corporate
Communications Retailing Communications and Other (1) Total
<S> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 1995
Revenue..................................... $1,078,033 $975,917 $274,243 $29,234 $2,357,427
Depreciation and amortization............... 278,862 61,810 177,205 16,798 534,675
Operating income (loss)..................... 250,793 93,266 (66,469) (67,691) 209,899
Interest expense............................ 185,371 55,275 54,062 93,659 388,367
Capital expenditures and acquisitions....... 182,082 1,325,059 252,290 88,214 1,847,645
Equity in net (losses) income of
affiliates.............................. (12,143) 428 (830) (50,989) (63,534)
Three Months Ended September 30, 1995
Revenue..................................... $368,453 $391,491 $97,830 $12,475 $870,249
Depreciation and amortization............... 95,196 24,804 21,981 5,651 147,632
Operating income (loss)..................... 86,759 34,901 17,974 (23,122) 116,512
Interest expense............................ 61,467 20,459 18,485 37,405 137,816
Capital expenditures and acquisitions....... 69,395 7,465 26,021 36,731 139,612
Equity in net losses of affiliates.......... (5,222) (180) (295) (19,931) (25,628)
As of September 30, 1995
Assets...................................... $4,592,759 $1,940,826 $1,237,823 $1,465,969 $9,237,377
Long-term debt, less current portion........ 2,877,481 1,013,007 906,711 1,822,296 6,619,495
Nine Months Ended September 30, 1994
Revenue..................................... $792,523 $ $205,393 $17,171 $1,015,087
Depreciation and amortization............... 166,448 66,285 10,576 243,309
Operating income (loss)..................... 219,141 22,994 (49,246) 192,889
Interest expense............................ 109,652 41,791 77,021 228,464
Capital expenditures and acquisitions....... 131,811 46,305 15,231 193,347
Equity in net (losses) income of
affiliates.............................. (6,364) 7,784 (30,837) (29,417)
Three Months Ended September 30, 1994
Revenue.. .................................. $265,901 $ $74,407 $5,436 $345,744
Depreciation and amortization .............. 56,307 22,651 3,857 82,815
Operating income (loss) .................... 72,303 9,101 (18,094) 63,310
Interest expense ........................... 36,889 14,398 24,425 75,712
Capital expenditures and acquisitions ...... 50,773 22,077 7,010 79,860
Equity in net (losses) income of
affiliates ............................. (1,877) 3,015 (12,040) (10,902)
- ---------------
<FN>
(1) Corporate and other includes certain operating businesses and elimination
entries related to the segments presented.
</FN>
</TABLE>
<PAGE>13
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company has experienced significant growth in recent years both through
strategic acquisitions and growth in its existing businesses. The Company has
historically met its cash needs for operations through its cash flows from
operating activities. Cash requirements for acquisitions and capital
expenditures have been provided through the Company's financing activities as
well as its existing cash and cash equivalents and short-term investments.
General Developments of Business
QVC
In February 1995, the Company and Tele-Communications, Inc. ("TCI") acquired all
of the outstanding stock of QVC, Inc. ("QVC") not previously owned by the
Company and TCI (approximately 65% of such shares on a fully diluted basis) for
$46, in cash, per share. The total cost of acquiring the outstanding shares of
QVC was approximately $1.4 billion. Following the acquisition, the Company and
TCI own, through their respective subsidiaries, 57.45% and 42.55%, respectively,
of QVC. The Company has accounted for the QVC acquisition under the purchase
method of accounting and QVC has been consolidated with the Company beginning in
February 1995. The allocation of the purchase price to the assets and
liabilities of QVC is preliminary pending receipt of a final appraisal.
The acquisition of QVC, including the exercise of certain warrants held by the
Company, was financed with cash contributions from the Company and TCI of $296.3
million and $6.6 million, respectively, borrowings of $1.1 billion under a $1.2
billion QVC credit facility and existing cash and cash equivalents held by QVC.
Liberty Media Corporation, a subsidiary of TCI, may, at certain times following
February 9, 2000, trigger the exercise of certain exit rights.
Maclean Hunter
On December 22, 1994, the Company, through Comcast MHCP Holdings, L.L.C. (the
"LLC"), acquired the U.S. cable television and alternate access operations of
Maclean Hunter Limited ("Maclean Hunter") from Rogers Communications Inc.
("RCI") and all of the outstanding shares of Barden Communications, Inc.
(collectively, such acquisitions are referred to as the "Maclean Hunter
Acquisition") for approximately $1.2 billion (subject to certain adjustments) in
cash. The Company and the California Public Employees' Retirement System
("CalPERS") invested approximately $305.0 million and $250.0 million,
respectively, in the LLC, which is owned 55% by a wholly owned subsidiary of the
Company and 45% by CalPERS, and is managed by the Company. The Maclean Hunter
Acquisition, including certain transaction costs, was financed with cash
contributions from the LLC of $555.0 million and borrowings of $715.0 million
under an $850.0 million Maclean Hunter credit facility. At any time after
December 18, 2001, CalPERS may elect to liquidate its interest in the LLC at a
price based upon the fair value of CalPERS' interest in the LLC, adjusted, under
certain circumstances, for certain performance criteria relating to the fair
value of the LLC or to the Company's common stock. Except in certain limited
circumstances, the Company, at its option, may satisfy this liquidity
arrangement by purchasing CalPERS' interest for cash, through the issuance of
the Company's common stock (subject to certain limitations) or by selling the
LLC. The Maclean Hunter Acquisition was accounted for under the purchase method
of accounting and Maclean Hunter is consolidated with the Company as of December
31, 1994.
<PAGE>14
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
The allocation of the purchase price to the assets and liabilities of Maclean
Hunter is preliminary pending the final purchase price adjustment between the
Company and RCI. The terms of the Maclean Hunter Acquisition provide for, among
other things, the indemnification of the Company by RCI for certain liabilities,
including tax liabilities, relating to Maclean Hunter prior to the acquisition
date.
Sprint Telecommunications Venture
On March 28, 1995, subsidiaries of the Company, TCI, Sprint Corporation
("Sprint") and Cox Communications, Inc. ("Cox") formed several partnerships to
engage in the business of providing wireless and wireline telephony services.
The principal partnership is known as the Sprint Telecommunications Venture
("STV"). The parties have agreed that STV and its affiliated partnerships will
be the exclusive vehicles for their respective investments in certain specified
telecommunications activities, subject to certain limited exceptions. STV and
the parties will cross-promote telecommunications products and services using
the "Sprint" brand name with cable services and products branded by Cox, TCI or
the Company in their cable television systems. A partnership owned entirely by
subsidiaries of the Company, known as Comcast Telephony Services, owns 15% of
STV and, indirectly, each of STV's affiliated partnerships.
STV will engage in the business of providing wireless communications services,
primarily personal communication services ("PCS"), through a partnership known
as WirelessCo. Through WirelessCo, the partners propose to create and operate a
seamless, integrated, nationwide wireless communications network. During the
term of a trademark license from an affiliate of Sprint, WirelessCo's services
will be marketed under the "Sprint" brand name.
WirelessCo was the successful bidder for 29 PCS licenses in the auction
conducted by the Federal Communications Commission ("FCC") from December 1994
through mid-March 1995. The purchase price for the licenses was approximately
$2.11 billion, all of which has been paid to the FCC. WirelessCo may also elect
to bid in subsequent auctions for PCS licenses. In addition, WirelessCo has and
may continue to invest in other entities that hold PCS licenses, may acquire PCS
licenses from other license holders and may affiliate with other license
holders.
STV will also engage in the business of providing local wireline telephone
service for both business and residential customers, primarily through the cable
networks of cable television operators that affiliate with the partnership in
exchange for agreed upon compensation. Cox, TCI and the Company have agreed to
affiliate their cable systems with STV to the extent that their systems are
located in markets designated in STV's business plan. The offering of local
wireline telephone services by the partnership will require the removal of
regulatory and legislative barriers to local telephone competition.
The STV partners intend that the partnership will succeed to the business
currently conducted by Cox, TCI and the Company, together with Continental
Cablevision, Inc. ("Continental"), through Teleport Communications Group Inc.
and TCG Partners (collectively, "TCG"). TCG is one of the largest competitive
access providers in the United States. Pursuant to a contribution agreement
entered into on March 28, 1995, Cox, TCI and the Company have agreed, subject to
the satisfaction of certain conditions, to contribute to STV their respective
interests in TCG and in various local joint ventures among local cable operators
and TCG. Such contributions will be subject to the receipt of necessary
regulatory approvals and the satisfaction of other conditions. In addition, the
cable partners intend to negotiate with Continental, which owns that portion of
TCG that is not owned by Cox, TCI or the Company, regarding the acquisition of
its interest by such cable partners.
E.W. Scripps
On October 29, 1995, the Company announced its agreement to purchase the cable
television operations of The E.W. Scripps Company ("E.W. Scripps") in exchange
for shares of the Company's Class A Special Common Stock worth $1.575 billion,
subject to certain adjustments (the "Scripps Transaction"). E.W. Scripps' cable
properties, including
<PAGE>15
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
a pending acquisition, serve approximately 800,000 subscribers, with over 60% of
the subscribers located in Sacramento, California and Chattanooga and Knoxville,
Tennessee. The purchase is expected to close in the second half of 1996, subject
to shareholder and regulatory approval and certain other conditions.
Share Repurchase Program
Concurrent with the announcement of the Scripps Transaction, the Company
announced that its Board of Directors has authorized the repurchase of up to
$500 million of its outstanding publicly held common equity securities. The
Company expects any such repurchases to be effected from time to time in the
open market or in private transactions, subject to market conditions.
--------------------
Liquidity and Capital Resources
Cash and cash equivalents and short-term investments as of September 30, 1995
and December 31, 1994 were $828.4 million and $465.5 million, respectively. A
portion of these cash and cash equivalents is held by subsidiaries of the
Company and is restricted to the use by these subsidiaries under contractual or
other arrangements.
The Company's cash and cash equivalents and short-term investments are recorded
at cost which approximates their fair value. At September 30, 1995, the
Company's short-term investments of $211.9 million had a weighted average
maturity of approximately 14 months. However, due to their high degree of
liquidity and the intent of management to use these investments as needed to
fund its commitments, the Company considers these as current assets.
In January 1995, the Company exchanged its interest in Heritage Communications,
Inc. with TCI for Class A common shares of TCI with a fair market value of
approximately $290 million (the "Heritage Transaction"). Shortly thereafter, the
Company sold certain of these shares for total proceeds of approximately $188
million which were used to fund, in part, the acquisition of QVC. As a result of
these transactions, the Company recognized a pre-tax gain of $141 million in the
first quarter of 1995.
In April 1995, the Company exercised certain preemptive rights under previously
existing agreements with Nextel Communications, Inc. ("Nextel") whereby the
Company has elected to purchase approximately 9 million newly issued Nextel
shares at $12.25 per share for a total cost of approximately $110 million (the
"Nextel Share Purchase Commitment"). The purchase is contingent on the closing
of an acquisition transaction by Nextel which is expected to occur in the fourth
quarter of 1995.
In July 1995, the Company sold 11.3 million shares of Nextel common stock for
$212.6 million (the "Nextel Transaction"). As a result of this transaction, the
Company recognized a pre-tax gain of $36.2 million in the third quarter of 1995.
The Company continues to hold options to acquire 25.0 million shares of Nextel
common stock in addition to the Nextel Share Purchase Commitment.
In May 1995, the Company completed the initial phase of its exchange agreement
with McCaw Cellular Communications, Inc. whereby the Company acquired a 75%
interest in the entity that holds the Ocean County, NJ Rural Statistical Area
("RSA") cellular license (the "Ocean County Licensee") in exchange for the
Company's Hunterdon County, NJ RSA cellular license and $37.8 million in cash.
The Company acquired the remaining 25% interest in the Ocean County Licensee in
October 1995 for $17.4 million.
Subject to agreement upon an initial business plan, the partners have committed
to contribute $4.4 billion in cash to STV during the next three years, of which
the Company's share would be $660 million, subject to reduction resulting from
the method of crediting in-kind contributions to STV by the partners. Of the
$660 million funding requirement, the Company has made total cash capital
contributions to WirelessCo of approximately $338.8 million
<PAGE>16
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
through September 30, 1995. The partners' capital contributions to WirelessCo
have been principally used to pay for the 29 PCS licenses acquired in the FCC
auction and to acquire interests in another entity that holds a PCS license.
Additional equity requirements of STV will be funded by the partners through
capital contributions to STV in proportion to their ownership interests. The
Company anticipates that STV's capital requirements over the next several years
will be significant. These requirements are planned to be funded by external
financing by STV in addition to capital contributions by the partners. Although
it is anticipated that external financing will be available to STV on acceptable
terms and conditions, no assurances can be given as to such availability.
On May 16, 1995, the Company issued $250.0 million principal amount of its
9-3/8% senior subordinated debentures due 2005. On October 3, 1995, the Company
issued $250.0 million principal amount of its 9-1/8% senior subordinated
debentures due 2006. On November 9, 1995, Comcast UK Cable Partners Limited
("Comcast UK"), a subsidiary of the Company, agreed to sell approximately $517.3
million principal amount at maturity of its 11.20% senior discount debentures
due 2007 for gross proceeds of approximately $300.0 million in a public
offering. Closing of the public offering is anticipated to occur on November 15,
1995.
As of October 31, 1995, certain of the Company's subsidiaries had unused lines
of credit totaling approximately $1.5 billion. Use of these unused lines of
credit is restricted to subsidiary debt refinancing, subsidiary general
corporate purposes and dividend declaration.
The Company expects to continue to recognize significant losses and to continue
to pay dividends; therefore, it anticipates that it will continue to have a
deficiency in stockholders' equity that will increase for the foreseeable
future. The telecommunications industry, including cable and cellular
communications, and the electronic retailing industry are experiencing
increasing competition and rapid technological changes. The Company's future
results of operations will be affected by its ability to react to changes in the
competitive environment and by its ability to implement new technologies.
However, management believes that competition, technological changes and its
deficiency in stockholders' equity will not significantly affect its ability to
obtain financing.
The Company believes that it will be able to meet its current and long-term
liquidity and capital requirements, including its fixed charges, through its
cash flows from operating activities, existing cash and cash equivalents and
short-term investments, sales of assets, lines of credit and other external
financing.
Statement of Cash Flows
Net cash provided by operating activities amounted to $371.7 million and $255.1
million during the nine months ended September 30, 1995 and 1994, respectively.
The increase of $116.6 million is principally due to the effects of the QVC and
Maclean Hunter acquisitions, offset by changes in working capital as a result of
seasonality of QVC's business and the timing of the Company's receipts and
disbursements.
Net cash provided by (used in) financing activities, which includes the
issuances of securities as well as borrowings, was $1.921 billion and ($148.3)
million during the nine months ended September 30, 1995 and 1994, respectively.
During the nine months ended September 30, 1995, the Company borrowed $3.112
billion including $1.1 billion in connection with the QVC acquisition, $1.085
billion in connection with the refinancing of certain subsidiaries'
indebtedness, $300.9 million associated with the funding of STV and $250.0
million principal amount of the Company's 9-3/8% senior subordinated debentures
due 2005. In addition, during the nine months ended September 30, 1995, the
Company redeemed and retired $1.161 billion of its long-term debt including
$904.8 million in connection with the refinancing of certain subsidiaries'
indebtedness. During the nine months ended September 30, 1994, the Company
repurchased or redeemed and retired $470.9 million of its long-term debt,
including the Company's $150.0 million, 11-7/8% senior subordinated debentures
due 2004, and received $209.4 million from the issuance of common stock of
Comcast UK.
<PAGE>17
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
Net cash used in (provided by) investing activities was $2.012 billion and
($72.2) million during the nine months ended September 30, 1995 and 1994,
respectively. During the nine months ended September 30, 1995, net cash used in
investing activities includes acquisitions of $1.371 billion, including the
acquisition of QVC, net of cash acquired, additional cash investments in
affiliates of $458.0 million, including capital contributions to STV of $320.7
million, additions to property and equipment of $476.6 million and net purchases
of short-term investments of $81.8 million. Such amounts were offset by proceeds
from sales of long-term investments of $400.7 million. During the nine months
ended September 30,1994, net proceeds of $320.9 million from the sale of
short-term investments were used principally to redeem and retire long-term
debt. In addition, during the nine months ended September 30, 1994, the
Company's capital expenditures and additional cash investments in affiliates
were $171.2 million and $61.6 million, respectively.
Results of Operations
The effects of the QVC and Maclean Hunter acquisitions have been to increase
significantly the Company's revenues and expenses resulting in substantial
increases in its operating income before depreciation and amortization,
depreciation and amortization expense and net interest expense (see "Operating
Results by Business Segment" below). As a result of the increases in
depreciation and amortization expense and interest expense associated with these
acquisitions and their financing, it is expected that the Company will continue
to recognize substantial losses for the foreseeable future.
Summarized consolidated financial information for the Company for the nine and
three months ended September 30, 1995 and 1994 is as follows (dollars in
millions, "NM" denotes percentage is not meaningful):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Increase / (Decrease)
1995 1994 $ %
<S> <C> <C> <C> <C>
Revenue $2,357.4 $1,015.1 $1,342.3 132.2%
Cost of goods sold from electronic retailing 584.6 584.6 NM
Operating, selling, general and administrative expenses 1,028.2 578.9 449.3 77.6%
-------- --------
Operating income before depreciation and
amortization (1) 744.6 436.2 308.4 70.7%
Depreciation and amortization 534.7 243.3 291.4 119.8%
-------- --------
Operating income 209.9 192.9 17.0 8.8%
-------- --------
Interest expense 388.4 228.5 159.9 70.0%
Investment income (216.8) (15.1) 201.7 NM
Equity in net losses of affiliates 63.5 29.4 34.1 116.0%
Minority interest and other (25.8) (3.5) 22.3 NM
Income tax expense (benefit) 32.5 (0.6) 33.1 NM
Extraordinary items (5.4) (11.7) (6.3) (53.8%)
-------- --------
Net loss ($37.3) ($57.5) ($20.2) (35.1%)
======== ========
</TABLE>
<PAGE>18
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Three Months Ended
September 30, Increase / (Decrease)
1995 1994 $ %
<S> <C> <C> <C> <C>
Revenue $870.2 $345.7 $524.5 151.7%
Cost of goods sold from electronic retailing 234.4 234.4 NM
Operating, selling, general and administrative expenses 371.7 199.6 172.1 86.2%
-------- --------
Operating income before depreciation and
amortization (1) 264.1 146.1 118.0 80.8%
Depreciation and amortization 147.6 82.8 64.8 78.3%
-------- --------
Operating income 116.5 63.3 53.2 84.0%
-------- --------
Interest expense 137.8 75.7 62.1 82.0%
Investment income (51.4) (5.0) 46.4 NM
Equity in net losses of affiliates 25.6 10.9 14.7 134.9%
Minority interest and other (12.0) (0.1) 11.9 NM
Income tax expense (benefit) 18.4 (1.0) 19.4 NM
Extraordinary items (5.4) 5.4 NM
-------- --------
Net loss ($7.3) ($17.2) ($9.9) (57.6%)
======== ========
- ------------
<FN>
(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 the Company's businesses. Operating
cash flow does not purport to represent net income or net cash provided by
operating activities, as those terms are defined under generally accepted
accounting principles, and should not be considered as an alternative to
such measurements as an indicator of the Company's performance. See
"Statement of Cash Flows" above for a discussion of net cash provided by
operating activities.
</FN>
</TABLE>
Operating Results by Business Segment
Domestic Cable Communications
The following table sets forth operating results for the Company's domestic
cable communications segment (dollars in millions).
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Increase
1995 1994 $ %
<S> <C> <C> <C> <C>
Service income $1,078.0 $792.5 $285.5 36.0%
Operating, selling, general and
administrative expenses 548.3 406.9 141.4 34.8%
-------- ------ ------
Operating income before depreciation
and amortization (a) 529.7 385.6 144.1 37.4%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30, Increase
1995 1994 $ %
<S> <C> <C> <C> <C>
Service income $368.5 $265.9 $102.6 38.6%
Operating, selling, general and
administrative expenses 186.5 137.3 49.2 35.8%
-------- ------ ------
Operating income before depreciation
and amortization (a) 182.0 128.6 53.4 41.5%
- ---------------
<FN>
(a) See footnote (1) above.
</FN>
</TABLE>
<PAGE>19
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
The Maclean Hunter acquisition accounted for $199.9 million and $67.9 million of
the increases in service income for the nine and three month periods from 1994
to 1995, respectively. Of the remaining respective increases of $85.6 million
and $34.7 million, $32.4 million and $10.2 million, respectively, are
attributable to subscriber growth, $39.6 million and $18.0 million,
respectively, relate to changes in rates, which include the change in the
estimated effects of cable rate regulation, $10.3 million and $4.0 million,
respectively, result from growth in cable advertising sales and $3.3 million and
$2.5 million, respectively, relate to growth in other product offerings.
The Maclean Hunter acquisition accounted for $107.8 million and $36.5 million of
the increases in operating, selling, general and administrative expenses for the
nine and three month periods from 1994 to 1995, respectively. Of the remaining
respective increases of $33.6 million and $12.7 million, $15.7 million and $4.8
million, respectively, are attributable to increases in the costs of cable
programming as a result of subscriber growth, additional channel offerings and
changes in rates, $5.4 million and $1.8 million, respectively, are attributable
to increases in expenses associated with the growth in cable advertising sales
and $12.5 million and $6.1 million, respectively, result from increases in the
cost of labor and other volume related expenses. It is anticipated that the
Company's cost of cable programming will increase in the future as cable
programming rates increase and additional sources of cable programming become
available.
Electronic Retailing
As a result of the QVC acquisition, the Company commenced consolidating the
financial results of QVC, effective February 1, 1995, on a current basis. The
following table presents comparative pro forma financial information for the
nine and three months ended September 30, 1995 and 1994 and is presented herein
for purposes of analysis and may not reflect what actual operating results would
have been had the Company owned QVC since January 1, 1994 (dollars in millions).
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Increase
1995 1994 $ %
<S> <C> <C> <C> <C>
Net sales from electronic retailing $1,107.4 $949.3 $158.1 16.7%
Cost of goods sold from electronic retailing 662.7 577.7 85.0 14.7%
Operating, selling, general and administrative
expenses 266.2 230.0 36.2 15.7%
-------- ------ ------
Operating income before depreciation
and amortization (a) 178.5 141.6 36.9 26.1%
Cost of goods sold as a percentage of net sales 59.8% 60.9%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30, Increase
1995 1994 $ %
<S> <C> <C> <C> <C>
Net sales from electronic retailing $391.5 $339.9 $51.6 15.2%
Cost of goods sold from electronic retailing 234.4 208.8 25.6 12.3%
Operating, selling, general and administrative
expenses 97.4 83.9 13.5 16.1%
-------- ------ ------
Operating income before depreciation
and amortization (a) 59.7 47.2 12.5 26.5%
Cost of goods sold as a percentage of net sales 59.9% 61.4%
- ---------------
<FN>
(a) See footnote (1) on page 18.
</FN>
</TABLE>
<PAGE>20
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
The consolidation of QVC's United Kingdom operations effective April 1, 1995
resulted in increases in net sales from electronic retailing of $26.5 million
and $14.7 million for the nine and three month periods from 1994 to 1995,
respectively. The remaining respective increases of $131.6 million and $36.9
million include QVC's new businesses, which contributed $11.7 million and $4.3
million, respectively, and the effects of 9% and 10% increases, respectively, in
the average number of QVC homes receiving QVC services.
The increase in cost of goods sold from electronic retailing is directly related
to the growth in net sales. As a percentage of net sales, cost of goods sold has
remained relatively constant from 1994 to 1995. The increase in gross margin is
due to a slight change in product mix which resulted in the decrease in cost of
goods sold as a percentage of net sales.
The consolidation of QVC's United Kingdom operations effective April 1, 1995
resulted in increases in operating, selling, general and administrative expenses
of $11.8 million and $5.7 million for the nine and three month periods from 1994
to 1995, respectively. The remaining respective increases of $24.4 million and
$7.8 million are attributable to higher sales volume, increases in advertising
costs and additional costs associated with new businesses.
Cellular Communications
The following table sets forth the operating results for the Company's cellular
communications segment (dollars in millions).
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Increase
1995 1994 $ %
<S> <C> <C> <C> <C>
Service Income $274.2 $205.4 $68.8 33.5%
Operating, selling, general and administrative
expenses 163.5 116.1 47.4 40.8%
-------- ------ ------
Operating income before depreciation
and amortization (a) 110.7 89.3 21.4 24.0%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30, Increase
1995 1994 $ %
<S> <C> <C> <C> <C>
Service Income $97.8 $74.4 $23.4 31.5%
Operating, selling, general and administrative
expenses 57.8 42.6 15.2 35.7%
-------- ------ ------
Operating income before depreciation
and amortization (a) 40.0 31.8 8.2 25.8%
- ---------------
<FN>
(a) See footnote (1) on page 18.
</FN>
</TABLE>
Of the increases in service income for the nine and three month periods from
1994 to 1995, $77.0 million and $25.4 million, respectively, are attributable to
the Company's subscriber growth, $9.5 million and $3.7 million, respectively,
are attributable to growth in roamer revenue as a result of the overall growth
in the cellular industry and $2.0 million and $1.1 million, respectively, are
attributable to new products. Offsetting these increases are decreases of $19.7
million and $6.8 million, respectively, resulting from reductions
<PAGE>21
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
in average minutes-of-use per cellular subscriber from 1994 to the same periods
in 1995. The Company expects that the decrease in average minutes-of-use per
cellular subscriber to continue in the future, which is consistent with industry
trends.
Of the increases in operating, selling, general and administrative expenses for
the nine and three month periods from 1994 to 1995, $24.6 million and $6.5
million, respectively, are related to subscriber growth, including the costs to
acquire and service subscribers. The remaining increases of $22.8 million and
$8.7 million, respectively, are due to increases in other expenses, including
subscriber retention costs, theft of service and administrative costs.
Consolidated Analysis
The increases in depreciation and amortization expense are due to the
acquisitions of QVC and Maclean Hunter, the effects of the rebuild of certain of
the Company's cellular equipment, as described below, and capital expenditures
during the periods.
In 1995, the Company's cellular division purchased approximately $172.0 million
of switching and cell site equipment which replaced the existing switching and
cell site equipment. The Company completed the rebuild in the third quarter of
1995. In accordance with the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," during the first quarter of 1995, the
Company charged to its results of operations approximately $110.0 million which
represented the difference between the net book value of the equipment replaced
and the residual value realized upon its disposal. This charge has been
reflected in the Company's condensed consolidated statement of operations and
accumulated deficit as a component of depreciation and amortization expense.
The increases in interest expense are primarily due to increased levels of debt
associated with the acquisitions of QVC and Maclean Hunter. The Company
anticipates that, for the foreseeable future, interest expense will be a
significant cost to the Company and will have a significant adverse effect on
the Company's ability to realize net earnings. The Company believes it will
continue to be able to meet its obligations through its ability both to generate
operating income before depreciation and amortization and to obtain external
financing.
The Company has entered into interest rate protection agreements to limit the
Company's exposure to loss from adverse fluctuations in interest rates. As of
September 30, 1995, $815.0 million of the Company's variable rate debt was
protected by these products. Such agreements mature on various dates through
1997 and the related differentials to be paid or received are recognized over
the terms of the agreements.
The increase in investment income for the nine months ended September 30, 1995
is principally due to the effects of the Heritage Transaction and Nextel
Transaction. The increase for the three months ended September 30, 1995 is
principally due to the effects of the Nextel Transaction. The remaining
increases for these periods are due to increases in the Company's cash and cash
equivalents and short term investments.
The increases in equity in net losses of affiliates are due to increased losses
incurred by the Company's international investees as well as losses incurred by
STV and certain programming investees.
The changes in minority interest and other from 1994 to the same periods in 1995
are attributable to minority interests in the net income or loss of QVC, Maclean
Hunter and the Company's United Kingdom operations, as well as losses incurred
relating to the net realizable value of certain of the Company's investments,
principally in affiliates.
<PAGE>22
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
The increases in income tax expense (benefit) from 1994 to the same periods in
1995 are primarily attributable to the consolidation of QVC for financial
reporting purposes.
The Company incurred debt extinguishment costs totaling $8.3 million during the
nine and three months ended September 30, 1995, as a result of refinancing the
indebtedness of certain subsidiaries, resulting in the Company recording an
extraordinary loss, net of tax, of $5.4 million or $.02 per share. During the
nine months ended September 30, 1994, the Company paid premiums and expensed
unamortized debt acquisition costs totaling $18.0 million, primarily as a result
of the redemption of its $150.0 million, 11-7/8% senior subordinated debentures
due 2004, resulting in the Company recording an extraordinary loss, net of tax,
of $11.7 million or $.05 per share.
The Company believes that its operations are not materially affected by
inflation.
For the nine and three months ended September 30, 1995 and 1994, the Company's
earnings before extraordinary items, income tax expense (benefit), equity in net
losses of affiliates and fixed charges (interest expense) were $452.5 million,
$211.5 million, $179.9 million and $68.4 million, respectively. For the three
months ended September 30, 1995, such earnings exceeded the Company's fixed
charges of $137.8 million. Excluding the pre-tax gain of $141 million recognized
in the first quarter of 1995 in connection with the Heritage Transaction, such
earnings were not adequate to cover the Company's fixed charges of $388.4
million, $228.5 million and $75.7 million for the nine months ended September
30, 1995 and 1994 and the three months ended September 30, 1994, respectively.
Fixed charges include non-cash interest of $41.4 million, $40.1 million, $14.0
million and $13.8 million for the nine and three months ended September 30, 1995
and 1994, respectively. For all applicable periods, the inadequacy of these
earnings to cover fixed charges is primarily due to the substantial non-cash
charges for depreciation and amortization expense, including the first quarter
1995 charge associated with the rebuild of certain of the Company's cellular
equipment.
The Company believes that its losses and inadequacy of earnings to cover fixed
charges will not significantly affect the performance of its normal business
activities because of its existing cash and cash equivalents and short-term
investments, its ability to generate operating income before depreciation and
amortization and its ability to obtain external financing.
Cable Rate Regulation Developments
The Company currently is seeking to justify rates for regulated services in
certain of its cable systems in the States of New Jersey and Connecticut on the
basis of cost-of-service showings. A settlement has been reached with the State
of New Jersey with respect to rates for basic cable services and equipment. The
State of Connecticut has ordered the Company to reduce rates for basic cable
services and equipment and to make refunds to subscribers. The Connecticut
decision has been appealed to the FCC. The Company and the FCC staff have
reached agreement, subject to Commission approval, on outstanding
cost-of-service rate complaints for cable programming services for systems in
the States of New Jersey and Connecticut. The proposed settlement will also
resolve outstanding complaints with regard to "benchmark" rate regulation in
other systems. Absent legislative, administrative or judicial relief, the FCC
regulations will continue to adversely affect the Company's results of
operations.
<PAGE>23
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
1. In March 1995, the Company entered into agreements to settle various
disputes pending in the courts and at the FCC regarding the ownership,
operation and transfer of the license for a cellular telephone system
in the Atlantic City, New Jersey MSA. As part of that settlement, the
Company, in June 1995, purchased an 80% interest in a cellular
telephone system in the Vineland, New Jersey RSA and an additional
9.3% interest in a cellular telephone system in the Atlantic City MSA.
The remaining portion of the settlement, which resolves various claims
and disputes and in addition involves the transfer to the Company of
control of the Atlantic City cellular telephone system, is subject to
a favorable determination at the FCC of proceedings concerning the
status of the current Atlantic City cellular licensee, approval by the
FCC of the transfer to the Company of the cellular license, other
regulatory approvals and consents of third parties.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
10.1/*/ Credit Agreement, dated as of September 14, 1995, between
Comcast Cellular Communications, Inc., the banks listed
therein, The Bank of New York, Barclays Bank PLC, The Chase
Manhattan Bank, N.A., PNC Bank, National Association, and
The Toronto-Dominion Bank, as Arranging Agents, and Toronto
Dominion (Texas), Inc., as Administrative Agent.
10.2/*/ Credit Agreement, dated as of September 19, 1995, between
Comcast Holdings, Inc., the banks listed therein, The Chase
Manhattan Bank, N.A., as Arranging Agent, Bank of Montreal,
CIBC Inc., The Long-term Credit Bank of Japan, Limited,
Royal Bank of Canada and Societe Generale, as Managing
Agents, and The Chase Manhattan Bank, N.A., as
Administrative Agent.
10.3 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 Form S-8 of Comcast Corporation filed on
October 5, 1995).
10.4 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 Form S-8
of Comcast Corporation filed on October 5, 1995).
27.1 Financial Data Schedule.
/*/ 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.
(b) Reports on Form 8-K - None
<PAGE>24
COMCAST CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1995
SIGNATURE
Pursuant to the Requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMCAST CORPORATION
/s/ Lawrence S. Smith
----------------------------------
Lawrence S. Smith
Senior Vice President
Accounting and Administration
(Chief Accounting Officer)
Date: November 14, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of operations and consolidated balance sheet and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000022301
<NAME> COMCAST CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 616,490
<SECURITIES> 211,943
<RECEIVABLES> 420,552
<ALLOWANCES> (83,993)
<INVENTORY> 223,938
<CURRENT-ASSETS> 1,491,535
<PP&E> 2,447,011
<DEPRECIATION> (892,893)
<TOTAL-ASSETS> 9,237,377
<CURRENT-LIABILITIES> 1,146,067
<BONDS> 6,619,495
<COMMON> 239,918
0
0
<OTHER-SE> (992,235)
<TOTAL-LIABILITY-AND-EQUITY> 9,237,377
<SALES> 2,357,427
<TOTAL-REVENUES> 2,357,427
<CGS> (584,615)
<TOTAL-COSTS> (2,147,528)
<OTHER-EXPENSES> (63,534)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (388,367)
<INCOME-PRETAX> 595
<INCOME-TAX> (32,470)
<INCOME-CONTINUING> (31,875)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,407)
<CHANGES> 0
<NET-INCOME> (37,282)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
