<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) of the
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 9, 1995
COMCAST CORPORATION
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 0-6983 23-1709202
- ---------------- ------------------ ----------------
(State or other (Commission file (IRS employer
jurisdiction of number) identification
incorporation) 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
--------------
<PAGE>
Item 2. Acquisition or Disposition of Assets.
- ------ ------------------------------------
QVC, Inc.
---------
As a result of a tender offer which expired on February 9, 1995 and a
second-step merger (the "Merger") which closed February 15, 1995, Comcast
Corporation (the "Company") and Tele-Communications, Inc. ("TCI") acquired all
of the outstanding stock of QVC, Inc. ("QVC") for $46, in cash, per share of
common stock (or common stock equivalent) of QVC. The total net cost of
acquiring the outstanding stock of QVC not previously owned by the Company and
TCI was approximately $1.4 billion. Following the Merger, the Company and TCI
own, through their respective wholly-owned subsidiaries, approximately 57.45%
and 42.55%, respectively, of QVC. The Company has accounted for the QVC
acquisition under the purchase method of accounting.
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
approximately $296.3 million and $6.6 million, respectively, borrowings of
approximately $1.1 billion under a $1.2 billion QVC credit facility (the "QVC
Credit Facility") and existing cash and cash equivalents held by QVC. The QVC
Credit Facility is among QVC, The Bank of New York Company, Inc., Barclays Bank
PLC, Chemical Bank, NationsBank, N.A. (Carolinas) and the Toronto-Dominion Bank,
as Managing Agents, The Bank of New York, as Administrative Agent, and several
other banks.
QVC is a nationwide general merchandise retailer, operating as one of the
leading televised shopping retailers in the United States.
The day-to-day operations of QVC will, except in certain limited
circumstances, be managed by the Company, which will have the right to appoint
all of the members of the QVC board of directors and a majority of the members
of a management committee. Liberty Media Corporation ("Liberty"), a wholly-owned
subsidiary of TCI, will have the right to approve certain limited extraordinary
transactions or actions by QVC and will have the right to participate in certain
management decisions through minority representation on the management
committee.
With certain exceptions, direct or indirect transfers to unaffiliated
third parties by the Company or Liberty of any stock in QVC are subject to a
right of first refusal (or similar right) in favor of the other. In addition,
prior to February 9, 2000, direct or indirect transfers of any interest in QVC
are restricted; however, the Company may, among other things, sell an indirect
minority interest in its QVC stock and, subject to the right of Liberty to
participate on equal terms, sell to an unaffiliated third party all of its stock
in QVC. A change in
2
<PAGE>
control of either the Company or Liberty will not trigger any right of the other
to purchase the QVC stock held by the party who is subject to such change of
control.
With certain exceptions, Liberty may, at any time during the 60-day
period following February 9, 2000 (or if not previously exercised, at any time
during the 60-day period following each of the four anniversaries thereof),
trigger the exercise of certain exit rights. If the exit rights are triggered,
the Company first has the right to purchase Liberty's stock in QVC at a price
equal to 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 shares of QVC held by Liberty,
then Liberty will have the right to purchase the shares of QVC held by the
Company on the same terms on which Liberty's shares of QVC were offered to the
Company. If Liberty elects not to purchase the shares of QVC held by the
Company, then Liberty and the Company will use their best efforts to sell QVC in
a sale in which Liberty, the Company or any of their respective affiliates may
be purchasers.
Item 7. Financial Statements and Exhibits.
- ------ ---------------------------------
(a) Financial Statements
--------------------
The Company's Unaudited Pro Forma Condensed Consolidated Financial
Statements, the Consolidated and Combined Financial Statements of
Comcast MHCP Holdings, L.L.C. and the Consolidated Financial Statements
of QVC, Inc. are included in this Report and are listed in the Index to
Pro Forma Financial Information and Financial Statements included
immediately after the Exhibit Index of this Report.
(b) Exhibits
--------
Exhibit No.
-----------
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of KPMG Peat Marwick LLP
3
<PAGE>
SIGNATURE
---------
Pursuant to the requirements 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.
Dated: April 25, 1995 COMCAST CORPORATION
By: /s/ Lawrence S. Smith
----------------------
Lawrence S. Smith
Senior Vice President
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Exhibit
- ----------- -------
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of KPMG Peat Marwick LLP
<PAGE>
COMCAST CORPORATION
INDEX TO PRO FORMA FINANCIAL INFORMATION
AND FINANCIAL STATEMENTS
Comcast Corporation - Unaudited Pro Forma Financial Information
- ---------------------------------------------------------------
Unaudited Pro Forma Financial Information F- 1
Unaudited Pro Forma Condensed Consolidated
Balance Sheet - December 31, 1994 F- 2
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year ended December 31, 1994 F- 3
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements F- 4
Comcast MHCP Holdings, L.L.C. and the Predecessor Corporation
- -------------------------------------------------------------
Independent Auditors' Report F-10
Auditors' Report F-11
Consolidated and Combined Balance Sheets as of
December 31, 1994 and 1993 F-12
Consolidated and Combined Statements of Operations for
the Periods from January 1, 1994 to December 21, 1994
and December 22, 1994 to December 31, 1994 and Years
ended December 31, 1993 and 1992 F-13
Consolidated and Combined Statements of Cash Flows
for the Periods from January 1, 1994 to December 21,
1994 and December 22, 1994 to December 31, 1994 and
Years ended December 31, 1993 and 1992 F-14
Combined Statement of Changes in Net Equity for the
Period from January 1, 1994 to December 21, 1994 and
Years ended December 31, 1993 and 1992 and Consolidated
Statement of Changes in Members' Equity for the Period
from December 22, 1994 to December 31, 1994 F-15
Notes to Consolidated and Combined Financial Statements F-16
QVC, Inc.
- --------
Independent Auditors' Report F-25
Consolidated Balance Sheets as of January 31, 1995 and
1994 F-26
Consolidated Statements of Operations for the Years
ended January 31, 1995, 1994 and 1993 F-27
Consolidated Statements of Cash Flows for the Years
ended January 31, 1995, 1994 and 1993 F-28
Consolidated Statements of Shareholders' Equity
for the Years Ended January 31, 1995, 1994 and 1993 F-29
Notes to Consolidated Financial Statements F-30
<PAGE>
UNAUDITED PRO FORMA
FINANCIAL INFORMATION
On December 22, 1994, Comcast Corporation (the "Company") acquired the U.S.
cable television and alternate access operations of Maclean Hunter Limited
("Maclean Hunter") from Rogers Communications Inc. and all of the outstanding
shares of Barden Communications, Inc. (collectively, such acquisitions are
referred to herein as the "Maclean Hunter Acquisition") for approximately $1.2
billion (subject to certain adjustments) in cash. 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 (the "QVC
Acquisition") for approximately $1.4 billion (net) in cash. For a further
description of the Maclean Hunter Acquisition, the QVC Acquisition and related
transactions, see the notes to unaudited pro forma condensed consolidated
financial statements.
The following unaudited pro forma condensed consolidated financial statements
reflect the pro forma consolidated financial position of the Company, Maclean
Hunter and QVC as of December 31, 1994, and their consolidated operations for
the year ended December 31, 1994. See the notes to unaudited pro forma condensed
consolidated financial statements for a description of the assumptions used in
preparing these unaudited pro forma condensed consolidated financial statements.
The unaudited pro forma condensed consolidated balance sheet assumes the QVC
Acquisition occurred on December 31, 1994. The unaudited pro forma condensed
consolidated statement of operations for the year ended December 31, 1994
assumes the Maclean Hunter Acquisition and the QVC Acquisition occurred on
January 1, 1994.
The unaudited pro forma condensed consolidated financial statements should be
read in conjunction with: 1) the consolidated financial statements of
the Company included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1994; 2) the consolidated and combined financial statements
of Comcast MHCP Holdings, L.L.C. and the Predecessor Corporation included in
this Current Report on Form 8-K for the periods from January 1, 1994 to
December 21, 1994 and December 22, 1994 to December 31, 1994; and 3) QVC's
consolidated financial statements included in this Current Report on Form 8-K
for the fiscal year ended January 31, 1995 and QVC's Quarterly Report on Form
10-Q for the fiscal quarter ended October 31, 1994 incorporated by reference in
this Current Report on Form 8-K.
The unaudited pro forma condensed consolidated statements of operations are not
necessarily indicative of the results which actually would have occurred had the
Maclean Hunter Acquisition and the QVC Acquisition occurred on the dates
indicated or which may result in the future.
F-1
<PAGE>
COMCAST CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(E)
The Company QVC Pro Forma The Company
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
- ------
Current Assets
Cash, cash equivalents and
short-term investments $465,454 $80,790 ($79,786) (F.1.,10.) $466,458
Accounts receivable, net 108,245 193,540 (1,149) (F.11.) 300,636
Inventories 18,553 198,012 216,565
Deferred income taxes 56,748 56,748
Other current assets 16,254 8,238 24,492
------------ ----------- ----------- -------------
Total Current Assets 608,506 537,328 (80,935) 1,064,899
Investments, principally in affiliates 797,075 6,345 (128,800) (F.2.,10.) 674,620
Property and Equipment, net 1,257,686 89,739 1,347,425
Deferred Income Taxes 20,271 (20,271) (F.3.)
Deferred Charges, net 4,099,717 355,674 983,564 (F.4.,6.,11.) 5,438,955
------------ ----------- ----------- -------------
$6,762,984 $1,009,357 $753,558 $8,525,899
============ =========== =========== =============
LIABILITIES AND STOCKHOLDERS'
- ----------------------------
(DEFICIENCY) EQUITY
- -------------------
Current Liabilities
Accounts payable and accrued expenses $477,725 $395,087 ($14,157) (F.7.,10.,11.) $858,655
Current portion of long-term debt 182,913 3,158 186,071
----------- ---------- ------------ ------------
Total Current Liabilities 660,638 398,245 (14,157) 1,044,726
Long-term Debt, less current portion 4,810,541 6,599 1,180,000 (F.5.) 5,997,140
Deferred Income Taxes 1,390,849 34,358 (F.3.,6.,10.) 1,425,207
Minority Interest and Other 627,745 66,373 (F.8.,11.) 694,118
Stockholders' (Deficiency) Equity
Common stock 239,037 409 (409) (F.9.) 239,037
Convertible preferred stock 50 (50) (F.9.)
Additional capital 875,501 451,659 (451,659) (F.9.) 875,501
(Accumulated deficit) retained earnings (1,827,647) 152,193 (60,696) (F.9.,10.) (1,736,150)
Unrealized gains on marketable securities 3,862 3,862
Cumulative translation adjustments (17,542) 202 (202) (F.9.) (17,542)
----------- ---------- ------------ -----------
Total Stockholders' (Deficiency) Equity (726,789) 604,513 (513,016) (635,292)
----------- ---------- ------------ -----------
$6,762,984 $1,009,357 $753,558 $8,525,899
=========== ========== ============ ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements
F-2
<PAGE>
COMCAST CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(B) Maclean The Company (E)
Maclean Hunter Pro Forma
The Company Hunter Pro Forma with Maclean QVC
Historical Historical Adjustments Hunter Historical
---------- ---------- ----------- ------ ----------
<S> <C> <C> <C> <C> <C>
Revenues, net $1,375,304 $258,316 $ $1,633,620 $1,336,674
------------ ------------ ------------ ------------ ------------
Operating, Selling, General and
Administrative Expenses 799,048 152,237 (4,248) (C.1.) 947,037 1,138,244
Depreciation and Amortization 336,462 36,437 131,693 (C.2.) 504,592 44,862
------------ ------------ ------------ ------------ ------------
1,135,510 188,674 127,445 1,451,629 1,183,106
------------ ------------ ------------ ------------ ------------
Operating Income 239,794 69,642 (127,445) 181,991 153,568
Investment (Income) Expense
Interest expense 313,477 7,610 64,312 (C.3.) 385,399 1,394
Investment income (24,606) (4,497) (29,103) (15,500)
Equity in net losses of affiliates 40,884 40,884 36,562
Other (5,402) 5,037 (39,091) (C.4.) (39,456) 34,800
------------ ------------ ------------ ------------ ------------
324,353 8,150 25,221 357,724 57,256
------------ ------------ ------------ ------------ ------------
(Loss) Income Before Income Taxes (Benefit) (84,559) 61,492 (152,666) (175,733) 96,312
Income Taxes (Benefit) (9,234) 25,943 (69,150) (C.5.) (52,441) 55,210
------------ ------------ ------------ ------------ ------------
(Loss) Income from Continuing Operations ($75,325) $35,549 ($83,516) ($123,292) $41,102
============ ============ ============ ============ ============
Loss from Continuing Operations Per Share ($0.32) ($0.52)
============ ============
Weighted Average Number of the Company's
Common Shares Outstanding During the Period 236,262 236,262
============ ============
The Company
QVC Pro Forma
Pro Forma with Maclean
Adjustments Hunter & QVC
----------- ------------
<S> <C> <C>
Revenues, net ($7,495) (F.12.) $2,962,799
------------ ------------
Operating, Selling, General and
Administrative Expenses (7,495) (F.12.) 2,077,786
Depreciation and Amortization 39,998 (F.13.) 589,452
------------ ------------
32,503 2,667,238
------------ ------------
Operating Income (39,998) 295,561
Investment (Income) Expense
Interest expense 97,444 (F.14.) 484,237
Investment income 3,956 (F.15.) (40,647)
Equity in net losses of affiliates 11,187 (F.16.) 88,633
Other (20,732) (F.17.) (25,388)
------------ ------------
91,855 506,835
------------ ------------
(Loss) Income Before Income Taxes (Benefit) (131,853) (211,274)
Income Taxes (Benefit) (50,460) (F.18.) (47,691)
------------ ------------
(Loss) Income from Continuing Operations ($81,393) ($163,583)
============ ============
Loss from Continuing Operations Per Share ($0.69)
============
Weighted Average Number of the Company's
Common Shares Outstanding During the Period 236,262
============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements
F-3
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MACLEAN HUNTER
- --------------
A. Summary of Transactions
-----------------------
On December 22, 1994, Comcast Corporation (the "Company"), through Comcast
MHCP Holdings, L.L.C. (the "LLC"), acquired the U.S. cable television and
alternate access operations of Maclean Hunter Limited ("Maclean Hunter")
from Rogers Communications Inc. ("RCI") and all of the outstanding shares
of Barden Communications, Inc. ("BCI," and collectively, such acquisitions
are referred to as the "Maclean Hunter Acquisition") for approximately $1.2
billion (subject to certain adjustments) in cash. The Company and the
California Public Employees' Retirement System ("CalPERS") invested
approximately $305.0 million and $250.0 million, respectively, in the LLC,
which is owned 55% by a wholly owned subsidiary of the Company and 45% by
CalPERS, and is managed by the Company. The Maclean Hunter Acquisition,
including certain transaction costs, was financed with cash contributions
from the LLC of $555.0 million and borrowings of $715.0 million under an
$850.0 million Maclean Hunter credit facility. At any time after December
18, 2001, CalPERS may elect to liquidate its interest in the LLC at a price
based upon the fair value of CalPERS' interest in the LLC, adjusted, under
certain circumstances, for certain performance criteria relating to the
fair value of the LLC or to the Company's common stock. Except in certain
limited circumstances, the Company, at its option, may satisfy this
liquidity arrangement by purchasing CalPERS' interest for cash, through the
issuance of the Company's common stock (subject to certain limitations) or
by selling the LLC. The Maclean Hunter Acquisition was accounted for under
the purchase method of accounting and Maclean Hunter and BCI are
consolidated with the Company as of December 31, 1994.
The allocation of the purchase price to the assets and liabilities of
Maclean Hunter is preliminary pending, among other things, the final
purchase price adjustment between the Company and RCI. The terms of the
Maclean Hunter Acquisition provide for, among other things, the
indemnification of the Company by RCI for certain liabilities, including
tax liabilities, relating to Maclean Hunter prior to the acquisition date.
B. Basis of Presentation
---------------------
Maclean Hunter, Inc. had historically operated a periodical publishing
business and had been the holding company for all of Maclean Hunter
Limited's other U.S. operations, which included cable television, business
forms and periodical publishing. Prior to the Maclean Hunter Acquisition,
F-4
<PAGE>
the non-cable television and non-alternate access businesses of Maclean
Hunter, Inc. were distributed to RCI. Accordingly, when the LLC acquired
the shares of Maclean Hunter, Inc., it only purchased the U.S. cable
television and alternate access businesses.
The historical consolidated and combined statement of operations of Maclean
Hunter included in the unaudited pro forma condensed consolidated statement
of operations represents the results of operations of the entities the LLC
acquired in the Maclean Hunter Acquisition and exclude the results of
operations of the non-cable television and non-alternate access operations
of Maclean Hunter.
C. Pro Forma Adjustments
---------------------
The following adjustments to the unaudited pro forma condensed consolidated
statement of operations have been made to reflect the Maclean Hunter
Acquisition:
1. Principally represents the elimination of historical management fees
paid by Maclean Hunter prior to the Maclean Hunter Acquisition.
2. Represents additional depreciation and amortization expense resulting
from the increased fair market value of the assets acquired in excess
of their historical book values and amortization of goodwill recorded
under Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"), offset, in part, by the elimination of
Maclean Hunter's historical goodwill amortization. Depreciation
expense is based on property and equipment lives ranging from 2 to 20
years. Amortization expense is based on an average life for deferred
charges (principally franchise and license acquisition costs) and
goodwill recorded under SFAS 109 of 12 years and 20 years,
respectively. Debt issuance costs are amortized over the term of the
related debt.
3. Represents the increase in interest expense due to the incurrence of
additional long-term indebtedness in connection with the Maclean
Hunter Acquisition, at a weighted average interest rate of 7.31%,
offset, in part, by the elimination of Maclean Hunter's historical
interest expense on balances due to affiliates and long-term debt.
4. Represents the additional minority interest resulting from CalPERS'
45% interest in the LLC, net of tax, and the elimination of minority
interests acquired in the Maclean Hunter Acquisition.
5. Represents adjustments to the tax provision
F-5
<PAGE>
resulting from the above pro forma adjustments.
QVC
- ---
D. Summary of Transactions
-----------------------
As a result of a tender offer which expired on February 9, 1995 and a
second-step merger (the "Merger") which closed February 15, 1995, Comcast
Corporation (the "Company") and Tele-Communications, Inc. ("TCI") acquired all
of the outstanding stock of QVC, Inc. ("QVC") for $46, in cash, per share of
common stock (or common stock equivalent) of QVC (the"QVC Acquisition"). The
total net cost of acquiring the outstanding stock of QVC not previously owned by
the Company and TCI was approximately $1.4 billion. Following the Merger, the
Company and TCI own, through their respective wholly-owned subsidiaries,
approximately 57.45% and 42.55%, respectively, of QVC. The Company has accounted
for the QVC acquisition under the purchase method of accounting.
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
approximately $296.3 million and $6.6 million, respectively, borrowings of
approximately $1.1 billion under a $1.2 billion QVC credit facility (the "QVC
Credit Facility") and existing cash and cash equivalents held by QVC. The QVC
Credit Facility is among QVC, The Bank of New York Company, Inc., Barclays Bank
PLC, Chemical Bank, NationsBank, N.A. (Carolinas) and the Toronto-Dominion Bank,
as Managing Agents, The Bank of New York, as Administrative Agent, and several
other banks.
QVC is a nationwide general merchandise retailer, operating as one of the
leading televised shopping retailers in the United States.
The day-to-day operations of QVC will, except in certain limited
circumstances, be managed by the Company, which will have the right to appoint
all of the members of the QVC board of directors and a majority of the members
of a management committee. Liberty Media Corporation ("Liberty"), a wholly-owned
subsidiary of TCI, will have the right to approve certain limited extraordinary
transactions or actions by QVC and will have the right to participate in certain
management decisions through minority representation on the management
committee.
With certain exceptions, direct or indirect transfers to unaffiliated
third parties by the Company or Liberty of any stock in QVC are subject to a
right of first refusal (or similar right) in favor of the other. In addition,
prior to February 9, 2000, direct or indirect transfers of any interest in QVC
are restricted; however, the Company may, among other things, sell an indirect
minority interest in its QVC stock and, subject to the right of Liberty to
participate on equal terms, sell to an unaffiliated third party all of its stock
in QVC. A change in control of either the Company or Liberty will not trigger
any right of the other to purchase the QVC stock held by the party who is
subject to such change of control.
With certain exceptions, Liberty may, at any time during the 60-day
period following February 9, 2000 (or if not previously exercised, at any time
during the 60-day period following each of the four anniversaries thereof),
trigger the exercise of certain exit rights. If the exit rights are triggered,
the Company first has the right to purchase Liberty's stock in QVC at a price
equal to 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 shares of QVC held by Liberty,
then Liberty will have the right to purchase the shares of QVC held by the
Company on the same terms on which Liberty's shares of QVC were offered to the
Company. If Liberty elects not to purchase the shares of QVC held by the
Company, then Liberty and the Company will use their best efforts to sell QVC in
a sale in which Liberty, the Company or any of their respective affiliates may
be purchasers.
F-6
<PAGE>
On January 26, 1995, the Company exchanged its interest in Heritage
Communications, Inc. ("Heritage") with TCI for Class A common shares of TCI
with a fair market value of approximately $290.0 million (the "TCI
Shares"). Shortly thereafter, the Company sold certain of the TCI Shares
for total proceeds of approximately $188.1 million (collectively, these
transactions are referred to as the "Heritage Transactions"). As a result
of the Heritage Transactions, the Company recognized a pre-tax gain of
$141.0 million in the first quarter of 1995.
The Company's cash contribution in connection with the QVC Acquisition was
funded, in part, by the cash proceeds from the Heritage Transactions, along
with a borrowing of $80.0 million under a subsidiary's existing credit
facility.
E. Basis of Presentation
---------------------
QVC's fiscal year ends on January 31. Accordingly, the historical
financial position and results of operations of QVC presented in the
unaudited pro forma condensed consolidated financial statements are
presented two months in arrears. The historical balance sheet of QVC
included in the unaudited pro forma condensed consolidated balance sheet is
as of October 31, 1994. The unaudited pro forma condensed consolidated
statement of operations for the year ended December 31, 1994 includes QVC's
historical results of operations for the twelve months ended October 31,
1994.
F. Pro Forma Adjustments
---------------------
The following adjustments and elimination entries have been made to the
unaudited pro forma condensed consolidated balance sheet to reflect the QVC
Acquisition:
1. Represents the net change in cash, cash equivalents and short-term
investments resulting from the net cash requirements for the QVC
Acquisition ($1.4 billion), net of the proceeds from QVC's long-term
borrowings ($1.1 billion), TCI's cash contribution ($6.6 million), and
the borrowing under an existing credit facility of a subsidiary of the
Company ($80.0 million).
2. Elimination of the Company's historical net investment in QVC's common
stock ($81.7 million).
F-7
<PAGE>
3. Reclassification of QVC's historical long-term deferred income tax
assets to long-term deferred income tax liabilities.
4. Allocation of the QVC purchase price to deferred charges ($955.6
million), principally goodwill and cable television distribution
rights. The purchase price allocation is subject to adjustment upon
receipt by the Company of an independent appraisal of QVC.
5. Incurrence of additional long-term indebtedness under a QVC credit
facility ($1.1 billion) and an existing credit facility of a
subsidiary of the Company ($80.0 million).
6. Represents goodwill and deferred income taxes resulting from the
difference in the book and tax bases of the QVC assets acquired, under
the provisions of SFAS 109 ($32.0 million).
7. Represents QVC's current income tax benefit ($40.4 million) resulting
from the buyout of employee stock options in connection with the QVC
Acquisition.
8. Represents the minority interest related to TCI's cash and stock
contributions (recorded at TCI's historical basis) ($70.9 million).
9. Elimination of QVC's historical equity.
10. Represents the effects of the Heritage Transactions, which included
an increase in cash ($188.1 million), a net decrease in investments,
principally in affiliates ($47.1 million), an increase in current
income taxes payable ($26.8 million), an increase in deferred income
taxes ($22.7 million) and a net decrease in accumulated deficit ($91.5
million).
11. Elimination of certain receivables and liabilities between the Company
and QVC.
The following adjustments to the unaudited pro forma condensed consolidated
statement of operations have been made to reflect the QVC Acquisition:
12. Elimination of commissions and other payments by QVC to the Company
and Maclean Hunter.
13. Represents additional amortization expense resulting from the
increased fair market value of the assets acquired in excess of their
historical book values and amortization of goodwill. Amortization
expense assumes an average life of 30 years for goodwill and 10 years
for cable television distribution rights. Debt
F-8
<PAGE>
issuance costs are amortized over the term of the related debt.
14. Represents the increase in interest expense due to the incurrence of
additional long-term indebtedness, at a weighted average interest rate
of 8.26%.
15. Elimination of interest income on the Company's notes receivable from
Heritage, which were exchanged for TCI Shares in connection with the
Heritage Transactions.
16. Elimination of the Company's historical equity in the net income of
QVC. The Company accounted for its investment in QVC under the equity
method of accounting beginning January 1, 1994 and through the date of
the QVC Acquisition.
17. Represents the minority interest resulting from TCI's 42.55% interest
in QVC.
18. Represents adjustments to the tax provision resulting from the
above pro forma adjustments.
F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
The Members
Comcast MHCP Holdings, L.L.C.
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheet of Comcast MHCP
Holdings, L.L.C. (an indirect majority owned subsidiary of Comcast Corporation)
and subsidiaries as of December 31, 1994, and the related consolidated and
combined statements of operations and cash flows for the periods from January 1,
1994 to December 21, 1994 and December 22, 1994 to December 31, 1994, the
combined statement of changes in net equity for the period from January 1, 1994
to December 21, 1994 and the consolidated statement of changes in members'
equity for the period from December 22, 1994 to December 31, 1994. 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 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 provide a reasonable basis for our opinion.
In our opinion, such consolidated and combined financial statements present
fairly, in all material respects, the financial position of Comcast MHCP
Holdings, L.L.C. and subsidiaries as of December 31, 1994, and the results of
their operations and their cash flows for the periods stated above, in
conformity with generally accepted accounting principles.
As discussed in Notes 2 and 4 to the consolidated and combined financial
statements, on December 22, 1994, the Company acquired the U.S. Cable Television
Operations of Maclean Hunter, Inc. (the "Predecessor Corporation") and acquired
all of the outstanding shares of Barden Communications, Inc., which resulted in
the establishment of a new cost basis for the assets and liabilities of the
acquired entities.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 28, 1995, except for
Note 7 as to which the date is
April 20, 1995
F-10
<PAGE>
AUDITORS' REPORT
- ----------------
To the Directors of
Maclean Hunter, Inc.
We have audited the combined balance sheet of the U.S. Cable Television
Operations of Maclean Hunter, Inc. (the "Predecessor Corporation") as at
December 31, 1993 and the combined statements of operations, changes in net
equity and cash flows for each of the years in the two year period ended
December 31, 1993. 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these combined financial statements present fairly, in all
material respects, the financial position of the Predecessor Corporation as at
December 31, 1993 and the results of its operations and the changes in its
financial position for each of the years in the two year period ended December
31, 1993 in accordance with accounting principles generally accepted in the
United States.
/s/ Ernst & Young
Toronto, Canada
August 5, 1994. Chartered Accountants
Comments by Auditors for U.S. Readers
on Canada-U.S. Reporting Difference
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there are
changes in accounting principles that have a material effect on the
comparability of a company's financial statements, such as the change in method
of accounting for income taxes as described in note 4 to the combined financial
statements. The above opinion is expressed in accordance with Canadian reporting
standards which do not require a reference to such a change in accounting
principles in the auditors' report when the change is properly accounted for and
adequately disclosed in the financial statements.
/s/ Ernst & Young
Toronto, Canada
August 5, 1994. Chartered Accountants
F-11
<PAGE>
COMCAST MHCP HOLDINGS, L.L.C. AND SUBSIDIARIES
- ----------------------------------------------
CONSOLIDATED AND COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Predecessor
Corporation)
-------------
1994 1993
---- ----
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 24,230 $ 83,806
Due from affiliates 10,792
Accounts receivable, less allowance for doubtful
accounts of $1,806 and $2,012 10,627 9,921
Prepaid charges and other 4,197 3,072
---------- ---------
Total Current Assets 39,054 107,591
---------- ---------
INVESTMENTS, Principally in affiliates 2,296 169
---------- ---------
PROPERTY AND EQUIPMENT 167,005 393,156
Accumulated depreciation (466) (207,728)
---------- ---------
Property and equipment, Net 166,539 185,428
---------- ---------
DUE FROM AFFILIATES 38,949
---------- ---------
DEFERRED CHARGES AND GOODWILL, Net 1,649,221 144,422
---------- ---------
$1,857,110 $ 476,559
========== =========
LIABILITIES AND EQUITY
- ----------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 52,070 $ 29,849
Income and other taxes payable 36,609 6,176
Due to affiliates 1,103 15,865
Current portion of long-term debt 7,043
---------- ---------
Total Current Liabilities 89,782 58,933
---------- ---------
LONG-TERM DEBT, Less current portion 715,000 46,480
---------- ---------
OTHER LIABILITIES 10,356 3,741
---------- ---------
DEFERRED INCOME TAXES 486,821 42,311
---------- ---------
DUE TO AFFILIATES 189 99,306
---------- ---------
MINORITY INTEREST 1,026 15,039
---------- ---------
COMMITMENTS AND CONTINGENCIES
MEMBERS' EQUITY
Members' capital 555,556
Accumulated deficit (1,620)
---------- ---------
Total Members' Equity 553,936
---------- ---------
NET EQUITY - PREDECESSOR CORPORATION 210,749
---------- ---------
$1,857,110 $ 476,559
========== =========
</TABLE>
See notes to consolidated and combined financial statements.
F-12
<PAGE>
COMCAST MHCP HOLDINGS, L.L.C. AND SUBSIDIARIES
- ----------------------------------------------
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
PERIODS FROM JANUARY 1, 1994 TO DECEMBER 21, 1994 AND
DECEMBER 22, 1994 TO DECEMBER 31, 1994 AND YEARS ENDED
DECEMBER 31, 1993 AND 1992
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Predecessor Corporation)
------------------------------------
1994
-------------------------
December 22 January 1 Year Ended
to to December 31,
December 31 December 21 1993 1992
------------ ----------- --------- --------
<S> <C> <C> <C> <C>
SERVICE INCOME $ 7,116 $251,200 $258,666 $244,996
------- -------- -------- --------
COSTS AND EXPENSES
Operating, selling, general
and administrative 4,468 148,253 144,887 138,047
Depreciation and amortization 3,821 36,437 29,670 33,959
------- -------- -------- --------
8,289 184,690 174,557 172,006
------- -------- -------- --------
OPERATING (LOSS) INCOME (1,173) 66,510 84,109 72,990
------- -------- -------- --------
INVESTMENT (INCOME) EXPENSE
Interest expense 1,641 3,493 2,658 3,084
Intercompany interest
expense, net 4,117 5,045 3,090
Investment (income) expense (30) (4,497) (2,962) 8,261
Minority interest 5,037 5,023 3,162
------- -------- -------- --------
1,611 8,150 9,764 17,597
------- -------- -------- --------
(LOSS) INCOME BEFORE INCOME
TAXES (BENEFIT) AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (2,784) 58,360 74,345 55,393
INCOME TAXES (BENEFIT) (1,164) 25,943 32,192 24,834
------- -------- -------- --------
(LOSS) INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (1,620) 32,417 42,153 30,559
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE 5,023
------- -------- -------- --------
NET (LOSS) INCOME $(1,620) $ 32,417 $ 47,176 $ 30,559
======= ======== ======== ========
</TABLE>
See notes to consolidated and combined financial statements.
F-13
<PAGE>
COMCAST MHCP HOLDINGS, L.L.C. AND SUBSIDIARIES
- ----------------------------------------------
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
PERIODS FROM JANUARY 1, 1994 TO DECEMBER 21, 1994 AND
DECEMBER 22, 1994 TO DECEMBER 31, 1994 AND YEARS ENDED
DECEMBER 31, 1993 AND 1992
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Predecessor Corporation)
-------------------------------------
1994
--------------------------
December 22 January 1 Year Ended
to to December 31,
December 31 December 21 1993 1992
------------- ----------- ---- ----
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (1,620) $ 32,417 $ 47,176 $30,559
Noncash items included in
net (loss) income:
Depreciation and
amortization 3,821 36,437 29,670 33,959
Operating expenses
charged by an affiliate 189
Deferred income taxes
(benefit) (1,164) 1,461 1,528 3,783
Cumulative effect of
accounting change (5,023)
Minority interest 5,037 5,023 3,162
---------- --------- -------- -------
1,226 75,352 78,374 71,463
Increase in accounts
receivable and prepaid
charges and other (1,831) (794) (190)
Increase in accounts
payable and accrued
expenses, income and
other taxes payable
and other liabilities 529 35,488 1,913 1,928
---------- --------- -------- -------
Net cash provided by
operating activities 1,755 109,009 79,493 73,201
---------- --------- -------- -------
FINANCING ACTIVITIES
Proceeds from borrowings 715,000 5,673
Repayment of long-term
debt (53,523) (9,818)
Capital contributions 555,556
Distribution to former
shareholder (135,689)
Distributions to former
partner of a subsidiary (5,000) (6,000)
Advances to non-cable
subsidiaries, net (802) (3,711) (6,236)
Net transactions with
affiliates 1,014 34,035 (16,898) 598
---------- --------- -------- -------
Net cash provided by
(used in) financing
activities 1,271,570 (160,979) (30,427) (5,965)
---------- --------- -------- -------
INVESTING ACTIVITIES
Acquisition 1,249,079
Additions to property and
equipment 28,231 22,603 33,857
Investments 2,127
Other 5,152 (3,658) (396) 104
---------- --------- -------- -------
Net cash used in
investing activities 1,254,231 26,700 22,207 33,961
---------- --------- -------- -------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 19,094 (78,670) 26,859 33,275
CASH AND CASH EQUIVALENTS,
Beginning of Period 5,136 83,806 56,947 23,672
---------- --------- -------- -------
CASH AND CASH EQUIVALENTS,
End of Period $ 24,230 $ 5,136 $ 83,806 $56,947
========== ========= ======== =======
</TABLE>
See notes to consolidated and combined financial statements.
F-14
<PAGE>
COMCAST MHCP HOLDINGS, L.L.C. AND SUBSIDIARIES
- ----------------------------------------------
COMBINED STATEMENT OF CHANGES IN NET EQUITY
PERIOD FROM JANUARY 1, 1994 TO DECEMBER 21, 1994 AND YEARS ENDED
DECEMBER 31, 1993 AND 1992
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY
PERIOD FROM DECEMBER 22, 1994 TO DECEMBER 31, 1994
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994
------------
January 1 Year Ended
to December 31,
December 21 1993 1992
------------ ---- ----
<S> <C> <C> <C>
PREDECESSOR CORPORATION
NET EQUITY, BEGINNING OF
PERIOD $ 210,749 $167,284 $142,961
Net income 32,417 47,176 30,559
Distribution to former
shareholder (135,689)
Advances to non-cable
subsidiaries, net (802) (3,711) (6,236)
--------- -------- --------
NET EQUITY, END OF PERIOD $ 106,675 $210,749 $167,284
========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Members' Accumulated
Capital Deficit Total
--------- ----------- --------
<S> <C> <C> <C>
SUCCESSOR CORPORATION
Capital contributions $ 555,556 $ $555,556
Net loss (1,620) (1,620)
--------- -------- --------
BALANCE, DECEMBER 31, 1994 $ 555,556 $(1,620) $553,936
========= ======== ========
</TABLE>
See notes to consolidated and combined financial statements.
F-15
<PAGE>
COMCAST MHCP HOLDINGS, L.L.C. AND SUBSIDIARIES
- ----------------------------------------------
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1994 TO DECEMBER 21, 1994 AND
DECEMBER 22, 1994 TO DECEMBER 31, 1994 AND YEARS ENDED
DECEMBER 31, 1993 AND 1992
- --------------------------------------------------------------------------------
1. ORGANIZATION
Comcast MHCP Holdings, L.L.C. (the "Company" or the "LLC"), a Delaware
limited liability company, was formed on December 12, 1994 for the initial
purpose of acquiring the U.S. Cable Television Operations of Maclean Hunter,
Inc. ("Maclean Hunter" or the "Predecessor Corporation") from Rogers
Communications Inc. ("RCI") (see Note 2). The Company is owned 55% by Comcast
Cable Communications, Inc. ("Comcast Cable") and 45% by the California Public
Employees' Retirement System ("CalPERS") and is managed by Comcast
Corporation ("Comcast"). Comcast Cable is a wholly owned subsidiary of
Comcast and CalPERS is a governmental unit of the State of California.
The Company and its subsidiaries are principally engaged in the development,
management and operation of cable communications systems.
2. ACQUISITIONS
Between April 7 and June 20, 1994, RCI acquired all of the issued and
outstanding common shares of Maclean Hunter Limited. All shares of Maclean
Hunter Limited acquired were deposited in trust pursuant to a voting trust
agreement between RCI and the Honourable Pierre Juneau, P.C., O.C. The shares
remained in trust until various regulatory authorities in both the United
States and Canada provided their respective approvals to the acquisition by
RCI of control of Maclean Hunter Limited and its subsidiaries. Upon receipt
of regulatory approval, the shares were transferred to RCI, at which time RCI
caused Maclean Hunter Limited to be dissolved, and its assets and liabilities
to be transferred to RCI.
On December 22, 1994 (the "Acquisition Date"), the Company acquired Maclean
Hunter from RCI and all of the outstanding shares of Barden Communications,
Inc. ("BCI," and collectively, such acquisitions are referred to as the
"Maclean Hunter Acquisition") for approximately $1.2 billion (subject to
certain adjustments) in cash. The Maclean Hunter Acquisition, including
certain transaction costs, was financed with cash contributions of
approximately $305.6 million and $250.0 million from Comcast Cable and
CalPERS, respectively, and borrowings of $715.0 million under an $850.0
million credit facility (see Note 7).
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.
The Company would have reported unaudited revenues of $258.3 million and
$258.7 million and unaudited net loss of $48.0 million and $39.7 million
for the years ended December 31, 1994 and 1993 had the Maclean Hunter
Acquisition occurred at the beginning of 1993. This unaudited pro forma
information is based on historical results of operations adjusted for
acquisition costs, and in the opinion of management, is not necessarily
indicative of what the results would have been had the Company operated the
acquired entities since the beginning of 1993.
In November 1994, the minority shareholders of Cable TV of Jersey City, Inc.,
a subsidiary of the Predecessor Corporation, who owned 20% of the outstanding
common shares, sold their shares to a subsidiary of Maclean Hunter, Inc., for
purchase consideration of approximately $14.6 million, which was paid in
January 1995.
3. BASIS OF PRESENTATION
Basis of Consolidation
The consolidated balance sheet at December 31, 1994 and the consolidated
statements of operations, cash flows and changes in members' equity for the
period from December 22, 1994 to December 31, 1994 represent the consolidated
financial position, results of operations, cash flows and changes in members'
equity of the Company and its wholly and majority owned subsidiaries
subsequent to the Acquisition Date. All significant intercompany accounts and
transactions among the consolidated entities have been eliminated.
F-16
<PAGE>
COMCAST MHCP HOLDINGS, L.L.C. AND SUBSIDIARIES
- ----------------------------------------------
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1994 TO DECEMBER 21, 1994 AND
DECEMBER 22, 1994 TO DECEMBER 31, 1994 AND YEARS ENDED
DECEMBER 31, 1993 AND 1992 (Continued)
- --------------------------------------------------------------------------------
Basis of Combination
The combined balance sheet as of December 31, 1993 and the combined
statements of operations, cash flows and changes in net equity for the period
from January 1, 1994 to December 21, 1994 and for the years ended December
31, 1993 and 1992 represent the combined financial position, results of
operations, cash flows and changes in net equity of the Predecessor
Corporation. All significant intercompany accounts and transactions among the
combined entities have been eliminated.
Maclean Hunter, Inc., formerly a wholly owned subsidiary of Maclean Hunter
Limited, had historically operated a periodical publishing business and had
been the holding company for all of Maclean Hunter Limited's other U.S.
operations, which included cable television, business forms and periodical
publishing. Prior to the Maclean Hunter Acquisition, the non-cable television
and non-alternate access businesses of Maclean Hunter, Inc. were
distributed to RCI. Accordingly, when the Company acquired the shares of
Maclean Hunter, Inc., it only purchased the U.S. cable television and
alternate access businesses. The Predecessor Corporation financial statements
exclude the results of operations of the non-cable television and non-
alternative access operations of Maclean Hunter, Inc. and do not reflect the
effects of the Maclean Hunter Acquisition.
In addition, the Predecessor Corporation financial statements include the
accounts of Comcast Cablevision of Detroit (formerly Barden Cablevision, the
"Partnership"), which holds the franchise to operate a cable television
system in the City of Detroit, Michigan. Prior to the Maclean Hunter
Acquisition, Maclean Hunter, Inc., through wholly owned subsidiaries, had a
59% equity interest in the Partnership. Maclean Hunter, Inc. also had a
contract to direct the day-to-day management of the Partnership. In
connection with the Maclean Hunter Acquisition, the Company acquired the
remaining equity and voting interests in the Partnership other than a
minority interest of less than 1%.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Purchase Price Allocation
The Maclean Hunter Acquisition was accounted for under the purchase method of
accounting. Under this method, the purchase price was allocated to the fair
value of the assets acquired and the liabilities assumed. This allocation is
preliminary pending, among other things, the final purchase price adjustment
between Comcast and RCI and the receipt of a final appraisal of the assets
acquired.
Cash Equivalents
Cash equivalents consist of investments with a maturity of three months or
less when purchased. The carrying amounts of the Company's cash equivalents,
classified as trading securities, approximates their fair values as of
December 31, 1994 and 1993.
Investments, Principally in Affiliates
Investments are accounted for on the equity method based on the Company's
ability to exercise significant influence over the operating and financial
policies of the investee. Equity method investments are recorded at original
cost and adjusted periodically to recognize the Company's proportionate share
of the investees' income or losses after the date of investment, and
additional contributions made and dividends received. Investments in
privately held companies are stated at cost adjusted for any known diminution
in value.
Property and Equipment
On the Acquisition Date, property and equipment were adjusted based on a
preliminary appraisal of the assets acquired. Property and equipment prior to
the Acquisition Date are stated at historical cost. Such assets include land,
buildings, facilities for the transmission of cable television signals such
as head-ends, system plant, subscriber installations and converters and other
equipment. In addition, on the Acquisition Date, the estimated useful lives
of property and equipment have been adjusted to reflect such lives as stated
in a preliminary appraisal of the Company's assets. The effect of this change
in estimate was not significant to the Company's operations
F-17
<PAGE>
COMCAST MHCP HOLDINGS, L.L.C. AND SUBSIDIARIES
- ----------------------------------------------
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1994 TO DECEMBER 21, 1994 AND
DECEMBER 22, 1994 TO DECEMBER 31, 1994 AND YEARS ENDED
DECEMBER 31, 1993 AND 1992 (Continued)
- --------------------------------------------------------------------------------
for the year ended December 31, 1994. Depreciation is provided on a straight-
line basis over estimated useful lives as follows:
<TABLE>
<CAPTION>
(Predecessor
Corporation)
------------
December 22, January 1,
1994 to 1992 to
December 31, December 21,
1994 1994
------------ ------------
<S> <C> <C>
Buildings 10-20 years 20-30 years
Operating facilities 8-30 years 7-15 years
Other equipment 2-10 years 5-10 years
</TABLE>
During fiscal 1993, the Predecessor Corporation completed a comprehensive
review of depreciation rates taking account of historical experience and of
accepted industry practice. As a result of this review, the Predecessor
Corporation revised, on a prospective basis, the remaining period over which
certain of its assets would be depreciated in order to better reflect the
Predecessor Corporation's estimate of the remaining useful lives of the
assets.
Through December 21, 1994, the Predecessor Corporation depreciated all of its
head-ends, system plant and subscriber installations over fifteen years,
compared to the seven- and ten-year periods that were previously used for
such assets by certain subsidiaries. This change was effective July 1, 1993.
In addition, through December 21, 1994, converters and decoders were
depreciated over periods of six to eight years compared to five years
previously. This change was effective January 1, 1993. The effect of these
changes has been to reduce 1993 depreciation expense by $4.9 million and to
increase 1993 net income by $2.6 million. The reduction in 1994 depreciation
expense was $3.3 million and the increase in net income was $1.9 million
through December 21, 1994.
Deferred Charges
Deferred charges as of December 31, 1994 consist principally of franchise and
license acquisition costs, the costs of acquired businesses in excess of
amounts allocated to specific assets, based on their fair market values,
and, as a result of the differences in the book and tax bases of the assets
acquired, goodwill recorded under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Franchise and license acquisition costs and goodwill are being amortized on a
straight-line basis over periods of 12 and 20 years, respectively.
Accumulated amortization as of December 31, 1994 was $3.4 million. The
Company periodically evaluates the recoverability of its deferred charges
using objective methodologies. Such methodologies may include evaluations
based on the cash flows generated by the underlying assets or other
determinants of fair value.
Deferred charges of the Predecessor Corporation consisted principally of
franchise acquisition and organization costs of $4.5 million, which were
being amortized on a straight-line basis over periods up to fifteen years,
and goodwill of $140.0 million, which was being amortized on a straight-line
basis over periods not exceeding 40 years. Accumulated amortization as of
December 31, 1993 was $21.5 million.
Fair Values
The estimated fair value amounts associated with financial instruments
discussed in these notes to consolidated and combined financial statements
have been determined by the Company and the Predecessor Corporation 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 or the Predecessor Corporation
could realize in a current market exchange. The use of different market
F-18
<PAGE>
COMCAST MHCP HOLDINGS, L.L.C. AND SUBSIDIARIES
- ----------------------------------------------
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1994 TO DECEMBER 21, 1994 AND
DECEMBER 22, 1994 TO DECEMBER 31, 1994 AND YEARS ENDED
DECEMBER 31, 1993 AND 1992 (Continued)
- --------------------------------------------------------------------------------
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. Such fair value estimates are based on
pertinent information available to management as of December 31, 1994 and
1993 and have not been comprehensively revalued for purposes of these
consolidated and combined financial statements since such dates. Current
estimates of fair value may differ significantly from the amounts discussed
herein.
New Accounting Pronouncements
Effective January 1, 1994, the Predecessor Corporation adopted the provisions
of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which did not have a significant effect on its financial
position or results of operations in 1994.
Income taxes are provided using the asset and liability method prescribed by
SFAS No. 109 which the Predecessor Corporation adopted January 1, 1993.
Income taxes provided in years prior to 1993 using the deferral method
prescribed by Accounting Principles Board Opinion No. 11, "Accounting for
Income Taxes," have not been restated. The cumulative effect of adopting SFAS
No. 109 as of January 1, 1993 was to increase net income by approximately
$5.0 million.
Reclassifications
Certain reclassifications have been made to the 1993 and 1992 combined
financial statements to conform to those used in 1994.
5. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest on long-term debt of $1.1 million
during the period from December 22, 1994 to December 31, 1994.
The Predecessor Corporation made cash payments for interest on long-term debt
of $3.0 million, $2.8 million and $3.4 million during the period from January
1, 1994 to December 21, 1994 and the years ended December 31, 1993 and 1992,
respectively.
In addition, the Predecessor Corporation made cash payments for interest on
balances due to affiliates of $4.6 million, $6.4 million and $8.1 million
during the period from January 1, 1994 to December 21, 1994 and the years
ended December 31, 1993 and 1992, respectively.
The Predecessor Corporation made cash payments for income taxes of $33.3
million, $27.7 million and $22.7 million during the period from January 1,
1994 to December 21, 1994 and the years ended December 31, 1993 and 1992,
respectively.
6. RELATED PARTY TRANSACTIONS
Effective December 22, 1994, management fees are charged pursuant to a
management agreement between Comcast MH Holdings, Inc. ("MH Holdings"), an
indirect wholly owned subsidiary of the Company, and Comcast (the "Management
Agreement"). Under the terms of the Management Agreement, Comcast supervises
the management and operation of the Company's subsidiaries for compensation
equal to 4.5% of such subsidiaries' gross revenues, with the payment of one-
third of such fees being deferred until CalPERS no longer has an interest in
the Company. Management fees of $320,000 were charged during the period from
December 22, 1994 to December 31, 1994 and are included in operating,
selling, general and administrative expenses. The total amount deferred under
this arrangement, which has been recorded as a subordinated long-term
liability due to affiliate, was $107,000 as of December 31, 1994.
The Management Agreement also provides for the reimbursement and sharing of
certain of Comcast's actual costs directly relating to the operations of MH
Holdings. Expenses under this arrangement were not significant for the period
from December 22, 1994 to December 31, 1994.
F-19
<PAGE>
COMCAST MHCP HOLDINGS, L.L.C. AND SUBSIDIARIES
- ----------------------------------------------
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1994 TO DECEMBER 21, 1994 AND
DECEMBER 22, 1994 TO DECEMBER 31, 1994 AND YEARS ENDED
DECEMBER 31, 1993 AND 1992 (Continued)
- --------------------------------------------------------------------------------
Effective December 22, 1994, subsidiaries of the Company are charged by
Comcast for certain operating expenses under a separate agreement between MH
Holdings and Comcast (the "Cost Sharing Agreement"). These expenses are
charged to subsidiaries of the Company by Comcast on a basis that does not
exceed what would be charged if such subsidiaries purchased directly from the
supplier. The Cost Sharing Agreement requires deferral of payment of a
portion of these expenses with the deferred portion being treated as a
subordinated long-term liability due to affiliate which will not be payable
until CalPERS no longer has an interest in the Company. The total amounts
expensed and deferred under this arrangement were not significant in 1994.
Prior to the Maclean Hunter Acquisition, the Predecessor Corporation had
several loans due to or from various direct or indirect subsidiaries of
Maclean Hunter Limited. These loans were repaid prior to or in connection
with the Maclean Hunter Acquisition. Interest rates on these loans ranged
from the London Interbank Offered Rate ("LIBOR") plus 0.375% to LIBOR plus
1.75%. Interest expense on these loans for the period from January 1, 1994 to
December 21, 1994 was $4.1 million, net of interest income on loans
receivable of $515,000. Interest expense on these loans for the years ended
December 31, 1993 and 1992 was $5.0 million and $3.1 million, respectively,
net of interest income of $1.8 million and $5.0 million, respectively.
Prior to the Maclean Hunter Acquisition, Maclean Hunter Limited provided the
Predecessor Corporation with a variety of management services. Maclean Hunter
Limited charged the Predecessor Corporation for its cost of providing these
services which amounted to $1.4 million during the period from January 1,
1994 to December 21, 1994 and $1.5 million during each of the years ended
December 31, 1993 and 1992. During the period from January 1, 1994 to
December 21, 1994, additional management fees of $3.2 million were charged to
the Predecessor Corporation. These charges and fees are included in
operating, selling, general and administrative expenses.
In July 1994, the Partnership made a distribution of $5.0 million to BCI,
which had a 40% equity interest and voting control in the Partnership. This
distribution was funded by an advance from Maclean Hunter, Inc.
The Predecessor Corporation realized a foreign exchange loss of $8.8 million
in 1992 on a sterling advance to an affiliate, which was repaid in 1992. This
loss is included in investment (income) expense in the Predecessor
Corporation's 1992 Combined Statement of Operations.
7. LONG-TERM DEBT
In connection with the Maclean Hunter Acquisition, MH Holdings entered into
an $850 million Reducing Revolving Credit Facility (the "Credit Facility").
Initial borrowings under the Credit Facility to finance a portion of the
Maclean Hunter Acquisition were $715 million. In January 1995, MH Holdings
borrowed an additional $20 million under the Credit Facility.
The interest rate on borrowings under the Credit Facility is based on the
Prime Rate or LIBOR, plus a percentage which varies as the ratio of total
indebtedness to annualized operating cash flow (as defined) varies. As of
December 31, 1994, the weighted average interest rate on borrowings under the
Credit Facility was 7.38%.
Available borrowings under the Credit Facility reduce in quarterly
installments beginning in 1998 through its final maturity in 2003. Of the
long-term debt outstanding as of December 31, 1994, $86 million matures in
1999, with the balance maturing in installments through 2003.
The stock of MH Holdings and its two direct subsidiaries has been pledged as
collateral for borrowings under the Credit Facility.
The Credit Facility contains restrictive covenants which, among other things,
limit MH Holdings' ability to enter into arrangements for the acquisition or
disposition of assets, investments, mergers and the incurrence of additional
indebtedness. The restrictive covenants also require that certain ratios and
cash flow
F-20
<PAGE>
COMCAST MHCP HOLDINGS, L.L.C. AND SUBSIDIARIES
- ----------------------------------------------
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1994 TO DECEMBER 21, 1994 AND
DECEMBER 22, 1994 TO DECEMBER 31, 1994 AND YEARS ENDED
DECEMBER 31, 1993 AND 1992 (Continued)
- --------------------------------------------------------------------------------
levels be maintained and limit dividend payments, payment of management fees
and advances of funds to affiliated entities.
Prior to the Maclean Hunter Acquisition, the Predecessor Corporation's long-
term debt consisted of the Partnership's borrowings under a loan agreement
with a bank (the "Loan Agreement"). Borrowings under the Loan Agreement bore
interest, at the Partnership's option, at either the Prime Rate or LIBOR plus
1%. Borrowings under the Loan Agreement were repaid prior to the Maclean
Hunter Acquisition.
In 1995, the Company entered into interest rate swap and cap agreements
to limit the Company's exposure to loss from adverse fluctuations in
interest rates. As of April 20, 1995, $300 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 as a component of interest expense over the terms of the
agreements. As of April 20, 1995, the weighted average interest rate of the
products in effect was 7.98%.
The credit risks associated with the Company's derivative financial
instruments are controlled through the evaluation and continual monitoring of
the creditworthiness of the counterparties. Although the Company may be
exposed to losses in the event of nonperformance by the counterparties, the
Company does not expect such losses, if any, to be significant.
8. MEMBERS' EQUITY
The Company is owned by Comcast Cable and CalPERS (the "Members"). Comcast
Cable is entitled to 55 votes and CalPERS to 45 votes on any Company matters,
with a simple majority controlling the actions of the Company, except in
certain limited circumstances which require the unanimous approval of the
Members.
At any time after December 18, 2001, CalPERS may elect to liquidate its
interest in the Company at a price based upon the fair value of CalPERS'
interest in the Company, adjusted, under certain circumstances, for certain
performance criteria relating to the fair value of the Company or to
Comcast's common stock. Except in certain limited circumstances, Comcast, at
its option, may satisfy this liquidity arrangement by purchasing CalPERS'
interest for cash, through the issuance of Comcast's common stock (subject to
certain limitations) or by selling the Company.
9. INCOME TAXES
The LLC is treated as a partnership for income tax purposes. As such, any
taxable income or loss directly attributable to the LLC, excluding any income
or loss from its subsidiaries, flows through to the Members based on their
respective ownership percentages. The subsidiaries of the LLC may not
consolidate with the LLC for income tax purposes; however, beginning on the
Acquisition Date, its subsidiaries join in filing a consolidated federal
income tax return. Comcast Communications Properties, Inc. ("CCP"), a wholly
owned subsidiary of the LLC, acts as the common parent of such consolidated
group (the "Consolidated Group").
The Consolidated Group and the Predecessor Corporation (after January 1,
1993) account for income taxes under SFAS No. 109, which generally provides
that deferred tax assets and liabilities be recognized for temporary
differences between the financial reporting basis and tax basis of a
company's assets and liabilities and expected benefits of utilizing net
operating loss carryforwards. The impact on deferred income taxes of changes
in tax rates and laws, if any, applied to the years during which temporary
differences are expected to be settled are reflected in the financial
statements in the period of enactment.
The Company's and the Predecessor Corporation's deferred income tax liability
as of December 31, 1994 and 1993 principally results from the tax effects of
differences between the book and tax basis of property and equipment and
deferred charges (excluding goodwill).
F-21
<PAGE>
COMCAST MHCP HOLDINGS, L.L.C. AND SUBSIDIARIES
- ----------------------------------------------
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1994 TO DECEMBER 21, 1994 AND
DECEMBER 22, 1994 TO DECEMBER 31, 1994 AND YEARS ENDED
DECEMBER 31, 1993 AND 1992 (Continued)
- --------------------------------------------------------------------------------
As a result of the Maclean Hunter Acquisition, the Consolidated Group
recorded a deferred income tax liability of approximately $488.0 million for
temporary differences between the financial reporting basis and the income
tax reporting basis of the assets of Maclean Hunter and BCI as of the
Acquisition Date. Deferred charges were increased by the same amount as
prescribed by SFAS No. 109.
Historically, Maclean Hunter, Inc. filed a consolidated United States federal
income tax return. Accordingly, federal income taxes have been recorded in
the combined financial statements as though the Predecessor Corporation filed
a combined federal income tax return, which excluded any taxable income or
loss from any non-cable television and non-alternate access operations of
Maclean Hunter, Inc.
Income tax expense (benefit) consists of the following components:
<TABLE>
<CAPTION>
(Predecessor Corporation)
---------------------------------------
December 22, January 1,
1994 to 1994 to
December 31, December 21, Year ended December 31,
1994 1994 1993 1992
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Current expense
Federal $ $19,642 $24,828 $16,218
State 4,840 5,836 4,833
------- ------- ------- -------
24,482 30,664 21,051
------- ------- ------- -------
Deferred expense
(benefit)
Federal (984) 1,251 534 3,113
State (180) 210 994 670
------- ------- ------- -------
(1,164) 1,461 1,528 3,783
------- ------- ------- -------
($1,164) $25,943 $32,192 $24,834
======= ======= ======= =======
</TABLE>
The effective income tax expense (benefit) of the Company and the Predecessor
Corporation differs from the statutory amount because of the effects of the
following items:
<TABLE>
<CAPTION>
(Predecessor Corporation)
-------------------------------------
December 22, January 1,
1994 to 1994 to
December 31, December 21, Year ended December 31,
1994 1994 1993 1992
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Federal tax at
statutory rate ($974) $20,426 $27,779 $19,909
State income tax
(benefit), net of
federal effect (117) 3,283 4,440 3,632
Non-deductible
depreciation and
amortization 216 1,516 1,308 1,302
Interest income,
taxable to Members (289)
Other 718 (1,335) (9)
------- ------- ------- -------
($1,164) $25,943 $32,192 $24,834
======= ======= ======= =======
</TABLE>
F-22
<PAGE>
COMCAST MHCP HOLDINGS, L.L.C. AND SUBSIDIARIES
- ----------------------------------------------
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1994 TO DECEMBER 21, 1994 AND
DECEMBER 22, 1994 TO DECEMBER 31, 1994 AND YEARS ENDED
DECEMBER 31, 1993 AND 1992 (Continued)
- --------------------------------------------------------------------------------
10. PENSION AND OTHER RETIREMENT PLANS
The Company has various defined benefit, defined contribution and other
retirement plans, which include 401(k) savings and profit sharing plans,
covering substantially all employees. The market value of the assets of the
Company's defined benefit plans as of December 31, 1994 and 1993 was
$3.9 million, and $3.7 million, respectively, and the estimated accrued
benefits related to such plans as of December 31, 1994 and 1993 were $5.0
million and $5.7 million, respectively. The Company's expense associated with
its defined contribution and other retirement plans was not significant in
1994, 1993 and 1992.
The Company does not offer any other postretirement or postemployment
benefits.
11. COMMITMENTS AND CONTINGENCIES
Commitments
Minimum annual rental commitments for office space and equipment under
noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
(Dollars
in thousands)
-------------
<S> <C>
1995 $ 529
1996 572
1997 541
1998 424
1999 334
Thereafter 1,520
</TABLE>
Contingencies
The Company is subject to claims and legal proceedings 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 or results of operations of the Company.
On April 1, 1993, the Federal Communications Commission ("FCC") adopted
regulations in accordance with the Cable Television Consumer Protection and
Competition Act of 1992 ("1992 Cable Act") governing rates that may be
charged to subscribers for basic service and certain nonbasic cable
programming services (collectively, the "Regulated Services"). The FCC's rate
regulations became effective September 1, 1993. The FCC adopted a benchmark
methodology as the principal method of regulating rates for Regulated
Services. Cable operators were also permitted to justify rates using a
reasonable cost-of-service methodology. As of September 1, 1993, cable
operators whose then current rates were above FCC benchmark levels were
required, absent a successful cost-of-service showing, to reduce such rates
to the benchmark level or by up to 10% of those rates in effect on September
30, 1992, whichever reduction was less, adjusted for equipment costs,
inflation and programming modifications occurring subsequent to September 30,
1992.
On February 22, 1994, the FCC adopted interim cost-of-service regulations
establishing, among other things, an industry-wide 11.25% after tax rate of
return on an operator's allowable rate base and a rebuttable presumption that
acquisition costs above original historic book value of tangible assets
should be excluded from the allowable rate base. Effective May 15, 1994, the
FCC modified its existing benchmark methodology to require, absent a
successful cost-of-service showing, reductions of up to 17% of the rates for
Regulated Services in effect on September 30, 1992, adjusted for inflation,
programming modifications, equipment costs, and increases in certain
operating costs. The FCC's modified benchmark regulations were designed to
cause an additional 7% reduction in the rates for Regulated Services on top
of any rate reductions implemented under the FCC's initial benchmark
regulations.
F-23
<PAGE>
COMCAST MHCP HOLDINGS, L.L.C. AND SUBSIDIARIES
- ----------------------------------------------
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1994 TO DECEMBER 21, 1994 AND
DECEMBER 22, 1994 TO DECEMBER 31, 1994 AND YEARS ENDED
DECEMBER 31, 1993 AND 1992 (Concluded)
- --------------------------------------------------------------------------------
In July 1994, the Company reduced rates for Regulated Services in those cable
systems regulated under the benchmark standards to comply with the modified
benchmarks and regulations. In addition, the Company is currently seeking to
justify the Partnership's existing rates on the basis of cost-of-service
showings. Although management believes that the Partnership's rates are
supportable in a cost-of-service showing, no assurance can be given that the
Partnership will be successful. If the Partnership is not successful in such
efforts, and there is no legislative, administrative or judicial relief, the
FCC regulations may adversely affect the Company's results of operations.
12. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following information regarding the estimated fair value of the Company's
financial instruments is made in accordance with the provisions of SFAS No.
107, "Disclosures About Fair Value of Financial Instruments." See Note 4 for
a description of methodologies used for such disclosures.
The carring amounts of the Company's cash equivalents, accounts receivable,
accounts payable and other current assets and liabilities approximate their
fair values as of December 31, 1994 and 1993.
The difference between the carrying value and estimated fair value of the
Company's long-term debt was not significant as of December 31, 1994 and
1993. Interest rates that are currently available to the Company for issuance
of the debt with similar terms and remaining maturities are used to estimate
fair value for debt issues for which quoted market prices are not available.
A reasonable estimate of the fair values of balances due to/from affiliates
is not practicable to obtain because of their related party nature and the
lack of market information.
F-24
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
QVC, Inc.:
We have audited the consolidated balance sheets of QVC, Inc. and subsidiaries as
of January 31, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the years in the
three-year period ended January 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
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 provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of QVC, Inc. and
subsidiaries as of January 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended January 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 14 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
March 3, 1995
F-25
<PAGE>
QVC, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
ASSETS
<TABLE>
<CAPTION>
January 31,
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 120,818 $ 15,873
Accounts receivable, less allowance for
doubtful accounts of $70,135 in 1995 and
$52,759 in 1994 (Note 3) 217,036 183,162
Inventories 159,817 148,208
Deferred taxes (Note 14) 53,560 59,749
Prepaid expenses 8,355 5,536
---------- ----------
Total current assets 559,586 412,528
Property, plant and equipment, less
accumulated depreciation of $41,979 in 1995
and $38,522 in 1994 (Note 4) 92,567 80,579
Cable television distribution rights, net (Note 5) 105,705 99,579
Other assets, net (Note 6) 39,657 33,664
Excess of cost over acquired net assets, less
accumulated amortization of $53,330 in 1995
and $43,551 in 1994 242,031 251,810
---------- ----------
Total assets $1,039,546 $ 878,160
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 8) $ 3,173 $ 3,114
Accounts payable-trade 92,445 81,594
Accrued liabilities (Note 7) 301,823 225,989
---------- ----------
Total current liabilities 397,441 310,697
Long-term debt, less current maturities (Note 8) 6,443 7,044
---------- ----------
Total liabilities 403,884 317,741
---------- ----------
Commitments and contingencies (Notes 9, 14 and 15)
Shareholders' equity (Notes 10 and 11):
Convertible Preferred Stock, par value $.10 50 56
Common Stock, par value $.01 410 399
Additional paid-in capital 454,209 446,027
Retained earnings 180,526 113,937
Foreign currency translation adjustments 467 -
---------- ----------
Total shareholders' equity 635,662 560,419
---------- ----------
Total liabilities and shareholders' equity $1,039,546 $ 878,160
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
QVC, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Operations
(in thousands, except per share data) Fiscal Year
------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Net revenue $1,390,106 $1,222,104 $1,070,587
Cost of goods sold 848,536 723,175 621,840
---------- ---------- ----------
Gross profit 541,570 498,929 448,747
---------- ---------- ----------
Operating expenses:
Variable costs 179,509 171,242 160,420
General and administrative 156,372 132,743 123,604
Depreciation 18,176 16,682 17,105
Amortization of intangible assets 28,864 26,019 29,420
---------- ---------- ----------
382,921 346,686 330,549
---------- ---------- ----------
Operating income 158,649 152,243 118,198
---------- ---------- ----------
Other income (expense):
Costs of Paramount tender offer (Note 17) - (34,800) -
Losses from joint ventures (Note 6) (34,643) (11,432) -
Interest expense (1,399) (1,590) (18,364)
Interest income 18,742 10,865 8,834
---------- ---------- ----------
(17,300) (36,957) (9,530)
---------- ---------- ----------
Income before income taxes, extraordinary
item and cumulative effect of a change
in accounting principle 141,349 115,286 108,668
Income tax provision (Note 14) (74,760) (59,975) (52,080)
---------- ---------- ----------
Income before extraordinary item and
cumulative effect of a change in
accounting principle 66,589 55,311 56,588
Extraordinary item - loss on
extinguishment of debt, net of
tax benefit (Note 6) - - (1,496)
Cumulative effect of a change in accounting
for income taxes (Note 14) - 3,990 -
---------- ---------- ----------
Net income $ 66,589 $ 59,301 $ 55,092
---------- ---------- ----------
Income per share (Note 12):
Primary:
Income before extraordinary item and
cumulative effect of a change in
accounting principle $ 1.37 $ 1.10 $ 1.32
Extraordinary item, net of tax benefit - - (.03)
Cumulative effect of a change in
accounting for income taxes - .08 -
---------- ---------- ----------
Net income $ 1.37 $ 1.18 $ 1.29
---------- ---------- ----------
Fully diluted:
Income before extraordinary item and
cumulative effect of a change in
accounting principle $ 1.36 $ 1.10 $ 1.27
Extraordinary item, net of tax benefit - - (.03)
Cumulative effect of a change in
accounting for income taxes - .08 -
---------- ---------- ----------
Net income $ 1.36 $ 1.18 $ 1.24
---------- ---------- ----------
Weighted average number of common and
common equivalent shares used in
computing income per share:
Primary 48,477 50,062 43,890
---------- ---------- ----------
Fully diluted 48,885 50,205 45,386
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
QVC, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 66,589 $ 59,301 $ 55,092
Adjustments for non-cash items included in
net income:
(Increase) decrease in deferred taxes (4,157) 3,366 20,275
Cumulative effect of a change in accounting
for income taxes - (3,990) -
Loss on extinguishment of debt - - 2,720
Losses from joint ventures 34,643 11,432 -
Depreciation 18,176 16,682 17,105
Amortization of intangible assets 28,864 26,019 29,420
Grant of executive stock award - - 4,869
Interest incurred but not paid - - 96
Losses on sales of fixed assets 322 190 90
Changes in other non-current assets (7,985) (3,458) 5,303
Effects of changes in working capital items (Note 16) 44,572 (36,239) (33,557)
-------- -------- --------
Net cash provided by operating activities 181,024 73,303 101,413
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (30,584) (24,588) (21,137)
Investments in and advances to joint ventures (31,788) (22,626) -
Proceeds from sales of property, plant and equipment 98 - 28
Changes in other non-current assets (21,450) (347) (489)
-------- -------- --------
Net cash used in investing activities (83,724) (47,561) (21,598)
-------- -------- --------
Cash flows from financing activities:
Payments under Senior term loan - (21,000) (135,297)
Principal payments under capitalized lease,
mortgages and other debt (542) (502) (5,300)
Borrowings under revolving credit facilities - 20,000 -
Payments against revolving credit facilities - (20,000) -
Proceeds from exercise of stock options and other 5,087 1,169 16,687
Proceeds from exercise of warrants 3,100 6,185 11,570
-------- -------- --------
Net cash provided by (used in) financing activities 7,645 (14,148) (112,340)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 104,945 11,594 (32,525)
Cash and cash equivalents at beginning of year 15,873 4,279 36,804
-------- -------- --------
Cash and cash equivalents at end of year $120,818 $ 15,873 $ 4,279
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE>
QVC, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Additional Retained Foreign Currency
Convertible Common Paid-in Earnings Treasury Translation
Preferred Stock Stock Capital (Deficit) Stock Adjustments Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 31, 1992 $114 $250 $325,948 $ (456) $ (70) $ - $325,786
Net income for year - - - 55,092 - - 55,092
Income tax benefit resulting
from capital stock transactions,
exercise of stock options and net
operating loss carryforward - - 22,312 - - - 22,312
Proceeds from the exercise of
employee stock options - 13 16,708 - (31) - 16,690
Proceeds from exercise of
warrants - 11 11,559 - - - 11,570
Grant of executive stock award - 2 4,867 - - - 4,869
Convertible subordinated note
exchanged for Common Stock,
net of unamortized debt
placement fees of $1,260 - 17 28,723 - - - 28,740
Common Stock issued in warrant
exchange offer (Note 11) - 68 91,394 - (91,462) - -
Conversion of shares (20) 20 - - - - -
Purchases of Treasury Stock - - - - (3) - (3)
Retirement of Treasury Stock ( 1) (24) (91,541) - 91,566 - -
- --------------------------------------------------------------------------------------------------------------------------------
Balance January 31, 1993 93 357 409,970 54,636 - - 456,056
Net income for year - - - 59,301 - - 59,301
Income tax benefit resulting from
cumulative effect of a change in
accounting for income taxes - - 27,053 - - - 27,053
Income tax benefit resulting from
exercise of stock options - - 1,655 - - - 1,655
Proceeds from exercise of employee
stock options - 1 1,168 - - - 1,169
Proceeds from exercise of warrants - 4 6,181 - - - 6,185
Conversion of shares (37) 37 - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Balance January 31, 1994 56 399 446,027 113,937 - - 560,419
Net income for year - - - 66,589 - - 66,589
Proceeds from exercise of employee
stock options - 2 5,085 - - - 5,087
Proceeds from exercise of warrants - 3 3,097 - - - 3,100
Conversion of shares (6) 6 - - - - -
Foreign currency translation adjustments - - - - - 467 467
- --------------------------------------------------------------------------------------------------------------------------------
Balance January 31, 1995 $ 50 $410 $454,209 $180,526 $ - $ 467 $635,662
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation.
The consolidated financial statements include the accounts of the QVC,
Inc. and all subsidiaries ("QVC" or the "Company"). Investments in the
Company's joint ventures (50% or less owned) are accounted for under the equity
method. All significant intercompany accounts and transactions are eliminated
in consolidation.
Fiscal year.
The Company's fiscal year ends on January 31. Fiscal years are designated
in the financial statements and notes by the calendar year in which the fiscal
year commences.
Cash and cash equivalents.
All highly-liquid debt instruments purchased with a maturity of three
months or less are classified as cash equivalents. The carrying amounts
reported in the balance sheet for cash and cash equivalents approximate those
assets' fair value.
Inventories.
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.
Property, plant and equipment.
The costs of property, plant and equipment are capitalized and depreciated
over their estimated useful lives using the straight-line method. When assets
are sold or retired, the cost and accumulated depreciation are removed from the
accounts and any gain or loss is included in income. The costs of maintenance
and repairs are charged to expense as incurred.
Excess of cost over acquired net assets.
The excess of cost over acquired net assets is amortized over thirty years
using the straight-line method.
Translation of foreign currencies.
Assets and liabilities of foreign operations are translated at current
exchange rates, and related translation adjustments are reported as a component
of shareholders' equity. Statement of Operations accounts are translated at
the average rates for the period. Exchange gains and losses resulting from
foreign currency transactions are included in losses from joint ventures.
Net sales and returns.
Revenue is recognized at time of shipment to customers. The Company's
policy is to allow customers to return merchandise for full 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, 21, and 19 percent of sales in fiscal 1994, 1993 and
F-30
<PAGE>
1992, respectively.
Capitalization of start-up costs.
The Company capitalizes all direct incremental costs incurred prior to
operations for new broadcast ventures. These costs are amortized over a period
of eighteen months starting at the commencement of broadcast operations.
Income taxes.
Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). The
cumulative effect of the change in the method of accounting for income
taxes was included in the first quarter of 1993 Consolidated Statements of
Operations and Shareholders' Equity. Prior years' financial statements were
not restated. Under the asset and liability method of SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using statutory tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled.
The Company previously used the asset and liability method under SFAS 96.
Under the asset and liability method of SFAS 96, deferred tax assets and
liabilities were recognized for all events that had been recognized in the
financial statements. Under SFAS 96, the future tax consequences of recovering
assets or settling liabilities at their financial statement carrying amounts
were considered in calculating deferred taxes. Generally, SFAS 96 prohibited
consideration of any other future events in calculating deferred taxes.
F-31
<PAGE>
Note 2 - ACQUISITION OF THE COMPANY
In August 1994, Comcast Corporation ("Comcast"), Liberty Media Corporation
("Liberty"), a wholly-owned subsidiary of Tele-Communications, Inc., QVC
Programming Holdings, Inc. ("Holdings"), a jointly-owned entity of Comcast and
Liberty, and the Company entered into a merger Agreement (the "Merger
Agreement"), providing for the acquisition of QVC, Inc. by Holdings. Holdings
commenced a tender offer to purchase all the outstanding shares of Common and
Preferred stock of QVC, Inc. for $46 and $460 per share, respectively, which was
completed on February 9, 1995 (the "Offer").
The cost of the acquisition of the QVC stock not previously owned by
Comcast, Liberty or their affiliates was approximately $1.6 billion. Comcast and
Liberty funded $274 million of the cost of the acquisition, the proceeds from
the exercise of stock options and warrants funded $242 million of the
acquisition, with the balance provided through $1.1 billion of debt financing
which, after the Merger, is the obligation of QVC. On February 15, 1995,
Holdings was merged into QVC. Following the Merger, Comcast and Liberty own
approximately 57% and 43%, respectively, of QVC and QVC will be controlled by
Comcast.
The acquisition of the QVC stock not previously owned by Comcast or Liberty
was accounted for using the purchase method. The purchase price will be
allocated to net assets on the basis of appraisals and estimated fair values.
The excess of such aggregate purchase price over the fair market values of net
assets acquired will be classified in the balance sheet as 'Excess of cost over
acquired assets' and amortized over thirty years using the straight-line method.
The pro-forma unaudited results of operations for the year ended January
31, 1995, assuming the purchase of QVC had been consummated as of the beginning
of fiscal 1994, is presented below. Adjustments have been made for interest
expense attributable to financing the acquisition, amortization of amounts
assigned to cable television distribution rights, and amortization of excess
purchase price (Stated in millions):
<TABLE>
<CAPTION>
1994
----
<S> <C>
Net revenue $1,390
Net loss (28)
</TABLE>
The pro-forma financial information presented above is not necessarily
indicative of either the results of operations that would have occurred had the
acquisition taken place at the beginning of the period presented or of future
results of operations.
F-32
<PAGE>
Note 3 - ACCOUNTS RECEIVABLE
The Company has an agreement with an unrelated third party which
provides for the sale and servicing of accounts receivable originating from
the Company's revolving credit card. The Company sold accounts receivable
at face value of $480.5 million, $418.2 million and $392.7 million
under this agreement in fiscal 1994, 1993 and 1992, respectively. The
Company remains obligated to repurchase uncollectible accounts pursuant to
the recourse provisions of the agreement and is required to maintain a
specified percentage of all outstanding receivables transferred under the
program as a deposit with the third party to secure its obligations under
the agreement. The Company is required to pay certain finance and servicing
fees which are offset by finance charges on customer account balances. The
net amount of this finance charge income is included as interest income and
is comprised of the following (in millions):
<TABLE>
<CAPTION>
Fiscal Year
-------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Finance charges on customer
account balances $37.1 $26.2 $23.2
----- ----- -----
Funding fees 11.8 8.7 8.1
Service fees 11.8 10.5 9.5
----- ----- -----
23.6 19.2 17.6
----- ----- -----
Net finance income $13.5 $ 7.0 $ 5.6
----- ----- -----
</TABLE>
The uncollected balances of accounts receivable sold under this program
are $232.5 million and $201.2 million at January 31, 1995 and 1994,
respectively, of which $232.5 million and $170.1 million represent deposits
under the agreement and which are included in accounts receivable. The
total reserve balances maintained for the repurchase of uncollectible
accounts are $62.9 million and $55.7 million at January 31, 1995 and 1994,
respectively. Approximately $8.6 million of the reserve balances was
included in accrued liabilities at January 31, 1994; the remaining balances
are included with allowance for doubtful accounts.
Receivables sold under this agreement are considered financial
instruments with off-balance sheet risk as defined in Statement of Financial
Accounting Standards No. 105.
F-33
<PAGE>
Note 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
January 31, Estimated
---------------------- Useful
1995 1994 Life
-------- -------- ---------
(in thousands)
<S> <C> <C> <C>
Land $ 7,818 $ 3,977 -
Buildings and improvements 58,511 50,627 20-30 years
Furniture and other equipment 34,722 33,866 3-8 years
Broadcast equipment 10,685 8,942 5-7 years
Computer equipment and software 21,745 20,005 3-5 years
Construction in progress 1,065 1,684 -
-------- --------
134,546 119,101
Less - accumulated depreciation (41,979) (38,522)
-------- --------
Net property, plant and equipment $ 92,567 $ 80,579
-------- --------
</TABLE>
In October 1994, the Company purchased a 600,000 square foot office and
warehouse facility in West Chester, Pennsylvania. The cost to date for the
purchase of the land, building and improvements to the facility has been $12.1
million. It is anticipated that some of the operations located in other
facilities will be transferred to this building.
In July 1993, the Company completed construction of a 50,000 square foot
telecommunications center in Chesapeake, Virginia for a total cost of
approximately $6.9 million. This telecommunications center replaced a facility
that had been leased.
F-34
<PAGE>
Note 5 - CABLE TELEVISION DISTRIBUTION RIGHTS
Cable television distribution rights consist of the following:
<TABLE>
<CAPTION>
January 31,
-------------------
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
Cable television distribution rights $158,677 $162,142
Less - accumulated amortization (52,972) (62,563)
-------- --------
Net cable television distribution rights $105,705 $ 99,579
-------- --------
</TABLE>
The amounts assigned to cable television distribution rights arose
principally from excess fair values assigned, as determined by independent
appraisals, to Convertible Preferred Stock issued to cable system operators in
exchange for distribution agreements. During 1994, distribution agreements with
cable systems, with a fair value assigned of $24.5 million expired and the costs
and accumulated amortization were removed from the accounts.
In addition, in 1994, the Company entered into affiliation agreements with
various cable system operators for carriage of the Company's new shopping
service, Q2. The cable system operators received compensation from the Company
which was dependent upon the number of additional subscribers. During 1994, the
Company paid $21.1 million in connection with these new affiliation agreements.
Cable television distribution rights are amortized by the straight-line
method over the lives of the individual agreements. The remaining weighted
average life for all cable television distribution rights is approximately 9
years at January 31, 1995.
F-35
<PAGE>
Note 6 - OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
January 31,
--------------------
1995 1994
------- -------
(in thousands)
<S> <C> <C>
Deferred taxes (Note 14) $21,422 $17,265
Investment in and advances to
joint ventures, net of
accumulated losses 8,804 11,194
Start-up costs 11,444 3,458
Satellite transponder rights 1,000 1,000
Other 1,456 1,235
------- -------
44,126 34,152
Less-accumulated amortization (4,469) (488)
------- -------
Net other assets $39,657 $33,664
------- -------
</TABLE>
During fiscal 1993, the Company established electronic retailing
program service in England ("QVC - The Shopping Channel") and Mexico
("CVC"), through joint venture agreements with British Sky Broadcasting
Limited and Grupo Televisa, S.A. de C.V., respectively. The joint venture
in England began broadcasting on October 1, 1993 and the joint venture in
Mexico began broadcasting on November 15, 1993. The joint venture agreement
in England requires, among other things, that the Company provide all
funding to the joint venture until it is profitable. The Company will then
recover all prior funding before any profits are shared. Accordingly, the
Company has included 100% of the loss on operations of this venture in the
Consolidated Statements of Operations. The operating results of the joint
venture in Mexico are shared equally by the partners.
F-36
<PAGE>
Summarized financial information for "QVC - The Shopping Channel" and
"CVC" on a 100% basis as of and for the periods ended January 31, 1995 and
1994 follows (unaudited - in thousands):
<TABLE>
<CAPTION>
QVC - The
Shopping Channel CVC
------------------ ------------------
January January January January
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Current assets $13,258 $ 5,608 $ 8,122 $ 9,690
Property, plant and equipment, net 2,512 1,645 1,931 1,662
Unamortized start-up costs 336 2,205 196 1,651
Current liabilities 50,849 4,181 13,765 9,193
Net revenue 29,134 2,994 30,281 2,316
</TABLE>
The Company had a joint venture with Tribune Entertainment Company and
Regal Communications to produce and distribute "Can We Shop" with Joan
Rivers ("QRT"). "Can We Shop" first aired on January 17, 1994 and was a one-
hour Monday through Friday television show through which merchandise was
sold. The last show was broadcast in July 1994.
The Company acquired a one third interest in Friday Holdings, L.P. for
the purpose of establishing or acquiring businesses in the communications
field as well as developing information products. This partnership is
currently being liquidated.
The Company's share of the losses from joint ventures in 1994 and 1993
was as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
QVC - The Shopping Channel $(24,399) $ (8,942)
CVC (5,389) (1,803)
QRT (1,115) (387)
Friday Holdings (3,350) (300)
Other joint ventures (390) -
-------- --------
$(34,643) $(11,432)
-------- --------
</TABLE>
The Company capitalized the costs relating to the start-up of Q2, a new
televised shopping/programming service, which fully launched on August 1,
1994 in the United States. The capitalized start-up costs are being
amortized over eighteen months. Total amortization for 1994 was $3,815,000.
Debt placement fees on the Senior term loan arising out of the CVN
acquisition were amortized over the expected life of the debt using the
effective interest rate method. On March 5, 1993, the Company retired the
Senior term loan. Debt placement fees associated with the Senior term loan
were fully amortized, and the cost and accumulated amortization were removed
from the accounts. During fiscal 1992, the Company prepaid $86.3 million of
the Senior term loan. As a result, the amortization of debt placement fees
of $2.7 million was accelerated and reported as an extraordinary loss of
$1.5 million, net of $1.2 million income tax benefit.
F-37
<PAGE>
Note 7 - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
January 31,
------------------
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
Income taxes (Note 14) $155,557 $ 80,879
Reserve for uncollectible accounts
under revolving credit program (Note 3) - 8,636
Non-inventory accounts payable 31,013 26,232
Accrued compensation and benefits 21,698 22,280
Sales and other taxes 15,284 15,028
Allowance for sales returns 23,588 17,787
Other 54,683 55,147
-------- --------
$301,823 $225,989
-------- --------
</TABLE>
F-38
<PAGE>
Note 8 - LONG-TERM DEBT
Aggregate amounts of outstanding long-term debt consist of
the following:
<TABLE>
<CAPTION>
January 31,
---------------------
1995 1994
-------- --------
(in thousands)
<S> <C> <C>
10.4% Mortgage notes payable in monthly
installments until 1998 $ 9,616 $ 10,158
Less - current portion (3,173) (3,114)
-------- --------
$ 6,443 $ 7,044
-------- --------
</TABLE>
The Company has a $60.0 million bank revolving credit facility to
finance operations as well as to fund letters of credit for merchandise
purchases. Interest on outstanding amounts under this agreement is
payable at the bank's prime rate or other interest rate options. A
commitment fee of .10% is payable on the unused portion of the revolving
credit facility. The credit agreement requires the Company to maintain
certain ratios for total liabilities to shareholders' equity and for
coverage of fixed charges. Outstanding letters of credit totaled
approximately $7.5 million at January 31, 1995.
Maturities of the 10.4% Mortgage notes payable for the four years
subsequent to January 31, 1995 are $3,173,000 in 1995; $666,000 in 1996;
$739,000 in 1997 and $5,038,000 in 1998.
In February 1995, the Company entered into a $1.2 billion credit loan
facility in connection with the acquisition of the Company (as described
in Note 2 - Acquisition of the Company). Of the $1.2 billion credit loan
facility, $1.1 billion was borrowed to finance a portion of the total
purchase price and $.1 billion remains available for future borrowings.
Interest on the amounts borrowed is payable quarterly at the bank's prime
rate or other interest rate options.
The $1.2 billion credit loan facility is payable in quarterly
installments with the remaining principal balance due in January, 2004.
Maturities of the $1.2 billion credit loan facility for the five years
subsequent to January 31, 1995 are no amounts due in 1995 or 1996;
$36,000,000 in 1997; $77,250,000 in 1998 and $102,250,000 in 1999.
F-39
<PAGE>
Note 9 - LEASES AND TRANSPONDER SERVICE AGREEMENTS
Future minimum payments under all non-cancellable operating leases and
transponder service agreements with initial terms of one year or more at January
31, 1995 consist of the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1995 $10,115
1996 6,642
1997 5,515
1998 5,335
1999 4,735
Thereafter 29,279
-------
Total $61,621
-------
</TABLE>
Expense for operating leases, principally for data processing equipment and
facilities, and for transponder service agreements amounted to $13,543,000,
$11,280,000 and $12,895,000 in fiscal years 1994, 1993, and 1992, respectively.
The Company transmits the QVC Service on a protected, non-preemptible
transponder on the C-4 Satellite at a monthly cost that averages $224,000 over
the term of the agreement which expires in 2004.
The Company transmits The Q2 Service on a protected, non-preemptible
transponder on the C-3 Satellite at a cost of $205,000 per month over the term
of the agreement which expires in 2004.
F-40
<PAGE>
Note 10 - CAPITAL STOCK
The Company has 175,000,000 shares of Common Stock authorized. There were
41,034,127 shares outstanding at January 31, 1995 and 39,895,447 shares
outstanding at January 31, 1994. The reasons for the increase in the number of
shares of Common Stock outstanding were the conversion of Convertible Preferred
Stock (634,990), the exercise of warrants (310,000) and the exercise of employee
stock options (194,000).
The following table summarizes the convertible preferred shares at January
31, 1995 and 1994 (shares and dollars in thousands):
<TABLE>
<CAPTION>
Shares Authorized Shares Outstanding Par Value
----------------- ------------------ -----------------
1995 and 1994 1995 1994 1995 1994
----------------- ------------------ -----------------
<S> <C> <C> <C>
Series A 10 - - - $ -
Series B 1,000 18 28 2 3
Series C 1,000 478 531 48 53
Series D 300 - 1 - -
---- ----
$ 50 $ 56
---- ----
</TABLE>
The shares of Convertible Preferred Stock were issued to cable system
operators in connection with their signing or extending cable television
distribution agreements in prior years.
Convertibility.
Each share of Series B, Series C and Series D Convertible Preferred Stock
is convertible into ten shares of Common Stock.
Voting Rights.
The holders of the Common Stock are empowered to elect two directors of the
Company as a class. The holders of each class of stock are entitled to cast one
vote per share for the election of the remaining directors of the Company.
Liquidation.
Upon the dissolution and liquidation of the Company, the assets remaining
after the payment of all debts and liabilities of the Company shall be
distributed first to the holders of the Series B Convertible Preferred Stock at
$10.00 per share. To the extent available, the holders of Series C Convertible
Preferred Stock will then receive $10.00 per share followed by Series D
Convertible Preferred Stock holders at $15.00 per share. The balance, if any,
will be paid to the holders of the Common Stock share-for-share.
F-41
<PAGE>
Note 11 - STOCK OPTIONS, WARRANTS AND AWARDS
The following table summarizes shares of Common Stock reserved for issuance
for outstanding stock options and warrants:
<TABLE>
<CAPTION>
Average
Exercise Price
January 31, at January 31,
---------------------- -------------- Expiration
1995 1994 1995 1994 Date
--------- --------- ------ ------ ---------------
<S> <C> <C> <C> <C> <C>
Qualified stock options 1,744,700 1,751,800 $31.69 $30.56 11/1996-06/2004
Non-qualified stock options 6,203,975 6,275,500 34.20 32.83 12/1997-04/2004
Warrants issued in connection with
convertible subordinate debt 1,600,000 1,600,000 17.49 17.49 10/1995
Warrants issued with Common Stock
in lieu of cash interest expense 100,000 100,000 13.35 13.35 04/1996-10/1996
Warrants issued in connection with
1987 debt financing - 310,000 - 10.00 04/1994
--------- ----------
Total reserved shares 9,648,675 10,037,300
--------- ----------
</TABLE>
The Company has Incentive Stock Option Plans ("ISO Plans"), under which
options may be granted to key managerial employees to purchase up to 10,300,000
shares of Common Stock. The ISO Plans are administered by the Executive
Compensation Committee appointed by the Company's Board of Directors. The
Committee has the authority to determine optionees, the number of shares to be
covered by each option and certain other terms and conditions of the grant. The
ISO Plans require that the exercise price of options be equal to or greater than
the fair market value of the stock at the time of grant, and the term of any
option cannot exceed ten years. Options issued under the 1990 Non-Qualified
Stock Option Plan and the 1993 Qualified Stock Option Plan vest ratably over
four years, commencing one year from the date of the grant of the option, and
qualified and non-qualified options under all other ISO Plans, except where
noted below, vest ratably over three years, commencing on the date of grant.
In connection with obtaining a portion of the proposed financing for the
cash tender offer for Paramount Communications Inc. (Note 17), the Company
granted BellSouth Corporation, Advance Publications, Inc. and Cox Enterprises,
Inc. options to purchase an aggregate of 14.3 million shares of Common Stock at
$60.00 per share. The options were granted at the termination of the
QVC/Paramount tender offer on February 15, 1994 and were exercisable until the
later of August 15, 1994, or ten business days after stockholders of the Company
vote with respect to such grant of options. These options were not exercised and
expired in August 1994.
On December 9, 1992, the Company and two of its principal shareholders
(Comcast Corporation and Liberty Media Corporation) announced an agreement
pursuant to which Mr. Barry Diller would become Chairman of the Board and Chief
Executive Officer. In connection with this agreement, the Company granted Mr.
Diller 160,000 shares of Common Stock. The value of the shares on the date of
grant ($4.9 million) was charged to general and administrative expense in fiscal
1992. Also in connection with this agreement, the Company granted to Mr. Diller
stock options covering 6,000,000 shares of Common Stock. All of the options have
a five-year term. One-half of these options ("base options") has an exercise
price of $30.43; the other one-half ("scaled options") have an exercise price
equal to $30.43 per share increased by 13 percent per
F-42
<PAGE>
annum until December 9, 1994 and thereafter by 15 percent per annum compounded
annually. The exercise price on any unexercised scaled options increases
annually. One-half of the base options and one-half of the scaled options became
exercisable December 9, 1993 and the balance became exercisable December 9,
1994.
In August 1991, the Company granted to Mr. Joseph M. Segel, then Chairman
and Chief Executive Officer, non-qualified stock options covering 600,000 shares
of Common Stock at an exercise price of $15.90 per share. One-half of these
options vested on the first anniversary of the date of grant, and the balance
was to vest on the second anniversary of the date of grant. On December 9, 1992,
the Board of Directors and the Executive Compensation Committee approved the
acceleration of the vesting of the second half of these options to December
1992, in order to allow Mr. Segel to realize their value in 1992. The Board and
the Executive Compensation Committee also accelerated an additional 50,000
options under ISO Plans for Mr. Segel that were scheduled to vest in 1993 and
1994.
On December 9, 1992, the Board agreed to enter into a consulting and
severance arrangement with Mr. Segel whereby he would serve as a consultant to
the Company for a period of ten years after his retirement in January 1993 at an
annual salary of $240,000 and, as incentive to Mr. Segel to accept employment as
a consultant, granted to Mr. Segel, pursuant to the 1992 Qualified Incentive
Stock Option Plan, 100,000 options to purchase shares of Common Stock,
exercisable at $30.43 per share. These options vest ratably over a period of
five years. The present value of the ten-year consulting and severance
arrangement with Mr. Segel of $2.2 million was expensed in fiscal 1992.
The Board also approved entering into three-year (five-year in the case of
Michael C. Boyd, former President of the Company) employment agreements for nine
senior Company executives, pursuant to which, among other things, the executives
would be entitled to compensation at their current salaries and eligible for
bonus and incentive compensation programs as may be maintained from time to time
during the term of the agreement. As incentive to enter into the employment
agreements, the Board granted to these executives, pursuant to the 1992 Stock
Option Plan, an aggregate 1,450,000 options to purchase Common Stock exercisable
at $30.43 per share. Options granted under the 1992 Stock Option Plan vest
ratably over three years (five years in the case of Mr. Boyd). In February 1994,
Mr. Boyd retired from the Company and entered into a consulting agreement.
Accordingly, the present value of his employment agreement of $1.3 million was
expensed in fiscal 1993.
In February prior to the acquisition of the Company by Comcast and Liberty,
exercisable stock options to purchase an aggregate of 6,089,807 shares were
exercised by the holders thereof, resulting in net proceeds to the Company of
$213,056,000. In addition, Comcast exercised 1,700,000 warrants in February
1995, resulting in net proceeds to the Company of $29,319,000. Concurrent with
the acquisition, the Company repurchased at the difference between the $46
tender offer price and the option exercise price, an aggregate of 1,839,868
option shares resulting in a compensation charge of $31,472,000 that will be
reflected in February 1995 operations. The remainder of the 19,000 option shares
that were exercisable at prices in excess of the $46 tender offer price were
canceled by the Company.
F-43
<PAGE>
A summary of changes in outstanding options under the ISO Plans is as
follows:
<TABLE>
<CAPTION>
Qualified Option Shares Non-qualified Option Shares
------------------------- ---------------------------
Outstanding Exercisable Outstanding Exercisable Price Range
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January
31, 1992 502,787 470,787 1,200,500 202,500 $ 5.00 - $17.25
Granted 1,582,000 351,167 6,010,000 - 19.00 - 38.86
Cancelled (1,750) (1,750) (11,000) (3,500) 5.00 - 16.00
Became exercisable - 29,500 - 796,375 5.00 - 16.00
Exercised (365,575) (365,575) (919,900) (919,900) 5.00 - 17.25
---------- ---------- ---------- ---------- ---------------
Balance at January
31, 1993 1,717,462 484,129 6,279,600 75,475 5.00 - 38.86
Granted 106,000 1,250 50,000 - 39.88 - 70.75
Cancelled (5,575) (5,575) (26,750) (3,000) 5.00 - 23.25
Became exercisable - 370,416 - 3,095,250 5.00 - 34.39
Exercised (66,087) (66,087) (27,350) (27,350) 5.00 - 23.25
---------- ---------- ---------- ---------- ---------------
Balance at January
31, 1994 1,751,800 784,133 6,275,500 3,140,375 5.00 - 70.75
---------- ---------- ---------- ---------- ---------------
Granted 180,000 - 5,000 - 33.25 - 44.75
Cancelled (17,500) (2,500) (52,125) (17,541) 5.00 - 70.75
Became exercisable - 477,472 - 3,100,041 5.00 - 70.75
Exercised (169,600) (169,600) (24,400) (24,400) 5.00 - 30.43
---------- ---------- ---------- ---------- ---------------
1,744,700 1,089,505 6,203,975 6,198,475 $ 5.00 - $60.75
---------- ---------- ---------- ---------- ---------------
</TABLE>
In December 1992, the Company offered to exchange warrants into shares of
Common Stock equivalent in value to the difference between the warrant exercise
price and the market price ($37.75) at the time of the offer. Warrants that
would have been exercisable for 7,061,005 shares were extinguished in this offer
and the Company issued 4,367,690 net shares of Common Stock. The warrant holders
were able to effect the exchange several ways. The net effect on the number of
shares of Common Stock outstanding after the exchange was the same. A total of
3,893,962 warrants were exercised by delivering to the Company 1,424,403
previously issued shares of Common Stock valued at the market price ($37.75). A
total of 2,492,017 warrants were exercised for $37,692,000, the proceeds of
which were used to purchase from the warrant holders 998,457 shares of Common
Stock at market. A total of 675,026 warrants were exchanged for 404,572 shares
of Common Stock with an aggregate value equal to the difference between the
market price and the exercise price. Warrant holders of an aggregate 2,418,908
shares declined the offer. Since this warrant exchange was treated as a non-cash
financing transaction, it is not reflected on the Consolidated Statements of
Cash Flows.
F-44
<PAGE>
Note 12 - INCOME PER SHARE
The Company computes income per share using the modified treasury stock
method. The following table presents the information needed to compute net
income per share for fiscal years 1994, 1993 and 1992 (in thousands, except per
share data):
<TABLE>
<CAPTION>
1994 1993 1992
----------------------- ----------------------- -----------------------
Primary Fully Diluted Primary Fully Diluted Primary Fully Diluted
------- ------------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income:
- -------
Income before extraordinary item and
cumulative effect of a change in
accounting principle $66,589 $66,589 $55,311 $55,311 $56,588 $56,588
Add - Imputed income from interest
savings, net of tax, on assumed
retirement of debt with remaining
proceeds from assumed exercise of
warrants and options - - - - 1,452 1,239
------- ------- ------- ------- ------- -------
Adjusted income before extraordinary item
and cumulative effect of a change in
accounting principle 66,589 66,589 55,311 55,311 58,040 57,827
Extraordinary item - loss on extinguishment
of debt, net of tax benefit - - - - (1,496) (1,496)
Cumulative effect of a change in accounting
for income taxes - - 3,990 3,990 - -
------- ------- ------- ------- ------- -------
Adjusted net income $66,589 $66,589 $59,301 $59,301 $56,544 $56,331
------- ------- ------- ------- ------- -------
Shares:
- -------
Weighted average number of common
shares outstanding 40,466 40,466 37,845 37,845 27,885 27,885
Add - Common equivalent shares assuming
conversion of Series B, C and D
Convertible Preferred Stock 5,312 5,312 7,387 7,387 10,340 10,340
Add - Common equivalent shares assuming
conversion of subordinated note at
beginning of fiscal year - - - - - 1,280
Add - Common shares assumed to be outstanding
from exercise of warrants and options 9,749 9,718 10,184 10,180 12,812 10,517
Less - Assumed purchase of Common Stock
from proceeds of exercise of warrants
and options (7,050) (6,611) (5,354) (5,207) (7,147) (4,636)
------- ------- ------- ------- ------- -------
48,477 48,885 50,062 50,205 43,890 45,386
------- ------- ------- ------- ------- -------
Income per share:
Income before extraordinary item and
cumulative effect of a change in
accounting principle $ 1.37 $ 1.36 $ 1.10 $ 1.10 $ 1.32 $ 1.27
Extraordinary item, net of tax benefit - - - - (.03) (.03)
Cumulative effect of a change in accounting
for income taxes - - .08 .08 - -
------- ------- ------- ------- ------- -------
Net income $ 1.37 $ 1.36 $ 1.18 $ 1.18 $ 1.29 $ 1.24
------- ------- ------- ------- ------- -------
</TABLE>
F-45
<PAGE>
Note 13 - RETIREMENT AND SAVINGS PLANS
The Company has a defined contribution Employee Retirement Plan which
covers substantially all of the Company's employees after completion of one
year of service. The Company's contribution under the Plan is equal to 3.0% of
eligible employees' salaries. The costs of this Plan charged to expenses were
$2,572,000 $2,202,000 and $2,177,000 in fiscal years 1994, 1993 and 1992,
respectively.
In addition, the Company sponsors a 401(k) Savings Plan which permits
employees to make contributions to the Savings Plan on a pre-tax salary
reduction basis in accordance with the Internal Revenue Code. Substantially
all full-time employees are eligible to participate after completion of one
year of service. The Company matches a portion of the voluntary employee
contributions. The costs of this Savings Plan charged to expenses were
$2,213,000, $2,053,000 and $1,501,000 in fiscal years 1994, 1993, and 1992,
respectively.
F-46
<PAGE>
Note 14 - INCOME TAXES
Effective February 1, 1993, the Company changed its method of accounting
for income taxes as required by SFAS 109. The cumulative effect of this change
in accounting was to increase the net income of the first quarter of fiscal 1993
by approximately $4.0 million, which is reported separately in the Consolidated
Statements of Operations. Prior year's financial statements were not restated to
reflect the provisions of SFAS 109.
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Current
Federal $ 55,252 $ 66,366 $ 49,770
State 16,762 21,710 19,810
-------- -------- --------
Total 72,014 88,076 69,580
-------- -------- --------
Deferred
Federal 1,674 (23,159) (17,500)
State 1,072 (4,942) -
-------- -------- --------
Total 2,746 (28,101) (17,500)
-------- -------- --------
Total provision $ 74,760 $ 59,975 $ 52,080
-------- -------- --------
</TABLE>
Total income tax expense differs from the amounts computed by applying the
U.S. federal income tax rate of 35.0% for fiscal 1994 and 1993 and 34.0% for
fiscal 1992 to income before income taxes, extraordinary item and cumulative
effect of a change in accounting principle as follows:
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Provision at statutory rate 35.0% 35.0% 34.0%
State income taxes, net of
federal tax benefit 15.0 14.5 12.0
Amortization of intangibles not
deductible for tax purposes 2.4 3.0 3.2
Other .5 (.5) (1.3)
----- ----- -----
Total income tax expense 52.9% 52.0% 47.9%
----- ----- -----
</TABLE>
F-47
<PAGE>
Deferred income taxes reflect the net effects of temporary differences
between the value of assets and liabilities and their tax bases and the benefit
of existing net operating loss carryforwards. Significant components of the net
deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
January 31,
------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable, principally
due to the allowance for doubtful
accounts and related reserves for
uncollectible accounts under the
Company's revolving credit program $29,528 $25,715 $15,985
Inventories, principally due to
obsolescence reserves and
additional costs of inventories
for tax purposes pursuant
to the Tax Reform Act of 1986 9,040 7,497 6,801
Allowance for sales returns 10,119 7,625 3,857
Executive stock award - - 1,655
Costs associated with the terminated
tender offer for Paramount - 14,964 -
Costs associated with cable television
distribution rights 26,160 26,619 2,813
Other 12,602 7,061 (363)
------- ------- -------
Total gross deferred tax assets 87,449 89,481 30,748
Less: Valuation allowance (12,467) (12,467) -
Less - amounts not recognized due
to SFAS 96 limitations on carrybacks
of future net deductible amounts
and carryforwards of alternative
minimum tax credits - - (12,948)
------- ------- -------
Net deferred tax asset $74,982 $77,014 $17,800
------- ------- -------
</TABLE>
Of the total net additional deferred tax asset recorded at the time of the
adoption of SFAS 109, approximately $27.0 million was credited to additional
paid-in capital, and approximately $6.5 million was credited to the excess of
cost over acquired net assets. The net increase in the deferred tax asset during
fiscal 1993 differs from the deferred benefit component of that year's tax
provision primarily due to the recognition of a portion of the net operating
loss carryforwards.
F-48
<PAGE>
The increase in the deferred tax asset for fiscal 1992 differs from the
deferred benefit component of that year's tax provision because portions of the
deferred tax provision recorded were allocated to additional paid-in capital or
the excess of cost over acquired net assets.
Deferred tax assets relating to certain operating losses were not recorded
in fiscal 1994, 1993 and 1992 for state income tax purposes since these losses
are principally allocable to states that do not allow utilization of the losses.
The valuation allowance for deferred tax assets as of February 1, 1993 was
$12.2 million. The net change in the valuation allowance for fiscal 1993 was an
increase of $255,000. There was no change in this valuation allowance in fiscal
1994. Approximately $6.0 million of the valuation allowance will result in a
credit to additional paid-in capital when it becomes more likely than not that
certain deductions associated with cable television distribution rights will be
realizable.
The following table summarizes the nature of certain tax benefits realized
that reduced taxes payable but were not credited to the tax provision for fiscal
year 1994, 1993 and 1992 (in thousands):
<TABLE>
<CAPTION>
Excess of cost over
Additional paid-in capital acquired net assets
-------------------------- ----------------------
Source of Tax Benefit 1994 1993 1992 1994 1993 1992
- --------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Exercise of employee
stock options $ - $1,655 $12,366 $ - $ - $ -
Net operating loss
carryforward and other
deductions arising from
equity transactions - - 6,967 - - -
Realization of tax
benefits associated with
temporary differences in
CVN acquisition - - - - 6,510 5,086
Alternative minimum tax
credit carryforward
generated from equity
related deductions - - 2,979 - - -
------ ------ ------- ----- ------ ------
$ - $1,655 $22,312 $ - $6,510 $5,086
------ ------ ------- ----- ------ ------
</TABLE>
In addition, in 1994 and 1993 a reduction in taxes payable of $.7 million
and $6.6 million, respectively, resulting from the utilization of net operating
loss carryforwards and other equity items reduced the deferred tax assets and
had no impact on the tax provision.
As of January 31, 1995, all net operating loss carryforwards have been
utilized. There are no other credits or loss carryforwards available as of the
end of fiscal 1994.
In April 1994, the Company received notice that the Internal Revenue
Service ("IRS") has completed its examinations of the Company's federal income
tax returns through fiscal 1991. As a result of the examination, the IRS has
proposed adjustments that relate primarily to the amortization of cable
television distribution rights, that would result in a potential tax liability
for those years in excess of $56.0 million. The Company intends to vigorously
contest these proposed
F-49
<PAGE>
adjustments. While it is not possible at this time to predict the outcome of
these actions, it is the opinion of management, after reviewing the matter with
outside counsel, that this matter will be resolved without having a material
financial impact on the Company.
F-50
<PAGE>
Note 15 - LITIGATION
The Company was named as a defendant in certain actions filed in state
and federal courts in Delaware (the "Delaware Courts") arising out of Liberty
Media Corporation's ("Liberty") prior acquisitions of shares of Home Shopping
Network, Inc. ("HSN") and the Company's July 1993 letter proposal to HSN to
combine HSN and the Company in a stock-for-stock transaction (the "HSN
Actions"). On August 19, 1994, the parties in the HSN Actions entered into a
stipulation in connection with the contemplated settlement of such actions
(the "Delaware Settlement"), which was then filed with the Delaware Courts and
subsequently revised. Pursuant to the Delaware Settlement, the following
classes would be certified for settlement purposes: (i) all record or
beneficial owners of HSN common stock (the "HSN Shares") from and including
December 4, 1992 through and including November 5, 1993; (ii) all sellers of
HSN Shares in the Liberty tender offer; and (iii) all sellers of HSN Shares
from and including March 30, 1993 through and including July 12, 1993.
Members of the subclasses described in items (ii) and (iii) would have the
right to opt out of the Delaware Settlement pursuant to procedures set forth
in the revised stipulation. The Delaware Settlement contemplated that
Liberty would create a settlement fund of $13.2 million (plus interest from
December 31, 1993) and that the net proceeds of the settlement fund would be
distributed to the eligible members of the subclasses described in items (ii)
and (iii) above who did not opt out of the settlement in accordance with a
plan of distribution to be approved by the Delaware Courts. QVC was not
required to pay any portion of the settlement fund. On January 24, 1995, the
Delaware Courts each entered an Order and Final Judgment, approving the
proposed Delaware Settlement and dismissing the HSN Actions with prejudice.
In October 1993, the Company brought an action in Delaware Chancery
Court against Viacom Inc. ("Viacom"), Paramount Communications Inc.
("Paramount") and certain Paramount directors for breach of fiduciary duty in
failing to give fair treatment to the Company's merger proposal while granting
undue advantages to Viacom's merger proposal. In November 1993, the court
granted the Company's motion for a preliminary injunction against certain
anti-takeover mechanisms being used to preclude the Paramount shareholders
from accepting the Company's cash tender offer for Paramount shares. This
injunction was affirmed by the Delaware Supreme Court in December 1993.
Viacom subsequently filed a motion to dismiss the Company's complaint.
Paramount's time to respond to the complaint has been extended to June 6,
1995.
In July 1994, after the announcement that Comcast Corporation ("Comcast")
and Liberty would make a joint offer to purchase all of the outstanding shares
of stock of the Company, eight putative class action lawsuits (the
"Consolidated Action") were filed by certain shareholders of the Company in
Delaware Chancery Court on behalf of a purported class consisting of all
public shareholders of the Company. The defendants in the Consolidated Action
include the Company and directors of the Company. Plaintiffs alleged, among
other things, that the defendants breached their fiduciary duties when
considering the Comcast offer in that they failed to take all possible steps
to seek out and encourage the best offer for the Company. Plaintiffs sought,
among other things, an injunction ordering the defendants to auction the
Company and an award of unspecified compensatory damages to the members of the
plaintiff class. In early August 1994, Comcast and Liberty were joined as
F-51
<PAGE>
defendants in the Consolidated Action. On or about August 5, 1994, the
parties reached an agreement in principle providing for the settlement and
dismissal with prejudice of the Consolidated Action. The agreement in
principle provides, among other things, that an affiliate of Comcast and
Liberty would commence a tender offer to purchase all of the outstanding
shares of QVC Common Stock for $46 per share in cash, to be followed by a
merger in which the remaining holders of QVC Common Stock would receive cash
of $46 per share. The agreement in principle also provides that all
defendants deny that any of them have committed or threatened to commit any
violations of law or breaches of duty; that plaintiffs' counsel will apply to
the court for an award of fees (to be paid by the Company in the event that
the offer and merger are consummated) in an amount to be agreed among
plaintiffs and defendants; and that the terms of the settlement are subject
to court approval in all respects. In the event of court approval, all claims
against defendants (and certain others) that were or could have been asserted
in the settled Consolidated Action will be dismissed with prejudice and
released, and shareholders of the Company who may have had such claims at any
time from June 29, 1994 through the effective date of the merger, will be
barred from asserting them in the future. Prior to the time that court
approval for the settlement described above is sought, shareholders
of the Company who are members of the class on behalf of whom the action is
brought will receive written notice of the terms of the settlement and the
claims to be settled, released, dismissed and barred.
The Company has also been named as a defendant in various legal
proceedings arising in the ordinary course of business. Although the outcome
of these matters cannot be determined, in the opinion of management,
disposition of these proceedings will not have a material effect on the
Company's financial position.
F-52
<PAGE>
Note 16 - SUPPLEMENTAL INFORMATION ON CONSOLIDATED STATEMENTS OF CASH FLOWS
An analysis of changes in working capital items follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
(Increase) in accounts receivable $(33,874) $(86,154) $(29,029)
(Increase) in inventories (11,609) (29,496) (9,784)
(Increase) decrease in deferred taxes 6,189 (24,389) (10,680)
(Increase) in prepaid expenses (2,819) (1,820) (450)
Increase in accounts payable - trade 10,851 29,972 11,312
Increase in accrued liabilities 75,834 75,648 5,074
-------- -------- --------
$ 44,572 $(36,239) $(33,557)
-------- -------- --------
Supplemental cash flow information:
Interest paid $ 1,130 $ 1,369 $ 20,512
Income taxes paid 405 31,841 37,944
</TABLE>
In fiscal years 1994 and 1993, the Company did not enter into any non-cash
financing transactions. In fiscal year 1992, the following non-cash financing
transactions were entered into by the Company (dollars in thousands).
<TABLE>
<CAPTION>
1992
- ----
<S> <C>
Issuance of 1,704,546 shares of Common
Stock in prepayment of Convertible
subordinated note, net of $1,260
debt issuance costs $28,740
Exercise of 3,893,962 warrants through
deliverance of 1,424,403 shares of
Common Stock at market value 53,771
Exercise of 2,492,017 warrants for $37,692
with simultaneous repurchase of 998,457 shares
of Common Stock at market 37,692
Issuance of 404,572 shares of Common Stock
in exchange for 675,026 warrants, representing
the aggregate difference between the market price
and the exercise price 15,273
Exercise of stock options through deliverance
of 800 shares of Common Stock at market value 31
</TABLE>
F-53
<PAGE>
NOTE 17 - PARAMOUNT TENDER OFFER
On October 27, 1993, the Company made an $80.00 cash tender offer for
50.1 percent of the outstanding common shares of Paramount. This tender
offer was amended several times during the bidding process against Viacom
for Paramount. On February 1, 1994, the Company amended its cash tender
offer to $104 per share. The Company offered approximately $6.4 billion in
cash for 61.7 million Paramount common shares. The proposed cash tender
offer would have been funded through a $3.25 billion bank loan commitment
and proposed capital contributions to the Company of $1.5 billion from
BellSouth Corporation and $0.5 billion each from Advance Publications, Cox
Enterprises and Comcast Corporation. On February 15, 1994, Paramount
notified the Company that Viacom received the minimum condition in its
tender offer and had delivered to Paramount a completion certificate
pursuant to the bidding procedures. Accordingly, the Company terminated its
tender offer for 50.1 percent of the common stock of Paramount. The costs
incurred on the tender offer, comprised principally of bank fees and legal
and advisory fees, totaled $34.8 million which were expensed in the fourth
quarter of fiscal 1993. The $3.25 billion bank loan commitment expired on
February 15, 1994 upon the termination of the tender offer.
F-54
<PAGE>
Note 18 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands, except as to per share data)
<TABLE>
<CAPTION>
Fiscal 1994 First Second Third Fourth
- ----------- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Net revenue $296,441 $303,277 $364,467 $425,921
Gross profit 115,629 118,962 141,302 165,677
Income before income taxes 26,383 25,513 32,546 56,907
Income tax provision (14,320) (13,785) (18,080) (28,575)
Net income 12,063 11,728 14,466 28,332
Income per share (3):
Primary
Net income .25 .25 .29 .58
<CAPTION>
Fiscal 1993 First Second Third Fourth
- ----------- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Net revenue $273,232 $262,438 $313,945 $372,489
Gross profit 113,773 107,938 128,902 148,316
Income before income taxes and
cumulative effect of a change
in accounting principle (1) 34,546 26,137 42,732 11,871
Income tax provision (16,925) (12,810) (21,215) (9,025)
Income before cumulative
effect of a change in
accounting principle 17,621 13,327 21,517 2,846
Cumulative effect of a change
in accounting principle (2) 3,990 - - -
Net income 21,611 13,327 21,517 2,846
Income per share (3):
Primary
Income before cumulative effect
of a change in accounting principle .36 .26 .42 .06
Net income .44 .26 .42 .06
</TABLE>
(1) Fourth quarter amount includes a charge of $34.8 million related to the
Paramount tender offer (Note 17).
(2) Amount represents the cumulative effect of adopting SFAS 109.
(3) Fully diluted earnings per share are not presented since they do not differ
significantly from primary earnings per share.
F-55
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference in the following Registration
Statements of Comcast Corporation and its subsidiaries on Forms S-3 and S-8 of
our report dated February 28, 1995 relating to the financial statements of
Comcast MHCP Holdings, L.L.C. (an indirect majority owned subsidiary of Comcast
Corporation) appearing in Form 8-K of Comcast Corporation and its subsidiaries
filed on or about April 24, 1995.
<TABLE>
<CAPTION>
Registration Statements on Form S-8:
- -----------------------------------
Registration Statement Number
-----------------------------
<S> <C>
Title of Securities Registered
- ------------------------------
The Comcast Corporation Retirement Investment Plan 33-41440
Storer Communications Retirement Savings Plan 33-54365
Stock Option Plans 33-25105
Stock Option Plans 33-56903
<CAPTION>
Registration Statements on Form S-3:
- -----------------------------------
<S> <C>
Title of Securities Registered
- ------------------------------
Senior Debentures; Senior Subordinated Debentures;
Subordinated Debentures; Preferred Stock, without
par value; Depository Shares representing Preferred
Stock; Class A Common Stock, $1.00 par value; Class
A Special Common Stock, $1.00 par value and Warrants 33-40386
Class A Special Common Stock $1.00 par value 33-46988
Senior Debentures, Senior Subordinated Debentures
and Subordinated Debentures 33-57410
Senior Debentures; Senior Subordinated Debentures;
Subordinated Debentures; Preferred Stock, without
par value; Depository Shares representing Preferred
Stock; Class A Common Stock, $1.00 par value;
Class A Special Common Stock, $1.00 par value and
Warrants 33-50785
</TABLE>
/s/ Deloitte & Touche LLP
April 24, 1995
Philadelphia, Pennsylvania
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
The Board of Directors
QVC, Inc.:
We consent to the use of our report dated March 3, 1995, with respect to the
consolidated balance sheets of QVC, Inc. and subsidiaries as of January 31, 1995
and 1994, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the years in the three-year period ended
January 31, 1995, incorporated by reference in the registration statements (Nos.
33-41440, 33-54365, 33-25105, and 33-56903) on Form S-8 and (Nos. 33-40386, 33-
46988, 33-57410 and 33-50785) on Form S-3 of Comcast Corporation which report is
included in the Current Report on Form 8-K of Comcast Corporation filed on or
about April 24, 1995. Our report thereon refers to a change in accounting for
income taxes in the year ended January 31, 1994.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
April 24, 1995
