UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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): November 13, 1996
Comcast Corporation
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 0-6983 23-1709202
- ---------------------------- ------------ -------------------
(State or other jurisdiction (Commission (IRS employer
of incorporation) file number) identification no.)
1500 Market Street, Philadelphia, PA 19102-2148
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 665-1700
--------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
On November 13, 1996, Comcast Corporation (the "Company") acquired the
cable television operations ("Scripps Cable") of The E.W. Scripps Company (the
"Scripps Acquisition"). Unaudited Pro Forma Condensed Consolidated Financial
Statements as of September 30, 1996, for the nine months ended September 30,
1996 and for the year ended December 31, 1995, in respect of the Scripps
Acquisition were previously filed by the Company in a Current Report on Form 8-K
dated November 27, 1996 (the "November 1996 8-K"). In addition, the unaudited
combined financial statements of Scripps Cable for the nine months ended
September 30, 1996 and the audited combined financial statements of Scripps
Cable as of and for each of the three years in the period ended December 31,
1995 were incorporated by reference in the November 1996 8-K.
This Current Report on Form 8-K provides audited consolidated financial
statements for Comcast SCH Holdings, Inc., which contains all of Scripps Cable
following the Scripps Acquisition, as of December 31, 1996 and for the period
from November 1, 1996 to December 31, 1996 as well as the audited combined
financial statements for Scripps Cable (the Predecessor Corporation) as of
December 31, 1995, for the period from January 1, 1996 to October 31, 1996 and
for the years ended December 31, 1995 and 1994. These financial statements are
listed in the Index to Consolidated and Combined Financial Statements, which
follows the signature page of this report.
<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.
COMCAST CORPORATION
Dated: April 24, 1997 By: /s/ Joseph J. Euteneuer
-------------------------------
Joseph J. Euteneuer
Vice President and
Corporate Controller
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
AND PREDECESSOR CORPORATION
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Independent Auditor's Report .............................................. F-1
Consolidated and Combined Balance Sheet as of
December 31, 1996 and 1995 ........................................... F-2
Consolidated Statement of Operations for the Period from
November 1, 1996 to December 31, 1996 ................................ F-3
Combined Statement of Operations for the Period from
January 1, 1996 to October 31, 1996 and for the Years
Ended December 31, 1995 and 1994 ..................................... F-4
Consolidated Statement of Cash Flows for the Period from
November 1, 1996 to December 31, 1996 ................................ F-5
Combined Statement of Cash Flows for the Period from
January 1, 1996 to October 31, 1996 and for the Years
Ended December 31, 1995 and 1994 ..................................... F-6
Consolidated and Combined Statement of Stockholders' Equity
(Deficiency) for the Period from November 1, 1996 to
December 31, 1996, for the Period from January 1, 1996
to October 31, 1996 and for the Years Ended December 31,
1995 and 1994 ........................................................ F-7
Notes to Consolidated and Combined Financial Statements ................... F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Comcast SCH Holdings, Inc.
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheet of Comcast SCH
Holdings, Inc. (an indirect wholly owned subsidiary of Comcast Corporation) and
subsidiaries as of December 31, 1996 and the related consolidated statements of
operations, stockholder's equity and of cash flows for the period from November
1, 1996 to December 31, 1996, as well as the combined balance sheet of the
Predecessor Corporation (see Note 2) as of December 31, 1995 and the related
combined statements of operations, stockholders' deficiency and of cash flows
for the period from January 1, 1996 to October 31, 1996 and for the years ended
December 31, 1995 and 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 SCH
Holdings, Inc. and subsidiaries as of December 31, 1996, the financial position
of the Predecessor Corporation as of December 31, 1995, 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, in November 1996, Comcast Corporation acquired the Predecessor
Corporation 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, 1997
F-1
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
(Predecessor
Corporation)
December 31, December 31,
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................................... $3,047 $3,085
Short-term investments...................................................... 106
Cash held by an affiliate................................................... 9,475
Accounts receivable, less allowance for
doubtful accounts of $1,439 and $1,288.................................... 9,870 12,107
Inventories................................................................. 9,427 12,822
Other current assets........................................................ 1,790 5,956
---------- --------
Total current assets................................................. 33,715 33,970
---------- --------
PROPERTY AND EQUIPMENT.......................................................... 422,922 600,822
Accumulated depreciation.................................................... (7,417) (305,715)
---------- --------
Property and equipment, net................................................. 415,505 295,107
---------- --------
DEFERRED CHARGES................................................................ 1,765,029 214,125
Accumulated amortization.................................................... (21,458) (120,629)
---------- --------
Deferred charges, net....................................................... 1,743,571 93,496
---------- --------
$2,192,791 $422,573
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses....................................... $47,483 $33,675
Accrued interest............................................................ 250
Due to affiliates........................................................... 942 1,599
---------- --------
Total current liabilities............................................ 48,675 35,274
---------- --------
LONG-TERM DEBT.................................................................. 125,000
---------- --------
OTHER LIABILITIES............................................................... 9,325
---------- --------
DUE TO AFFILIATES............................................................... 4,413 312,737
---------- --------
DEFERRED INCOME TAXES, due to affiliate......................................... 593,777 80,193
---------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock................................................................ 1,801
Additional capital.......................................................... 1,431,578 35,144
Accumulated deficit......................................................... (10,652) (51,901)
---------- --------
Total stockholders' equity (deficiency).............................. 1,420,926 (14,956)
---------- --------
$2,192,791 $422,573
========== ========
</TABLE>
See notes to consolidated and combined financial statements.
F-2
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
November 1
to
December 31, 1996
<S> <C>
SERVICE INCOME.................................................... $52,364
--------
COSTS AND EXPENSES
Operating, selling, general and administrative............. 39,633
Depreciation and amortization.............................. 28,989
--------
68,622
--------
OPERATING LOSS ................................................... (16,258)
OTHER (INCOME) EXPENSE
Interest expense........................................... 1,253
Investment income.......................................... (139)
Other...................................................... (96)
--------
1,018
--------
LOSS BEFORE INCOME TAX BENEFIT.................................... (17,276)
INCOME TAX BENEFIT................................................ (6,624)
--------
NET LOSS.......................................................... ($10,652)
========
</TABLE>
See notes to consolidated and combined financial statements.
F-3
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
COMBINED STATEMENT OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Predecessor Corporation
January 1 Year Ended
to December 31,
October 31, 1996 1995 1994
<S> <C> <C> <C>
SERVICE INCOME................................................ $257,393 $279,482 $255,356
-------- -------- --------
COSTS AND EXPENSES
Operating, selling, general and administrative......... 154,166 162,810 164,721
Depreciation and amortization.......................... 45,964 54,099 57,331
-------- -------- --------
200,130 216,909 222,052
-------- -------- --------
OPERATING INCOME.............................................. 57,263 62,573 33,304
OTHER (INCOME) EXPENSE
Interest expense....................................... 27 343 342
Intercompany interest expense.......................... 28,530 34,915 33,447
Corporate management fee............................... 2,957
Merger expenses........................................ 13,566
Gain on sale of cable television system................ (1,502)
Other, net............................................. 108 (786) 69
-------- -------- --------
42,231 32,970 36,815
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAX
EXPENSE (BENEFIT)............................................ 15,032 29,603 (3,511)
INCOME TAX EXPENSE (BENEFIT).................................. 7,644 11,913 (10,590)
-------- -------- --------
NET INCOME.................................................... $7,388 $17,690 $7,079
======== ======== ========
</TABLE>
See notes to consolidated and combined financial statements.
F-4
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
November 1
to
December 31, 1996
<S> <C>
OPERATING ACTIVITIES
Net loss....................................................... ($10,652)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.............................. 28,989
Non-cash operating expenses charged by an affiliate........ 4,413
Deferred income tax benefit................................ (7,106)
--------
15,644
Decrease in accounts receivable, inventories and
other current assets..................................... 145
Increase in accounts payable and accrued
expenses and accrued interest............................ 5,174
--------
Net cash provided by operating activities................ 20,963
--------
FINANCING ACTIVITIES
Proceeds from borrowing........................................ 150,000
Repayment of long-term debt.................................... (25,000)
Net transactions with affiliates............................... (2,174)
Return of capital to parent.................................... (120,000)
--------
Net cash provided by financing activities................ 2,826
--------
INVESTING ACTIVITIES
Capital expenditures and other................................. (11,267)
Cash held by an affiliate...................................... (9,475)
--------
Net cash used in investing activities.................... (20,742)
--------
INCREASE IN CASH.................................................. 3,047
CASH, beginning of period.........................................
--------
CASH, end of period............................................... $3,047
========
</TABLE>
See notes to consolidated and combined financial statements.
F-5
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
COMBINED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Predecessor Corporation
January 1 Year Ended
to December 31,
October 31, 1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................. $7,388 $17,690 $7,079
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................ 45,964 54,099 57,331
Merger expenses.......................................... 13,566
Gain on sale of cable television system.................. (1,502)
Adjustment of liability for prior year income taxes...... (11,800)
Payment of prior year income taxes to parent............. (7,400)
Prepaid franchise fees................................... 2,576 2,574
Refundable property taxes................................ 10,400 (6,612)
Commitments and contingencies and other, net............. (2,932) (5,368) 11,921
Deferred income tax benefit.............................. (8,212) (449) (657)
-------- -------- --------
55,774 77,446 52,436
Other changes in working capital accounts:
Accounts receivable.................................... (268) (2,193) (2,064)
Inventories............................................ 2,407 (2,389) 3,946
Accounts payable....................................... (6,048) (2,671) 2,142
Other, net............................................. (4,024) 1,822 238
-------- -------- --------
Net cash provided by operating activities............ 47,841 72,015 56,698
-------- -------- --------
FINANCING ACTIVITIES
Advances from parent....................................... 69,108 13,455
Repayments of advances from parent......................... (1,894) (23,595) (2,102)
Other, net................................................. (625) (2,500) (1,875)
-------- -------- --------
Net cash provided by (used in)
financing activities.............................. 66,589 (26,095) 9,478
-------- -------- --------
INVESTING ACTIVITIES
Acquisitions............................................... (62,099) (384) (26,501)
Capital expenditures....................................... (54,283) (47,484) (41,616)
Proceeds from sale of cable television system.............. 2,800
Other, net................................................. 422 130 1,948
-------- -------- --------
Net cash used in investing activities................ (115,960) (44,938) (66,169)
-------- -------- --------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS............................................ (1,530) 982 7
CASH AND CASH EQUIVALENTS, beginning of period................ 3,085 2,103 2,096
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period...................... $1,555 $3,085 $2,103
======== ======== ========
</TABLE>
See notes to consolidated and combined financial statements.
F-6
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Additional Accumulated
Stock Capital Deficit Total
<S> <C> <C> <C> <C>
PREDECESSOR CORPORATION
BALANCE, JANUARY 1, 1994 ..................... $1,801 $35,144 ($76,670) ($39,725)
Net income ................................... 7,079 7,079
--------- ---------- --------- ----------
BALANCE, DECEMBER 31, 1994 ................... 1,801 35,144 (69,591) (32,646)
Net income ................................... 17,690 17,690
--------- ---------- --------- ----------
BALANCE, DECEMBER 31, 1995 ................... 1,801 35,144 (51,901) (14,956)
Net income ................................... 7,388 7,388
--------- ---------- --------- ----------
BALANCE, OCTOBER 31, 1996 .................... $1,801 $35,144 ($44,513) ($7,568)
========= ========== ========= ========
SUCCESSOR CORPORATION
Capital contribution ......................... $ $1,551,578 $ $1,551,578
Net loss ..................................... (10,652) (10,652)
Return of capital to parent .................. (120,000) (120,000)
--------- ---------- --------- ----------
BALANCE, DECEMBER 31, 1996 ................... $ $1,431,578 ($10,652) $1,420,926
========= ========== ========= ==========
</TABLE>
See notes to consolidated and combined financial statements.
F-7
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO
DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994
1. ORGANIZATION
Comcast SCH Holdings, Inc. and subsidiaries (the "Company"), a Colorado
corporation formerly known as Scripps Howard Cable Company ("SHCC") (see
Note 2), is a wholly owned subsidiary of Comcast Cable Communications, Inc.
("CCCI"), which is a wholly owned subsidiary of Comcast Corporation
("Comcast"). The Company is engaged in the development, management and
operation of cable communications systems located in California, Tennessee,
Georgia, West Virginia, Florida, Kentucky and Colorado. As of December 31,
1996, the Company's systems served more than 800,000 subscribers and passed
more than 1.3 million homes, with 60% of its subscribers located in
Sacramento, California and Chattanooga and Knoxville, Tennessee.
2. MERGER OF E.W. SCRIPPS COMPANY
In November 1996, Comcast acquired the Company in a merger (the "Merger")
with The E.W. Scripps Company ("EWS") in exchange for 93.048 million shares
of Comcast's Class A Special Common Stock valued at $1.552 billion (the
"Scripps Acquisition"). Comcast accounted for the Scripps Acquisition under
the purchase method. Following the Scripps Acquisition, Comcast contributed
the Company to CCCI at Comcast's historical cost (the "Scripps
Contribution"). As the Scripps Contribution was a non-cash transaction, it
had no significant impact on the Company's consolidated statement of cash
flows.
Cash and certain liabilities (primarily income taxes payable, accruals for
commitments and contingencies and amounts due to affiliates) included in
the combined financial statements of the Predecessor Corporation were not
assumed by Comcast in the Scripps Acquisition. Accordingly, such cash and
liabilities are not reflected in the Company's consolidated balance sheet
as of December 31, 1996.
EWS had historically been the holding company for its cable television
operations along with other operations. EWS' subsidiaries which provided
cable television operations included SHCC, EWS Cable Inc. ("EWS Cable"), a
Colorado corporation, L-R Cable, Inc. ("L-R Cable"), a Colorado
corporation, and Scripps Howard Cable Company of Sacramento ("Sacramento
Cable"), a Delaware corporation (collectively, SHCC, EWS Cable, L-R Cable
and Sacramento Cable represent the "Predecessor Corporation"). In
connection with the Scripps Acquisition, EWS restructured its operations
with each of EWS Cable, L-R Cable and Sacramento Cable becoming wholly
owned subsidiaries of SHCC. In addition, SHCC was transferred by Scripps
Howard, Inc. ("SHI"), an Ohio corporation and a wholly owned subsidiary of
EWS, to EWS. Immediately prior to the closing of the Merger, EWS
distributed all of the outstanding shares of SHI, which held all of EWS'
non-cable television operations, to its shareholders (the "Distribution").
Accordingly, when Comcast merged with EWS, it only acquired the Predecessor
Corporation. Subsequent to the Scripps Acquisition, SHI changed its name to
E.W. Scripps Co. ("New Scripps").
The Company would have reported unaudited pro forma revenues of $309.8
million and $279.5 million and unaudited pro forma net loss of $73.8
million and $75.7 million for the years ended December 31, 1996 and 1995,
respectively, had the Scripps Acquisition occurred on January 1, 1995. This
unaudited pro forma information is based on historical results of
operations adjusted for acquisition costs and, in the opinion of
management, is not necessarily indicative of what the results would have
been had the Company operated the acquired entities since January 1, 1995.
3. BASIS OF PRESENTATION
Basis of Consolidation
The consolidated balance sheet as of December 31, 1996 and the consolidated
statements of operations, cash flows and stockholder's equity for the
period from November 1, 1996 to December 31, 1996 represent the
consolidated financial position, results of operations, changes in
stockholder's equity and cash flows of the Company and its wholly and
majority owned subsidiaries subsequent to the Scripps Acquisition. All
significant intercompany accounts and transactions among consolidated
entities have been eliminated.
F-8
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO
DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
Basis of Combination
The combined balance sheet as of December 31, 1995 and the combined
statements of operations, cash flows and stockholder's deficiency for the
period from January 1, 1996 to October 31, 1996 and for the years ended
December 31, 1995 and 1994 represent the combined financial position,
results of operations, changes in stockholders' deficiency and cash flows
of the Predecessor Corporation. All significant intercompany accounts and
transactions among combined entities have been eliminated. The Predecessor
Corporation financial statements exclude the results of operations of the
non-cable television operations of SHI.
Prior to the Scripps Acquisition, EWS Cable and L-R Cable were wholly owned
subsidiaries of SHI and SHCC and Sacramento Cable were wholly owned
subsidiaries of Scripps Howard Broadcasting Company ("SHB"). Prior to 1994,
SHI owned approximately 92% of SHB. EWS acquired the remaining minority
interest in SHB in 1994 (see Note 5).
The historical basis in assets and liabilities of the cable television
systems of EWS were not altered by the combination. The historical combined
financial statements do not necessarily reflect the results of operations
or financial position that would have existed if the Predecessor
Corporation were an independent company. SHI provided certain legal,
treasury, accounting, tax, risk management and other corporate services to
the Predecessor Corporation (see Note 10).
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Purchase Price Allocation
Under the purchase method, the purchase price was allocated to the fair
value of the assets acquired and the liabilities assumed. This allocation
is preliminary pending a final appraisal and the final purchase price
adjustment between CCCI and New Scripps. The terms of the Scripps
Acquisition provide for, among other things, the indemnification by New
Scripps for certain liabilities, including tax liabilities, relating to the
Predecessor Corporation prior to the acquisition date.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Values
The estimated fair value amounts 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 discussed herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts. Such fair value
estimates are based on pertinent information available to management as of
December 31, 1996 and 1995, and have not been comprehensively revalued for
purposes of these consolidated and combined financial statements since such
dates.
A reasonable estimate of fair value of the amounts due to affiliates in the
consolidated and combined balance sheet is not practicable to obtain
because of the related party nature of these items and the lack of quoted
market prices.
F-9
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO
DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
Cash Equivalents, Short-term Investments and Cash Held by an Affiliate
Cash equivalents consist of investments with maturities of three months or
less when purchased. Short-term investments consist of certificates of
deposit with maturities of greater than three months when purchased. The
carrying amounts of the Company's and the Predecessor Corporation's cash
equivalents and short-term investments, classified as available for sale
securities, approximate their fair values, which are based on quoted market
prices. Cash held by an affiliate consists of cash held by a subsidiary of
Comcast under a cash management program (see Note 10).
Inventories
As of December 31, 1996, inventories, which include materials and supplies,
are stated at average cost which is less than market. As of December 31,
1995, inventories are stated at the lower of cost, which was determined
using the first in, first out method, or market.
Refundable Property Taxes
In 1991, the property tax valuation of the Sacramento cable television
system was increased. The Predecessor Corporation disputed the amount and
basis for the increased valuation. Refundable property taxes represent
additional property taxes paid by the Predecessor Corporation while the
valuation was under appeal. The appeal was settled in favor of the
Predecessor Corporation in 1995. As a result, the Predecessor Corporation
received property tax refunds totaling $10.4 million, excluding interest.
Property and Equipment
Prior to the Scripps Acquisition, property and equipment were stated at
cost. Depreciation was provided on a straight-line basis over estimated
useful lives as follows:
Buildings 35 years
Operating facilities 10-15 years
Other equipment 3-10 years
Upon consummation of the Scripps Acquisition, property and equipment were
adjusted based on an estimate of their fair values as of the date of
acquisition. Subsequent to the Scripps Acquisition, the Company's property
and equipment are estimated to have weighted average estimated useful lives
of ten years, which is estimated based on the useful lives of similar
assets of other subsidiaries of CCCI. Upon receipt of a final appraisal,
the Company will adjust the basis and estimated useful lives of its
property and equipment accordingly.
Improvements that extend asset lives are capitalized; other repairs and
maintenance charges are expensed as incurred. The cost and related
accumulated depreciation applicable to assets sold or retired are removed
from the accounts and the gain or loss on disposition is recognized as a
component of depreciation expense.
Deferred Charges
Deferred charges as of December 31, 1996 consist principally of franchise
acquisition costs, debt acquisition costs and the excess of cost over the
fair value of net assets acquired (goodwill). Franchise acquisition costs
and goodwill are being amortized on a straight-line basis over their
estimated useful lives of 12 and 20 years, respectively. Debt acquisition
costs are being amortized on a straight-line basis over the term of the
related debt (see Note 6).
Deferred charges of the Predecessor Corporation consisted principally of
franchise acquisition costs, which were being amortized on a straight-line
basis over the terms of the related franchise agreements, and goodwill,
which was being amortized on a straight-line basis over periods of up to 40
years.
Valuation of Long-Lived Assets
The Company and the Predecessor Corporation periodically evaluate the
recoverability of long-lived assets, including property and equipment and
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.
F-10
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO
DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
Revenue Recognition
Service income is recognized as service is provided. Credit risk is managed
by disconnecting services to customers who are delinquent.
Postretirement and Postemployment Benefits
The estimated costs of retiree benefits and benefits for former or inactive
employees, after employment but before retirement, are accrued and recorded
as a charge to operations during the years that employees provide services.
Subsequent to the Scripps Acquisition, the Company's retiree benefit
obligation is unfunded and all benefits are paid by Comcast. Accordingly,
as of December 31, 1996, the Company's liability for these costs is
included in current due to affiliates.
Income Taxes
The Company and the Predecessor Corporation recognize deferred tax assets
and liabilities for temporary differences between the financial reporting
basis and the tax basis of the Company's assets and liabilities and
expected benefits of utilizing net operating loss carryforwards. The impact
on deferred taxes of changes in tax rates and laws, if any, applied to the
years during which temporary differences are expected to be settled, are
reflected in the consolidated and combined financial statements in the
period of enactment.
Reclassifications
Certain reclassifications have been made to the prior years' combined
financial statements to conform to those classifications used in 1996.
5. ACQUISITIONS AND DIVESTITURE
In 1995, the Predecessor Corporation reached an agreement to acquire cable
television systems adjacent to certain of its systems in Knoxville and
Chattanooga, Tennessee for $62.5 million (the "Mid-Tenn Purchase"). The
Mid- Tenn Purchase was completed in January 1996.
During 1995 and 1994, the Predecessor Corporation acquired several cable
television systems adjacent to its existing service areas. In addition,
during 1994, EWS acquired the remaining minority interest in SHB that it
had not previously owned and subsequently allocated a portion of the
purchase price to the Predecessor Corporation.
The following table presents additional information about these
acquisitions (in thousands):
<TABLE>
<CAPTION>
Predecessor Corporation
January 1 to
October 31, Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Goodwill and other intangible assets acquired...... $50,606 $247 $233
Other assets acquired.............................. 11,681 137 152
------- ------ -------
62,287 384 385
Liabilities assumed................................ (188)
------- ------ -------
Total cable television system acquisitions......... 62,099 384 385
Excess of cost over book value of SHB stock
allocated to the Predecessor Corporation and paid
to SHI........................................... 26,116
------- ------ -------
$62,099 $384 $26,501
======= ====== =======
</TABLE>
F-11
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO
DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
The acquisitions have been accounted for under the purchase method. The
acquired operations have been included in the combined statements of
operations from the dates of acquisition. Pro forma results are not
presented because the combined results of operations would not be
significantly different from the reported amounts.
During 1995, the Predecessor Corporation sold its cable television system
in Barbourville, Kentucky. The sale resulted in a pre-tax gain of $1.5
million.
6. LONG-TERM DEBT
In November 1996, the Company entered into a $600.0 million Revolving
Credit Facility (the "Credit Facility"). Initial borrowings under the
Credit Facility of $150.0 million were principally used to pay a return of
capital to CCCI in the amount of $120.0 million. The Company repaid $25.0
million of borrowings under the Credit Facility in December 1996. All
amounts outstanding under the Credit Facility are due in 2002. The stock of
the Company has been pledged as collateral for borrowings under the Credit
Facility.
The interest rate on borrowings under the Credit Facility is based on
either of the following at the option of the Company:
Higher of the federal funds rate plus 1/2% or prime rate;
London Interbank Offered Rate (LIBOR) plus 3/8% or 7/8%.
As of December 31, 1996, the weighted average interest rate on borrowings
under the Credit Facility was 5.94%.
The difference between the carrying value and estimated fair value of the
Company's long-term debt was not significant as of December 31, 1996.
Interest rates that are currently available to the Company for issuance of
debt with similar terms and remaining maturities are used to estimate fair
value as quoted market prices are not available.
The Credit Facility contains restrictive covenants which, among other
things, limit the Company's ability to enter into arrangements for the
acquisition or disposition of property and equipment, investments, mergers
and the incurrence of additional indebtedness. The restrictive covenants
also require that certain ratios and cash flow levels be maintained, as
defined, and limit dividend payments, payment of management fees and
advances of funds to affiliated entities.
7. CAPITAL STRUCTURE
As of December 31, 1996, common stock in the Company's consolidated balance
sheet consists of 100 shares of no-par common stock authorized, with 80
shares issued and outstanding.
As of December 31, 1995, common stock in the Predecessor Corporation's
combined balance sheet includes the following:
EWS Cable - 100 shares of no-par common stock authorized, 50 shares
issued and outstanding;
L-R Cable - 100 shares of no-par common stock authorized, 50 shares
issued and outstanding;
SHCC - 100 shares of no-par common stock authorized, 80 shares issued
and outstanding; and
Sacramento Cable - 2,000 shares of no-par common stock authorized, 100
shares issued and outstanding.
F-12
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO
DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
8. INCOME TAXES
Subsequent to the Scripps Acquisition, the Company joins with Comcast in
filing a consolidated federal income tax return. Comcast allocates income
tax expense or benefit to the Company as if the Company was filing a
separate federal income tax return. Tax benefits from both losses and tax
credits are made available to the Company as it is able to realize such
benefits on a separate return basis. The Company is required to pay Comcast
for income taxes an amount equal to that amount of tax the Company would
pay if it filed a separate tax return. The current provision for income
taxes for the period from November 1, 1996 to December 31, 1996 is due to
Comcast and is included in due to affiliates.
The Predecessor Corporation was included in the consolidated federal tax
return of EWS. The provision for income taxes was generally prepared as if
the Predecessor Corporation filed a separate return, however tax benefits
for taxable losses and other deductions that would be limited if the
Predecessor Corporation were an independent company were recognized
currently if such losses and benefits were utilized in the consolidated EWS
provision. If the tax provision were prepared on a separate return basis,
the tax provision (benefit) in the accompanying combined statement of
operations would have been $5.9 million and ($10.6) million for the years
ended December 31, 1995 and 1994, respectively. Such amounts differ from
the reported amounts due to the timing of the recognition of benefits for
taxable losses and investment tax credits. There would not have been a
significant change to the tax provision for the period from January 1, 1996
to October 31, 1996 had the tax provision been prepared on a separate
return basis.
The Company's and the Predecessor Corporation's deferred income tax
liability as of December 31, 1996 and 1995 principally results from the tax
effects of differences between the book and tax basis of property and
equipment and deferred charges (excluding goodwill).
As a result of the Scripps Acquisition, the Company recorded an increase in
its deferred income tax liability and deferred charges of $499.2 million
for temporary differences between the financial reporting basis and the tax
basis of the assets of the Company as of the date of the acquisition. At
the date of acquisition, the Predecessor Corporation had an existing
deferred income tax liability of $101.7 million, which was assumed by the
Company.
In 1994, the Internal Revenue Service ("IRS") proposed adjustments related
to certain intangible assets and a deduction related to the 1986 redemption
of a partnership interest in certain of the Predecessor Corporation's cable
systems. Based upon the proposed adjustments, management of the Predecessor
Corporation changed its estimate of the tax liability for prior years. The
resulting change in the liability for prior year income taxes and the
deferred income tax liability increased 1994 net income by $11.8 million.
In 1995, EWS reached agreement with the IRS to settle the audits of its
1985 through 1987 tax returns. The settlement payment was charged to the
prior years' tax liability. The liability was not adjusted as a result of
the settlement.
F-13
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO
DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
Income tax (benefit) expense consists of the following components (dollars
in thousands):
<TABLE>
<CAPTION>
Predecessor Corporation
November 1 to January 1 to
December 31, October 31, Year Ended December 31,
1996 1996 1995 1994
<S> <C> <C> <C> <C>
Current expense (benefit)
Federal.......................... $482 $14,297 $11,777 ($10,290)
State............................ 1,559 585 357
------- -------- -------- --------
482 15,856 12,362 (9,933)
------- -------- -------- --------
Deferred (benefit) expense
Federal.......................... (6,085) (8,410) (2,579) (2,482)
State............................ (1,021) 198 2,130 1,825
------- -------- -------- --------
(7,106) (8,212) (449) (657)
------- -------- -------- --------
Income tax (benefit) expense..... ($6,624) $7,644 $11,913 ($10,590)
======= ======== ======== ========
</TABLE>
The effective income tax (benefit) expense of the Company and the
Predecessor Corporation differs from the statutory amount because of the
effects of the following items (dollars in thousands):
<TABLE>
<CAPTION>
Predecessor Corporation
November 1 to January 1 to
December 31, October 31, Year Ended December 31,
1996 1996 1995 1994
<S> <C> <C> <C> <C>
Federal tax at
statutory rate................. ($6,047) $5,261 $10,361 ($1,229)
State income taxes,
net of federal
benefit........................ (664) 1,142 1,765 1,418
Non-deductible
depreciation and
amortization................... 1,456 272 326 1,064
Change in estimated
tax liability for prior
years.......................... (11,807)
Other............................ (1,369) 969 (539) (36)
------- ------ ------- --------
Income tax (benefit) expense..... ($6,624) $7,644 $11,913 ($10,590)
======= ====== ======= ========
</TABLE>
9. PENSION PLANS
Prior to the Scripps Acquisition, substantially all employees of the
Predecessor Corporation were covered by a defined benefit plan and a
defined contribution plan sponsored by SHI. A portion of the expenses
related to these plans were allocated to the Predecessor Corporation by
SHI. Such expenses totaled $1.0 million, $1.3 million and $1.5 million
during the period from January 1, 1996 to October 31, 1996 and the years
ended December 31, 1995 and 1994, respectively.
F-14
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO
DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
As of December 31, 1995, the Predecessor Corporation's share of the defined
benefit plan sponsored by SHI had a projected benefit obligation of $6.4
million and plan assets of $2.9 million.
10. RELATED PARTY TRANSACTIONS
The Company
Subsequent to the Scripps Acquisition, management fees are charged by
Comcast based on the Company's gross revenues. Such management fees,
totaling $2.5 million, are included in operating, selling, general and
administrative expenses.
Subsequent to the Scripps Acquisition, the Company has entered into
cost-sharing agreements with Comcast for certain services including
programming, insurance and benefits. Under these arrangements, the Company
incurred expenses of $19.2 million during 1996. Comcast charges the Company
for certain of these expenses on the same basis that approximates what the
Company would be charged if it purchased directly from the supplier.
Comcast has agreed to permit the Company to defer 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 the
Company's Credit Facility is retired. Such deferred costs totaled $4.4
million during 1996.
Subsequent to the Scripps Acquisition, the Company entered into a custodial
account arrangement with Comcast Financial Agency Corporation ("CFAC"), a
wholly owned subsidiary of Comcast, under which CFAC provides cash
management services to the Company. Under this arrangement, the Company's
cash receipts are deposited with and held by CFAC, as custodian and agent,
which invests and disburses such funds at the direction of the Company. As
of December 31, 1996, $9.5 million of the Company's cash equivalents were
represented by deposits with CFAC. Such amount has been classified as cash
held by an affiliate in the Company's consolidated balance sheet. During
the period from November 1, 1996 to December 31, 1996, the Company
recognized investment income of $138,000 on these custodial investments.
Predecessor Corporation
Due to Affiliates
As of December 31, 1995, due to affiliates in the combined balance sheet
includes a $125.4 million principal amount 9.5% note, payable to EWS, a
$66.1 million principal amount 11% note, payable to EWS and variable rate
borrowings from SHI of $121.2 million. Interest on the variable rate
borrowings from SHI was charged at 1% over the prime rate, except for
interest on portions related to cash deficiencies (see below). Amounts due
to affiliates were not assumed by Comcast in the Scripps Acquisition.
The Predecessor Corporation participated in a cash management program with
SHI under which SHI managed its daily flow of cash. Cash excesses or
deficiencies earned or incurred interest at appropriate short-term market
rates. Cash deficiencies were included in variable rate borrowings from
SHI. The Predecessor Corporation also participated in SHI's controlled
disbursement system, where the bank sent daily notification of checks
presented for payment and SHI transferred funds to cover such checks.
Payments were charged against excesses or added to cash deficiencies as
checks were issued.
Interest charged on amounts due to affiliates, which included advances and
cash deficiencies, was $28.5 million, $34.9 million and $33.4 million
during the period from January 1, 1996 to October 31, 1996 and the years
ended December 31, 1995 and 1994, respectively. Interest accrued on amounts
due to affiliates was $1.6 million as of December 31, 1995.
F-15
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO
DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
Other Charges
SHI provided management services, including legal, treasury, accounting,
tax, risk management and other services, to the Predecessor Corporation.
The cost of such services, which included the costs of EWS' corporate
office, was allocated on the basis of revenues. The Predecessor
Corporation's share of the cost of such services was $3.0 million during
the year ended December 31, 1994. The Predecessor Corporation was not
charged for such services during the period from January 1, 1996 to October
31, 1996 and the year ended December 31, 1995.
In 1996, EWS allocated certain costs associated with the Scripps
Acquisition to the Predecessor Corporation. These charges of $13.6 million,
primarily relating to professional fees, were classified as merger expenses
in the Predecessor Corporation's combined statement of operations for the
period from January 1, 1996 to October 31, 1996.
11. STATEMENT OF CASH FLOWS - SUPPLEMENTAL INFORMATION
The Company made cash payments for interest on its Credit Facility of $1.0
million during the period from November 1, 1996 to December 31, 1996.
The Predecessor Corporation made cash payments for interest on balances due
to affiliates of $28.5 million, $35.1 million and $33.5 million during the
period from January 1, 1996 to October 31, 1996 and the years ended
December 31, 1995 and 1994, respectively.
The Predecessor Corporation made cash payments for income taxes to EWS of
$15.9 million, $12.7 million and $10.9 million during the period from
January 1, 1996 to October 31, 1996 and the years ended December 31, 1995
and 1994, respectively.
12. COMMITMENTS AND CONTINGENCIES
Commitments
Minimum annual rental commitments for office space and equipment under
noncancellable operating leases are as follows:
(Dollars in thousands)
1997......................................... $871
1998......................................... 788
1999......................................... 778
2000......................................... 800
2001......................................... 792
Thereafter................................... 777
Pole rentals have been excluded from the above schedule as they are
generally cancelable after an initial period by either party upon notice.
Rental expense (including pole rentals) of $872,000, $4.3 million, $4.4
million and $3.8 million has been charged to operations during the period
from November 1, 1996 to December 31, 1996, the period from January 1, 1996
to October 31, 1996 and the years ended December 31, 1995 and 1994,
respectively.
F-16
<PAGE>
COMCAST SCH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PERIODS FROM JANUARY 1, 1996 TO OCTOBER 31, 1996 AND NOVEMBER 1, 1996 TO
DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994 (Concluded)
Contingencies
The Company
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, results of operations or liquidity of the
Company.
Predecessor Corporation
In 1994, the Predecessor Corporation accrued $6.5 million as an estimate of
the ultimate costs, including attorneys' fees and settlements, of certain
lawsuits against the Sacramento cable television system related primarily
to employment issues and to the timing and amount of late-payment fees
assessed to subscribers. In 1995, the Predecessor Corporation accrued an
additional $1.4 million based upon a reassessment of the probable costs of
these and additional employment-related lawsuits. As of December 31, 1995,
amounts accrued are included in accounts payable and accrued expenses in
the combined balance sheet. In May 1996, the Predecessor Corporation agreed
to settle the late-payment fee lawsuits. The settlement did not result in
an additional charge. In 1996, the Predecessor Corporation accrued an
additional $4.0 million based upon further reassessment of the probable
costs of these and additional lawsuits. Pursuant to the terms of the
Merger, New Scripps has indemnified Comcast and the Company against losses
related to these lawsuits.
F-17
